Title RCVN23_Report-Submission_Round-2_University-of-Economics-HCMC.pdf ✅

CFA Institute Research Challenge hosted in Vietnam University of Economics Ho Chi Minh City The CFA Institute Research Challenge is a global competition that tests the equity research and valuation, investment report writing, and presentation skills of university students. The following report was prepared in compliance with the Official Rules of the CFA Institute Research Challenge, is submitted by a team of university students as part of this annual educational initiative and should not be considered a professional report. Disclosures: Ownership and material conflicts of interest The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation Compensation of the author(s) of this report is not based on investment banking revenue. Position as an officer or a director The author(s), or a member of their household, does not serve as an officer, director, or advisory board member of the subject company. Market making The author(s) does not act as a market maker in the subject company’s securities. Disclaimer The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with Vietnam Community of Investment Professionals, CFA Institute, or the CFA Institute Research Challenge with regard to this company’s stock.
DIGIWORLD JSC. 1 500 1000 1500 2000 0 30,000 60,000 90,000 DGW: Diversified Growth, Winning across segments 1 DIGIWORLD CORPORATION (DGW) GICS Sector: Information Technology GICS Industry: Electronic Equipment & Instruments TARGET PRICE: VND63,900/share LAST CLOSE: VND52,000/share (5 TICKER: HSX.DGW: (Ho Chi Minh Stock Exchange) th December, 2023) DATE: 5th December, 2023 RECOMMENDATION: BUY (26% Total Shareholder Return) EXECUTIVE SUMMARY CFA INSTITUTE RESEARCH CHALLENGE SEASON 2023 - 2024 Equity Research Initiation Report We initiate Digiworld (HSX.DGW) with a BUY recommendation and a 1Y target price (TP) of VND63,900/share, implying a total shareholder return of 26% from the closing price on 5 th December, FY23. Our TP is fueled by (1) Leading position to capture Vietnam's secular ICT demand growth, securing sustainable OCF, (2) Achison’s expansion with cross-selling opportunities to drive top-line growth for Office Equipment, and (3) Solid diversification strategy backed by Market Expansion Service capability to sustain long-term growth. DGW is well-positioned to become Vietnam’s leading Market Expansion Service (MES) provider DGW is the largest domestic MES in Vietnam ICT market (market share: 40% in laptop, 15% in Mobile Phones). DGW’s business model anchors 6 segments. The flagship lines include ICT (i.e., Laptops, Mobile Phones), and Office Equipment. The emerging segments are Consumer Goods (FMCG, Pharmaceutical), and Home Appliances. Strategy: DGW aims to (1) strengthen its flagship line by expanding established brands’ product lines, and (2) diversify into Consumer Goods and Home Appliance to capture sustainable growth with a more stable profitability. Revenue drivers: (1) vertical growth of existing brands, (2) horizontal growth – adding new brands. Cost drivers: (1) COGS, (2) SG&A (include established brands’ sales support and new brands’ MES costs). Our BUY recommendation is underpinned by 3 theses as follows 1) Leading position to capture Vietnam's secular ICT demand growth, securing sustainable OCF: Growing discretionary spending coupled with favourable market dynamics unlocks great potential for DGW’s Mobile Phones and Laptops segments. DGW's leading positioning with a diversified product portfolio from major brands could well capture this potential, securing ICT's position and strong operating cash flow. 2) Achison’s expansion with cross-selling opportunities to drive revenue for Office Equipment segment: The Personal Protective Equipment (PPE) market is riding on Vietnam’s industrial shift. DGW synergy with Achison, a 20-year experience PPE distributor, could exploit this potential and further open up cross-selling opportunities for the Office Equipment and Home Appliances in FY23-28. 