Masan establishes O2 ecosystem to create strong cash flow

Saying "no" to engaging in asset trading activities such as real estate investment or short-term speculative activities, Masan focuses on business activities that generate strong cash flow.

To grow sustainably in a developing environment like Vietnam, it is necessary to build business activities that generate strong cash flow. Masan revealed its "secret" to sustainable business orientation in its recently released 2023 annual report. From online to offline (O2) According to the 2023 annual report of Masan Group Corporation (MSN), they do not participate in asset trading activities such as real estate investment or short-term speculative activities; they only participate in areas with strong growth potential, effective business models that have been proven by the private sector and have the potential to build large-scale enterprises. Therefore, Masan identifies consumer goods as its key area.

Masan's formula: Spending growth + Network growth = Long-term market share growth

In fact, this can also be seen as a huge difference between Masan and some of the "leading crane" multi-industry corporations in the economy. Because most of the corporations are associated with the real estate sector or participate in asset trading and speculation, in which direct or indirect association with real estate is a characteristic that is considered inevitable for the development process of private enterprises in an economy where the greatest value and the largest asset are still basic resources. Also according to Masan's report, with consumer positioning as the focus, and although determining that participating in new consumer sectors and categories requires investment and time to expand scale, Masan believes that establishing an O2 consumer ecosystem (online to offline) is the best way to ensure cash flow with sustainable growth. And The CrownX is built with the ambition to become a factor that increases profits many times over, along with the growth prospects of Vietnam's consumption. The cash flows that Masan has shown in the consumer sector, as recorded, are extremely positive. First of all, it is the cash flow of branded FMCG. With strong brands, new product development capabilities and leading operational capabilities, Masan Consumer (MCH) - the FMCC business segment of The CrownX - generates high profit margins and sustainable cash flows in economic cycles and inflationary environments. In fiscal year 2023, MCH achieved a net profit after tax growth of 31% year-on-year, equivalent to VND 7,195 billion, thanks to double-digit growth in most product lines, along with a gross profit margin increasing to a record high of 44.9%. EPS in 2023 reached VND 9,888/share, a sharp increase compared to EPS in 2022 of VND 7,612/share. However, modern retail is growing strongly in Vietnam as an inevitable trend to meet the growing needs of consumers, Masan predicts that profit margins will gradually shift from branded manufacturers to modern retailers (“MTs”) as they consolidate their market position. In addition to directly serving consumers and enhancing their shopping experience, Masan participates in the retail sector to access a larger share of profits in the consumer value chain. This is probably the basis for Wincommerce to accelerate since acquiring the Vinmart system from Vingroup in late 2020. Accordingly, the strategy of improving profits and expanding modern retail has been implemented by Masan since late 2020, recording a big step forward when improving EBITDA margin from negative 7% in 2019 to positive 2% in 2023. "This change is thanks to a series of initiatives including rationalizing the retail network, Strengthening partnerships with suppliers, improving operations (adjusting from the store level to the supply chain), introducing new store models (WIN for customers in urban areas and WinMart+ Rural for rural areas) and implementing a new membership program. From there, Masan has promoted economic efficiency per store unit to the best level in many different models, from which to replicate nationwide to serve many customer segments. Achieving positive net profit after tax for the first time in Q4/2023 creates a solid foundation for WCM to expand its network sustainably and profitably," said Masan. With a profitable O2 business model, according to Masan, a strong offline retail chain is an important factor to effectively serve consumers online or on other digital media. By meeting consumer needs well at offline points, building a technology-based consumer infrastructure to improve efficiency and digitize consumers through the program With WiN membership, Masan can exploit its online business more sustainably. "This model is particularly suitable in the context of the Vietnamese market, where nearly 90% of retail activities still take place at physical retail stores despite the rapid growth of e-commerce," according to Masan. Building a reputable model, Masan also affirmed that it requires investment to enhance brand awareness and attract customers with promotions, not to mention capital costs to build supply chain infrastructure. Masan aims to differentiate itself by developing a fully integrated O2 platform with a POL strategy (starting from offline channels) and the WIN Membership program to attract customers, with frequent shopping frequency, increased convenience and personalized services. All, indispensable support by data and customer insight. Singapore-based Trusting Social and Supra Logistics Company are understood to be indispensable "pieces". Attracting capital, accessing Continued consumer investment In 2023, Masan recorded EBITDA of VND13,343 billion with consolidated cash and cash equivalents of VND16,919 billion, including short-term investments in the form of short-term deposits and other short-term interest-bearing investments. With core operations focusing on essential consumer goods, Masan generates stable cash flows and is one of the few large-scale enterprises that have attracted large international financial institutions. The group said it has prepared sufficient capital to repay VND bonds due in 2024 - a year when the capital market in Vietnam, especially the bond market - is expected to remain difficult.

Financial results 2023. (Source: Masan Annual Report 2023)

Previously, in the fourth quarter of 2023, Bain Capital, a leading private equity fund with assets of approximately $180 billion, signed a $250 million investment with Masan Group. The deal is expected to close in the first half of 2024, and the proceeds will help Masan improve its balance sheet management flexibility and invest in consumer-focused businesses. Masan aims to continue optimizing its balance sheet, reducing interest expenses and reducing debt through the company's strategic actions. Regarding bonds, at the end of 2023, from a bond debt due in the year of more than VND 23,500 billion, equivalent to nearly USD 1 billion, Masan has almost completed all bond payment obligations in 2023 and the total amount of bonds due in 2024 will only fall to about VND 6,000 billion. In a meeting with investors near the end of the year, Mr. Danny Le - CEO of the Group - also shared that Masan's bond debt is almost no longer a concern. Meanwhile, Bain Capital's investment with this transaction expected to be completed soon will help Masan reduce financial leverage and optimize its balance sheet. At the same time, the Group is also negotiating with other parties to potentially increase the total investment capital to 500 million USD. It is known that according to the documents of the 2024 Annual General Meeting of Shareholders, Masan is expected to submit to shareholders at the meeting on April 25, the Group plans to have revenue in the range of VND 84,000 billion - VND 90,000 billion, increasing by 7.3% - 15% respectively. Profit after tax is expected to range from VND 2,250 billion to VND 4,020 billion, up 31% - 115% compared to the results in 2023. Masan is expected not to pay dividends in 2024. Assessing Masan's prospects in 2024, BVSC Research forecasts that the core consumer segment including Masan Consumer and WinCommerce has gradually reached efficiency when the compound annual growth rate (CARG) of earnings before tax and interest (EBIT) in the 2023-2025 period reaches 20.8% compared to only 9% in the 2021-2023 period. At the same time, it is expected that consumer demand will recover and interest expenses will decline. According to BVSC Research, the most difficult time of financial pressure for Masan has passed and the company's profits will recover strongly thanks to the stability of its consumer business segments and reduced interest expenses, which will create positive momentum for stock prices in 2024. BVSC also emphasized that MSN shares, along with a number of other blue-chips, may attract cash flow in the upcoming upgrade story of the Vietnamese stock market. In the market, MSN shares in the April 17 trading session recorded green with an increase of 1.06%, trading around VND 66,800/share. This is one of the blue-chips that is assessed to have a deep discount and is approaching an attractive price range. In the first 3 months of 2024, MSN shares increased sharply in market price by about 20%, with the quarterly trading peak nearly reaching 80,000 VND/share, bringing MSN's market capitalization to over 4.4 billion USD, before adjusting.