[CFA Research Challenge]National round 2015_Banking Academy

CFA Institute Research Challenge

hosted in Vietnam

Team Student Research This report is published for educational purposes only by

students competing in the CFA Institute Global Investment

Research Challenge.

Important disclosures appear at the back of this report 1

[Consumer Electronics, Retailer]

Ticker: ● MWG: VN Recommendation: ● HOLD

Current price: ● VND 103,000 Price Target: ● VND 109,000

Key ratio 2011 2012 2013 2014F 2015F 2016F 2017F 2018F

Gross profit margin 17.7% 16.2% 14.8% 15.3% 15.3% 15.4% 15.4% 15.4%

Net profit margin 2.9% 1.7% 2.7% 3.5% 3.5% 3.6% 3.6% 3.6%

Total Asset

Turnover 5.0 4.7 5.0 5.3 5.2 5.0 4.7 4.6

Debt to Assets 0.8 0.7 0.6 0.6 0.6 0.6 0.6 0.6

Interest coverage 8.2 4.0 13.0 17.8 12.9 13.1 13.1 13.1

Earnings per share 15945.05 12014.14 23590.02 9,063 6,787 9,221 10,617 12,046

Return on equity 70.0% 33.2% 41.2% 49.2% 43.5% 43.3% 40.4% 37.7%

Mobile World Investment Corporation

Date: 03 Nov 2014

Holding period

End of

2014

End of

2015

End of

2016

6% 12% 28%

Market profile

12-week

price

Range (VND)

82 - 175

Average

daily volume

53201

As % of

shares

outstanding

0.084%

2013

dividend

yield

52%

Shares

outstanding

63290012

Market

Capitalizatio

n (VND bn)

10342.37

Instritutional

Holdings

72.65%

BV per share

(VND)

41.71%

ROE 2013E 12,156

Debt to

capital 2013E

0.6

P/BV 49.4%

P/E 42.98

Valuation DCF Multi-ple

Estimated price 101,000 117,500

Weights 50% 50%

Target

price 109000

Highlights

We issue a HOLD recommendation for MWG with a target price of VND 109,000 at the

end of 2014. MWG is a good stock that should be keep in the watch list. MWG’s

sustainable business model is based on: (i) high bargaining power over suppliers; (ii) self-

developed managerial system; (iii) extensive distribution network. This model enables MWG

to establish a strong self-finance capability with short-term debt only and significant cash

generated.

Main price growth drivers: (i) stable economy with unsaturated market create bright

outlook for retailing firm; (ii) possibility of MWG’s expansion project to maintain rapid

growth; (iii) completed Enterprise Resource Planning assist MWG in curbing operational

costs.

MWG maintains strong influence in the domestic market. MWG possesses the largest

number of stores among modern retail chain. To maintain this position, MWG have built a

professional team to focus on searching new prime locations. When faced new competitors,

MWG is willing to decrease products’ price significantly to compete against. Moreover,

MWG has succeeded in establishing strong brand awareness towards Vietnamese customers

by complying with its customer - centric motto.

Main risks: Being a retailing firm, the competitive pressure from the new players is one of

the biggest challenges for MWG. Besides, as the nature of retailing industry, disruption of

supply chain; IT and communication system errors; liquidity and credit risks are typical risks

with MWG. Moreover, potential limited demand in rural areas should be other negative

influence on sales’ expectation.

Investment Research Challenge Student

Research

Date 03 Nov 2014

2

Figure 1. Company Structure

Source: MWG

Figure 2. Revenue Breakdown

by Products in 2013

Source: MWG

Figure 3. Stores network

of Mobile World

Source: MWG

Figure 4. Shareholders Structure

Source: MWG

Business Description Mobile World Investment Corporation was founded on March 2004 in Ho Chi Minh City with the initial form

of Mobile World Ltd Co, specializing in retailing and repairing mobile phones and digital devices. The

company was transformed into a joint stock company in 2007 and listed on Ho Chi Minh Stock Exchange in

July 2014 with the ticker MWG.

MWG‟s primary business currently is implemented through two companies, namely Mobile World

(thegioididong.com) and the Electronics World (dienmay.com), which MWG has 99.35% and 99.95%

respectively in terms of ownership (Figure 1). Aiming to improve the operational efficiency and reduce the

general and admin expenses, the administration of two companies has been joined together since the end

of 2013. We identify the biggest strengths of Mobile World to be the nationwide coverage, strong brand

awareness and superb customer services. Mobile World now is the first firm in Vietnam possessing the

retail chain in all 63 provinces with 217 shops by 2013, specializing in retailing mobiles phones, laptops,

tablets and related accessories. Meanwhile, Electronics World is engaged in distributing consumer electronics

and digital products with 12 shops in Southern provinces of Vietnam.

Sales of Mobile World and Electronics World constitute 83% and 17% of MWG‟s total sales respectively

in 2013. Overall, mobile phones were the most effective revenue generator, occupying 58% of revenue of

MWG in 2013 (figure 2). Mobile World is the largest retailer with 25% of Vietnamese phone market share in

5M2014, whereas Electronics World accounts for about 3% of the appliances market (Source: Gfk). MWG

sells its products through two channels: offline via retail chain and online via websites. Online channel has

received more emphasis in recent years, accounting for 4.7% of the total revenue with a growth of 8.5% per

year in 2011 – 2013. MWG applies “omni – channel” strategy which closely integrates online and offline

aspects of the business, providing 30 – minute delivery for online orders in many locations.

Cost of goods sold amounted to nearly 85% of MWG‟s total sales. The proportion of cost of goods sold to

revenue of mobile phone, PC, tablet were 88.5%, 87.5%, and 88.6% respectively in 2013. In fact, Mobile

World has succeeded in reducing intermediary costs because as the largest retailer in Vietnamese mobile

market, the firm has been able to sign contracts directly with manufacturers such as Samsung, Sony, LG,

HTC. However, Electronics World has to buy from distributors and finance its marketing campaign at its own

expense without assistance from manufactures.

Current strategies of MWG could be described as follows:

Improving the existing shops: This strategy comprises of the reasonable rearrangement of shops and

modernization of infrastructure for the sake of customers‟ convenience.

Expanding strategically: MWG plans to expand its retail networks ambitiously but ensures necessary

prudence. The firm will close a Mobile World store if it fails to make profit in the first 3 months and an

Electronics World store within 5 months.

- Mobile World: MWG intends to: (i) open new flagship shops and standard shops in large provinces and

cities, providing a wide range of products from ordinary phones to expensive phones; (ii) expand the store

chain to rural regions to win over the market share from mom – and – pop shops by opening about 40

shops in such regions from 2014 to 2016, concentrating on economical smartphones from VND2 million to

4 million.

- Electronics World: MWG did not open any new stores in 2013 to investigate the market carefully. After

working out the most appropriate model, MWG intends to launch new stores in tier 2 cities, focusing in 5

product categories, namely TVs, white goods, home appliances, portable devices and home entertainment.

Enhancing the online sales: MWG has put a great deal of effort into upgrading the interface and speed of

website to increase the friendliness for users as well as standardizing the order and delivery process.

Building people: MWG has invested carefully in training staff about the customer service culture from the

thoughts to actions, aiming to fulfill the company‟s customer – centric motto.

Over the period 2013 - 2014, there were significant changes in terms of shareholders structure of MWG.

Mekong Enterprise Fund II conducted 2 divestments, decreasing its ownership in MWG from 32.5 % in 2013

to 14.3 % currently. Specifically, this fund transferred 6.7% in March 2013 and 9% in April 2014. The other

changes in shareholders structure were essentially due to the transfers from members of board of directors to

their own companies such as the transmission from CEO Nguyen Duc Tai to Retail World Limited Company.

MWG was an exemplar for building a solid business culture and a strong management team according to

the Managing Partner of Mekong Capital, Chris Freund. Currently, the board of directors comprises of 8

people: 5 co – founders and 3 other board members. The CEO is Nguyen Duc Tai, who received master of

business administration degree in CFVG Academy. He has several – year experience as executive leaders in

different companies and has served as chairman of MWG since 2007. The other members are adept in various



Research Challenge.



sectors, especially Robert Alan Willett, the former CEO of Best Buy, who have succeeded in introducing and

implementing effective business solution in the world to MWG.

Industry Overview and Competitive Positioning Stable economic pushed retail industry

Vietnam‟s economy has been gradually recovered and become stable since 2013 with inflation controlled at

6.04%, GDP growth rate about 5.4%, and a 23% increase of per capital income to USD1,960. Moreover,

consumer confidence index is following an upward trend from Q1/2013 to Q3/2014 (Figure 4) showing that

people are willing to spend more. According to Association of Vietnam Retailers, Vietnam‟s total retail

turnover (both goods and services) was about VND2,618 billion, up 12.6% y/y. Not only do customers spend

on essential grocery products but they are also using additional budgets on non-grocery products such as

clothes, consumer electronics, and jewelry thanks to higher living standards and rising disposable income.

Technical consumer sector regained growth momentum in 2013

In 2013, technical consumer goods retailing value reached VND113,115 billion experiencing a growth of

22.1% y/y after a fall of 7.5% in 2012 (Figure 5). The major drivers were: (i) rising incomes in young

population group (about 70% of the population between the ages of 15-59) who preferred high-tech devices;

(ii) falling average device prices; (iii) diversification of technical products. Mobile phones, appliances, and IT

products are three largest segments in Vietnam technical consumer (Figure 6).

Mobile phones segment is in growth stage. It reached the highest growth rate among segments, at 33.8%

in 2013 to VND40,433 billion and is expected to enjoy significant growth with CAGR of 14% from 2014 to

2018 (Appendix 6). We have found that this growth is mainly driven by:

- Penetration of smartphones in lower price ranges (VND3 million - VND5 million). In 2013, the

penetration of smartphones in Vietnam was quite low compared to other countries in the region, at just

20%, so smartphone market still have potential to develop following the trend of switching from feature

phones to smartphones (Appendix 11)

- Expansion of modern retail stores. Market share of modern retail chains such as Mobile World, FPT

Shop and Vien Thong A increased from 40% in 2010 to 50% in 2013 indicating that modern stores are

outweighing mom-and-pop stores. We believe in the future, modern stores will gain more market share as

their products are assured by manufacturers and suppliers, pleasant environment and diversified product

portfolios which follow the changing habits of customers.

Being in shakeout stage, appliances market was quite fragmented. This segment worth was VND42,658

billion (as of 2013) with a CARG of 8.9% over the last 5 years. The market was mainly dominated by a lot

of specialist retailers in Hanoi and Ho Chi Minh City such as Nguyen Kim, Pico, Cho Lon Electronics,

Media Mart, Top Care, Tran Anh, Electronics World, Viet Long and Thien Hoa, but there is not any

outstanding player with more than 10% market share. These two market, Hanoi and Ho Chi Minh City, have

been driving the segment growth for five years. Based on our estimate, the HHI ratio for these biggest nine

players (41% of market) is 219 indicating highly competitive marketplace. We expect that in the coming

years, the country‟s vast and underpenetrated tier two city and rural market will be the key growth driver for

the following reasons:

- Appliance market is cyclical. The average life cycle of products sold is around 10 years, so it will take

about four to five years more before customers in big cities dispose of what they have purchased over the

five previous years and buy new products for replacements except for the launch of new technology

products.

- Demand in tier-2 city and rural market still remains high. Currently, the presence of large scaled

specialist retailers is still quite small. On the other hand, according to Nielsen, the rural community, a

highly-potential group which accounts for 68% of the country‟s 90 million people and is enjoying income

growth of around 44%, remains largely unknown to many businesses. Thus, by lengthening store chains

at rural areas and changing product lines as well sales policy in order to meet the demand of new

customers, retailers can widen market share and cover market niches.

Tablets are key products pushing the IT product segment. In the period 2010-2013, IT product

segment increased at a CAGR of 7.8% and its value stood at VND26,609 billion by 2013, up 8.3% y/y.