3) Solid diversification strategy backed by MES capability to sustain long-term growth: Vietnam's FMCG & Pharmaceutical markets are thriving on the country's rising consuming class. DGW, with its strong in-house capability and experienced MES, could well capture this growth and achieve sustainable margins in FY23-28. Established segments secure robust revenue and earnings, while emerging segments fuel aggressive growth FY23 projections: We forecast NPAT-MI in FY23 to reach VND359bn (-47% YoY), equivalent to 90% of DGW’s FY23 guidance, and attribute the discrepancy between DGW’s guidance and our forecast to DGW’s higher promotion expenses to support sales in the context of weak demand and promote new brand partnerships. FY24 projections: We forecast NPAT-MI in FY24 to reach VND566bn (+57% YoY) mainly due to stronger demand in all segments as the economy recovers & consumer confidence returns, leading to (1) strong revenue growth for both essential and non-essential products and (2) reducing selling costs due to higher demand. FY23-28 projections: We forecast DGW’s EPS to grow at a 48% CAGR in FY23-25, mainly due to catalysts from flagship lines with (1) replacement cycle leads to higher demand for smartphones and laptops in FY24-25, (2) 2G shutdown from Dec.FY23 raises higher demand for low-to-mid-end smartphones, and (3) Win10 retirement in FY25 triggers the need for upgrading laptops. Besides, we also forecast EPS to grow with a CAGR of 18% in the FY25-28 period, mostly driven by emerging segments. This growth is boosted by (1) national digitalization driving higher demand for hard-and-software, (2) increasing office supply leading to higher need for office equipment, (3) the growth in households and income leading to strong demand for home appliances, and (4) rising population and health consciousness leading to higher demand for branded FMCG and supplementary products. A mix of DCF and Relative models yields an attractive valuation with substantial shareholder value DGW's valuation is attractive with projected P/E of 13.9/9.9 in FY24/FY25, which are 9%/35% lower compared to average P/E in FY18-23 of selected peers. We attribute the re-valuation for DGW to the increase in projected EPS by 57% in FY24 and 40% in FY25. Additionally, the recovery in ROIC during FY24-25 thanks to the recovery in ICT demand also make their book value cheaper with 3.0/2.5 P/B in FY24-25. Currently, we estimate DGW's weighted average cost of capital (WACC) is 11%, which is much lower compared to avg. of 22% ROIC in FY24-28, indicating that DGW’s business model is efficient and guarantees substantial shareholder value annually. DGW, with strong advantages and preparation, can well capture upside potentials, and mitigate downside risks We determine 2 upside potentials as follows: (1) More aggressive-than-expected brand expansion in FMCG, and (2) Potential synergies with CTR. Also, 3 key downside risks are (1) Slower-than-expected economic recovery, (2) Delay in 2G cut (FY24) & Win10 retirement (FY25), and (3) Intense pressure from suppliers/retailers & peers. We see DGW’s actions to capture such upside potential and also employ practices to mitigate downside risks (see Investment risks). 2018 2019 2020 2021 2022 2023E 2024F 2025F 2026F 2027F 2028F Revenue [VNDbn] 5,937 8,488 12,536 20,923 22,028 19,741 23,001 27,015 30,111 34,084 38,054 %Rev growth YoY 55.4% 43.0% 47.7% 66.9% 5.3% -10.4% 16.5% 17.4% 11.5% 13.2% 11.6% NPAT-MI [VNDbn] 110 163 267 655 684 359 566 811 1,012 1,194 1,380 %NPAT-MI growth YoY 39.6% 49.0% 63.8% 145.0% 4.4% -47.4% 57.4% 43.3% 24.8% 18.0% 15.5% Normalized EPS [VNDbn] 759 1,100 1,739 4,157 4,219 2,151 3,386 4,735 5,765 6,805 7,861 Dividend yield [%] 1.5% 1.0% 2.0% 2.0% 2.0% 1.2% 2.6% 3.7% 4.4% 5.2% 6.1% GPM [%] 6.2% 6.5% 6.4% 7.2% 7.5% 7.6% 7.8% 8.1% 8.2% 8.5% 8.7% NPM [%] 1.8% 1.9% 2.1% 3.1% 3.1% 1.8% 2.5% 3.0% 3.4% 3.5% 3.6% ROE [%] 15.0% 19.3% 25.7% 44.6% 32.5% 14.2% 19.7% 23.7% 24.7% 24.6% 24.2% ROIC [%] 7.0% 9.7% 15.8% 31.7% 19.6% 9.3% 16.2% 20.5% 22.4% 24.3% 25.9% Net D/E [%] 99.9% 52.9% -21.4% -21.2% 46.6% 14.5% 0.5% -7.4% -13.0% -22.3% -31.8% P/E [x] 17.5 12.1 7.6 6.4 11.2 21.9 13.9 9.9 8.2 6.9 6.0 P/B [x] 2.5 2.1 1.8 2.3 3.2 3.0 2.5 2.2 1.8 1.6 1.3 P/OCF [x] (15.3) 6.9 2.5 27.9 (6.9) 8.8 16.2 16.4 13.7 8.2 6.4 Football field valuation projection summary [VND] Source: Team analysis Share price performance Source: FiinProX, Team analysis Key events and catalysts Source: Team analysis 1-Jan-20 1-Jan-22 5-Dec-23 DGW VN-Index Historical return [%] DGW VN-Index Year-to-date (YTD) 37.7 10.8 1-year (1Y) 9.9 2.0 3-year (3Y) annualized. 