MWG predicts Bach Hoa Xanh may break even only next year
Mobile World Group (MWG) at a meeting with investors last week said Bach Hoa Xanh might break even later than expected.
MWG warned shareholders that Bach Hoa Xanh may not break even within the year as targeted before
Viet Capital Securities (VCSC) reported that Bach Hoa Xanh will postpone the target to break even that had been set for the end of this year. Bach Hoa Xanh set the goal to reach the break-even point which excluded the general and administration expenses (G&A) of its two recently new distribution centres in the South-Central Coast.
Bach Hoa Xanh is currently present in three provinces in this region with a total of 15 stores. However, Bach Hoa Xanh needs to invest in advance in distribution centres to pave the path for further stores down the road. As a result, the cost of distribution centres over revenues (including the cost of distribution centre operations and the cost of transporting goods from distribution centres to stores) has increased to around 5.5 per cent in recent months compared to 4.5 -5.0 per cent as before.
The average sales per store of Bach Hoa Xanh dropped to about VND1.35 billion ($58,700) in September 2019 compared to more than VND1.5 billion ($65,200) in August 2019 (VCSC estimated). According to MWG management, the rainy season affected the quality of fresh produce as well as reduced the number of visitors to the store during peak hours. Also, the excessive focus of the Board of Directors on reducing the rate of cancellation of fresh goods has resulted in a shortage of goods at Bach Hoa Xanh in September 2019.
MWG believes that the break-even point will likely be accomplished in the next year. VCSC noted that as of September 2019, large-scale stores accounted for 17 per cent of the Bach Hoa Xanh chain.
Gross profit margin (minus the cost of damaged and lost goods) increased to nearly 20 per cent in September 2019 compared to about 18 per cent at the end of 2018, thanks to increased purchases directly from providers and optimising the purchasing process.
According to MWG management, the gross profit margin before excluding damaged and lost goods have improved to about 24 per cent recently. MWG believes that this gross profit margin may increase to 27-28 per cent by the end of 2020.
For mobile phones and electronics, the same-store sales growth (SSSG) of mobile phone retail chain Thegioididong and electronics retail chain Dien May Xanh was 7 per cent in the first nine months.
MGW expects the television market to have better growth in 2020 thanks to many major football events, similar to the developments in 2018.
MWG also said that Dien May Xanh's new store opening rate will cool down in 2020 as the group intends to focus on increasing the quality of its chain. VCSC forecasted that Dien May Xanh will open 150 new stores in 2020.
MWG representative said that there is still space to continue improving gross profit margin for Thegioididong and Dien May Xanh. MWG expects revenue from household products and kitchen utensils to reach about VND 7.5 trillion ($326.1 million) in 2019 and VND 10 trillion ($434.78 million) in 2020.