According to Gfk TEMAX, PC and laptop sales growth was at just 3% in 2013, whereas tablets soared

about 140% to VND4.8 trillion making up for about 18% of total segment value. This mainly due to the

saturation of PC and laptop demand, and the strong penetration of low-cost tablets from China. We expect

tablets will continue to drive the IT product market development and this segment value is estimated to increase about 21.5% from 2014 to 2018.

Online shopping will continue to gain popularity

The rapid penetration of connected devices as well rising in number of online shopping websites made

customers more familiar with internet retailing. Moreover, this shopping method also follow new trend in

customers‟ habits: (i) find and compare products of different stores; (ii) read comments of other customers on

websites; and (iii) order goods via internet system. However, a retailer must be strong in finance to build a

Figure 4. Consumer Confidence

Index

in Vietnam

Source: Nielsen

Figure 5. Vietnam Technical

Consumer

Market (2010-2013)

Source: GfK TEMAX, unit: VNDbillion

Figure 6. Vietnam Technical

Consumer

Market in 2013

Source: GfK TEMAX



Research Challenge.



Figure 7. Top 10 markets where retailers

intend to open stores in 2014

Source: CBRE Survey

Figure 8. Mobile phone market

(by channels)

Source: GfK TEMAX, Team estimate

Figure 9. Comparison three players in

Appliance segment

Electr

onics

World

Nguyen

Kim

Cho Lon

Electronics

Number

Of stores

12 22 21

Store area 1500 -

2000

sqm

3000-

4000 sqm

1500-2000

sqm

Products Electr

onics

Electronic Electronics

Furniture

Consumer

goods for

mother and

children

Source: MWG, Team research

high-speed and eye-pleasing website to appeal customers. Strong habit of using cash, the need to touch and

feel the products, and the afraid of providing credit card information online are also big obstacles for online

retailers. Currently, many retailers are applying omni-channel, a combination of online and offline trading.

We believe that customer awareness toward online retailing will be raised as these retailers continuously build the trust in customers and apply dynamic promotional policies.

Increasing rivalry of existing competitors due to entrance of foreign players

Oversea firms is currently penetrating into most of modern retailing segments in Vietnam. In particular, based

on the commitment of Vietnam with WTO, foreign retailers will have been allowed to establish 100%

foreign-owned corporations by January 1, 2015. In addition, a recent survey of CB Richard Ellis Group

(CBRE) indicates that one third of retailers choose Vietnam as their targeted market to open new stores in

2014; the figure for Hong Kong and Singapore are the same. Walmart, the leading retailer of the world, also

has intention to enter Vietnamese market to take advantages of Trans-Pacific Strategic Economic Partnership

Agreement (TPP) between the United States and Asia-Pacific nations. These potential entrances can make

retail market in Vietnam more and more competitive. Therefore, local retailers must attempt to hold the

initiative in raising capital, modernizing infrastructure, and improving relationships with suppliers and

customers.

Competitive analysis

Mobile phones and IT retailing segment

Mobile phone market is currently dominated by mom-and-pop shops which account for 50% of market share.

The rest is modern shops‟ contribution, in which MWG, FPT Shop, Vien Thong A are major players with the

market share of about 25%, 8% and 5% respectively (Figure 8). In terms of market share and business model,

we consider mom-and-pop shops, FPT Shop and Vien Thong A to be main competitors of MWG in mobile

phone retailing.

Mom-and-pop shops

According to team analysis, selling price of products at Mobile World shops is normally 3-5% higher than

that at mom-and-pop shops. However, most of products at mom-and-pop shops are unofficial devices without

Value Added Tax, while Mobile World store chains not only offer qualified products but also arrange store

layout in a pleasant way.

FPT Shops and Vien Thong A

We found that there is no significant difference between MWG and these shops in sale policies, store

location, and prices. Nevertheless, being the first retailer specializing in mobile and IT products since 2004,

MWG has built its own brand awareness sooner than the others. We have conducted a survey and found that

MWG is the first choice of a majority of customers who have intention to buy new mobile phones or IT

products (Appendix 15). Also, MWG‟s market share in this segment is far exceeding to FPT Shop and Vien

Thong A.

Appliance segment

In contrast, Electronics World entered the market late, and then has a relatively low position in the peer group,

accounting for only 3% of the appliance share. Basing on store area, product portfolios and products‟ prices,

we identify that Nguyen Kim and Dien May Cho Lon are the main competitors of Electronics World (Figure

9)

Nguyen Kim

The dominant player in this segment is Nguyen Kim making up for about 10% of market share. Nguyen Kim

shops offer the widest selection of technical consumer products and maximize profit thanks to economic of

scale. The average area of each store of Nguyen Kim is about 3000-4000 square meter, double of store area in

Electronics World chain. However, except for mobile phones which are sold at competitive prices, the other

products‟ prices are relatively higher than that of other players.

Cho Lon Electronics

Another competitor is Cho Lon Electronics with competitive prices; the store area of Electronics World and

Cho Lon Electronics are the same, at about 1500-2000 square meter. Products in Cho Lon Electronics are not

only appliances but also furniture and consumer goods for mothers and children, which also used to be in

Electronics World portfolio in 2011. However, Electronics World is now focusing on just five product

categories, from two to five products options in each category which are the most popular brands. Therefore,

Electronics World can significantly boost net profit margin.

Investment Summary

Solid foundation and prudent perspective implies a HOLD

We issue a HOLD recommendation for MWG with a target price of VND 109,000 at the end of 2014 and 2%

upside from current price level. MWG is the sole retailing company which possesses a shop network covering



Research Challenge.



all 63 provinces, building strong brand awareness among customers. Not only is the Company managed by an

experienced CEO and other four founders expertizing in various aspects but also it receives effective support

from the former CEO of Best Buy and completed ERP system. Regarding to stock price, the price of MWG

doubled in the first two months with average trade volume of about 38,000 shares per quarters after IPO.

However, due to high block ownership of shares, the floating is currently computed to be only 25 million

shares (Appendix. 8 ).

Valuation methods

We obtained the target price by combining Discounted Cash Flow model and multiple pricing with 50-50

weights. From our perspective, there is no convincing evidence to give a preference to a specific valuation

method. Because of a thorough set of criteria and rigorous comparisons between local and international

companies, we believe the price obtained by Price earning and EV / EBITDA multiple is justified.

Sustainable business model assures expansion project

MWG‟s business model is established from advantages in economies of scale, effective managerial system

and nationwide retail chain. Being one of the largest retailing companies with impressive revenue generated,

MWG has superb attractiveness to suppliers, leading to considerable number of trade and payment discount.

Therefore, MWG ensures stable supply for new shops and higher discount as well. Completion of ERP

system enhances MWG‟s distribution ability, allowing the Company to establish its shops in various

locations. The experience of MWG in setting up such shops network from 2010 to 2013 with 133 shops

launched proves the ability of the Company to conduct this project.

Strong financial position as foundation for investment activities

MWG has a favourable cash position as shown by short cash conversion cycle as well as increasing

liquidities ratios. In addition, high retained earnings allow MWG to only incur insignificant volume of short-

term debt (accounting for about 20% total assets). Those foregoing strengths enable the Company to invest in

enhancing its presence in tire 2 cities and rural area without incurring more debt. By taking this advantageous

position, it is plausible for MWG to invest in another retailing chain to capture further returns.

Increasing influence in the consumer electronic retailing market

Among mobile retailers, MWG has the largest number of sizeable shops with 217 ones whose area of 100-

150 square meters in 2013. Having a retailing chain which presents in all provinces in Vietnam since 2011,

MWG comprehend thoroughly the role of locations as an essential factor in this business. Accordingly, the

Company builds a professional team in searching new prime locations and a strong competitive strategy to

drive its shops further ahead of its competitors. New competitors often compete against MWG by duplicating

its business and service manners and offering relatively low price. When faced by such competitors, MWG is

willing to decrease products‟ price more significantly in competed shops thanks to its high gross profit

margin. (Figure 10)

Strong brand awareness distinguishes MWG from competitors

Over only ten years, MWG have been successful in building one of the strongest Vietnamese retailing mobile

brands. This accomplishment enables MWG to reduce costs of marketing and sales promotions, decreasing

its selling expense. By conducting a survey, we could offer a thoroughly assessment of the perception of

different customers towards various aspects of MWG. The largest number of respondents makes 8/10 points,

which depicts that people have strong impressions after consuming products at MWG‟s shop. This advantage

would be a real challenge for other competitors. We believe the Company would consecutively succeed in

guarantee its “thegioididong” brand based on its customer - centric motto demonstrated thoroughly in

commitments and core value.

Macro-factors consolidate MWG’s growth strategy

There is a bright outlook for the retailing industry of Vietnam thanks to recovered macro-economy and high

market saturation point (according to ATKearny – figure ..). The prospect of consumer electronic is even

more significant since the penetration of major products such as smartphones, tablets is relatively low. In

addition, taken the population density and monthly income per capita into consideration, the number of

retailing shops in Vietnam depends mainly on the former. Moreover, according to our survey, the proportion

of number of people who want to consume modern shops instead of traditional ones is dominant at about

77%. These results prove the possibility of MWG in expanding to tire 2 cities and rural area, obtaining the

target of roughly 600 shops in 2018E.

Possible investment risks

Besides the influence of market risk (economic crisis) investors should consider about some other risks:

Limited sales in rural areas could decrease sales‟ expectation; Disruption of supply chain; IT and

communication system errors; new competitors; Model risks; liquidity and credit risks. Our team identifies

clearly these risks in Investment Risk section.

Figure 10. Competitive strategy

Figure 11: Customers’

sastifaction with MWG

Source: Team survey campaign

Price Price



Research Challenge.



MWG’s historical price:

W

e

h

a

v

e

a

p

p

l

i

e

Valuation

We applied Discounted Cash Flow (DCF) model and multiple pricing to value MWG.

DCF Valuation

Since MWG has high leverage, we choose to discount the Free Cash Flow to the Firm (FCFF). In discounting

FCFF, we decided to use a three-stage growth model: The first phase includes a detailed year-to-year forecast

up to 2018E; the second phase, namely the transition period, will last for the next seven years before

transforming into a constant growth in the terminal phase.

This approach leads to the target price of VND 101,000.The DCF model could be clarified by considering the

following factors:

Sales: A significant increase of sales is mainly derived from mobile and tablet segment. Remarkable

rise in the penetration of smartphones and tablet as well as growing presence of low-price devices

would bring about 15% and 27% of CAGR for the mobile and tablet shipments in Vietnam. Moreover,

MWG would account for roughly 40% of market share in both segments in 2018E, occupied from

mom-and-pop shops by aggressive shops expansion. Accordingly, the CAGR for the mobile segment

from 2014E to 2018E is estimated to be 20%, accounting for 60% of total in 2018E. Similarly, the

proportion of table segment increase significantly from only 6% in 2013 to 12% in 2018E. (Appendix

4)

Cost of goods sold: As being one of the largest retailing companies with significant earning, MWG

gains plenty of incentive policies from suppliers. Moreover, ERP system maintains adequate

inventories to meet customers‟ demand. Those aforementioned factors leads to a stabilization in cost

of goods sold at around 84-85%.

SG&A expenses: The growth of these costs is lower than sales growth and manipulated in favorable

margins thanks to effective ERP system. G&A expense is stable in forecast period thanks to the

managerial mergers of Mobile World and Electronics World. Meanwhile, the proportion of selling

expense to net revenue would be lower thanks to MWG‟s success in establishing strong brand

awareness. However, selling expense is predicted to rise gradually due to increasing level of

competition.

The transition period is expected to exist on account of: (i) The pace of mobile phones growth is

declining when the penetration of smartphones is up to 80% in 2018E; (ii) Raising demand from rural

area thanks to higher income; (iii) Being adversely affected by the entrance of new foreign

competitors. The CAGR of FCFF for this stage is anticipated to be 8%.

Terminal growth rate is based on: (i) expected GDP growth of Vietnam; (ii) high level of

competitions in the industry; (iii) Saturation of consumer electronic market. In accordance with

aforementioned factors, we consider terminal growth rate of FCFF to be 3%. This estimate is

reasonable because not only does it correspond with the long-term growth of GDP but also it depicts

mature stage of the industry.