36.7 3.0 Timeline Event Catalysts for DGW Q4 to Q1 Xiaomi’s new models release Higher Xiaomi revenue Q3 Back-to-school season Higher laptops revenue Q4 iPhone’s new model release Higher iPhone revenue Dec.FY23 2G shutdown starts Uplift in demand for low-mid- range smartphones H2.FY24 Vietnam’s economy fully recovers Higher consumer spending for all segments FY24-25 Replacement cycle of Smartphones & Laptops Increase in demand for Smartphones & Laptops Oct.FY25 Windows 10 retirement Higher demand replace old laptops FY27 Replacement cycle of Smartphones & Laptops Increase in demand for Smartphones & Laptops Scenario analysis Financial highlights RECOMMENDATION BUY Target price [VND] 63,900 Current price in [VND] 52,000 Upside potential [%] 22.9 Dividend yield [%] 2.6 Total shareholder return [%] 25.5 Market Cap [USD mn] 358.30 Shares outs [mn] 167.07 Free float [%] 55.00 Foreign ownership [%] 23.75 EPS FY22 [VND] 4,219 P/E FY22 [x] 11.2 Revenue driver Growth of existing brands, & adding new brands Cost driver Selling costs to promote newly- established brands 20,000 40,000 60,000 80,000 100,000 Target price VND63,900/share Closet price VND52,000/share DCF Scenario DCF Sensitivity SOTP P/S (*) Brokerage 52-w hi/low (*)P/S fwd SM & LT OE HA FMCG Pharma Bear 0.45 0.54 2.43 1.71 0.29 Base 0.41 0.43 2.08 1.55 0.22 Bull 0.32 0.41 1.80 1.31 0.15 VND/share Current Bear Base Bull DCF (FCFF) 52,000 48,900 64,000 82,200 SOTP P/S 46,500 63,700 79,700 Target price 47,700 63,900 81,000 Upside -8% 23% 56% TSR (+2.6% dividend yield) -6% 26% 58% Rating M-PF BUY BUY Risk/Reward 2.8 6.7 FY24 EPS growth [%] 14.9 57.4 80.0 FY24 ROE [%] 14.7 19.7 22.2 P/E fwd [x] 19.3 18.9 20.9 P/B fwd [x] 2.7 3.4 4.2 Source: Team analysis
DIGIWORLD JSC. 2 82.8 37.2 12.4 6.9 4.8 4.2 3.5 3.5 SGP BRN MAL THA IND VIE PHL LAO 2 Fig.01: DGW’s business model from FY16 [Details in Appendix B.1] Fig.02: DGW’s revenue trend during FY18-23 [VND tn] Source: DGW, Team analysis Fig.04: DGW’s total cost and cost structure in FY18-23 [VND tn; %] Source: DGW, Team analysis Fig.05: Key revenue drivers Source: Euromonitor International, Team analysis BUSINESS DESCRIPITION Overview Established in 1997 in HCMC Vietnam as an ICT distributor, DGW gradually expanded its range of services and since FY16, DGW has evolved to a local MES (Fig.01) that serves any brands want to enter Vietnam. DGW witnessed top-line growth at a CAGR 39% in FY18-22 (Fig.02) and a share capital increase of 5.5x from VND306bn to VND1.6tn in FY15-23. DGW’s business model anchors on 6 segments: ICT (Laptops & Tablets, Mobile Phones), Office Equipment, Home Appliances, Consumer Goods (FMCG, Pharmaceuticals), operates with 6 subsidiaries (5 indirectly owned subsidiaries) and 2 joint venture companies (Appendix B.6). By continuously leveraging its MES, we expect DGW to diversify into Consumer Goods besides its horizontal widening in ICT segments, which we believe will boost DGW top-line growth and dilute cyclicality risk in the medium to long term. Business model: Market Expansion Services - MES: DGW has evolved from a traditional distributor to a comprehensive MES provider since FY16, that offers integrated services. DGW has no MES competitors in the ICT segments, while DKSH is the only competitor in the FMCG. Update to Nov.FY23, DGW has upstream partnerships with ~30 brands, 45% of which have signed MES 3-5-year contracts to leverage DGW's MES expertise to expand their brands in Vietnam. DGW also has a nationwide network up to ~18,000 points of sales (POS) on omni-channel (Appendix B.3). Moreover, DGW’s MES is also an innovator in D2C e-commerce distribution solutions and a provider of unique brand shop development. We emphasize that MES is a robust and highly scalable model, which plays a steppingstone to both vertical and horizontal integration, as DGW can introduce new brands or segments into the existing value chain without significantly