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Result Update Report: FRT - Recent Stock Rally Has Limited Upside

“FRT’s plan to rapidly ramp up Long Chau pharmacy chain in the upcoming years (300-400 new openings per annum in the next 3 years) shows management’s confidence and ambition in consolidating the fragmented pharmacy retail market in Vietnam. We strongly believe that the sound expansion strategy amid supportive market conditions, along with competitive advantages of Long Chau vs mom & pop shops, will lend the chain good leverage to drive revenue and profit to new highs going forward. For 2022F, we forecast that Long Chau’s sales/PBT will come at VND7.2 trillion (or USD 313mn; +81% YoY)/ VND 47 bn (or USD 2mn; ~10x 2021 PBT).

Regarding the ICT segment, we believe laptops and Apple products, which contributed two third of 2021 FPT Shop sales, will remain crucial to FRT as (1) laptop demand should be resilient this year (FRT’s laptop sales in Q1 jumped more than 50% YoY), and (2) the condition for genuine Apple products market will keep getting better, (3) FRT will capitalize on this with dozens of new laptops center and Apple shop-in-shop outlets. As we expect these positive factors will outweigh the downside of normalizing laptop sales, and increasing competitive pressure from other Apple brand stores, Forecasted PBT growth of the ICT retail chain will remain largely healthy in 2022F at 30% YoY.

Overall, we come up with 2022F revenue/NPAT/EPS of VND 28.7 trillion (or USD 1.2 bn; +28% YoY) / VND 613 bn (or USD 27mn; +38% YoY) / VND 7,763.

 We apply a sum-of-the-parts method, comprising of FPT Shop and Long Chau Pharmacy chain. Our target price comes at VND 155,200 per share. While we do believe in the bright prospect of the key driver Long Chau, we think that the stock price has a bit overshot following the news of significantly high Q4-2021 profit, and expectation on robust Q1-2022 results. As a result, the market price as of Apr 06th, 2022, looks rather expensive as it implies a 2022F P/E already standing at 20.1x. Taking profit into price strength could be considered around and above our TP level.”