(FRT) - Comparison and Assess - Final

1.
Firm’s value
FRT MWG
It is crystal clear that overall FRT’s value was lower than MWG. More specifically,
MWG’s market capitalization was up to 23.16 times and 15.6 times as high as that of
2019 and 2020, respectively. In addition, MWG managed to keep the market
capitalization around 39 trillion VND over these 3 years, while that of FRT has varied
significantly. In terms of market – to – book ratio, while MWG’s M/B had a gradual
downfall, the one of FRT experienced a plummet up to 3.3 times, and then slightly went
up in 2020. Yet, overall, these two companies can be classified as growth stocks.
MWG
FRT
These two figures show a clear difference between earnings per share (EPS), stock price
and price – earnings ratios of MWG and FRT. The first glance reveals that the stock price
of MWG over the period of 2018 - 2020 was 107.000 VND, on average, which was
approximately 5 times and 3.4 times as high as the stock price of FRT in 2019 and 2020,
respectively, which is no surprise because the market share of MWG is considerably
larger. One thing that should be taken into account is a greater variability of FRT than
MWG. With regard to earning per share, MWG’s EPS was normally higher than FRT’s
EPS owing to the better profitability. Looking at the P/E ratio, this one of MWG was
usually above 10.0, which were not too different from that of FRT in 2018 and 2019,
which could imply that investors’ expectation for these two companies was more or less
the same. Nevertheless, in 2020, this ratio of FRT surprisingly jumped to 247.38, of
which we think the root cause was its extremely low net income. About MWG, 2020’s
P/E ratio nearly did not change. Generally speaking, the value and investors’ expectation
of MWG are quite stable, not so variable as those of FRT.
2. Firm’s profitability:
FRT MWG
It can be seen from these two line charts that gross margin, operating margin and net
profit margin of MWG were higher than those of FRT, which obviously indicated that
MWG operated more profitably than FRT over the period 2018 – 2020. More
specifically, the gross margin of both two companies slightly uplifted in 2020, however,
in comparison to the common index of the retail industry (14.60%), the one of MWG
looked better. Regarding operating margin and net profit margin, there was hardly
difference between these margins of both companies. However, thanks to better earnings,
ratios of MWG are further higher than those of FRT. Yet, when taking Covid 19 situation
into consideration, while these indexes of the retail industry in general are all negative in
2020, we can see that MWG and FRT have done a good job in remaining profitable.
Additionally, thanks to stabilization, MWG’s ratios do not experience much change,
meanwhile, FRT’s ratios showed a downward trend due to a decreasing income.
FRT MWG
Once again, looking at these two figures, MWG proved its stable situation and attractive
operating returns with ROE around 30% and ROA around 9.32%. Covid 19 situation
does make them decrease a little bit, but these ratios were still much better than those of
the whole retail industry with 8.35% (ROE) and 3.98% (ROA). On the other hand, FRT’s
profitability ratios still displayed a collapse over this period, in 2020, the situation was
even further worse with ROE and ROA were nearly 0%.
We use the DuPont Identity to gain further insight into the difference in ROE of FRT
and MWG, which expresses ROE in terms of the profitability, asset efficiency, and
leverage: ROE = Net profit margin * Asset turnover * Equity multiplier (Total assets/
Book value of equity)
FRT’s ROE = 0.07% * 2.72 * 4.40 = 0.83%.
MWG’ ROE = 3.61% * 2.36 * 2.97 = 25%
FRT’S net profit margin was much lower than MWG’s net profit margin, however FRT
was using its assets more efficiently with a asset turnover of 2.73 compared to 2.36.
Finally, FRT had a greater leverage with an equity multiplier of 4.4, which is 1.5 times
higher than that of MWG. If FRT had been able to match MWG’s net profit margin (like
it closely did in 2018), its ROE would have been significantly higher: 3.61% * 2.72 *
4.40 = 43,2 %, which would definitely be such an attractive result.
6. ASSESSMENT AND RECOMMENDATION:

6.1. FRT:
After carrying out the financial analysis of FRT, we are able to give some assessments
and recommendations for the company. First, in terms of the firm’s value, we can see that
FRT’s stock is growth stock, yet this ratio is not large enough, and also decreases
considerably to be an attractive investment choice. In addition, its market capitalization
has gone down a lot, which could be the result of investors’ dwindling belief on the
firm’s valuable assets that are not captured on the balance sheet, for instance, the
expertise of employees, the firm’s reputation in the marketplace, the relationships with
customers and suppliers, the value of future research and development innovations, and
the quality of the management team. Besides, P/E ratio experienced such an unexplained
increase could be due to the very low net income in a short term, not because of the
investors’ high expectation. Second, we can clearly find out that the biggest problem of
FRT in this year was the net income was too low, which declined up to 20 times
compared to 2019. It was announced that the reason for that was non – manufacturing
expenses were so large, which is the result of intensive investment in developing the
chain of Long Chau pharmacies. Consequently, the return on equity and return on assets
are terribly disappointing (nearly 0%), when compared to the direct competitor, MWG,
with 25% and 9%. We believe the root cause of such low profitability ratios was the low
net income as well because there was scarcely change in stockholders’ equity and total
assets.
Here are some our recommendations for FRT’s circumstance, especially to improve net
income:
It is the fact that Long Chau pharmacy chain is a great potential source of revenue,
especially since Covid 19, this market is believed to be one of the most profitable. As a
result, there are some strong competitors like Pharmacity, An Khang,… Therefore, we
think that the company should propose some strategy to develop competitive advantages
and value proposition in customers’ mind.
It is obvious that FRT is spending a lot of money on sales expenses. Hence, we highly
recommend the company should look inside its body of operation, particularly its SOP,
analyzing each stage to find out steps that can be eliminated or whether some processes
are done at the same time. Moreover, this is the era of digital transformation and
ecommerce, so it is crystal clear that the company should apply IT infrastructures with a
view to optimizing its operations, which may be costly at first but we believe that FRT
would save further more money. Also, applying more technology will certainly help the
company reduce a number of unnecessary employees, which boils down to a decline in
expenses. Additionally, since Covid 19, ecommerce has developed dramatically, so it
would be a great idea if FRT focused on developing online channels to reach out to more
customers. We believe that with its parent company, FPT, a company specializing in
technology and software, FRT is totally able to do these recommendations easily and
conveniently.
All in all, with its great prestige being a subsidiary company of FPT group, it is believed
that FRT is preparing a detailed strategy to improve its current financial situation and
keep up with MWG in the near future.

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1.

6. ASSESSMENT AND RECOMMENDATION:

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