Dividend policy: We expect MWG to start paying dividends in cash from 2016E under the pressure and popular appetite of investors on HSX Stock Exchange so that MWG is able to be kept in investment portfolios. Payout ratio could experience a remarkable increase when the

Company moves to the transition period.

Figure 12: WACC calculation

Residual

Risk free rate 6.34%

Market

expected return 15.7%

Market risk

premium 9.34%

Adjusted beta 1.05

Cost of Equity 16.1%

Cost of Debt 11%

Tax rate 20%

After-tax cost of

debt 8.8%

WACC 14%

Source: Team estimates

Figure 13: GDP growth

GDP

2019-

2021

2025

World 3.7

2.5

Emerging

market 4.5

3.2

Source: IMF

Figure 14: Price multiples

Multiple P/E

EV /

EBITDA

Estimated

price 116000 119000

Weights 50% 50%

Target

price 117500




Research Challenge.



Capex: Future capital expenditure is considerable due to shops expansion strategy. As released by

MWG, the capital expenditure for a new flagship shops, standard shops and appliance shops are VND

3 billion, 1.5 billion and 5.5 billion respectively from 2014E to 2016E. Additionally, after every 5

years, based on historical data, the Capex would be more significant because of maintenance and

upgraded activities (see appendix 4 for more details).

WACC: The cost of equity was calculated using CAPM model. In this model, we utilized 10-year

government bond risk-free rate of 9.34%, derived from on-the-run treasury bonds (October 28, 2014). The market risk premium is 8%, based on A. Damodaran‟s estimation. The adjusted beta alters

from 1.17 (based on beta of MWG‟s peers – see appendix 4 and 6 for more details weight of FPT

70%) in 2014E to 1.04 in residual value, reflecting changes in the Company‟s financial leverage and

marginal tax rate. While the cost of debt was calculated based on the estimated financial expenses,

declining tax rate depended on government‟s tax policy. For more details about components of

WACC and its assumptions please refer to appendix 6.

Price Multiples

In Vietnam, we identified the most appropriate local peer of MWG as FPT (HOSE: FPT) because of its

similar revenue generating from FPT retail and the comparable size of mobile retailing chain namely FPT

Shop. Despite of the difference in market capitalization, FPT is the company that operates national-wide,

selling mobile and IT products through its modern shops. However, majority of FPT‟s business is in

telecommunication. There are several other retail companies namely Tran Anh (HOSE: TAG), Vien Thong

whose business model is much more similar but their market capitalization is far behind MWG (Appendix

5).

We took the average price earnings ratio of 5 comparative international peers for our valuation model. Our

choice of peers was based on several criteria: (i) Countries with a similar retail environment where

traditional retail channel accounts for 30-50% of the market shares; (ii) Companies with a specific range of

non-grocery merchandise and related items and providing a high level of services and expertise, avoiding

companies that operate super markets, convenience stores or department stores; (iii) Companies that

operates nation-wide in their respective countries (iv) At least 60% revenues from retailing sales in 2014E

We conducted multipliers pricing using benchmark P / E and EV / EBITDA ratios, both based on the

previously chosen appropriate peer group. In both methods, we apply the benchmark resulted from peer

group, with either a discount or premium.

P / E: We derived an average sector P/E estimate of 12.77x. In our earning model, we forecast that

in FY2014 net income will reach VND511 billion, and share numbers will increase to 106 million.

However, the diluted number of floating share is calculated as 57 million (appendix 5), generating

an EPS of VND 9,063. Then by applying the P/E benchmark of 12.77x times, with either a discount

or premium, we come at a fair price of MWG at VND 116,000.

EV / EBITDA: another measure for comparison is EV / EBITDA, which is appropriate in

analyzing the value of businesses from different countries. By using this method, the effect of

depreciation policies is removed. Also, this allows the comparison to focus on company value

regardless of capital structure. We obtained an average sector EV / EBITDA ratios of 10.92xs. This

approach leads to a fair price at VND 119,000.

We treat both P / E and EV / EBITDA equally in our valuation, as there is no clear proof of

predominance of one over the other as well as we assigned equal weights for international peers taken

under consideration. Price Multiples valuation approach yields a price of VND 117,500 in 2014E.

(Figure 14)

Weighting of the models

Meanwhile Vietnam economic outlook is currently bullish, the fundamentals valuation method tends to be

slightly more useful and more relevant than the technical analysis based on the market sentiment.

However, we consider DCF and Multiples the same weights in our valuation since the superiority of DCF

is not significant enough to award a premium nor a discount to any method.

The price we obtained in such combination is equal to VND 109,000 per share. Compared to the current

price of MWG VND 103,000, there is a slight 6 percent upside gain by the end of 2014. We recommend a

HOLD to MWG and put this stock into the watch list.

Risk to target price

Being a retailing company, MWG‟s value depends mainly on the capacity in managing operational costs

including COGS and SG & A expenses. Accordingly, we conducted Monte Carlo simulation in order to

assess how changes in those costs affect our target price. Moreover, we add WACC and terminal growth

rate which impacts directly to price of MWG into the model. The mean price of VND 101,700 derived

from performing 10,000 cases is close to our price of VND 101,000 (Appendix. 18). Multiple model is

mainly dependent on MWG‟s growth opportunities, risks and profitability.



Research Challenge.



Financial Analysis 1. Earnings

In the period 2010-2013, MWG witnessed a surge in revenue growth rate, almost over 30% each year

thanks to the impressive rise in both number of shops and average shop sales. We believe that the average

shop sales have almost reached the peak of sales. The consistent increase in the number of shops, therefore,

would be the key driver for the growth in earnings in the forecast period.

The deceleration in average store sales

Although the growth rate of revenue per Mobile World store was 27.04% in 2013, we estimate this figure

will be insignificant, decreasing sharply in the following years. The reason is that the turnover of per shop

has nearly reached the peak as mentioned. The maximum revenue a shop in this chain can generate is about

VND 4.5 billion, whereas the revenue is projected to achieve VND 4.2 billion in 2018. Hence, we perceive

the growth rate will experience a slowdown in the next years. Likewise, the growth rate of Electronics

World shop‟s turnover will drop dramatically from 6.05% in 2014 to 1.01% four years later.

Steady increase in the number of stores

The pace of the expansion of stores over the period 2013 – 2018 is 159% with the number from 229 to 594

stores. The boom in the number of shops can be explained because of (i) the high feasibility of planned

expansion plan conducted by six professional teams (ii) a small number of shops in regions that MWG is

going to expand such as tier 2 cities or rural areas.

2. Stable gross profit margin

According to the team„s research and answers of MWG‟s CEO, despite the higher output price of MWG

compared to competitors, MWG is still the first choice of many customers thanks to its prestige and service

quality. However, when the market has more competitors in the future, especially foreign ones, MWG will

have to taper the difference between input and output price. We anticipate the gross profit margin of MWG

will approach roughly 15.3% - 15.4%. This figure is relatively high compare to the main competitors such

as FPT (5%).

3. DuPont analysis

From 2012 to 2013, ROE experienced an increase from 33.2% to 41.2%. The reason was the rise in ROA,

which resulted from the growth in net profit margin from 1.7% to 2.7% over that period. Additionally, the

decline in financial leverage demonstrated that MWG has grown sustainably based on handsome earnings

and had a strong financial autonomy. However, we forecast ROE will plummet from 48.8% in 2014 to

29.1% in 2015. The reason for this is the drop in expected total asset turnover from 5.18 in 2014 to 2.94 in

2015 because the company continuously launches new stores.

It is projected that financial leverage will keep dwindling to 2.0 in 2025 and net profit margin is likely to go

up and be steady at 3.5-.6%. This is because of stable SG&A expenses resulted from: (i) the merger of

Mobile World and Electronics World‟s board of management decreases admin expenses; (ii) the operation

of ERP system helps MWG to reduce expenses and improve effectiveness.

4. Recovered cash generating ability

Cash from operating activities (CFO) was negative so MWG had to use cash from financial activities (CFF)

in order to cover cash from investment activities (CFI) from 2010 to 2012. Since 2013, CFO has been

positive,

being able to compensate CFI and CFF. CFI has been negative, proving that MWG has concentrating on

building new stores and improving the facilities in recent years.

In the period 2014-2016, we expect the company will continue the residual dividend policy to keep

investing for store expansion strategy. After 2014, under pressure from shareholders and in order to keep

attractiveness to investors, we believe the company will start making the stable dividend policy by paying

dividends in cash. Meanwhile, MWG will truly become a cash cow with the dividend yield of about 52%-

66% from 2016 to 2018. (While the interest rate on bank deposits is only about 5% per year).

5. The short cash conversion cycle (CCC) supports business operation effectively

Cash conversion cycle of MWG in relation to two main competitors in 2013

In Vietnamese market, the CCC of MWG is the shortest compared to main competitors, especially Days

sales outstanding (DSO) are considerably less than other retailers. This short CCC illustrates how quickly a

company can convert its products into cash through sales and less time capital is tied up in the business

process, and thus better for the company's bottom line. Although MWG‟s CCC is forecast to increase to

30.7 days because of the rise in DIO In 2014 – 2025, this figure is still smaller than that of others. The most

prominent feature of the MWG is the lowest DSO compared to peers. Working in retail industry, MWG‟s

sales are paid by customers immediately so the proportion of accounts receivable to revenue is very low

(2% in 2013). Besides, other receivables of MWG mainly are trade discounts and cash discounts. The

reason is that available large amount of cash and cash equivalent (more than VND300 billion in 2013) are

used to accomplish payments for suppliers quickly, thus MWG obtains discounts from suppliers.

Figure 15: Sales breakdown

Source: Company plan and

team estimates

Figure 16 Dupont analysis


Figure 17: Cash conversion

cycle



Research Challenge.



6. Adequate Liquidity

There is a clear uptrend in MWG‟s liquidity ratios. Thanks to ERP system and cash sufficiency, we expect

liquidity ratios would be strengthened in the future, ensuring MWG‟s ability to satisfy its short-term

liabilities. From 2010-2025E, all three ratios increase steadily: Current ratio (1.2 in 2010 to 1.8 in 2025E),

Quick ratio (0.2 to 0.9), and Cash ratio (0.1 to 0.7). That would be a good evidence for the strong financial

potential of MWG.

7. Self – finance capacity

Given the characteristics of an electronic retailing company, MWG has not had long term loans. The short

term loans are solely used to supplement the business activities. In addition, in current liabilities, the

proportion of short term loans is not too high because MWG can utilize the incentives from suppliers. In

terms of debt, we expect given current positive business situation, debt to equity will decline over time

(from 3.09 in 2010 to 1.76 in 2013 and 1.25 in 2018E) showing that the owner„s equity will be used more

in business activities. That downtrend will continue in the following years because of the increase in owner

s‟ equity resulted from the rise in retained earnings.

Corporate governance

Based on the Principles of Corporate Governance publish by Organization for Economic Co-operation and

Development (OECD), we estimate corporate governance quality of MWG achieves the total score of out of

100 point, higher than the average figure in Vietnam.

Good for corporate governance

Not good for

corporate

governance

Shareholders' rights

- All top executives of MWG participate in Annual General Meeting to present

the report on business and administration activities of the company.

- The financial statements in English and Vietnamese are available on the

company‟s website, which is convenient for investors and shareholders when

looking for information.

Equitable treatment of Shareholders

- All shareholders are entitled to vote in the General Meeting about policies

and plans of the company

- MWG does not restrict shareholders to attend the meeting and ensure that all

shareholders were treated fairly.

Disclosure and Transparency

- The company announces the results of business operations, management,

transactions of major shareholders and related parties promptly and accurately

on the company‟s website.

Responsibilities of the Board

- Board of Directors consist of eight members, namely chairman, three

members that are concurrently in Board of Management, two members

representing two institutional shareholders and two independent members.

Board member that represents legal entity (MEFII) has played an important

role in directing the business operations and applying successful business

solution in the world to MWG

- There are only two

independent

members, which does

not satisfy the rule

that one third of the

Board of Directors

must be independent.

