Efficient growth strategy boosts valuation of Masan stocks

Masan Group's stock has been receiving stronger valuation by securities companies and investment banks following the meeting on July 2

On July 2, 2021, the Board of Management at Masan Group (code: MSN) held an online meeting with investors. The meeting revolved around Masan increasing its ownership rate in The CrownX (TCX) from 80.2 to 84.9 per cent as well as the business situation of VinCommerce which owns the Vinmart and Vinmart+ chains.

At the same time, the company also shared more about the strategy of developing the Point of Life consumer-retail platform, especially promoting the integration from offline to online after the cooperation agreement with Alibaba.

After this meeting on July 5, Viet Capital Securities (VCSC) raised MSN's target price. In its assessment summary VCSC said, “We currently rate MSN with a buy recommendation at a target price of VND142,500 ($6.19),” said VCSC. In May 2021, VCSC gave a buy recommendation of VND121,600 ($5.28). Currently, MSN is trading at VND110,000 ($4.78).

According to VCSC, Masan has conducted two deals to increase its ownership in TCX. Specifically, it spent $350 million to buy treasury shares with TCX valued at $7.3 billion. Also, Masan spent $50 million to acquire secondary shares of TCX with a valuation of $7.3 billion.

“It is worth noting that $7.3 billion is also the valuation at which Alibaba and other investors have invested in TCX. A consortium led by Alibaba has injected $400 million to scoop up a 5.5 per cent stake in TCX,” VCSC added.

In the long term, Masan aims to increase VinCommerce's total commercial margin above 30 per cent from the current 20 per cent by negotiating terms with suppliers, sharing revenue with Phuc Long kiosks located in VinMart and VinMart+ stores, as well as building VinCommerce's own brand portfolio.

While Masan has yet to release its semi-annual financial statement, its Board of Management (BoM) said that although VinCommerce has closed several underperforming stores in 2020, sales growth at existing stores kept its revenue unchanged compared to the previous year as the COVID-19 outbreak has accelerated the transition of consumers to modern retail channels.

Although VinCommerce posted positive earnings before interest, taxes, depreciation, and amortisation (EBITDA) since the end of 2020, it still incurred a net loss. VCSC called this loss "planned", with the BoM planning for a net loss of about VND1 trillion ($43.44 million) in 2021 for the subsidiary, an improvement compared to the loss of VND3.2 trillion ($138.97 million) in 2020.

VCSC noted that many securities companies and institutional investors have placed high expectations on Masan's strategy to develop an offline-to-online retail model. In particular, Masan is accelerating its Point of Life platform that will serve the essential needs of consumers from groceries to financial services (payment, credit card, investment) through cooperation with Techcombank. It will also expand its service offering to meet other needs in the future such as healthcare, education, and entertainment.

Specifically, in the first half, Masan cooperated with Alibaba and Lazada to promote online grocery sales. The company also formed a strategic cooperation with Phuc Long to develop Phuc Long Kiosks at VinMart+ stores. By the end of June, around 50 VinMart+ stores have set up Phuc Long kiosks. The kiosks will share 20 per cent of their estimated VND5 million ($220) daily revenue with VinComerce.

Under the cooperation, 1,100 Phuc Long Kiosks will be set up in VinMart+ locations by the end of the year to contribute an expected 4 per cent to the EBITDA margin of the VinMart+ system.

In addition, Masan launched a pilot model intergrating Techcombank's financial services and Phuc Long Kiosks at VinMart+ in Hanoi. It set the goal of increasing the number of VinCommerce points of sale (VinMart and VinMart+) to 3,000 by the end of 2021, reinforcing its leadership in terms of scale and profit.

Masan cooperated with Alibaba and Lazada to promote online grocery sales

To finance the above strategies, TCX is expected to continue to raise $300-400 million in the second half of the year. In a press release from July 1, Danny Le, general director of Masan Group said that, “2021 will mark a turning point for VinCommerce when this retail system starts to turn a profit. Our top priority is to re-expand our point-of-sale system to build a leading retail chain in terms of scale while maintaining the momentum of improving profitability. This is the foundation for us to increase investment to accelerate our offline-to-online integration strategy. Based on TCX’s projected business results in 2021 and the growth potential of the offline-to-online integration platform, TCX's current valuation does not accurately reflect its value."

Another company, Mirae Asset Securities, also issued a report on July 5 raising the target price of MSN to VND131,000 ($5.69). Previously, in January 2021, Mirae Asset Securities rated MSN with a valuation of VND120,000 ($5.21). Similarly, HSC also announced a new valuation for MSN shares at VND134,000 ($5.82) in its report published on July 2.

On July 7, Credit Suisse raised MSN's forecast for earnings per share (EPS) in 2021 and 2022 at 38 and 5 per cent, respectively, against the previous forecast. This investment bank also raised MSN's target price to VND137.000 ($5.95).