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MWG - Bach Hoa Xanh: improvements on the way

Bach Hoa Xanh – the grocery chain has been identified by MWG as its focus for the medium and long term. We believe Bach Hoa Xanh is showing a lot of positive developments, especially since MWG adjusted its expansion strategy in the second quarter of this year. Most of the new stores have achieved the required customer traffic as well as sales in a very short time. The chain is also getting closer to the EBITDA break-even level.

Although more adjustments still need to be done, we believe that with the experience it has as a leading retailer and a responsive management, MWG can successfully expand this model beyond Ho Chi Minh City in the next two to three years. A very fragmented Vietnam's food retail industry with an estimated size of over USD 50 bn and an average annual growth rate of over 10% is promising for MWG.

By 2022, in the base scenario, we believe that Bach Hoa Xanh could reach 4,500 stores and VND 93,000 bn sales, contributing to 50% of MWG’s total sales. Presently, The Gioi Di Dong is contributing steady revenue, while Dien May Xanh is remaining a pillar of short-term growth due to the organic strength of the consumer electronics market.

Applying a P/E of 5 times and 12 times for The Gioi Di Dong and Dien May Xanh, combined with FCFE for Bach Hoa Xanh, we estimate a target price for MWG at VND 160,000/ share. Adding a cash dividend of VND 1,500/share, the estimated return is 25% compared to the closing price on 10/04/2018. Therefore, we have a BUY on MWG.