Corporate Social Responsibility (CSR)

MWG has maintained a good relationship with employees, contributed to the society, complied with safety

criteria for customers and regulations on environmental protection. (Appendix. 17)

Additional Upside Capture further eanings by becoming a multi-product retailer

The CEO of MWG indicated to diversify the product categories of the company such as shoes, shirts in the

future. Obviously, MWG wants to become a multi – product retailer like Best Buy or Walmart in

accordance with the CEO‟s intention. In fact, the participation of Robert Willett, the former CEO of Best

Buy, in board of directors could assist MWG in management considerably when realizing the

Table 5: MWG’s Corporate

Governance score

Score Weight

Overall CG

performance

47.3 100%

Area A -

Shareholders

Rights

51.0 15%

Area B -

Equitable

Treatment of

Shareholders

62.5 20%

Area C - Role

of Stakeholders

25.6 5.0%

Area D -

Disclosure and

Transparency

46.0 30.0%

Area E -

Responsibilities

of the Board

40.1 30%




Research Challenge.



aforementioned plan. If the company can utilize the existing advantages, namely nationwide chain stores,

reputable brand as well as implement appropriate marketing campaign, the intention to expand product line

could take MWG up to a new position in retail industry.

Increasing customers’ purchasing power

The government has committed to increase 15.1% the minimum salary from 2015. This creates a positive

impact on the growth in purchasing power of Vietnamese consumers. In addition, with the increasing

salary, people tend to consume luxury goods such as changing their old phones or buying more modern

appliances. In terms of labor cost, such decision does not have any significant influence in the business of

MWG because the company has already paid their workers the higher salary compared to the minimum

level.

Investment Risks Operational risk: Limited sales in rural areas

A big risk for expanding strategy of MWG is the low incomes and digital inequalities leading to high price

sensitivity and low demand in rural areas. In other words, in spite of the potential of the rural market with

low penetration of devices, retailers‟ sales could be limited because of the low purchasing power and

incomes.

Operational risk: Disruption of supply chain

In the retail industry, a major risk is the interruption in the supply of products from suppliers or in the

distribution chain. By signing contracts directly with many manufacturers, we estimate Mobile World‟s

possibility of disruption in the supply of products from suppliers is low. However Electronics World has

not been able to sign the contracts directly with the suppliers so we assess this risk is at a medium level.

Besides, the disruptions risk in the distribution chain may occur due to objective reasons such as natural

disasters, road damages, etc. Because disasters often occur in the middle of Vietnam while MWG has two

main ware houses in Hanoi and Ho Chi Minh City, the product distribution is still ensured. Furthermore,

the improvement in the infrastructure, intercity roads also contributes to a safer and faster product

distribution.

Operational risk: IT and communication system errors

MWG has applied many technologies in the operation. MWG‟s websites currently ranked as the best one in

the retailing industry, along with the effective ERP system installed in 2013.However, any errors in the

software system can lead to serious consequences, such as the deviation in the estimation of necessary

inventory reserve. This would reduce revenue in case of shortage reserves and increase costs as well as

stagnant capital in the case of excess reserves. There a sons causing those errors may come from the

software design procedure, virus attack or human errors. Because ERP systems has just been in operation

since 2013, the experience and trouble shooting skills of people who directly operate has not been strong,

mistakes can happen. Therefore, we evaluate this risk is moderate.

Operational risk: Liquidity risks

MWG‟s debts are entirely short – term loans, whose collateral is inventory. The current ratio is expected to

increase from 1.4 2014E to 1.6 in 2015E. Likewise, Cash ratio will rise by 0.1 from 0.2 during the same

period. It is anticipated that D/E will decrease from 1.6 to 1.3 over the period 2014E – 2025E,

demonstrating an enhancement in financial autonomy of MWG. We consider liquidity risk of MWG as

minor one.

Operational risk: Credit risk

Credit risk occurs when a customer or partner cannot meet contractual obligations, resulting in financial

loss for the company. Because of working in retail sector, most customers of MWG pay when buying. As a

result, the value of receivable compared with net sales is negligible, which can be showed via low Day of

sales outstanding (DSO). DSO of MWG is less than its main listed competitors such as FPT and Tran Anh.

Economic risk: Exchange risk

We evaluate the exchange risk is insignificant because MWG signs contracts with vendors by VND and

foreign currency balance is marginal.

Competition risk

Since 2015, because of the regional and international integration, it is highly likely that many international

retailers will enter the Vietnamese market when they realize the potential growth of this market. For

example, Trikomsel, a prestigious firm in Indonesia or Walmart, the leading retailer of the world, has

intention to penetrate the Vietnamese market to benefit from TPP between U.S and Asia – Pacific nations.

Such retailers have the advantage of experience, capital and management so this would be undoubtedly a

great challenge for existing domestic retailers in general and MWG in particular. We consider this risk is

the largest one for the development of MWG in the future.

Model risks: Short operating history

Because MWG has been listed since 7th of July in 2014, the historical data is not much, leading to the

difficulties in forecasting. We, therefore, use Monte Carlo simulation to evaluate variables such as: COGS,

selling expenses, general and admin expenses, WACC, which can help to quantify the risk in valuation.

Market risk (economic crisis)

Figure 18: Exchange rate

31/12/2012 31/12/2013

Foreign

currency

(USD) 9836 14341

Source: MWG‘s financial statements



Research Challenge.



Vietnam economy now is in the recovery period after passing the bottom of the crisis. Thus, there is a

definite possibility that no shock that can cause a remarkable decline in demand like the period 2008 –

2010 can occur in near future. Consequently, the retail industry in general and electronic retail sector in

particular will less likely face the risk of economic recession. Team disclosure:

We assign a BUY rating when a security is expected to deliver returns of 15% or greater over the next twelve months. A SELL rating is given when the security is expected to deliver negative returns over the next twelve

months, while a HOLD rating implies flat returns over the next twelve months

Appendix. 1: Balance sheet

BALANCE SHEET

(VND’ 000 000) 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

TOTAL ASSETS 321,262 599,561 1,536,122 1,594,824 2,231,876 3,317,217 4,794,516 6,120,113 7,219,830

A. SHORT-TERM ASSETS 294,994 526,391 1,239,542 1,281,019 1,909,085 2,653,673 4,062,746 5,309,702 6,260,862

I. Cash and cash equivalents 29,526 28,546 79,997 104,831 304,734 332,364 815,262 1,081,817 1,449,255

II. Short-term investments 0 0 50 0 0 0 0 0 0 Short-term investments 0 0 50 0 0 0 0 0 0

III. Accounts receivable 19,437 55,285 122,001 113,507 209,365 313,608 442,390 580,601 665,974

Trade receivable 2,268 6,625 15,162 14,938 47,768 0 0 0 0

Other receivables 17,169 48,939 107,118 98,568 161,597 0 0 0 0

Provision for doubtful debts 0 -278 -278 0 0 0 0 0 0

IV. Prepayments to suppliers 45,795 74,474 79,549 46,307 37,946 57,251 80,760 105,991 121,577

IV. Net Inventories 188,467 339,828 877,100 951,564 1,288,950 1,901,610 2,655,563 3,451,135 3,920,685

Inventories 188,467 339,828 877,100 964,514 1,304,678 1,926,036 2,689,992 3,496,298 3,972,478

Provision for decline in inventories 0 0 0 -12,950 -15,729 -24,427 -34,429 -45,163 -51,793

V. Other current assets 11,769 28,257 80,845 64,810 68,090 106,090 149,530 196,150 224,948

B. LONG-TERM ASSETS 26,268 73,171 296,580 313,805 322,791 663,544 731,770 810,411 958,968

I. Long-term trade receivables 0 0 0 0 0 0 0 0 0

II. Fixed assets 13,642 25,614 113,686 110,983 275,040 494,085 612,311 690,951 839,508

Tangible fixed assets 11,796 18,728 65,041 106,084 258,933 480,901 596,685 676,959 825,977

Intangible fixed assets 659 3,930 5,580 4,899 5,054 6,180 6,597 5,976 5,009

Construction in progress 1,187 2,956 43,065 0 11,053 7,004 9,029 8,017 8,523

III. Investment in properties 0 0 0 0 0 0 0 0 0

IV. Long-term investments 0 0 0 0 0 50,000 0 0 0

V. Other long-term assets 12,626 47,556 182,894 200,333 47,053 119,459 119,459 119,459 119,459

VI. Goodwill 0 0 0 2,488 698 0 0 0 0

TOTAL OWNER'S EQUITY

AND LIABILITIES 321,262 599,561 1,536,122 1,594,824 2,231,876 3,317,217 4,794,516 6,120,113 7,219,830

A. LIABILITIES 266,561 447,791 1,227,283 1,135,688 1,407,240 2,016,866 2,770,474 3,604,478 4,138,188

I. Current liabilities 205,522 442,306 1,218,062 1,135,688 1,407,240 2,016,866 2,770,474 3,604,478 4,138,188 Short-term borrowings 28,792 92,952 299,383 391,345 513,189 741,412 1,045,869 1,372,616 1,574,451

Trade accounts payable 140,754 249,148 724,570 598,212 693,539 975,513 1,310,163 1,713,946 1,970,963

Advances from customers 0 0 922 1,628 1,566 2,444 3,448 4,526 5,191 Taxes and other payable to

State Budget 12,956 33,958 42,691 48,552 84,241 132,723 185,810 223,750 257,620

Payable to employees 251 523 1,179 12,155 4,500 6,711 8,840 10,747 12,432

Accrued expenses 20,850 61,406 112,541 67,383 94,070 141,929 200,211 262,760 301,397

Other payables 1,920 4,320 36,776 16,412 16,134 16,134 16,134 16,134 16,134

II. Long-term liabilities 61,040 5,485 9,220 0 0 0 0 0 0

Long-term borrowings 0 2,433 6,546 0 0 0 0 0 0

Provision for severance allowances 0 3,052 2,675 0 0 0 0 0 0

B - OWNER'S EQUITY 54,154 144,751 303,307 455,889 800,284 1,300,351 2,024,042 2,515,634 3,081,641

I. Capital and Reserves 54,154 144,751 303,307 455,889 800,284 1,300,351 2,024,042 2,515,634 3,081,641

Owner's Equity 4,950 7,614 98,344 105,027 109,567 946,348 946,348 946,348 946,348 Share premium 0 46,478 46,478 78,485 151,578 36,718 36,718 36,718 36,718

Owner's other capital 1,130 1,130 1,130 1,130 1,130 1,130 1,130 1,130 1,130

Treasury shares 0 0 0 -11,160 0 -33 -33 -33 -33 Retained earnings 48,073 89,529 157,354 282,407 538,008 316,188 1,039,879 1,531,472 2,097,478



Research Challenge.



II. Budget source and other funds

0 0 0 0 0 0 0 0 0

III. MINORITY INTERESTS 547 7,019 5,532 3,247 24,352 0 0 0 0



Research Challenge.



