What will drive FRT's growth?

The Long Chau pharmacy chain will continue to drive FRT's profit growth.

Business performance in 2021

With a net revenue of VND 22,495 billion (53 percent YoY), FRT had its best year ever in 2021. The ICT area and the Long Chau drugstore chain are expected to fuel FRT's growth in 2021. In which, thanks to a surge in demand for studying and working from home in the third quarter, laptop revenue grew at a record rate of 2.2 times that of 2020.

Because of the launch of 200 new stores and double-digit growth in stores, the net revenue of the Long Chau pharmacy chain climbed by 3.3 times, contributing 35 percent to the total growth of 2021. The company's gross profit margin maintained at 14%. Furthermore, when compared to 2020, operating expenses/net revenue fell by 1.6 percentage points. FRT's earnings before tax was VND 554 billion, up 19.5 times from the previous year.

Highlights of investing

Because of the unprecedented rise of laptops and Apple products, the FPT shop was the key growth driver of FRT in 2021. In particular, this company reported VND 5,700 billion in laptop revenue (120 percent YoY) and maintained its lead in the Vietnamese laptop market (35 percent retail market share). The company's gaming laptop product line is predicted to increase at a rate of 200% each year starting in 2020 (30 percent market share – leading retail market share). In Hanoi, three PC gaming points of sale were tested, with the possibility of expanding points of sale in 2022. Furthermore, compared to 2020, Apple's retail revenue climbed 1.6 times.

"In 2022, the FPT shop's revenue will increase by 12% YoY due to: (1) the new opening of FPT shop stores (50 stores); (2) benefiting from increased selling prices due to chip shortages that will last until 2023; and (3) the trend of premiumization among young people (preference for gaming laptops and Apple products)," PHS said.

Due to strong demand for medical items and medicine hoarding during the COVID-19 outbreak, Long Chau's revenue grew by 3.3 times to VND 4,000 billion in 2021. PHS believes that by 2022, FRT will have expanded to 200-300 pharmacies and increased drugstore chain profits by more than 20%. Furthermore, when it obtained a contract to sell 6 million pills (revenue of VND 75 billion), the company became the first in Vietnam to market Covid19 therapy medications. Despite the fact that revenue from Covid medicines accounts for only 1-2 percent of the Long Chau chain's total revenue, this will serve as a foundation for Long Chau to pioneer in the distribution of other valued items in the future. The net revenue of the Long Chau chain would be VND 7,159 billion, up 80% year on year.

Valuation and recommendation

Because of the expansion of its primary industries, PHS expects FRT's net sales and profit to be VND 27,977 billion (24 percent YoY) and VND 691 billion (56 percent YoY), respectively, in 2022. As a result of (1) negotiating better commercial terms with laptop suppliers; (2) reducing competitive pressure from portable Apple products; and (3) increasing high-margin accessories, drugs, and functional foods, its gross profit margin is expected to be 15.1 percent, up 1.1 percentage points from 2021.

PHS calculates a fair price for FRT shares of VND 152,000 per share by using the DCF and P/E valuation methodologies. This stock is then recommended as a "BUY."

FRT, on the other hand, has encountered some investment risks, including: (1) lower-than-expected store expansion and gross margin improvement; (2) severe retail competition; and (3) pressure to pay interest in the short term.