… when it comes to cost side, I want to highlight that Samsung’s smartphone manufacturing is done in Vietnam … where cost is much cheaper than in China …
I was surprised by the great amount of interest my post/article on Tran Anh Digital World generated … had not expected this amount of attention on a small cap company in Vietnam. Later on, I realised that this was due to the fact that soon after the article was posted, another (much more extensively promoted) company Thegioididong.com, came under investors’ radar.
Thegioididong.com is no ordinary company.
This company was invested by Mekong Capital and had Best Buy International’s ex-CEO Robert Willet on its board of directors. In 2013, the company had a really fantastic year, reporting revenues of VND7.82 trillion (US$372.4 million) and profits of VND 250 billion (US$11.9 million), increasing 28.8% and 100% (!!!) respectively over the previous year 2012. Thegioididong.com now runs 217 mobile phone shops and 13 electronics retailers.
When Mekong Capital first invested in the company in 2007, the company had revenues of a more modest US$17 million and five stores in Ho Chih Minh City. Now, Thegioididong.com is in all the 63 provinces in Vietnam.
In view of the phenomenal growth of Thegioididong.com, Mekong Capital did really well. In a partial exit of the investment in 2013 (buyer was Robert Willet), Mekong Capital made more than 11 times its initial investment (adding in dividends) in the company. In fact they did so well that the investment was made into case studies (casestudy_mobileworld).
Comparison with Tran Anh Digital World
The main business of Thegioididong.com is that of selling mobile phones. This part of the business is only marginally related to Tran Anh Digital World’s business.
Notwithstanding this, Thegioididoing.com has a small subsidiary called Dienmay.com and this is the part of Thegioididoing that is related to Tran Anh Digital World.
Dienmay.com currently operates 13 electronics shops (slightly larger than Tran Anh Digital). Although it currently accounts for about 15% of Thegioididong.com’s revenue (small but not insignificant), the profit contribution of Dienmay.com is neligible as the profit of Dienmay.com is very low.
This is not surprising when we view the financial results of Dienmay.com against that of Tran Anh Digital. The electronics retail market in recent years has been brutal. Many players are just trying to stay alive.
Notwithstanding this, the management of Thegioididong.com has guided that Dienmay.com will be the focus of the business in the future. According to them, while the company will open only a further 40 more mobile shops (against a total of 217 shops currently), they will be looking to nearly double the size of Dienmay.com by opening another 12 Dienmay.com electronics supermarkets (against a current 13 shops) by the end of the year.
In addition, the company has increased its direct ownership of Dienmay.com by buying out one of its founders (and owner of 20% shares) of Dienmay.com.
Management of Thegioididong.com seems to be rather bullish about Dienmay.com’s prospects … and perhaps about electronics supermarkets in general; A view which I certainly share.
My views of Thegioididong.com/Mobile World post IPO/listing
Thegioididoing.com’s growth has been nothing short of phenomenal.
Since the company was founded in 2004, the company grew its revenues more than 50% and doubled its profit every year.
However, I do not think that such growth is sustainable after it IPOs this year … at least not at the current rate. If post-IPO investors are counting on such rates of growth, I believe they will be disappointed. Indeed, the management has guided that growth will slow down for FY2014 and they are targeting only a 26% growth in revenue and 50% growth in profit. In my opinion, even these reduced targets are optimistic. Here are my reasons.
Most importantly, the company is already in every province in Vietnam now. According to most reports, the company now controls about a quarter or 25% of the entire market. The mobile phone market in Vietnam is becoming increasingly saturated. There are now more than 130 million registered mobile phone users at the end of 2013 vs a population of about 90 million people. Clearly, the market can now only grow incrementally, rather than exponentially going forward. For Thegioididong.com to expand, the company would have to gain serious market share from its competitors, something which is not going to be easy.
This, I am sure is the reason why the company has now chosen to focus on the operation of electronics supermarkets, a much larger market compared to mobile phones. However, this business will not be easy to penetrate as the example of Tran Anh Digital World has shown us.
From my previous post, we see that Tran Anh Digital attempted this transition into the electronics supermarket sector in 2009 and the business has been erratic at best since then. Moreover, in Dienmay.com’s case, in the south of Vietnam, the incumbents Nguyen Kim and several others like Pico etc are very established. There are also potential new entrants coming in from the north of the country in the future.