2018 2019 2020 2021 2022 2023 2024 2025

TOTAL ASSETS 8,403,401 9,516,701 10,697,198 11,948,098 13,231,012 14,311,023 15,378,660 16,435,028

A. SHORT-TERM ASSETS 7,089,814 8,206,050 9,388,649 10,642,782 11,932,960 12,802,413 13,894,762 14,988,916

I. Cash and cash equivalents 1,689,406 2,207,240 2,794,494 3,470,439 4,214,653 4,585,809 5,242,671 5,978,267

II. Short-term investments 0 0 0 0 0 0 0 0

Short-term investments 0 0 0 0 0 0 0 0

III. Accounts receivable 753,385 843,517 934,638 1,024,757 1,111,678 1,193,079 1,266,607 1,329,983

Trade receivable 0 0 0 0 0 0 0 0

Other receivables 0 0 0 0 0 0 0 0

Provision for doubtful debts 0 0 0 0 0 0 0 0

IV. Prepayments to Suppliers 137,534 153,988 170,623 187,074 202,942 217,802 231,225 242,795

IV. Net Inventories 4,392,591 4,870,459 5,343,945 5,801,616 6,231,340 6,620,778 6,957,935 7,231,740

Inventories 4,451,173 4,936,041 5,416,604 5,881,274 6,317,748 6,713,509 7,056,376 7,335,103

Provision for decline in inventories -58,582 -65,582 -72,659 -79,658 -86,409 -92,731 -98,441 -103,363

V. Other current assets 254,432 284,835 315,571 345,970 375,289 402,747 427,549 448,926

B. LONG-TERM ASSETS 1,313,587 1,310,650 1,308,549 1,305,316 1,298,051 1,508,610 1,483,898 1,446,112

I. Long-term trade receivables 0 0 0 0 0 0 0 0

II. Fixed assets 1,194,128 1,191,191 1,189,090 1,185,857 1,178,592 1,389,151 1,364,439 1,326,653

Tangible fixed assets 1,181,822 1,179,811 1,179,081 1,177,054 1,170,892 1,382,592 1,359,115 1,322,513

Intangible fixed assets 1,716,353 1,832,882 1,950,690 2,067,203 2,179,580 2,509,820 2,604,882 2,686,819 Construction in progress -534,531 -653,070 -771,610 -890,149 -1,008,688 -1,127,228 -1,245,767 -1,364,306

III. Investment in properties 0 0 0 0 0 0 0 0

IV. Long-term investments 0 0 0 0 0 0 0 0

V. Other long-term assets 0 0 0 0 0 0 0 0

VI. Goodwill 4,037 2,984 1,676 439 -649 -1,798 -3,029 -4,215

TOTAL OWNER'S EQUITY

AND LIABILITIES 16,136 17,918 19,445 21,043 22,790 24,476 26,079 27,728

A. LIABILITIES -12,099 -14,934 -17,769 -20,604 -23,439 -26,273 -29,108 -31,943

I. Current liabilities 8,270 8,396 8,333 8,364 8,349 8,357 8,353 8,355

Short-term borrowings 0 0 0 0 0 0 0 0 Trade accounts payable 0 0 0 0 0 0 0 0

Advances from customers 0 0 0 0 0 0 0 0 Taxes and other payable to State Budget

0 0 0 0 0 0 0 0

Payable to employees 0 0 0 0 0 0 0 0 Accrued expenses 0 0 0 0 0 0 0 0

Other payables 0 0 0 0 0 0 0 0

II. Long-term liabilities 119,459 119,459 119,459 119,459 119,459 119,459 119,459 119,459

Long-term borrowings 0 0 0 0 0 0 0 0

Provision for severance allowances 8,403,401 9,516,701 10,697,198 11,948,098 13,231,012 14,311,023 15,378,660 16,435,028

B - OWNER'S EQUITY 4,679,563 5,229,018 5,783,510 6,346,928 6,883,064 7,374,884 7,817,544 8,217,748

I. Capital and Reserves 4,679,563 5,229,018 5,783,510 6,346,928 6,883,064 7,374,884 7,817,544 8,217,748

Owner's Equity 1,781,101 1,994,184 2,209,608 2,422,661 2,628,153 2,820,596 2,994,426 3,144,255

Share premium 0 0 0 0 0 0 0 0 Owner's other capital 2,229,304 2,495,687 2,757,441 3,031,342 3,288,235 3,528,815 3,735,891 3,933,433

Treasury shares 5,872 6,575 7,285 7,988 8,665 9,300 9,873 10,367

Retained earnings 292,298 320,794 356,160 391,137 424,872 446,195 474,100 497,758

II. Budget source and other funds 13,896 13,896 13,896 13,896 13,896 13,896 13,896 13,896

III. MINORITY INTERESTS 340,956 381,747 422,986 463,770 503,108 539,947 573,223 601,905



Research Challenge.



Appendix. 2: Income Statement Income Statement

(VND Million) 2,009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Sales 2012518.2 2866124.3 5431201.7 7398101.8 9544540.9 14871161 20960303 27495254 31531950 35664954

Deductible items 52601.055 49522.088 43695.521 23135.412 45691.575 42929.13 42929.13 42929.13 42929.13 42929.13

Net revenue 1959917.2 2816602.2 5387506.2 7374966.4 9498849.3 14828232 20917374 27452325 31489021 35622025

Cost of goods sold 1730633 2308159.1 4431536.5 6180425.9 8091484.1 12566131 17711456 23233490 26644497 30136886

Gross profit 229284.14 508443.05 955969.73 1194540.5 1407365.2 2262100.9 3205917.9 4218835.3 4844523.1 5485138.7

Financial income 5551.0066 7453.5217 7638.6726 3195.007 29466.115 31015.429 43719.44 57353.56 65775.472 74398.317

Interest Income 284.414 1434.5151 751.2743 1130.0198 3002.2701 3746.0866 5284.3991 6935.3371 7955.1357 8999.2651 Other Financial

Income 5266.5926 6019.0066 6887.3983 2064.9871 26463.845 27269.343 38435.041 50418.222 57820.336 65399.052

Financial expenses 3762.6199 13152.423 27855.845 56440.741 26843.254 37070.58 73210.81 96083.138 110211.57 124677.09

Interest expenses 2737.1777 2491.7928 27749.768 53652.436 26535.371 37070.58 73210.81 96083.138 110211.57 124677.09

Other financial expenses 1025.4423 10660.63 106.07727 2788.3053 307.88235 0 0 0 0 0

Selling expenses 140695.94 309585.67 675866.57 910879.19 935793.71 1408682 1987150.5 2607970.9 2991457 3384092.4

General and Admin

Expenses 32011.448 41836.266 51215.688 67187.46 125646.42 192767.02 271925.86 356880.23 409357.27 463086.32

Operating profit/(loss) 58365.138 151322.21 208670.31 163228.15 348547.94 654596.64 917350.1 1215254.6 1399272.7 1587681.3

Other income 3309.9343 5446.8888 5966.3708 7354.4145 10158.135 14828.232 20917.374 27452.325 31489.021 35622.025

Other expenses 3285.4283 2482.9072 2031.8428 2113.6207 7918.4461 6697.7954 10458.687 13726.163 15744.51 17811.012

Other profit 24.505972 2963.9817 3934.5279 5240.7938 2239.6889 8130.4366 10458.687 13726.163 15744.51 17811.012

Profit before tax -

EBT 58389.644 154286.19 212604.84 168468.94 350787.63 662727.08 927808.79 1228980.8 1415017.3 1605492.3

Corporate income

tax - current 11353.143 46086.987 53183.282 44459.825 92541.582 145799.96 204117.93 245796.15 283003.45 321098.46

Corporate income

tax - deferred 1522.288 2155.4885 -

2611.6357 2171.3749 222.80615 - - - - -

Net profit after tax 48558.789 110354.69 156809.92 126180.49 258468.85 516927.12 723690.85 983184.61 1132013.8 1284393.8

Minority interests 485.58789 318.37941

-

1745.7305 1128.2278 2867.6031 - - - - -

Profit to parent

company 48558.789 110036.31 158555.65 125052.27 255601.25 516927.12 723690.85 983184.61 1132013.8 1284393.8

EBIT 56576.751 157021.11 228887.48 216473.88 345925.08 660651.79 946841.47 1253984.2 1443708.8 1637960.1

Depreciation and

Amortization 0 3532.0188 8774.6575 26945.581 30497.499 58203.15 81714.867 99049.671 111387.68 121374.08

EBITDA 56576.751 160553.13 237662.14 243419.47 376422.58 718854.94 1028556.3 1353033.8 1555096.5 1759334.1



Research Challenge.



Income Statement

(VND Million) 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Sales 39926617 44235085 48496150 52605995 56454854 59931453 62928025

Deductible items 42929.13 42929.13 42929.13 42929.13 42929.13 42929.13 42929.13

Net revenue 39883687 44192155 48453221 52563066 56411924 59888523 62885096

Cost of goods sold 33737991 37378646 40979247 44452066 47704351 50642077 53174181

Gross profit 6145696.4 6813509 7473974.2 8111000.2 8707573.2 9246446 9710914.8

Financial income 83289.588 92278.51 101168.53 109743.06 117773.08 125026.45 129116.81

Interest Income 10075.898 11164.355 12240.836 13279.115 14251.46 15129.76 13725.293

Other Financial

Income 73213.69 81114.155 88927.698 96463.947 103521.62 109896.68 115391.52

Financial expenses 179476.59 198864.7 218039.49 236533.8 310265.58 329386.88 345868.03

Interest expenses 179476.59 198864.7 218039.49 236533.8 310265.58 329386.88 345868.03

Other financial

expenses 0 0 0 0 0 0 0

Selling expenses 3788950.3 4198254.8 4603056 4993491.3 5359132.8 5689409.7 5974084.1

General and Admin

Expenses 518487.94 574498.02 629891.87 683319.86 733355.02 778550.81 817506.25

Operating profit/(loss) 1742071.2 1934170 2124155.3 2307398.3 2422592.8 2574125.1 2702573.2

Other income 39883.687 44192.155 48453.221 52563.066 56411.924 59888.523 62885.096

Other expenses 19941.844 22096.078 24226.611 26281.533 28205.962 29944.262 31442.548

Other profit 19941.844 22096.078 24226.611 26281.533 28205.962 29944.262 31442.548

Profit before tax - EBT 1762013 1956266.1 2148381.9 2333679.8 2450798.8 2604069.3 2734015.7

Corporate income tax -

current 352402.61 391253.22 429676.39 466735.96 490159.76 520813.86 546803.15

Corporate income tax -

deferred - - - - - - -

Net profit after tax 1409610.4 1565012.9 1718705.5 1866943.8 1960639 2083255.5 2187212.6

Minority interests - - - - - - -

Profit to parent

company 1409610.4 1565012.9 1718705.5 1866943.8 1960639 2083255.5 2187212.6

EBIT 1838258.2 2040756.2 2241026.3 2434189 2615085.3 2778485.5 2919324.4

Depreciation and

Amortization 121374.08 121374.08 121374.08 121374.08 121374.08 121374.08 121374.08

EBITDA 1959632.3 2162130.3 2362400.4 2555563.1 2736459.4 2899859.6 3040698.5



Research Challenge.



Appendix 3: Cash flow statement

Cash Flow Statement (VND’ 000 000) 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

I. Cash flow from operating activities

1. Net profit 110,355 156,810 126,180 258,469 516,927 723,691 983,185 1,132,014 1,284,394

2. Adjustments:

- Depreciation and Amortization 3,532 8,775 26,946 30,497 58,203 81,715 99,050 111,388 121,374

- Provisions 278 0 12,672 2,779 8,698 10,002 10,734 6,631 6,789

- Unrealized foreign exchange

(gain)/loss 0 0 0 0 0 0 0 0 0

- (Profit)/loss from investing activities 232 306 -957 201 246 246 246 246 246

3. Operating profit/(loss) before changes in WC 114,396 165,890 164,841 291,946 584,075 815,654 1,093,215 1,250,278 1,412,803

- (Increase)/decrease in receivables -35,849 -66,716 8,773 -95,859 -104,243 -128,782 -138,210 -85,374 -87,411

- (increase)/decrease in inventories -151,361 -537,271 -87,415 -340,164 -621,358 -763,956 -806,306 -476,180 -478,695

- Increase/(decrease) in payables 175,677 568,947 -177,012 149,709 381,403 449,151 507,257 331,875 334,724

- (Increase)/decrease in other current

assets -16,488 -52,588 16,036 -3,281 -38,000 -43,440 -46,620 -28,798 -29,485

- Other Incomes/Losses -91,919 -95,344 31,449 920 135,980 33 33 33 33

Net cash inflows(outflows) from

operating activities -5,543 -17,082 -43,328 3,272 337,856 328,661 609,368 991,834 1,151,970

II. Cash flow from investing activities

1. Capital Expenditure (CAPEX) -15,504 -96,847 -24,242 -194,554 -277,249 -199,941 -177,690 -259,945 -475,993

Change in Tangible Fixed Assets 10,217 54,665 67,307 182,793 279,197 195,830 177,305 258,037 474,384

Change in Intangible Fixed Assets 3,518 2,073 0 709 2,100 2,086 1,398 1,402 1,863

Change in Properties Investment 0 0 0 0 0 0 0 0 0

Change in Construction in Progress 1,770 40,109 -43,065 11,053 -4,048 2,024 -1,012 506 -253

