1Q results out: lots of negative headlines, but MWG outperforms

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The market is up, we are going into a 4-day weekend, and COVID-19 appears under control with continued social distancing required. The stock market is down 20% since the start of the year, but has rebounded 17% from its low. Things are looking up for Vietnam!

But now earnings from 1Q are coming out, and it is doesn’t look that great. A few of the headlines:

  • FLC reported a loss of VND1,172bn in 1Q, down from a profit of VND7.7bn in 1Q19. Revenue was surprisingly up 60%.

  • Sabeco revenue fell 47%, net profit 43%. I would love to see what happened in January, because, if you remember, new drunk driving laws caused beer sales to fall at the start of the year.

  • Danang Airport Services (MAS) reported its first loss ever. Revenue was down 29% and gross profit -55%.

  • TTC Land showed a profit of VND47bn, but that was down 47%. It is handing over properties (when revenue associated with these units are recorded), which helps. But that wasn’t enough to record growth. .

  • Vingroup had profit of VND438bn, off 58% yoy, with revenue down just 30%.

What we are learning: Revenue hasn’t been hit as hard as expenses, which shows the operating leverage that is built into these businesses, to no one’s surprise.

There were a few companies that showed strength. Today, I want to talk about my beloved MWG:

Source: MWG, Vietecon.com

Source: MWG, Vietecon.com

  • Revenue grew 17% to VND29.4bn, helped by massive growth at BHX (+178%!). Remember that MWG opened 600 BHX stores in the past year, growing from 1,008 to 405. Phone stores didn’t do that well (revenue -6%) but still did better than I would have expected. And DMX, the consumer electronics stores, had laptops flying off the shelf.

  • Net profit grew 9% to VND1,132bn. Again, not a bad result, implying a net margin of 3.9%, up 11bps from full year 2019 results. Although, it was down 30bps from 1Q2019. But that was because of the mix shift (more groceries/BHX sales).

  • There has been a drastic decline in inventories, which I expected, down 19% to VND21tr from yearend 2019. Days payables also fell to 30 days from 45 in 2019. These resulted in a lot of cash generation: VND3.8tr in operating cash flow.

  • Some of this free cash was used to pay down debt. Short term loans fell 19%, in line with the inventory decline. Long term loans are unchanged. This ultimately results in a less levered balance sheet. Debt-to-equity fell to 87% from 117%.

  • Online sales represented only 7% of all online sales. TGDD and DMX were at 11% online in March (partially caused by some store closures). BHX’s online sales grew 17% month-over-month in March. I expect the low overall figure will rise in April, with stores shut but the company fulfilling online orders.

Overall, the company is doing very well. It does say that 1Q results are in no way representative of what we should expect for the full year, which seems a reasonable statement to make. But hopefully MWG will be able to build on some of its successes in 1Q.

Tomorrow, let’s look at Vinamilk, which also did well.