FRT – Plan for private placement of up to 10% for Long Chau

2024 guidance: Revenue is guided to reach VND37.3tn (+17% YoY) and PBT is guided to be VND125bn (vs a net loss before tax of VND294bn in 2023). FRT targets Long Chau’s sales of VND21.3tn (+36% YoY) and plans a private placement of up to 10% for FPT Long Chau (i.e., pharmacy subsidiary). Long Chau’s sales guidance implies FPT Shop’s sales target of VND16tn (-1% YoY). In 2024, FPT Shop will focus on (1) ramping up online sales, (2) increasing the sales contribution from consumer electronics and home appliances to 10% of FPT Shop’s sales (from 5% currently), and (3) closing 50 stores.
Preliminary Q1 2024 results: FRT’s sales were approximately VND9.1tn (+17% YoY) and PBT was VND80bn (+40x YoY), completing 24% and 41% of our respective 2024 forecasts, tracking ahead of our expectations. Q1 results were mainly supported by Long Chau’s performance.
Long Chau: Long Chau plans to broaden its healthcare platform with (1) new businesses in diagnosis and treatment (i.e., clinics) and (2) still expand its current businesses (e.g., pharmacy, vaccination, in-home health valuation, and insurance drug guarantee). The purpose of the private placement is to (1) finance the expansion of the Long Chau healthcare platform and (2) improve FRT’s financial stability as its 2023 equity-to-asset ratio was only 13%.
Long Chau’s vaccination center: In 2024, it aims to open 100 new vaccination centers. Year to date, the company has already opened ~45 new ones, bringing the total number of centers to 55 currently. Management believes Long Chau ‘s competitive advantages in this business include (1) technology, (2) nationwide pharmacy coverage, and (3) its strong base of 15 million customers. For vaccination stores that have operated for six months, average sales/store was VND1.5bn, which is higher than that of the current Long Chau pharmacy sales/store (VND1.1bn).
Other comments on Long Chau: Break-even time for its pharmacy store has shortened to three months currently from six months in previous years. There are now only 10% of total Long Chau pharmacies that haven’t reached the store break-even level. The pharmacy chain now holds 60-70% of the share in Vietnam’s total modern pharmacy market.
FPT Shop: Target GPM to improve 200 bps YoY in 2024. In the long term, the chain aims to increase GPM to 13-14% from 10% in 2023.
Balance sheet: FRT aims to improve its equity-to-asset ratio by (1) increasing annual net profit, (2) Long Chau’s private placement, and (3) optimizing activity ratios (especially days of sales of inventory). FRT expects to reduce its total debt balance by VND1tn at end-Q1 2024 compared to YE2023.
Our view: Q1 2024 results tracked ahead of our expectations, therefore, we see upside potential to our forecast, pending a fuller review. Overall, the meeting reinforces our view on FRT’s vision of broadening its healthcare reach beyond the pharmacy business.