2. Proceeds from disposal of fixed assets 1,604 1,285 664 4,574 0 0 0 0 0

3. Change in Short term and Long term Financial Investments 0 -50 50 0 -50,000 50,000 0 0 0

4. Interest, dividends, shared profit from

investments -232 -306 957 -201 -246 -246 -246 -246 -246

5. Change in other Long term assets -34,931 -135,338 -19,928 155,070 -71,708 0 0 0 0

Net cash flow from investing activities -49,062 -231,255 -42,499 -35,111 -399,202 -150,187 -177,936 -260,191 -476,240

III. Cash flow from financing activities

1. Proceeds from shares issue 2,664 90,730 6,683 4,540 0 0 0 0 0

2. Payments for share repurchases 0 0 -11,160 11,160 -33 -33 -33 -33 -33 4. Increase/decrease short term

borrowings 64,160 206,431 91,963 121,844 228,223 304,457 326,748 201,835 206,650

5. Increase/decrease long term borrowings 2,433 4,113 -6,546 0 0 0 0 0 0

6. Dividends paid -68,581 0 0 0 0 0 -491,592 -566,007 -642,197

7. Increase/decrease in other capital 46,478 0 32,007 73,093 -114,861 0 0 0 0

8. Increase/decrease in minority interest 6,472 -1,486 -2,285 21,105 -24,352 0 0 0 0

Net cash inflows/(outflows) from

financing activities 53,626 299,788 110,662 231,742 88,977 304,424 -164,878 -364,205 -435,580

Net Increase/Decrease in cash and cash

equivalents -980 51,451 24,834 199,902 27,631 482,898 266,554 367,439 240,151

Cash and cash equivalents at the

beginning of period 29,526 28,546 79,997 104,831 304,734 332,364 815,262 1,081,817 1,449,255

Effect of exchange rate 0 0 0 0 0 0 0 0 0


ending of period 28,546 79,997 104,831 304,734 332,364 815,262 1,081,817 1,449,255 1,689,406



Research Challenge.



Cash Flow Statement

(VND ‘000 000) 2019E 2020E 2021E 2022E 2023E 2024E 2025E

I. Cash flow from operating

activities

1. Net profit 1,409,610 1,565,013 1,718,706 1,866,944 1,960,639 2,083,255 2,187,213

2. Adjustments:

- Depreciation and Amortization 121,374 121,374 121,374 121,374 121,374 121,374 121,374

- Provisions 7,000 7,077 6,999 6,751 6,322 5,711 4,922

- Unrealized foreign exchange

(gain)/loss 0 0 0 0 0 0 0 - (Profit)/loss from investing

activities 246 246 246 246 246 246 246

3. Operating profit/(loss) before

changes in WC 1,538,231 1,693,710 1,847,325 1,995,315 2,088,581 2,210,586 2,313,755

- (Increase)/decrease in receivables -90,132 -91,122 -90,119 -86,921 -81,401 -73,528 -63,376

- (increase)/decrease in inventories -484,868 -480,564 -464,669 -436,475 -395,761 -342,867 -278,727

- Increase/(decrease) in payables 336,373 339,069 350,365 330,644 299,377 268,830 250,376 - (Increase)/decrease in other

current assets -30,403 -30,736 -30,398 -29,319 -27,458 -24,802 -21,377

- Other Incomes/Losses 33 33 33 33 33 33 33

Net cash inflows(outflows) from

operating activities 1,269,234 1,430,390 1,612,535 1,773,277 1,883,372 2,038,252 2,200,683

II. Cash flow from investing

activities

1. Capital Expenditure (CAPEX) -118,437 -119,273 -118,141 -114,109 -331,933 -96,662 -83,588

Change in Tangible Fixed Assets 116,529 117,809 116,513 112,378 330,239 95,062 81,937

Change in Intangible Fixed Assets 1,782 1,527 1,597 1,747 1,686 1,603 1,649

Change in Properties Investment 0 0 0 0 0 0 0

Change in Construction in Progress 127 -63 32 -16 8 -4 2

2. Proceeds from disposal of fixed assets 0 0 0 0 0 0 0

3. Change in Short term and Long term Financial Investments 0 0 0 0 0 0 0

4. Interest, dividends, shared profit

from investments -246 -246 -246 -246 -246 -246 -246

5. Change in other Long term assets 0 0 0 0 0 0 0

Net cash flow from investing

activities -118,684 -119,519 -118,388 -114,355 -332,179 -96,908 -83,834

III. Cash flow from financing

activities

1. Proceeds from shares issue 0 0 0 0 0 0 0

2. Payments for share repurchases -33 -33 -33 -33 -33 -33 -33 4. Increase/decrease short term

borrowings 213,083 215,423 213,053 205,492 192,443 173,830 149,829

5. Increase/decrease long term borrowings 0 0 0 0 0 0 0

6. Dividends paid -845,766 -939,008

-

1,031,223

-

1,120,166 -1,372,447

-

1,458,279

-

1,531,049

7. Increase/decrease in other capital 0 0 0 0 0 0 0 8. Increase/decrease in minority

interest 0 0 0 0 0 0 0

Net cash inflows/(outflows) from

financing activities -632,716 -723,617 -818,203 -914,707 -1,180,037

-

1,284,482

-

1,381,253

Net Increase/Decrease in cash and

cash equivalents 517,834 587,254 675,945 744,214 371,156 656,862 735,596


beginning of period 1,689,406 2,207,240 2,794,494 3,470,439 4,214,653 4,585,809 5,242,671

Effect of exchange rate 0 0 0 0 0 0 0


ending of period 2,207,240 2,794,494 3,470,439 4,214,653 4,585,809 5,242,671 5,978,267



Research Challenge.



Appendix 4: DCF analysis

In million WACC

CALCULATION 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Residual

Risk free rate 8.0% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.34%

Market expected

return 16.0% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7%

Market risk

premium 8.0% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.34%

Adjusted beta 1.16 1.13 1.10 1.12 1.11 1.09 1.09 1.08 1.07 1.06 1.06 1.06 1.05 1.05

Cost of Equity 17.3% 16.9% 16.6% 16.8% 16.7% 16.5% 16.5% 16.4% 16.4% 16.3% 16.2% 16.2% 16.1% 16.1%

Cost of Debt 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11%

Tax rate 22.0% 22.0% 22.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20%

After-tax cost of

debt 8.6% 8.6% 8.6% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% 8.8%

Weight of Equity 60.9% 63.7% 65.9% 64.7% 66.2% 67.6% 68.3% 69.0% 69.8% 70.7% 71.1% 71.6% 72.3% 70%

Weight of Debt 39.1% 36.3% 34.1% 35.3% 33.8% 32.4% 31.7% 31.0% 30.2% 29.3% 28.9% 28.4% 27.7% 30%

WACC 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14%

FCFF, FCFE

(Million VND) 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

CFO 3272 337856 328661 609368 991834 1151970 1269234 1430390 1612535 1773277 1883372 2038252 2200683

Interest expenses 26535 37071 73211 96083 110212 124677 179477 198865 218039 236534 310266 329387 345868

Tax rate 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%

Interest expenses after tax 20698 28915 57104 76867 88169 99742 143581 159092 174432 189227 248212 263510 276694

Net investment in

fixed capital (CAPEX) -194554 -277249 -199941 -177690 -259945 -475993 -118437 -119273 -118141 -114109 -331933 -96662 -83588

FCFF -170585 89522 185824 508544 820059 775718 1294378 1470209 1668825 1848395 1799651 2205100 2393789

Net Borrowings 121844 228223 304457 326748 201835 206650 213083 215423 213053 205492 192443 173830 149829

FCFE -69439 288830 433177 758426 933724 882626 1363880 1526541 1707447 1864660 1743882 2115420 2266924

3-Stage Model:

Terminal growth rate 3.00% Terminal growth rate 3.00% Terminal growth rate 3.00%

Perpetuity WACC 14.00% Perpetuity WACC 14.00% Perpetuity WACC 14.00%

VND million

2,465,603 VND million

2,465,603 VND million

2,465,603

Terminal value

22,414,574 Terminal value

22,414,574 Terminal value

22,414,574

PV of residual value

5,245,776 PV of residual value

5,986,155 PV of residual value

6,831,030

PV of FCFF

5,927,604 PV of FCFF

6,557,855 PV of FCFF

6,971,565

PV of firm value

11,173,380 PV of firm value

12,544,010 PV of firm value

13,802,596

Net debt

741,412 Net debt

1,045,869 Net debt

1,372,616

PV of equity value

10,431,968 PV of equity value

11,498,141 PV of equity value

12,429,980

Cash

332,364 Cash

815,262 Cash

1,081,817

Short-term investment

- Short-term investment

- Short-term investment

-

PV of equity, cash, short-

term investment

10,764,332 PV of equity, cash, short-

term investment

12,313,403 PV of equity, cash, short-

term investment

13,511,796

Number of shares (million)

107 Number of shares

(million)

107 Number of shares (million)

107

Price at the end of 2014

(VND) 101000 Price at the end of 2015

(VND) 115000 Price at the end of 2016

(VND) 127000



Research Challenge.



Appendix 5. Multiple valuation Local peers:

Sourc

e:

Team

estim

ate

and

Hano

i

Stock

Exch

ange and Hochiminh Stock Exchange.

International Comparable:

International Peers

Sticker-

Bloombe

rg Exchange

Market

Cap (US

mil.)

Price

(VND)

FY201

4 EPS

(VND)

Current

P/E EV/EBITDA

ERAJAYA

SWASEMBADA ERAA IJ Indonesia 259.20

1,914.0 94.69 10.82 11.29

FPT Corp. FPT VN Vietnam 808.35

50,000.0 n/a 11.31 7.12

BEST DENKI CO LTD 8175 JP Japan 202.60

25,160.0 14.70 12.10 14.27

TRIKOMSEL OKE TBK PT TRIO IJ Indonesia 488.05

2,175.0 203.00 20.00 14.14

GLOBAL TELESHOP GLOB IJ Indonesia 88.83

1,696.5 101.64 9.59 7.80

Sector peer simple average 12.77 10.924

Source: Bloomberg & team estimate.

Appendix: We believe the stock should be trading at similar PE valuation to its peer group average after weighting the arguments for either

discount or a premium.

MWG deserves a discount for the following reasons:

(1) The “Electronic World” brand used by MWG‟s consumer electronics chain is not well- recognized yet;

(2) MWG‟s market share in consumer electronics is as small as 2%, or still far behind that of 8-10% of the top 2 players namely

Nguyen Kim and Dien may Cho Lon

On the other hand, we argue that MWG deserves a premium because:

(1) MWG has an excellent management system that keeps its cash conversion cycle at about 30 days only. This is the best index in

all over the industry, far exceeding the direct competitors FPT shop (…. Days) and Tran Anh (….. Days). This enables the

company to keep short-term borrowings to a minimum as it builds up its inventory. Moreover, the products are more likely to

update the interest of customers, which is a crucial point in the fast changing market nowadays.

(2) The Mobile World is the largest mobile retailer in Vietnam with a 25% market shares and more than 300 stores which gives

MWG very strong buyer power, enabling them to reduce prices and enjoy greater economies of scale compared to competitors in

the same segment.

Overall, we take the view that negative and positive arguments roughly balance out. So we have decided to award MWG a fair value close

to peer average valuation. In fact, we could even argue that a slight premium is deserved. Given the pioneer management board, who

founded this company and drove it since the time that Vietnamese market was totally immature. In addition, the close involvement of

foreign strategic shareholders such as Mekong Capital the chain has had access to ample capital and also a network of advisors who have

experience in running consumer electronic retail chains overseas. This has given them an important helping hand in constructing the self-

developed mechanics of a successful Enterprise Resource Planning system, which is designed and operated for Vietnamese. This system is

even desired by other competitors that FPT had offered to buy the total system applying to FPT shop chain; given that FPT is now the

country leader in Information technology.

Company

Market Capitalization (billion

VND) Number of shops Location Trading

FPT 17,199 150 National wide HOSE

MWG 10,347 300 National wide HOSE

TAG 404 16 Northern HNX

ATC 80 117 Big cities OTC



Research Challenge.



