J.P.Morgan: Masan Group is one of our top picks

Recently, the Ministry of Finance has officially approved the regulation changes that would remove pre-funding requirements for foreign investors and require English disclosure by listed companies. The new law will take effect from 2 November 2024. J.P Morgan commented the changes would enable FTSE to upgrade Vietnam to Emerging markets within the next 12 months, leading to more than US $500mn of passive inflows into the market and potential positive revision from MSCI.

The financial institution also believes the near-term tailwinds are favouring Comsumer Staples stocks with: (1) Potential inflows from Emerging markets upgrade, (2) Lower USD reduces input costs, and (3) Resilient earnings growth. “We upgraded the sector to OW with Masan Group (MSN) as one of top picks.”, according to J.P. Morgan report on 18th September. 

Using the sum-of-the-parts (SOTP) valuation method, J.P. Morgan has priced MSN at 94,640 VND per share, with projected price-to-earnings (P/E) and enterprise value to EBITDA (EV/EBITDA) ratios of 39x and 12x, respectively, for 2025. The SOTP method involves valuing each subsidiary or business division of a company individually, then combining these values to determine the overall company valuation.

WinCommerce, the retail subsidiary of Masan, has continuously made profits in the three months of June, July, and August.

This marks a milestone in the company’s retail strategy when innovation initiatives and operational optimization have brought about efficiency.

WinCommerce is now the largest modern retail chains in Vietnam, with nearly 3.700 WinMart supermarkets and WinMart+/WiN mini supermarkets nationwide.

In a meeting with investors on Sept. 4, Masan’s representative said that the LFL (like for like) revenue growth at existing stores of the mini supermarket system reached more than 10% YoY.

Customers shop at a WinMart supermarket. Photo courtesy of Masan.

Also on Sept. 4, Masan Group announced that it and SK Group have agreed to extend SK Group’s put option with Masan Group for a maximum of 5 years.

SK Group will transfer 7.1% of WinCommerce shares to Masan Group for US$200 million, valuing this retail system at more than $2.8 billion.

Masan will also receive the right to purchase SK Group’s remaining shares in WinCommerce in the future at the original price SK invested.

Currently, the portion transfer of its ownership shares in WinCommerce helps SK Group earn profits while continuing to invest long-term in Masan Group by extending the put option.

According to Nguyen, increasing ownership in WinCommerce helps the group increase its control and promote growth of its core business in the long term.

In 2024, most securities companies predict economic recovery, with bright spots coming from the consumer and retail sectors thanks to cash flow into the manufacturing sector.

According to Viet Dragon Securities Corporation (VDSC), the retail sector will have many growth drivers thanks to the return of the manufacturing sector.

Moreover, low interest rates are often an anchor to help consumption recover, and domestic inflation remains under control.

According to the General Statistics Office, Vietnam’s GDP in Q2 grew by about 6.93% over the same period last year.

With better-than-expected growth results in the first 6 months of the year, HSBC raised its forecast for Vietnam’s GDP growth this year to 6.5%, from 6%.

The growth figures of GDP, production, and tourism since the beginning of the year have partly signaled the recovery of the economy in general and consumption in particular, contributing to boosting the business results of retail consumer companies.

In particular, with its leading position in the industry and continuous positive results from its core retail consumer business segment, Masan promises to not only complete but also exceed its 2024 profit plan.

“We expect Q3 profit to be higher than Q2, thanks to WinCommerce’s continuously improved profitability, Masan Consumer’s growth, and positive signals from other business segments,” said Nguyen.

WinMart’s products help bring good prices to consumers. Photo courtesy of Masan.

Last May, Masan announced the signing of a sales and purchase agreement between Mitsubishi Materials Corporation Group and Masan High-Tech Materials, a subsidiary of Masan Group.

Accordingly, Masan Group is expected to record a one-time profit of about $40 million from the sale of H.C. Starck Tungsten Powders (a subsidiary of Masan High-Tech Materials) and benefit from an increase in net profit of $20-30 million in the long term.

Having received a deposit of $54 million from Mitsubishi Materials Corporation Group, Masan expects to complete the transaction and receive $70-80 million in cash in the fourth quarter.

“We are confident in delivering our 2024 profit guidance and growing profitably in the short and medium term to deliver superior shareholder returns,” said Nguyen Dang Quang, Chairman of Masan Group.