We attended TLG's AGM on April 23 in HCMC. Our key takeaways are as follows:

1. Q1 2024 preliminary results

Revenue: VND800bn (USD32mn); -12% YoY; 20% of our 2024F.

NPAT: VND88bn (USD3.5mn); -12% YoY; 22% of our 2024F.

2. 2024 guidance:

Revenue: VND3.8tn (USD152mn); +10% YoY; 97% of our 2024F.

• Domestic: VND2.8tn (+6% YoY; 94% of our 2024F)
• Exports: VND1tn (+23% YoY; 104% of our 2024F)
• Revenue to surge beginning from May-June 2024, rendering flat H1 2024 and YoY growth in H2 2024.

NPAT: VND380bn (USD15mn); +7% YoY; 93% of our 2024F.

GPM: stable YoY as plastic recycling and new premium SKUs help to offset plastic price increases and VND depreciation vs the USD that hurt material imports; 2023:43.7%; 2024F 43.0%

3. Business strategy

TLG maintains its stance on sustainable growth, protecting both profit and market share. Some of the specific tactics include:

• Not setting high KPIs without strong incentives to prevent straining its staff and points of sales, which could hurt operations and market share.
• Being available on all sales and marketing channels however small they are (e.g., ecommerce) to avoid losing market share once market dynamics change.
• Banking on its international standard quality to ward off domestic competitors.
• Making design the key function of R&D to create more trendy, diversified, personalized, and eco-friendly products to defend against Chinese competitors.
• Being extra cautious on large M&A opportunities (i.e., targets with more than VND1tn in annual revenue). TLG has put on hold many long-researched M&A projects given new issues of the target businesses that emerged during 2023 – a difficult year for the consumer market.

Clever Box store chain: TLG is slowing down store expansion and testing new store formats. It is focusing on toy SKUs. Toys are a huge market, rivaling writing instruments. All Clever Box stores are now making losses but on a small scale compared to TLG’s total expenses. TLG will not give quantified guidance and strict KPIs on the chain until 2025 as it wants to incentive the chain’s staff creativity to explore opportunities before optimizing profitability.

4. Market updates

TLG expects restocking from both the domestic and international markets by mid-2024. The company did not incentive points of sales to stock up in 2023, creating a customer inventory low base for 2024.

Per TLG, Chinese competitors have highly diversfied products and cheap prices. However, they are making minimal profits and as such each cannot maintain cheap prices for too long. As such, TLG can defend effectively with its sustainable growth strategy.

5. Dividends:

FY2023: VND2,500/share (VND1,500/share already paid) and stock dividend with 10 existing shares receive one additional share.

FY2024: 35% of par value (in cash and/or in stock).

6. New ESOP plan:

2024: 1% of outstanding shares if revenue reaches VND4tn, with an issue price of VND10,000/share and a lock-up period of two years.

TLG does not target VND4tn without proper incentives as to not strain the workforce.

2025: 1% of outstanding shares if revenue reaches VND5tn.

2026: 1% of outstanding shares if revenue reaches VND6tn.

These revenue targets include trading products. TLG reaffirmed that it will not chase revenue at the cost of profit and will consider an earnings-based ESOP.

TLG has only issued an ESOP twice during the last 10 years. These revenue targets imply 18%-25% revenue growth per annum, representing an acceleration vs its 2011-2023 CAGR of 11%.

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