MWG report and EU deal

/

First, a quick update. The EU has concluded/ratified the free trade agreement between the EU and Vietnam. Now the ball is in Vietnam’s court to ratify the deal. This should happen at the beginning of the next congressional session. I have talked about this a lot. You can read about it here and here.

Source: Vietnamese Customs, EU; chart by Vietecon.com

Source: Vietnamese Customs, EU; chart by Vietecon.com

The next congressional session is supposed to be held in mid-April. Let’s see if it works out. Maybe they will go online, like the rest of us.

But a reminder, the EU is a big partner of Vietnam already, with a big surplus.

I assume both side want more trade and the EU definitely wants more exports. The fall in tariffs should help all sorts of companies to compete. I can’t wait for the French wine to start to get more reasonably priced. Same for Austrian wine, an often overlooked wine region. And Portugal! Duoros! Plus Italy. I love barolos! Ok, I think I need a drink. .

But the real thing I wanted to talk about was what my beloved MWG is doing through the COVID-19 crisis.

  • March sales were up yoy to VND8.5tr. Of course a lot of that was due to BHX, the grocery division..

  • The company had contingency plans for different types of store closures. Now that we are at the highest level (everyone stays home except for essential services), the company has moved into case 3.

  • It will furlough some employees, and move most of the rest to work in BHX (the grocery).

  • They have also increased online services both for BHX and the other stores (with products to be delivered after re-opening).

  • MWG is negotiating rent with landlords during the closure time - 50% off. And it is willing to be pretty hard-core: it will leave stores if the landlords aren’t flexible.

  • Dividends are up in the air.

  • Short term loans are down 25% to below VND10tr by my estimate. It is working with lenders to reduce rates and to increase the duration of these short-term loans and pushing out payments.

Source: Company data, chart by Vietecon.com

Source: Company data, chart by Vietecon.com

Overall, my biggest concern with MWG was the very high debt balance, which had gone up a lot. Most of this was due to an inventory buildup, and the company has quickly reversed this. I expect it will continue to deplete inventory as quickly as possible without replenishing it. This should dramatically help operating capital - by my estimate 1Q cash from operations could have been as much as VND4tr, if the company did drastically reduce inventories.

Long term, the company is pushing hard into online and grocery. It will be interesting to see what happens post-COVID. I would assume that online ordering will go up, as people get used to it. But it could be the reverse. I personally am very excited about going outside and shopping in a store at some point in the future.

Same with groceries: will people, now after having to cook for themselves for weeks, be better equipped and willing to cook at home post-crisis? Or will they, like me, just want to get out and go to a restaurant where there are people (if there are any restaurants left).

Overall, it seems like MWG is being extremely transparent and forward-looking. It helps that the grocery business acts as a stabilizer in times of crisis: as the economy gets worse, people spend more on groceries than eating out. And this time in particular, with restaurants closed, it benefits.