We attended DGW’s online analyst meeting on July 21, 2021. Management provided colors on H1 2021 results, the business plan for Q3 2021, and a new exclusive contract with an American brand in the home appliance segment. Our key takeaways reaffirm our view of bright earnings prospects for DGW on the back of organic growth from its existing brands such as Xiaomi as well as contributions from newly acquired brands such as Apple and Huawei. As both H1 2021 results and DGW’s Q3 2021 financial targets exceed our expectations, we see potential upside to our current forecasts, pending a fuller review.

DGW saw strong contributions from both existing and new brands in H1 2021. Breaking down the 89% YoY surge in H1 2021 revenue, management said that same-brand sales (i.e., brands that also contributed revenue in last year’s same period) soared 37% YoY while new brands contributed revenue of VND2.5tn (USD108mn; ~27% of total revenue). Same-brand sales were primarily lifted by Xiaomi, whose smartphone revenue surged more than 50% YoY, per our estimate. Management stated that Xiaomi reached a smartphone volume market share of 13% in 5M 2021 vs 8%-9% in 5M 2020. Management expects Xiaomi’s market share to reach 25% within the next three years vs our current expectation of 22%. Meanwhile, new brand sales mainly came from Apple, Huawei and Samsung in phones, laptops and office equipment as well as RegenFlex (intra-articular injection) and Vstent (stent insertion) in the healthcare category. Based on our estimate, iPhones accounted for ~16% of DGW’s total revenue in H1 2021.

Management guides for revenue of VND4.5tn (USD196mn; +24% YoY) and NPAT of VND121bn (USD5.3mn; +61% YoY) in Q3 2021. In setting these targets, management assumes that the current social distancing restrictions will be eased in August 2021 at that ICT retailers will be allowed to reopen shops before the back-to-school shopping season in September, which is typically the peak period for laptop sales. In addition, Vietnam’s suspension of imports of 2G phones (i.e., phones that only have 2G connectivity, which account for 35%-38% of Vietnam’s annual mobile phone sales volume, per DGW) from July 2021 should bolster smartphone sales, whose ASP is typically above VND2mn (USD87) vs under VND1mn (USD43) for 2G phones.

Category mix and favorable supply-demand balance buoy GPM. Similar to H1 2021, management expects margins to improve YoY in Q3 2021 backed by (1) a larger revenue contribution from laptops and office equipment relative to mobile phones and (2) softer promotional activities given the current global shortage of semiconductors and in turn electronic products. We note that DGW typically meets or even surpasses its quarterly guidance, which we attribute to DGW’s solid visibility into its customer orders for future shipment as well as its proven forecasting and planning capabilities.

Vietnam’s mobile phone and laptop markets posted solid growth in 5M 2021. According to market research company GfK, Vietnam’s mobile phone market expanded 37% YoY in 5M 2021 as it was mainly driven by strong sales of the iPhone 12 series after it was launched in late 2020. Meanwhile, the laptop market jumped 11% YoY in 5M 2021, which was encouraging given a COVID-19-driven high base last year that was due to elevated demand from remote work and remote study activities.

DGW to ramp up its presence in the home appliance category thanks to a new exclusive contract with a popular US brand. The new brand specializes in electronic home appliances (e.g., washing machines, refrigerators, dishwashers, dryers, and microwaves), which will strengthen DGW’s home appliance offerings that are currently limited to Xiaomi small appliances and contribute less than 5% to DGW’s total sales, per our estimate. Management expects this brand to start contributing revenue in 2022 and targets a share of 5%-10% in its USD1bn addressable market