Pharmaceutical retail market welcomes newcomer

FPT Retail is breaking into the pharmaceutical retail market through a new subsidiary

New entrants to pharmaceutical retail

The Board of Directors of FPT Retail recently announced a resolution to establish FPT Long Chau Pharmaceutical JSC with the charter capital of VND100 billion ($4.4 million). This company will concentrate on pharmaceutical retail, medical equipment, cosmetics, and toiletry in specialised stores.

FPT Retail mainly distributes electronics, but setting foot in pharmaceutical retail is not a weird strategy because many similar companies have also joined the segment.

To keep up with competition, FPT Retail took over Long Chau drugstore in January 2017, and the establishment of FPT Long Chau shows that it is prepared to enter in this potential market.

Lasting or not

FPT Retail is completely confident in its capabilities in distributing technology products and stands ready to conquer the new segment. However, despite its rapidly growing business, investors still doubt whether the company can successfully compete in the pharmaceutical segment.

According to its 2018 first half financial report, FPT Retail’s net revenue reached VND7.45 trillion ($329.55 million), up VND1.09 trillion ($48.36 million) compared to the corresponding period in 2017. After-tax profit reached VND146.5 billion ($6.48 million), VND33.6 billion ($1.48 million) more than in the same period.

One of the reasons behind these increases, according to Nguyen Bach Diep, general director of FPT Retail, is the F-Friends hire purchase programme that has been launched at the end of 2017. Besides, decreased marginal costs in the first half helped increases after-tax profit.

However, the net cash flow from operating activities in the first half of 2018 was negative VND890 billion ($39.38 million). Inventory at the beginning of 2018 was VND1.72 trillion ($76.24 million) and rose up to VND1.9 trillion ($84.07 million) in the middle of the year. Besides, electronics are quick to become outdated which results in the swift depreciation of inventory values.

In 2018, FPT plans to increase its revenue to VND16.02 trillion ($708.85 million), which is a 22 per cent increase on-year. These numbers are impressive and show upbeat prospects in the new segment. However, in a segment where FPT Retail has no experience yet, its work is still cut out for it.

Potential but highly contested market

According to Business Monitor International (BMI) data about the Vietnamese pharmaceutical market, the 2017 revenue was $5.2 billion (VND117.52 trillion) and forecasts to get $7.7 billion (VND174.02 trillion) in 2021.

The demand for pharmaceutical products rapidly expanded as a consequence of high economic growth, rising per capita income, and higher population. However, domestic companies satisfy only 50 per cent of the market demand, while the rest of the pharmaceuticals have to be imported.

The Vietnamese pharmaceutical market continues to turn heads across the globe and will turn up the heat in the market, which is good news for investors.

Last year witnessed many mergers and acquisitions (M&A) deals in the pharmaceutical market. Adamed Group—a pharmaceutical and biotechnology company from Poland—spent $50 million (VND1.13 trillion) to acquire 70 per cent of Dat Vi Phu Pharmaceutical Co., Ltd., Taisho pharmaceutical from Japan spent $97 million (VND2.19 trillion) buying 24.4 per cent of the shares in DHG Pharma (Duoc Hau Giang JSC), whereas Domesco Medical Import-Export JSC sold 51.69 per cent of its shares to Abbott Laboratories (America).

Regarding local firms, Mobile World Group (MWG) also entered the pharmaceutical market in August 2017 by acquiring Phuc An Khang pharmacy. Meanwhile, Digiworld JSC (DGW) also announced plans to enter the distribution market of healthcare products. In addition, Vingroup established Vinfa JSC and will spend VND2.2 trillion ($96.5 million) to develop a pharmaceutical manufacturing and research centre in the northern province of Bac Ninh’s Gia Binh District.