MWG — VietEcon

Following up on my post yesterday, I wanted to look at MWG and see if the stock is worth investing in.

Source: Vietstock.com.vn, chart by Vietecon.com

The stock hasn’t done all that well. It had a good run in 2016 and then a massive drop in May 2017 (but this is related to a dividend payment of 15% and a bonus share). It’s come back a bit, but never really advanced beyond (it has paid dividends throughout, although at relatively low yields - 1.5% for the latest).

The stock reached a high of VND128,000 back in late September and has fallen 15% since then. Not really due to COVID-19. In fact, today it was up 2%.

In contrast to the stock, operating trends have been very strong. Sales have been massive, mostly driven by large increase in stores.

Source: Company data, chart by Vietecon.com

Sales have increased 2.3x since 2016, and the company’s plan is for another 20% growth in 2020. Sales were up 21% in January, which is the busiest time of the year because of Tet.

Gross margin has also been increasing, despite an increased number of stores (which usually hurt margins as sales are weakest at opening). Margin has gone from 16.2% in 2016 to 19.1% in 2019, and the company expects it to increase again in 2020. Net margins also have grown, from 3.5% to 3.8%. In January they were as high as 4.4%, in line with what we saw in January 2019.

This revenue growth has been driven by opening more stores. You can see in the chart to the right that overall stores have increased 2.5x since 2016, despite a flat or falling number of TGDD stores, which sell only mobile phones. Many of these TGDD stores have been converted to DMX, the consumer electronics stores.

Basically, management has decided that it makes sense to have a much wider selection of products within the consumer electronics segment. It doesn’t seem to have hurt phone sales, which were up 10% in January 2020 (although for the year 2019, they were only up 2%). Remember that phones are very cyclical. New models really drive people to make purchases.

Of course, it could be that the company is just investing in a lot of stores, but that on a per-store basis, things aren’t doing that well. That odesn’t seem to be the place. It is a bit difficult to calculate real (meaning normalized) sales per store, but overall, it has been around VND33.8bn per store, or $1.5m. That has been all over the place - from VND39.6bn in 2018 (when the increase in sales wasn’t too great) to VND33.2bn in 2017, because of the big increase in DMX and BHX stores. Generally, BHX stores have lower sales, even those that have been around a while. But, looking at the chart to the left, it is generally trending up on an individual store basis.

So in terms of operations, MWG is killing it, especially compared to Nguyen Kim which has seen flat/falling sales and falling sales per store. MWG is very worried about online competitors, but 12.4% of its sales were online in 2019 or VND12.7tr, which MWG says makes it the biggest online retailer. Interestingly, at certain times (like before Tet), they actually pushed people into the stores. This is smart, if you have the sales people to upsell and form a relationship with people. It’s the Best Buy way, and it has been really successful.

Tomorrow, I want to look at valuations and how MWG compares to other retailers. The stock is trading at about 10.2x P/E for 2020, which seems quite low, especially given 26% growth in earnings. But more on that tomorrow.