increasing costs, allowing DGW’s sustainably grow. Segmentations Flagship line segments: DGW’s main revenue stream comes from Laptop & Tablet, Mobile Phones, and Office Equipment which contributed 32%/49%/15% in FY22 revenue, respectively. (1) Laptops & Tablets: DGW is the market leader in this segment with a 40% market share in FY22 and a sales CAGR of 30.82% in FY18-22. This is attributed to DGW's exclusive MES partnership with Acer to discover Vietnam’s market since FY01, which has enabled DGW to strengthen its position and expand its product portfolio to include other major brands such as HP, Asus, Lenovo, and Dell. (2) Mobile Phones: DGW is one of the largest players in this segment with a 15% market share. DGW entered this segment in FY13, but only started to grow rapidly at a sales CAGR of 46.32% in FY18-22 when it became the exclusive MES partner with Xiaomi in FY17 and an authorized distributor of Apple in FYH2.20. Currently, DGW has added TCL and ZTE, which are low-to-mid-end phones, to widen the segment’s product portfolio. (3) Office Equipment: grew at a sales CAGR of 33.15% in FY18-22 thanks to a wide range of products from many major brands (Appendix B.3). Since Dec.FY22, DGW has entered Personal Protective Equipment (PPE) by an M&A deal with Achison (acquires 75% update to Nov.FY23) and is expected to complete one another M&A in FY23, with the scale similar to Achison. Other segments: Consumer Goods (FMCG & Pharmaceutical) and Home Appliances are DGW's emerging segments, accounting for 2%/2% of FY22 revenue, respectively. DGW has entered Consumer Goods through an M&A with CL in FY17, and a corporation with Dai Tin Pharma in FY21. Since FY22, DGW has strongly leveraged its MES to widen partnership with major brands (Appendix B.5). Besides, we emphasize that DGW has obtained importing and distributing pharmaceutical licenses in H1.FY23, allowing it to expand stronger and also bringing opportunities for cooperation with FDI distributors due to Vietnam Gov. policies (Appendix C.3). Cost structure: Like most distributors, variable costs (COGS and SG&A) made up a large portion of DGW's cost structure (Fig.04). In there, selling expenses include established brands’ sales support and new brands’ MES costs play an important role. On the other hand, a light-asset business model allows DWG to have (1) low fixed costs, (2) high operational efficiency, (3) a strong cash flow position that enables it to access low-cost funding. Company Strategies: Strengthen flagship line with different price ranges and product line expansion: DGW implies horizontal widening to strengthen its flagship lines, by leveraging its leading position to pursue retailers in mobile phones to sell brands in low-mid-end (TCL, ZTE), and simultaneously add Lexmark into Office Equipment portfolio in FYH1.23. Moreover, DGW plans to introduce new products from Xiaomi, such as air conditioners and refrigerators, in FY24. These moves will enable DGW to capture untapped niche markets and remain its position. Diversify segments into consumer staples to limit volatility risk: DGW aims to tap into the consumer staples market including FMCG and Pharmaceutical, which offers more stable and robust growth opportunities. To implement the diversification strategy, DGW has (1) undertaken M&As with suitable companies (scale ≤ 25% DGW’s assets) for quicker expansion of product portfolio/distribution network/customer base, (2) increased numbers of major brands by leveraging MES, and (3) optimized operational efficiency by deploying SAP S/4HANA from FY24. We expect DGW will diversify its product portfolio by adding 1-2 brands/year. We also notice that DGW is open to entering new consumer staples segments and is considering launching DGW private labels. 