P / E valuation Price (VND) P/E FY 2014 EPS

(VND)

MWG fair value with

sector peer average

116,000

12.765

9,063 Premium/Discount 0%

MWG fair value 116,000 12.765

MWG current price 103,000 12.765

Potential 11% Upside

EV / BITDA valuation Price (Vnd) EV /

EBITDA

Value of Equity

( VND Million)

Number of shares

(VND Million)

MWG fair value with

sector peer average

119,000

10.924

6,778,995

57 Premium/Discount 0%

MWG fair value 119,000 10.924

MWG current price 103,000 10.924

Potential 13% Upside

Multiple P/E

EV /

EBITDA

Estimated

price 116000 119000

Weights 50% 50%

Target price 117500 (VND)



Research Challenge.



Appendix 6: DCF assumptions

Sales volume

MWG experiences a high sales growth period from 2014 to 2016 before gradually declining.

Mobile phones segment Total mobile phones sales increase significantly to VND 21,000 billion in 2018, mainly derived from the sales of smartphones. The CAGR

of MWG mobile phones segment for the period 2014-2018 is expected to be 19%.

First, sales of mobile phones in Vietnam continuously increase thanks to strong penetration of smartphones.

By 2013, each Vietnamese person owned about 1.5 mobile phones while the penetration of smartphones was only 20%

(according to Google‟s our mobile planet). This implies that the sales growth of mobile phones will mostly depend on the original

buying demand and replacement demand for smartphones. On account of the tendency of using smartphones and decreasing

selling price, the penetration of this type is anticipated to be 75% in 2018. This number would be more plausible thanks to high

proportion of youth people in Vietnam (the average age by 7/2013 was only 27 years old). Therefore, the CAGR of total sales in

the period 2014-2018 would be 12%, slightly higher than the previous period 2009-2013.

Second, MWG is able to extend its current market share to the target of 40% from 2016E thanks to five following factors:

Absorbing mom-and-pop shops’ market share. Recently, up to 50% market share is occupied by mom-and-pop shops which

are extremely weak in customer care. Therefore, it hardly satisfies increasingly higher need of customers and keeps its share as

well. This market share will soon be adsorbed by modern retailing chains

No strong competitors in the middle and the south of Vietnam where the number of stores of MWG is the highest among

mobile retailing companies in 5 recent years

Strategically opening new shops: Six professional teams were built to find suitable locations for every new shop

MWG’s average pace of opening new shops for the first 10 months of 2014 was about 3 days per shop

Efficiency of ERP system in dispatching goods to various locations

Tablets segment Being an attractive product like smartphones, sales of tablet in Vietnam is anticipated to increase significantly. Based on BMI‟s projection,

increasing presence of low-price devices leads to a rapid growth for the tablet sales unit from 638,000 to 2,631,000 in 2018. Moreover,

since MWG‟s market share in this segment is projected to rise to 38% in 2018, tablet sales experiences the fastest growth to account for up

to 12% of total sales in 2018.

Laptop segment

The laptop market in Vietnam is relatively fragmented. Therefore, it is difficult for MWG to gain more market share from plenty of other

chains, leading to moderate growth with average growth of PC market (by roughly 15% from 2014 to 2018).

Appliance segment

In this section, regardless of late initiation, MWG is strong enough to increase its position in the forecast period based on:

Completion in the establishment of the most suitable business model for dienmay.com. After two years of conducting market

research, MWG start expanding the appearance of appliance shops only focusing on five basic products in tier 2 cities where the

presence of large scale specialist retailers remains small.

No outstanding player possesses more than 10% of market share. This situation could allow MWG to extend its market share

from 2% to 15% in 2018.

Potential growth for consumer electronics market in tier 2 cities. Due to intensive competition and declining growth rate in

big cities like Hanoi & HCM, tire 2 cities and rural market would be the key driver for the whole sector.

0

5000

10000

15000

20000

25000

30000

35000

40000

45000Vietnam sales unit

Mobile

Tablet

PC



Research Challenge.



Sales volume forecast

(Thousand units) 2013 2014E 2015E 2016E 2017E 2018E

MWG mobile phones volume

3,400

5,867

8,958

12,700

14,650

16,600

MWG tablets volume

128

233

371

509

728

1,000

MWG PC volume

140

168

200

224

252

282

Vietnam Tablet sales

638

988

1,363

1,652

2,116

2,631

Vietnam PC sales

2,799

3,369

3,990

4,489

5,045

5,633

(Million units)

Vietnam Mobile phones sales 17.0 22.0 26.9 31.8 36.6 41.5

Vietnam Smartphones sales 6.9 14.0 19.1 24.3 29.4 34.5

Vietnam Feature phones sales 10.1 8.0 7.8 7.5 7.3 7.0

Smartphones share 41% 64% 71% 76% 80% 83%

Smartphones sales growth 103% 37% 27% 21% 17%

Feature phones sales growth -21% -3% -3% -3% -3%

MWG mobile phones market share 20% 27% 33% 40% 40% 40%

MWG tablets market share 20% 24% 27% 31% 34% 38%

MWG Appliances market share 2% 4.6% 7.2% 9.8% 12.4% 15%

MWG PC share 5% 5% 5% 5% 5% 5%

Source: BMI & team estimate

2012 2013 2014E 2015E 2016E 2017E 2018E

Number of mobile phones 132.64 140.03 146.03 155.91 165.66 175.41 185.16

Population 88.78 89.708 90.98 92.26 93.53 94.81 96.08

Penetration of mobile phones 149% 156% 161% 169% 177% 185% 193%

Source: World Bank & team estimate

2013 2014E 2015E 2016E 2017E 2018E

Number of smartphones

17.9 29.0 41.3 51.5 61.8 72.0

Population

89.708 90.98 92.26 93.53 94.81 96.08

Penetration of smartphone

20% 32% 45% 55% 65% 75%

Source: World Bank & team estimate

Cost of goods sold

Cost of goods sold is estimated in details including: Mobile phones segment, Tablet segment, Laptop segment and others. The proportions

of cost of goods sold in revenue of foregoing segments are 89%, 88%, 89% and 75% respectively. As claimed by MWG, these ratios were

maintained over years in the past. However, we expect cost of goods sold mobile phones and tablet to slightly decline based on MWG‟s

outstanding advantages: (i) signing contracts directly with several biggest mobile producers; (ii) the sole retailers which possess shops

covering all 63 provinces in Vietnam; (iii) one of few retailing companies generating large volume of revenue with a steady growth.

Generally, Cost of goods sold is forecast to relatively stabilize at roughly 84-85% during forecast period.

SG&A expense



Research Challenge.



Thanks to the completion of Enterprise resource planning system (ERP), MWG is predicted to manipulate more effectively its selling,

general and administration expense. Indeed, in accordance with MWG‟s financial statement in the third quarter of 2014, the average selling

expense in the first 9 months was only around 8.5% of revenue compared to 11% in the same period last year, while G&A expense was

relatively stable at 1.32% of revenue.

Therefore, we forecast G&A expense to stabilize at 1.3% from 2014, whereas the selling expense would experiences an increase from 9%

to 10% in 2025E due to more intense competition.

WACC calculation

1. Risk free rate

The risk free rate was derived from on-the-run treasury 10 year Government bonds with yield of 6.34% on 28th October, 2014.

2. Beta calculation

As MWG‟s initial public offering was July, 2014, the historical data of return for this stock is not enough for using least square regression

method. Therefore, we considered unlevered beta of MWG as the weighted figure of its peers before computing levered beta according to

MWG‟s financial leverage and marginal tax rate.

Weighted value = (1-i)*F2 + i*Average (F1, F3, F4, F5, F6, F7, F8)

(i: Integrating level of Vietnam to other Asian Stock Exchanges)

We expect this level to be 30% due to the prospect of integration of Asean Stock Exchanges and increasing effect of Asian Economy to

Vietnam.

Peers’ unlevered beta calculation

A B C D E F

Levered

Beta

(5 years) DEBT/EQUITY

PRE-TAX

INCOME

INCOME

TAX

EXPENSE

TAX

RATE UNLEVERED

BETA

1 ERAJAYA SWASEMBADA 0.96 0.43 926.4 291.48 31% 0.743

2 FPT Corp 1.33 0.51 2520 450.32 18% 0.937

3 BEST DENKI CO LTD 1.16 0.50 433.23 50.14 12% 0.802

4 TRIKOMSEL OKE TBK PT 0.73 2.76 1370 351.33 26% 0.239

5 GLOBAL TELESHOP TBK

PT 0.91 0.99 314.37 81.08 26% 0.525

Weighted

value

0.823

3. Cost of Debt

In 2013 and 9M2014, MWG experienced a preferred interest rate of only 5%. However, we expect this figure to growing gradually

thereafter due to an increasing propensity of market interest rate in long term. We used the average ratio of 11% to calculate WACC.

Risk free rate 10-year Vietnamese government’s bond

Beta Team computations

Market risk premium 9.34% Based on A. Damodaran‟s calculation

Cost of debt

Team computations

Marginal tax rate Vietnamese government‟s policy

Capital Structure Target structure: 30% Debt, 70% Equity



Research Challenge.



Sources: Company’s financial statement and team esimates

4. Tax rate

The current tax rate of 22% will be remained before being reduced to 20% from 2016.

5. Capital structure

We assume that MWG continuously incurs only short-term debt to finance its working capital. Based on historical data, the volume of

short-term debt is forecast to account for 5% of net revenue.

0%

2%

4%

6%

8%

10%

12%

14%

16%

2009 2011 2013 2015 2017 2019 2021 2023 2025

MWG short-term debtinterest rate



Research Challenge.



Appendix 7. ERP

Inventory

management

This system helps the company to identify “hot” products and slow – selling ones, thereby implementing

the appropriate selling policy to keep the inventory cost in an acceptable level.

Manifold business

activities management

MWG‟s ERP encompasses various modules such as human resource, finance, accounting, customer

service and supply chain management. This system enables MWG to control the flow of goods, reduce

the operating costs and ensure customer on – time delivery.

Human resource

management

ERP creates an online internal environment to manage communication among 10000 employees

(including part – time ones), aiming to build a unified company culture throughout the shops.

The system also allows employees to access their working schedule and know their salary, bonus and

fines in detail in the end of each month. This helps leaders of MWG evaluate the performance of their

staff and make decisions.

Business Intelligence

module

This system enables MWG‟s executive leaders to access the overall statistic of business activities

immediately or daily by email or SMS



Research Challenge.



Appendix 8. Floating shares calculation

Block ownership of shares Number of share Proportion Up to date

CDH Electric Bee Limited 9,935,350 16% 10/11/2014

CEO. Nguyen Duc Tai (*) 9,088,587 17% 8/10/2014

Mekong Enterprise Fund II 8,981,958 14% 8/10/2014

Tri Tam Limited Company 6,818,009 11% 8/10/2014

Mr. Dinh Anh Huan 3,111,069 5% 8/10/2014

Total 37,934,974 63%

Total number of shares outstanding (**) 62,723,171

Floating shares 24,788,197

Proportion of floating shares 37%

(*) The proportion of CEO Nguyen Duc Tai was derived from: 2.14% of total from his share and 14.49% from his cross-ownership

company.

(**) Albeit the number of shares outstanding was increased to 106,622,378 shares on 18th October 2014, those added shares will only be

allowed to trade on 11th November 2014. Therefore, we use the figure of shares outstanding before being diluted.

Appendix 9. Vietnam Monthly income per capita

Source: GSO

Appendix 10. Vietnam Technical Consumer Goods Market

Unit: VND billion 2010 2011 2012 2013

Mobile phones 27,117 32,120 30,224 40,433

IT products 21,224 26,190 24,570 26,609

Appliance 40,957 37,669 34,235 42,658

Cameras 2,043 1,988 2,034 1,899

Office equipment 2,168 2,211 1,563 1,516

Total 93,509 100,178 92,626 113,115

%y/y

Mobile phones 40.8% 18.4% -5.9% 33.8%

IT products 7.0% 23.4% -6.2% 8.3%

Appliance 34.9% -8.0% -9.1% 24.6%

Cameras 29.1% -2.7% 2.3% -6.6%

Office equipment 6.0% 2.0% -29.3% -3.0%

Total 27.9% 7.1% -7.5% 22.1%

Source: GFk TEMAX

1999 2002 2004 2006 2008 2010 2012

295 356 484 636 995 1387 2000

0

500

1000

1500

2000

2500

Thousand VND



Research Challenge.