From just looking at the websites of Nguyen Kim, Dienmay.com and several others, I have found that in general, Tran Anh Digital World’s prices are cheaper then all of them. I feel that this may reflect the fact that the market in the North of Vietnam may be more competitive. Of course, please do not take my word for it. Just try and compare the prices yourself.
- Tran Anh Digital World: http://trananh.vn/
- Pico: http://pico.vn/
- Nguyen Kim: http://www.nguyenkim.com/
- Dienmay.com: http://www.dienmay.com/
Currently, the big unknown now is: What is the price that Thegioididong.com will be listed at?
Before listing however, the company would have issued 685,000 shares to employees through private placement and will increase its chartered capital by a staggering 5.4 times from 117 billion VND to 631 billion VND. This benefits the existing shareholders but for potential shareholders buying the shares post listing, the prospect may not be that attractive.
A while ago I saw this interesting article from Bloomberg, “How the Vietnam War Made Female CEOs Better Than Men“. This article was glowing in its praise for Vietnamese women in business:
An index of companies currently led by female CEOs has almost tripled in the past five years, gaining about twice as much as the nation’s benchmark VN Index, according to data compiled by Paris-based Intelligent Financial Research & Consulting and Bloomberg.
The equal-weighted index of 43 Vietnamese companies identified by IFRC with women CEOs has advanced 40 percent in the past year. It rallied 193 percent since March 2009, outpacing the 107 percent gain for the VN index, data compiled by Bloomberg show.
Stocks in the women index are spread across seven industries, with the biggest weightings in industrial and financial companies. The five-year returns range from a gain of 763 percent to a loss of 72 percent, with a median advance of 72 percent, data compiled by Bloomberg show. That compares with the median gain of 55 percent in the VN index.
Women account for 6.27 percent of board seats at Vietnamese companies, according to IFRC. In the U.S., women held about 17 percent of board seats in 2013, according to Catalyst. In Vietnam’s Politburo, the top governing body of the nation’s ruling Communist Party, they make up 12.5 percent of the 16 members, according to a government website.
To those who have traveled to Vietnam before, this should not come as a surprise. Women have always been a big part of business in Vietnam. This is apparent whether you’re talking about small stalls which sell food along the street or in corporate boardrooms.
In Bloomberg’s article, the focus was on the positive aspect, that businesses with women CEOs perform better. A less known fact is that Vietnamese businesses run by women were also more resilient during bad times as well.
If I didn’t remember wrongly, in 2009, 2 years after the stock market crashed, the private equity firm Mekong Capital did a study on Vietnamese businesses run by female CEOs. It showed that the share prices of Vietnamese companies run by female CEOs were also more resilient during the downturn.
The study was conducted between Jan 2007 to Jan 2009 and compared the performance of publicly listed Vietnamese companies based on the genders of their CEOs. At that time, only about 7.5% of listed companies in Vietnam had female CEOs. That 2 years was a horrible time in the Vietnamese market, which lost an annualised 34.9%.
The study showed that the share prices of companies with female CEOs lost comparatively less — 17.1% (annualised), compared to a loss of more than 38% (annualised) of companies run by male CEOs.
That to me, is an even more remarkable achievement.
We sold the last of our holdings in VITRANSCHART today, 2 Apr 2014.
It sure looks like I made a mistake, again.
When I bought the first position at 2,600 VND/share, the VNIndex was 477. Now the index is 578, 21% higher. Subsequently, as the price dropped, I continued to add. I added most in Sep 2013 when I saw the baltic dry index spike up while the price of VITRANSCHART remained depressed.
The price of VITRANSCHART is now 3,300 VND/share. Even though this is a mistake, we managed to make a rather good return (26% if you assume a buy price of 2,600 VND and the sell price of 3,300 VND today), or much better than the index. Phew!
As it turns out, I did not anticipate the oversupply of ships was this bad and it now looks increasingly likely that China is going into a slowdown. This would have big implications on the baltic dry index.
Six months ago, the baltic dry index made a huge move up and I thought that the shipping cycle seemed to be bottoming but it would seem that this was not so. Apparently, due to the low iron ore prices, China used the opportunity to stock up on iron ore which caused the temporary spike up in the index. Now the index is back down.
This will make life difficult for shippers and hence we decided to close our position in VITRANSCHART.