0 10 20 30 2018 2019 2020 2021 2022 MAT(*) Q3.FY23 40% 35% 35% 38% 32% 33% 40% 46% 51% 47% 49% 42% 19% 16% 12% 14% 16% 17% 2018 2019 2020 2021 2022 MAT(*) Q3.FY23 Laptops & Tablets Mobile Phones Office Equipment Consumer Goods Home Appliances (* MAT: Moving annual total) Source: DGW, Team analysis Fig.03: DGW’s revenue contribution by segment during FY18-23 [%] +38.8% CAGR (* MAT: Moving annual total) 96.1% 94.2% 95.7% 95.9% 95.9% 94.5% 0% 1.6% 2.6% 3.0% 2.5% 1.6% 0 5 10 15 20 25 2018 2019 2020 2021 2022 MAT(*) Q3.2023 COGS Sales promotion Other (* DGW provides full MES package or single service) Market Expansion Services - MES* Market Analysis Full distribution (4PL) Sales and marketing After sales ~30 Brands Retailers 18,000 POS End-customers Source: DGW, Team analysis Segment Revenue driver Mobile Phones Xiaomi & Apple increase sales New product launching Q1&Q4 Laptop & Tablet Back-to-school Q3 New product launching with higher technology Office Equipment Upgrades office’s digital infrastructure New high-end offices supply Home Appliances Demand to facilitate living space Consumer Goods Organic: current brands’ growth Inorganic: increasing new brands partners INDUSTRY OVERVIEW & COMPETITIVE POSITIONING MACRO | Vietnam’s consumer spending recovers from the bottom of the economic headwinds Q1 FY23: Vietnam is the fastest-growing country in SEA, with a GDP per capita of USD4,164 in FY22, ranking 6th in SEA (Fig.06). The country has a strong consumption trend, driven by a large and young population, a rising middle class, and rapid urbanization. However, the economy faced headwinds from Q4.FY22 due to (1) global economic slowdown (2) domestic credit stress in the real estate and (3) echo of the banking bond issue. But we believe the worst is over, and the economy is recovering in a U-shaped pattern since Q1.FY23, as evidenced by (1) the accumulated GDP growth rate of 4.24% in Q3.FY23, higher compared to 3.32%/3.72% in Q1/Q2.FY23, (2) the average deposit interest rate of 5.2% (update to Nov FY23), returning to the FY21 level, implying a lagged decline in lending rate, coupled with stability inflation 9M.FY23 at 3.16% opening room for bringing down interest rates to support the economy. We also emphasize that (3) the consumer confidence index starts to pick up, according to Kantar, as for the first time in 6 quarters, the number of financially struggling families decreases. In Q4.FY23, we expect income improvement, and consumption costs reduction will support purchasing power. The income improvement is supported by (1) the increase in basic salary of 21% from July FY23 and (2) the recovery of the manufacturing and export sectors, which are the main sources of household income. The consumption cost reduction is supported by (1) the expansionary fiscal policy: reducing VAT from 10% to 8% from Jul-Dec FY23 and (2) lower lending interest rate stimulates consumers and businesses finance activities. Fig.06: GDP per capita comparison between Vietnam vs SEA countries 5Y 4.4% 10Y 3.5% 1.9% -0.6% 4.2% 5.0% 1.8% -3.9% 4.1% -2.3% 1.5% 1.9% 2.7% 6.6% 2.7% 2.9% 1. GDP per capita growth, CAGR [%] 2. GDP per capita [‘000 USD] Source: DGW, Team analysis (* MAT: Moving annual total)
DIGIWORLD JSC. 3 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 0.0% 1.0% 2.0% 3.0% 4.0% Asset turnover [x] Net profit margin [%] Peer avg. PET DGW 19 20 20 20 22 20 3,046 3,883 2,523 1,738 2,036 2,864 0 1,000 2,000 3,000 4,000 5,000 18 20 22 24 26 28 30 2018 2019 2020 2021 2022 11M.FY23 LHS: Disbursed Capital [USD bn] RHS: New approval project [x] 3 INDUSTRY | ICT & OFFICE EQUIPMENT The ICT industry faced a slowdown in FY23 due to (1) post-covid demand normalization, (2) the stocking effects, coinciding with (3) economic headwinds from Q4.FY22 dampening discretionary spending in which customers faced rising unemployment rates and inflation, and corporates shrunk their spending to maintain operations in response to lower orders. However, we expect ICT will pick up in the short to medium term, driven by contextual catalysts in each segment. In the long term, the ICT growth momentum is supported by the expanding middle class that will boost discretionary spending (Fig.07), tech-savvy consumer and a higher standard of living. Mobile Phones – growth at a CAGR 6.8% in FY23-28 driven by 2G cut from Dec.FY23 and a new replacement cycle from H2.FY24: the market was worth ~USD3.7bn in FY22, according to Euromonitor, and has a high penetration rate (Fig.08) that limits the room for first-time buyers and mainly relies on the demand for replacing and upgrading devices. In the last quarter