Research Challenge.



Appendix 11. Smartphone penetration (2013)

Source: Google’s our mobile planet

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Smartphone Feature phone



Research Challenge.



Appendix 12. Five forces Porter

1. Rivalry among existing competitors:

- Relatively large competitors

- Economies of scale

- Low level of product differentiation

- Low exit barriers

- Competitive customer relation management (CRM) policy

2. High Threat of New entrant:

– Low barriers to enter the market

- Government policy about integration based on WTO agreement, welcoming international company

- Room for grow of modern retailers

- Existence of economies of scale

3. Threat of substitute product:

- Technology is always updated, technology products are changing monthly

- Smart phone is easily substituted by tablet,

- The tendency in retail to not to specialize in one good or service

- There is not any retailer in the market offering products that are unique. FPT is the only competitor can import Apple’s

products in Vietnam

4. Bargaining power of buyers:

- Short term supply contracts involved

- Moderate demand of product to the buyers

- High product differentiation

- Very low buyer’s threat of backward integration

5. Bargaining power of suppliers

- high dependence on foreign suppliers

- long term supply contracts involved

The scale of the interaction

0 No interaction 2 Low 4 High

1 Insignificant 3 Average 5 Very high

0

1

2

3

4

5

Rivalry among existing

competitors

Threat of New entrants

Thread of substitute

product

Bargaining power of

buyers

Bargaining power of

suppliers

Final rating: 3.0



Research Challenge.



Appendix 13. Peers

Indicator MWG FPT shop Vien Thong A

Website http://www.thegioididong.c

om/

http://www.dienmay.com/

http://fptshop.com.vn/#

http://www.vienthonga.vn/

Delivery policy - Deliver within the day if

the distance from the shop

to customers is not more

than 10 km

- Time orders in 7.30 –

21.00: deliver within 30

minutes or follow the

request of customers ( This

time is estimated in the case

that the distance from the

nearest store to customers is

not more than 5 km)

- Time orders in 21.00 –

7.30: deliver before 9am or

follow the request of

customers.

- Commit to deliver the

products within 30 – 60

minutes in diameter of 10 km.

- Deliver the products within

48 hours in diameter of more

than 10 km.

- In Ho Chi Minh city: staff of

Viet Thong A will deliver and

finish payment at the

registered address within 60

minutes ( This is only for Ho

Chi Minh city)

- In other provinces: the

delivery time is within 2 – 4

days after the order is

accepted. Delivery fee: free

(except for orders of

component less than VND

400,000 whose cost will be

added shipping fee of VND

30000)

Sales policy: warranty 12 months 12 months Return products within 8 days.

Warranty: Exchange product

within 12 months.

Number of shops 306 shops Mobile World

16 shops Electronics World

149 shops 115 shops

Instalment purchase

policy

Set partnership with ACS

Vietnam, Home Credit, FE

Credit


Vietnam, Home Credit, FE

Credit


Vietnam, Home Credit, HD

Finance

Co

mp

aris

on o

f so

me

pro

du

cts

Galaxy note 4 Available 4 type of color

for products. Price: VND18

million, give a coupon of

VND 600,000. Warrant in

12 month

Price: VND18 million. Give a

coupon of VND500,000

Price: VND18 million. Give a

set of gifts worth VND1.5

million

Lumia 930 Price: VND12.999 million Price: VND12.999 million Price: VND12.999 million

Galaxy tab 4

10.1 T531

Price: VND9.79 million Price: VND9.39 million Price: VND8.99 million

IPad Air

cellular 16GB

Price: VND14.79 million Price: VND13.99 million Price: VND15.29 million

Galaxy S5 Price: VND11.98 million Price: VND11.99 million Price: VND11.79 million

MacBook Pro

Retina

MGXC2ZP/A

Price: VND59.99 million Price: VND59.99 million + a

promotional package worth

VND1.5 million

Not available

http://www.thegioididong.com/

http://www.thegioididong.com/

http://www.dienmay.com/

http://fptshop.com.vn/

http://www.vienthonga.vn/



Research Challenge.



Appendix 14. DuPont Analysis

Source: Company data, Team estimates

Appendix 15. Comparision of CCC:

MWG FPT TAG

Days inventory outstanding (DIO) 51.2 51.48 41.13

Days sales outstanding (DSO) 6.2 110.56 153.38

Days payable outstanding (DPO) 28 33.08 32.16

Cash conversion cycle (CCC) 29.4 128.96 162.5

Legend

2011 2012 2013

2014E 2015E 2016E

2017E 2018E 2019E

ROE

70% 3.2% 41.2%

49.4% 47.6% 46.2%

42.3% 38.7% 35.5%

ROA

14.7% 8.1% 13.5%

18.7% 19.6% 19.3%

17.8% 16.9% 15.9%

ASSET/EQUITY

4.8 4.1 3.0

2.6 2.4 2.4

2.4 2.3 2.2

NI/SALES

2.9% 1.7% 2.7%

3.5% 3.8% 3.8%

3.8% 3.7% 3.6%

SALES/ASSETS

5.0 4.7 5.0

5.4 5.2 5.0

4.7 4.6 4.5

NET INCOME (VNDbn)

156.8 126.2 258.5

518.9 814.6 1,104.7

1,261.3 1,413.5 1,350.8

EBT/EBIT

92.9% 77.8% 101.4%

100.3% 98.2% 98.1%

98.1% 98.1% 95.9%

EBIT (VNDbn)

228.9 216.5 345.9

663.2 1,063.9 1,407.1

1,607 1,801.5 1,995.3

NET INCOME/EBT

73.8% 74.9% 73.4%

78% 78% 80%

80% 80% 80%



Research Challenge.



Appendix 16: Brand awareness survey

The survey campaign focused on the awareness of the young customer about brand of top telephone retailers and the loyalty of customer to

the seller because of the services.

Over 3 weeks, the survey received 1060 responses, mostly from people at the age 18-30, living in Hanoi, with diversified living standard

and personal demand for mobile phones. With this sample, the result of the survey can represent the young customers‟ trend in phone.

Nearly 40% of the respondents think about Mobile World when they need a new phone or tablet, and a rising interest in modern shops, a

team‟s survey shows, demonstrating partly the customer‟s tendency to mobile retail industry. In detail:

Around 72 percent said that they are using only 1 phone at the moment, and rarely 8 percent with more-than-2 phone. 25 percent

confirmed that 2 phones are necessary for the daily life. This data is supporting to the team‟s assumption about the high demand

in mobile phone in the next years.

Asked about which company they will choose to buy a new phone or tablet, around 38 percent (306 Reponses) said Mobile world

is on the top of mind brand. The two following brands are two major competitors, respectively FPT Shop (23 percent) and the

independent shops (21 percent).

However, asked whether to return in traditional independent shops, only 25 percent confirmed yes but the last 75 percent choose

to buy the new one in modern shops. This is showing the dominance of modern chain over the traditional shop.

According to the survey, nearly half of those who had bought products from Mobile world are satisfied for the customer service

and rate a high score. However, 23 percent rate less than 5 on the scale of 10, showing that Mobile world‟s service should be

improved with much effort. MWG conducted about 30 000 calls monthly to collect the feedback from customers right after they

buy any tiny product in the shop and one week after the sale. This customer relation management is an advantage, comparing to

their direct rivalry, earning a great brand loyalty from the customer.

Despite the clear result, the survey indicates the preference merely from those with average income. Almost 97 percent of less-

than-10 million Vietnam dong per month answered this survey campaign.

The respondents were interviewed by telephone and online.



Research Challenge.



Appendix 17. Corporate Social Responsibility

Relationship with employees

MGW applies fair and ununiform policy for about 5,500 workers in Mobile World and Electronics

World. The employees are entitled to the full range of modes of working time, holidays, basic wage

prescribed by law. In addition, the Board of Directors adopt a system of modern KPIs to evaluate

job performance and salary and stock bonuses to employees based on customer satisfaction rather

than sales. (this is the motivation for employees to work more effectively, while improving service

quality of MGW).

Contribution to society

MGW applies fair and uniform policies for about 5,500 workers in Mobile World and Electronics

World. The employees are entitled to the full range of modes of working time, holidays, basic wage

prescribed by law. In addition, the Board of Directors adopt a system of modern KPIs to evaluate

job performance and salary and stock bonuses to employees based on customer satisfaction rather

than sales. (this is the motivation for employees to work more effectively, while improving service

quality of MGW)

Safety

MGW often has promotions, gifts for clients; actively funding for community-based programs such

as game shows singing star, rewarding valedictorian University ...

Since most of products is provided directly by the manufacturer, MWG always ensures both of

quality and safety for the consumer. At the same time, the MGW store allows customers to interact

with products before purchasing. In addition, customers are also received instructions on using

products thoroughly, ensuring the most secure and useful characteristic of products.

Environment

MGW strictly comply with regulations on environmental protection in the process of importing and

distributing products

Source: MWG’s annual report and team estimates



Research Challenge.



Appendix 18 : Monte Carlo Simulation

We performed Monte Carlo Simulation in order to check the effect of essential costs in retailing industry to the target price of MWG.

WACC and terminal growth rate were also involved due to its significant impact on the firm value.

Factors

Paramaters

(Sample from 2009

to 2013)

Distribution Normal

Triangular

Mean

Standard

Deviation Minimum Most likely Maximum

WACC

Normal 14.50% 1%

Terminal growth

Normal 3% 0.70%

COGS

(% sales)

Mean = 84.35%

Std = 2.6% Normal 84.50% 0.5%

Selling expense

(% revenue)

Mean = 10.6%

Std = 2.2% Triangular

9% 9.50% 10%

General and Admin

Expenses

(% revenue)

Mean = 1.3%

Std = 0.4% Triangular

1% 1.30% 1.60%

Sourse: Team estimates

The Monte Carlo showed the mean of MWG‟s target price was VND 101,700 (the base case is VND 101,000) with 17% of standard

deviation, approving our recommendation. There is 40% probability of holding range price, while 20% and 40% chance that would change

our recommendation to sell and buy respectively.



Research Challenge.



The sensitivity chart proves that Cost of goods sold has the most significant influence to the MWG’s share price, followed by selling

expense and WACC. Therefore, the ability of MWG in manipulating operating costs will determine the growth of firm value.



Research Challenge.



Appendix 19: Sensitivity analysis

WA

CC

(te

rmin

al) Terminal growth rate

1% 2% 3% 4% 5%

12.00% 100,000 105,000 112,000 120,000 131,000

13.00% 96,000 100,000 106,000 112,000 121,000

14.00% 93,000 96,000 101,000 106,000 113,000

15.00% 90,000 93,000 97,000 101,000 107,000

16.00% 87,000 90,000 93,000 97,000 102,000

Appendix 20: Risk matrix




Research Challenge.



Disclosures:

Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company.

The author(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias the content or

publication of this report. [The conflict of interest is…]

Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as an officer or director:

The author(s), or a member of their household, does [not] serves as an officer, director or advisory board member of the subject company.

Market making:

The author(s) does [not] act as a market maker in the subject company‟s securities.

Ratings guide:

Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater over the next twelve month period, and recommends that investors take a position above the security‟s weight in the S&P 500, or any other relevant index.

A SELL rating is given when the security is expected to deliver negative returns over the next twelve months, while a HOLD rating implies flat returns over

the next twelve months.

Investment Research Challenge and Global Investment Research Challenge Acknowledgement:

[Society Name] Investment Research Challenge as part of the CFA Institute Global Investment Research Challenge is based on the Investment Research

Challenge originally developed by the New York Society of Security Analysts.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but

the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of

an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with [Society Name], CFA

Institute or the Global Investment Research Challenge with regard to this company‟s stock.

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