Bank of America recommends a BUY for Masan, says stock could rise 32%

According to the bank, the share price of Vietnam’s largest consumer conglomerate selling everything from noodles to financial services, jumped 83 percent in 2021. With a growing rate, Masan stock price outperformed VN Index by ~53% in the past year. The VN Index rose 30%.

“We see further upside ahead as Masan embarks on phase 2 of growth. We also note Masan is one of the few large-cap stocks in Vietnam that does not have a foreign ownership limit and, as such, is a proxy for investors to participate in the Vietnam growth story”, said BofA.

The bank assessed that Masan had better than expected online sales growth as well as continued strong EBITDA margin turnaround at WCM which gives conviction on phase 2 of growth.

Its WCM stores proved stronger than expected sales growth for MCH & MML by expanding their modern trade reach. The number of users jumped at its mobile virtual network operator Reddi as it reaches the consumers of WinCommerce & the young and tech-savvy customer community at Phuc Long.

Further integration of various platforms and launching of a super-app was also among the reasons for the future stock price increase, the bank estimated.

MSN bought a controlling 83.74% stake of then loss-making WinCommerce (WCM) from Vingroup in December 2019. Later, it combined WCM with MCH

(its branded F&B arm) under a new entity named The CrownX.

The CrownX, in which Masan now has an effective 81.4% stake, is the crown asset of the company making up nearly half of its EBITDA currently and its focal point as it transforms into a consumer tech powerhouse integrating its various platforms. Masan aims to IPO CrownX in 3-5 years per the Company's recent press release.

Masan Consumer Holdings (MCH) is a dominant branded F&B company in Vietnam selling seasoning, noodles, soy sauce, beverages, and others. In a few categories like soy sauce and fish sauce, it is essentially a monopoly (50%+ market share). MCH has been assessing the potential for various fast-growing categories and selectively entering the ones where it sees white space for a local brand like home & personal care and processed meat. We see MCH as a defensive staple business with many growth opportunities.

WinCommerce is the second-largest modern trade retailer in Vietnam with about 20% share of the $7 billion modern grocery market. Currently, about 67% of sales is from minimart 31% supermarket 1% online.

“We think WCM is the key engine driving nearly half of the Group's incremental growth and expected to be the largest revenue contributor in 2025E with 57% of sales and 36% of EBITDA share (incl. TCB). In five year time we estimate, 62% sales is from minimarket, 30% is supermarket and 8% is online”, said BofA

WCM has just turned profitable in 2021. Therefore, any modest revenue growth in this segment will lead to exponential growth at the EBITDA level and significant margin expansion in the coming 2-3 years due to a low base.

In phase 1 of the turnaround, WCM closed loss-making stores, reformatted the stores to include more fresh, acquired 20% stake in a leading coffee & tea joint Phuc Long which boosted store traffic, improved sales productivity and boosted margins and hence reduced payback period. In the phase 2 of growth, we see it consolidate synergies across segments will also boost profitability as MSN captures profits across value chain and monetizes greater pricing power with its suppliers.

“We expect strong sales growth for WCM on new stores, omni channel and new revenue streams. In addition, we see higher profitability as it scales up private label products and delivery-only dark stores. We expect WCM revenue to deliver a CAGR of 38% and EBITDA of 83% over 2021E-2025E and account for about 33% of total EBITDA including associates. Currently, WinCommerce's EBITDA margin is just about 4% vs regional peers' ~10% and we expect WCM EBITDA margins to reach 11% by 25E. The rapid (less than two years) turnaround of WinCommerce gives us a strong confidence on future execution”, the report said.

WCM is well-positioned for online shift with Alibaba backing - With the rise in ecommerce in Vietnam, Masan acted proactively and forged a strategic partnership with Lazada (#2 ecommerce players owned by Alibaba). Alibaba bought a stake in The CrownX last year (effective stake is now 2.57%). We think this partnership will help WinCommerce transform from an offline grocery retailer into an omnichannel platform as WCM is the preferred grocery retailer on Lazada in Vietnam.

It will also enable WCM to learn and develop its own omni channel and delivery capabilities. Currently online make up of less than 1% of WCM sales, we think it will rise to about 8% by 25E (industry online grocery penetration to reach 7% in our estimates). About half of the online sales comes from Lazada currently. WCM is however building its own online platform using its supermarkets as "dark stores"; it doesn't intend to invest in further independent warehouses. It has established a new dedicated team for the online segment & ramping up digital A&P to expand its online footprint. It intends to ramp up its delivery capabilities to about 5000-10000 orders per day in 2022 from peak of 1,500 in summer 2021, meaning that online sales could make up about 1.5-2% of WCM sales.

With Reddit, Masan aims to digitize its Consumer - Retail platform. Photo: Masan

“We see a lot of synergies between the two consumer divisions in CrownX. WCM can help MCH to expand its modern trade footprint and deepen its geographic and multi-format presence boosting its sales. The retail arm can benefit from scale and strong know how of MCH and expand its private label share which are higher margin & also give it exclusivity (driving customer traffic & stickiness). WCM looks to increase the share of private labels sales from 9% to 25% by 2025”, the report said.

According to the report, this is a very unique model that puts Masan in a very strong position. “We think Masan's management has responded early and quickly to expect a huge digital shift in coming years as seen in other countries even though we think that each country will have its own path and journey”.

On 19th January, Masan announced its preliminary management and unaudited 2021 financial results for the fourth quarter (“4Q2021”) and financial year (“FY2021”).

Masan’s consolidated net revenue reached VND88,629 billion in FY2021, a growth of 14.8% versus VND77,218 billion in FY2020, driven by strong year-over-year (“YoY”) topline growth across nearly all businesses. 4Q2021 net revenue was VND23,828 billion, up 10.3% YoY.

The CrownX (“TCX”), Masan’s integrated consumer-retail platform that consolidates WinCommerce (“WCM”) and Masan Consumer Holdings (“MCH”), grew net revenue YoY by 6.9% to VND58 trillion in FY2021.

WCM's net revenue was VND30.9 trillion in FY2021, relatively flat YoY despite starting 2021 with 618 less locations than at the start of 2020. While COVID-19 limited store expansion, WCM was able to open 388 net new WinMart+ minimarkets in 2021, with 284 net new stores opened in 4Q2021, giving WCM confidence in its store expansion plans and revenue growth profile for 2022.

MCH’s net revenue grew YoY by 20.0% and 32.3% in FY2021 and 4Q2021, respectively, to reach VND28,764 billion and VND10,070 billion, respectively.