of FY23, we expect the industry will return to positive growth from the low base of Q4.FY22, after declining for 8 consecutive quarters, thanks to (1) the 2G turn-off plan from Dec-2023 that will trigger the switch from feature phones (~20% market volume) to low-mid-end smartphones, coinciding with (2) the peak season of new mobile model release in Q4. Looking ahead, we expect a surging demand driven by (3) a new replacement cycle (2 years) will start from H2.FY24, to further support by economic recovery. We expect the mobile phones will grow at CAGR 6.8% FY23-28. Laptops and Tablets – growth at a CAGR 7.2% FY23-28 driven by new replacement cycle from FY25 and Win10 retirement in Oct.FY25: the market was worth ~USD0.9bn in FY22, according to Euromonitor, after witnessing a sales growth at CAGR 14% in FY20-21 thanks to booming work-from-home demand during Covid-19. In FY22 and FY23, this trend gradually cooled down as normalcy resumed and economic headwinds passed. Turning to a new cycle, we expect laptop and tablet to regain the growth momentum from (1) the national digital transformation policy FY21-25 that will stimulate laptop and tablet demand as essential hardware; additionally coincides with (2) a new replacement cycle (3-5 years) will start from FYH2.24 and enhanced by (3) win10 retirement support in Oct.FY25 will push for device upgrades. Thus, we expect the laptop and tablet will grow at CAGR 7.2% FY23-28. Office Equipment – growth at a CAGR 11% in FY23-28 driven by national digital transformation in FY21-25 and increasing new type A and B offices: the market is worth ~USD1.5bn but quite fragmented due to high entry barriers to sell to businesses and state agencies. FPT Synnex dominates ~20% market share, followed by DGW with 5% (update to Nov.FY23). In FY23, Office Equipment is also affected when businesses shrink and tighten their spending, however, we believe the segment will recover and grow in line with economic recovery, and further surge demand driven by (1) the national digital transformation policy in FY21-25 will boost businesses to upgrade digital infrastructure from hardware to software, and (2) the increase in new office supply in FY24-26 with higher office standard. Thus, we expect the OE segment to grow at a CAGR of 11% in FY23-28. INDUSTRY | CONSUMER GOODS FMCG – growth at an 11.5% CAGR FY23-28 driven by population growth and higher standard of living: The FMCG witnessed a strong recovery after pent-up demand in Covid (+9.6% to FY19, 17.5% YoY) but slowed down in FY23 mainly due to lower F&B purchase volume (~47% FMCG spending FY22). In the last quarter of FY23, we expect FMCG will grow stronger from the combination of (1) an increase in base salary of 21% from Jul.FY23, and (2) VAT decrease from 10% to 8% from Jul.FY23 to Dec.FY23. Looking ahead, the growth momentum will be backed by (1) Vietnam population growth with the highest consumer class proportion in SEA, according to McKinsey, and (2) the health-conscious stimulates consumers to shift toward branded products. On the other hand, the distribution stage is fragmented due to the regions’ different behaviors and products’ short shelf-life requires supply chain capabilities. Thus, we expect FMCG to grow at a CAGR of 11.5% in FY23-28, to be captured by market-savvy and well-established distributors such as DKSH and DGW. Pharmaceuticals – growth at a CAGR of 9.4% in FY23-28 driven by aging population and increasing income: Pharmaceuticals market was worth USD8bn in FY22 after witnessing growth at a CAGR of 9.7% in FY17-22, but the average pharmaceuticals expenditure per capita is still low compared to SEA (Fig.11) indicating a huge potential for further expansion. Looking ahead, we expect the growth momentum will remain, driven by (1) increasing income and more health-consciousness boosting OTC demand, and (2) aging population with higher disease cases boosting ETC demand. On the other hand, the distribution stage is highly fragmented (300 FDI, ~ 2,000 domestic medium and small) due to the complex legal regulations on import and distribution. But on the bright side, Vietnam’s government has implemented trade protection that FDI distributors must