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HAX - Rapid Growth Thanks To Expanding Market Shares

Hang Xanh Motors Service JSC (HSX:HAX) is the only first authorized distributor of Mercedes-Benz (MBV) that is listed on HSX. Despite of having the smallest market share among all MBV’s dealers, HAX has continuously reached many turning points in its business since 2013.

Along with the leading position in luxury car segment and prospective outlook of Mercedes-Benz in Vietnam, we find that the potential growth of HAX would remain great. Based on the new contributions from HAXACO Kim Giang (Ha Noi) and the upgrade of HAXACO Lang Ha, the company’s revenue is expected to grow in 2017 and 2018 by 46.9% to VND4,229 billion and 22.2% to VND5,166 billion, respectively.

As a distributor, profit of HAX depends closely on MBV’s policy. For instance, the changes in MBV’s sales policy, cost escalation ascribed to interest expense, would challenge the revenue growth possibility for HAX despite having impressive sales results. As a result, we project that net profit of HAX would grow more slowly compared to the previous year and reach only VND79.9 billion (+2,5% YoY) in 2017 and VND89.5 billion (+11,9% YoY) in 2018. In other words, the average EPS in the next 2 years would be VND3,671 per share.

According to the valuation methods P/E and P/S with the estimated two-year (2017–2018) average revenue and EPS, we rate NEUTRAL on HAX stock with the target price of VND42,300 per share. However, we also recommend investors to MONITOR this stock in the short term; based on the expectation that a large bonus from MBV would be recorded in the second half of this year. In the long term, investors should pay close attention to MBV’s sales policy, which is less favorable, and HAX’s unpredictable method in bonus recognition.