Will the MWG outweigh its drawbacks?

MBS believes that the profit margins at The Gioi Di Dong and Dien May Xanh outlets would be unlikely to gain a breakthrough in 2024.

>> MWG sees drops in revenue in November after closing about 150 stores

In order to restore operations, the MWG's Board of Directors has approved a business strategy for 2024 with a revenue of VND 125,000 billion and a profit after tax of VND 2,400 billion. The revenue goal has climbed by more than 5% as compared to 2023, while the net profit target is more than 14 times greater.

More restructuring is needed

According to the 2023 financial report, MWG's net revenue was VND 118.3 trillion, down 11%, and its post-tax profits were VND 168 billion, down 96%, due to restructuring expenditures associated with the closure of ICT stores and the disposal of non-usable assets from Bach Hoa Xanh stores. MWG shuttered 200 outlets during the fourth quarter of 2023, demonstrating its troubles.

After a major reorganization that began in the fourth quarter of 2023, MWG saw the need for more restructurings to boost revenue and enhance profitability. If the present business models do not work, MWG will cut the number of outlets. Furthermore, this organization will improve the quality of its services by concentrating on staff efficiency, product diversification, and promotional initiatives.

Reviving Bach Hoa Xanh stores

Bach Hoa Xanh stores reported a net loss of VND 306 billion in the fourth quarter of 2023, bringing the overall net loss for the year to VND 1.211 billion. MWG saw its initial peak last December, when sales per store hit about VND1.9 billion per month. With this level of revenue, minus the expenditures incurred once in 4Q2023 and a fraction of the depreciation costs connected with store upgrades, the Bach Hoa Xanh stores have achieved the break-even point for core business activities.

By 2024, MBS anticipates Bach Hoa Xanh stores' operations to improve due to: First, the number of stores grew by 1% compared to the same time, reaching 1,715 locations. Second, the average income per store reached VND1.8 billion per month, up 18% over the same time, owing to the range of products, particularly fresh items, paired with a suitable advertising plan to stabilize transactions in Bach Hoa Xanh stores and attract new clients. As a result, Bach Hoa Xanh stores' revenue in 2024 might reach VND 37,400 billion, a 19% increase over the same time.

Expectations for other activities

The Gioi Di Dong and Dien May Xanh stores' revenues in 2023 were VND 83.505 billion, a 19% decrease from 2022, with a gross profit margin of around 17%.

Since early 2018, The Gioi Di Dong stores have shuttered around 50 outlets, which contributes to the substantial decline in their turnover contribution. The reason for this reduction is because electronics have become extremely popular as a result of the advent of low-cost Chinese phone firms such as Xiaomi and Oppo..

MBS expects The Gioi Di Dong and Dien May Xanh stores' revenue to reach VND 86,923 billion by 2024, a 4% increase over the same period due to (1) recovering demand for non-essential supplies in 2H2024 and (2) strength in expanding distribution of MWG's mid-price proprietary mobile phones, making it easy to reach medium-to-low-income customers who need to buy smart phones in the context of Vietnam's 2G shutdown.

However, MBS believes that the profit margins at The Gioi Di Dong and Dien May Xanh outlets would be unlikely to gain a breakthrough in 2024. Furthermore, MWG may be removed from the VN Diamond Index, causing the ETF to strongly sell its shares because MWG may violate the index criteria: 1) P/E may be too high due to low FY23 profits; or 2) strong foreign selling pressure recently may open up FOL room.