cooperate with local distributors (Appendix C.3) to distribute pharmaceuticals in Vietnam. Thus, we Pharmaceutical to growth at a CAGR of 9.4% in FY23-28, to be captured by local distributors. COMPETITIVE POSITIONING MES enables DGW to meet the demand of both brands and retailers, drive far-reaching revenue growth: DGW re-positions itself as a local MES provider since FY16. We emphasize that up to now, (1) in the ICT, DGW is a local MES provider that dominates the market, and (2) in the FMCG, there is only DKSH competes with DGW. We also notice that there are 2 MES providers in pharmaceuticals DKSH and Zuellig Pharma, however thanks to the government's trade protection, they might cooperate with DGW rather than compete. MES’s advantages that make DGW the 1 st choice of all brands entering Vietnam as follow: Market-savvy staff: DGW has market-savvy staff that is proven through market share expansion of Acer, Xiaomi, etc in Vietnam. For emerging segments, staff capability is further strengthened by the guidance of experts T.B.Minh and N.D.Tung (Appendix B.7). As a local MES, DGW's staff have a better understanding of Vietnam’s customers, resulting in asymmetric information to faster capture the market compared to global MES competitors. Although the advantage of asymmetric information may be narrow but when combined with the capability of the BOD, DGW can take this advantage to capture the market during the prime time. Vietnam's largest distribution network: DGW owns ~18,000 POS nationwide on omni-channel. There are ~6,000 ICT’s POS (3.5x PET, 1.6x FPT Synnex), ~4,500 Pharmaceuticals' POS (OTC to ETC), and 7,600 FMCG's POS (traditional to modern trade). That said, DGW is the leader of distribution network in all segments DGW anchors. Management capabilities to fully exploit business potential, and spearhead company-wide earnings growth: BOD has demonstrated these spotting and capturing opportunities agility via horizontal integration at prime time. (1) FY01, DGW was the pioneer in exploring Vietnam’ laptop market with Acer (1 st rank FY05), (2) in FY13, DGW expanded to mobile phones market and corporate with Xiaomi in FY17 (2 nd rank FY23), (3) in FY16, DGW re- positioned as a local MES provider then diversify to consumer goods. Furthermore, BOD’s ability is also proven through strategies capability as implementing M&A and cooperation to enter new segments or overcome high barriers. Thus, revenue growth at a CAGR of 26.7% FY15-22. Moreover, BOD always focuses on enhancing operational efficiency, as 1 st Vietnam’s distributors implemented SAP ERP in FY10, plans to upgrade to SAP S4/HANA in FY24 and deploys DMS and TMS (Appendix B.4). The technology can be copied, but the ability to deploy makes DGW’s BOD outstanding. That results in NPAT improvement from 2.5% to 3.1% in FY15-22. Fig.07: Consumer market and spending in Vietnam in FY40 [%] Source: Euromonitor, Team analysis Source: Euromonitor, Team analysis Fig.09: Vietnam’s FDI inflow and new approval project FY18-23 [USD bn, x] Source: FiinproX, Team analysis Fig.10: Sale growth contribution in FY22 from FY19 by segmentation [%] Source: Kantar Worldpanel, Team analysis Source: DGW, Bloomberg, Team analysis Alcohol FMCG Non- alcohol Tobacco Snacks Staples Others Discretionary FCMG Consumer Exp. per household in ‘000 USD % Urban Consumer Expenditure % Essential Expenditure % Discretionary Expenditure World Asia Pacific Vietnam % Rural consumer Expenditure 0 40 0% 100% 0% 60% 40% 48% 52% 60% 15 52% 49% 43% 57% Fig.08: Household possession rate of smartphones and laptops [%] 15% 61% 20% 26% 16% 88% 97% 86% 88% 93% Indonesia Malaysia Philippines Vietnam Thailand Laptop Smartphone 117.7 272.7 83.3 81.8 80.4 40.2 China Singapore Malaysia Thailand Vietnam Philippines 12.7 4.2 6.9 12.4 82.8 3.5 0.9% 1.9% 1.2% 0.7% 0.3% 1.1% Pharmaceutical spending/capita (USD) GDP/capita (‘000 USD) %Pharma spending/GDP Fig.11: Pharmaceutical spending per GDP comparison as of FY22 [USD, ‘000 USD, %] Fig.12: Competition landscape (ROE comparison) between DGW vs peers in FY22 Source: IQVIA, Vietcap, Team analysis Base size: DGW’s ROE of 32.5% (21%) (18.8%) (13.6%) (7.8%) (25.8%) (12.8%) Contribution