Electronic giants setting foot in pharmaceutical retail

There are ample opportunities for investors in pharmaceutical retail

Pharmaceutical market

Pharmaceutical retail emerges as a potential sector that investors are paying attention to. According to Environmental Research and Public Health, there are 54,250 pharmaceutical retail facilities countrywide. The growth of retail facilities has decreased since 2013, but per capita expenditure for pharmaceuticals still increased by 10 per cent per year, according to statistics from the Ministry of Health.

By 2020, Vietnamese people are estimated to spend an annual average of $50 on drugs, while it was $33 in 2015 and averaged at $78 in the 22 pharmerging countries.

Vietnam has seen the end of its golden population in 2016, and the population is now entering a higher age structure. By 2050, the 65+ population is estimated to make up 21 per cent compared to the 7 per cent now, leading to an increase in the demand for drugs.

The pharmaceutical retail market has been initially reshaped by the participation of a series of professional pharmacies such as Pano, Pharmacity or My Chau. However, there are no pharmacy chains capturing up to 20 per cent of the market share. Thereby, opportunities for investors in this sector are abundant.

MWG and Phuc An Khang

While the mobile retail market has been showing signs of saturation, at the 2017 annual shareholders' meeting, Nguyen Duc Tai, chairman of MWG, announced intentions to set foot in the pharmaceutical retail sector by mergers and acquisitions (M&A).

Phuc An Khang, which is medium-scale pharmaceutical retail chain, owns 20 stores in Ho Chi Minh City, only 14 stores of which are currently operational. At first, MWG intended to spend VND500 billion ($22 million) on acquiring 20 to 40 per cent of the shares of this pharmaceutical retailer, then decided to rise by 60 per cent. Thereby, MWG’s budget for M&A businesses rose fast to VND2.5 trillion ($110 million) in August 2017 after acquiring Tran Anh.

MWG will expand its pharmaceutical retail system much in the same way as it developed the Mobile World chain. From under 10 stores in the first year of establishment (2004), MWG now owns 1,100 mobile super markets countrywide, capturing approximately 40 per cent of the market and becoming the largest mobile retailer in Vietnam. Additionally, MWG has just opened its first overseas store in Cambodia.

Building on its considerable experience in developing retail chains, MWG expects to appear on the pharmaceutical retail scene in June 2018.

Doan Hong Viet, chairman of the board and director general of DGW

DGW and Kingsmen Pharmacy

Doan Hong Viet, chairman of the board and director general of DGW, said that the company looks to acquire firms with good products and a weakness in warehouse management, distribution and product marketing. DGW will be an intermediary agency to deliver products and develop their brands.

Healthcare in general and functional foods in particular are potential sectors in Vietnam. According to Business Monitor International, the growth of over-the-counter (OTC) pharmaceutical products is expected to hit 10.31 per cent per year in 2015-2020.

In a small segment of the pharmaceutical sector, DGW decided to deliver Kingsmen, a functional food brand for over-40 males made by Medistar Vietnam Co., Ltd., mainly targeting the middle class. This company has an expansive delivery network of 5,000 pharmacies. This will double in 2018 and hit 20,000 in 2019.

Nguyen Kim and Lam Dong Pharmacy

In the resolution of the board, Nguyen Kim officially announced to acquire shares of Lam Dong Pharmacy (LDP) to raise its ownership by over 51 per cent (from the current 24 per cent) to dominate this company. If this acquisition is successful, Nguyen Kim will pay around $3-4 million to gain 27 per cent of the shares, which is not much compared to its VND5,000-billion charter capital ($220 million).

LDP was established in 2000 and held its IPO in 2010. Its key business lines include the production of medicines, traditional medicines, and distribution of medical equipment.

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