Revenue Recovery of FPT Shop and Expansion of Long Châu
According to FPT Retail, the market this year faces uncertainties and volatile global macroeconomic factors that can impact domestic firms swiftly and severely. Moreover, with elevated demand for retail goods over the last two years and the recent steep decline in consumer spending since late 2022, the retail market requires time to recover.
As ICT products are non-essential goods, their demand is expected to rebound gradually, even if the economic forecast for 2024 is positive. Hence, FPT Retail anticipates that the FPT Shop chain’s revenue will remain steady in 2024. Consequently, the Long Châu pharmacy chain will take on the responsibility of driving growth.
FPT Retail states that pharmaceuticals are less susceptible to macroeconomic influences and have significant growth potential. In 2023, Long Châu achieved notable success in expanding its chain and customer base.
In 2024, Long Châu’s revenue is projected to grow double-digit, and the company aims to establish 400 additional pharmacies, bringing the total to 1,900 by the end of 2024.
During the shareholders’ meeting, FPT Retail’s management announced plans to strengthen its vaccine center operations, aiming to establish 100 centers in 2024. Recently, Long Châu announced the opening of 50 additional vaccination centers nationwide, increasing the total number of Long Châu vaccination centers to 52.
Notably, Long Châu only entered the vaccination sector in July 2023 by establishing its first two centers. In less than a year, the vaccination chain has surpassed 50 centers, a formidable pace compared to industry giants. For instance, VNVC, founded in 2017, currently operates approximately 200 vaccination centers (according to VNVC’s website).
Nguyen Bach Diep, Chairman of the Board of Directors, stated, “FPT Long Chau aims to become a Healthcare Ecosystem, encompassing all aspects of healthcare. This is a comprehensive area that follows an individual’s health journey: preventive healthcare, diagnostics, treatment, home monitoring, and health insurance. FPT Long Chau aims to provide multiple “touchpoints” throughout the health journey, including physical pharmacies, online purchases, and more.”
Preventive healthcare is a crucial aspect, with a market size exceeding USD 1 billion. For example, if hepatitis is not diagnosed and treated promptly, it can progress to cancer, leading to substantial expenses and complex treatment. Preventive healthcare measures can save individuals significant costs and effort.
Long Chau also offers remote medical consultation services, including the upcoming 247 home care service. This service will be particularly beneficial for the elderly. According to Diep, “Younger generations prefer to live independently but remain concerned about their aging parents; Long Chau aims to address this concern.” With the 247 service, parents can provide photos to FPT Long Chau, which will assess their daily health status and identify any areas of concern (if any, FPT Long Chau will automatically notify family members).
In 2023, due to the significant impact of reduced consumer demand, particularly in electronics, coupled with investments in expanding the Long Chau chain, FPT Retail reported a pre-tax loss of VND 294 billion. Consequently, the company anticipates not distributing dividends for 2023.
Discussions at the Annual General Meeting
Amidst Challenges in the Phone Business, Should FPT Shop Consider Closing Physical Stores and Shifting to Online Operations?
Hoang Trung Kien, CEO: FPT Shop continuously evaluates its operations and focuses on enhancing profitable stores while pausing new openings. Additionally, the company will prioritize segments with higher profit margins and maintain traditional product lines.
The shift towards online retail is an industry trend, and FPT Shop will adapt accordingly. The company aims to achieve 30% of its total revenue from online sales.
FPT Shop’s Outlook on ICT Consumer Demand
Our assessment aligns with other research firms, indicating continued uncertainties and challenges. The market is expected to remain stagnant, with potential growth in Q1 due to seasonal factors but a potential decline in Q2.
Contribution of Home Appliances to FPT Shop? Future Plans for a Separate Home Appliance Chain
Home appliances currently contribute less than 5% to FPT Shop’s revenue. However, the growth rate has been positive since the segment’s inception. In the future, the company will focus on expanding this segment, aiming for an initial growth rate of 50-100%. FPT Shop’s target is to increase the revenue contribution from home appliances to 10% of FPT Shop’s total revenue.
FPT Retail’s Strategy to Improve Profit Margins
As mentioned earlier, we plan to expand the home appliances segment, which is expected to double its revenue contribution to FPT Shop.
For the mobile and computer segment, FPT Shop has implemented a virtual mobile network. Compared to traditional mobile networks, a virtual mobile network enables personalized customer engagement on a monthly basis and seamless integration with other services, such as healthcare.
Estimation of FPT Shop’s Current Gross Profit Margin and Impact of High Inventory Levels on Business Performance
FPT Shop’s gross profit margin was approximately 8% in late 2023. By introducing new products and optimizing product mix, we have increased the gross profit margin to 11%, an improvement compared to Q4 2023, but still facing challenges. This 2% increase represents the Group’s collective efforts during this challenging period.
Regarding inventory levels, the end of 2023 marked peak seasons such as Christmas, New Year, and Lunar New Year, necessitating higher inventory levels. Additionally, during this period, suppliers in China were closed for an extended break, requiring businesses to maintain higher inventory.
In Q1 2024, FRT has adjusted its inventory turnover period to 90 days.
FPT Shop’s Gross Profit Margin after the Price War
During the price war, FPT Shop’s gross profit margin declined to 7-8%. As the price war subsided, the gross profit margin recovered. Currently, we are focused on optimizing operating costs to further increase the gross profit margin.
FPT Retail estimates an 80 billion VND consolidated profit for Q1 2024.
Management Previously Stated that Long Chau’s Expansion Would Cease at 2,500-3,000 Stores. Why is That the Case Given the Presence of Approximately 60,000 Pharmacies in Vietnam?
The figure of 60,000 pharmacies refers to the period before the COVID-19 pandemic. Currently, there are only 45,000 pharmacies in Vietnam, including drugstores. A unique feature of drugstores is that they often operate out of private homes, avoiding rent expenses and specializing in basic products like cold and flu medications, with daily revenue in the range of several million VND. Long Chau does not intend to replace these small-scale drugstores.
Long Chau currently generates approximately 1.1 billion VND/month/store, which is 5-8 times higher than that of private pharmacies. Opening 3,000 stores would capture more than half of the market revenue.
Does Management See the Risk of Imitators in the Long Chau Model?
Nguyen Do Quyen, General Director: There are various types of new drugs released each year, and prescriptions constantly change. Maintaining adequate drug inventory requires daily information gathering. Competitors may imitate our model a few times, but replicating it on a daily basis is challenging.
Operating thousands of stores brings immense information and inventory management pressure. Long Chau utilizes AI, big data, and other technologies to meet customer demand, resulting in a highly technological business. When customers request 10 medications, we must provide 9.5 of them without increasing inventory levels.
Finally, Long Chau has taken a step forward by becoming a pharmaceutical chain that partners with numerous prescription drug manufacturers to introduce new, difficult-to-find, and rare medications. Due to its extensive reach, Long Chau has become a distribution channel for many cancer drugs in various provinces, and the only chain to distribute hormone injections for children, among other products.
Long Chau’s Market Share in the Pharmaceutical Industry
There are no official statistics, but based on data from major distributors, Long Chau holds approximately 60-70% of the retail chain channel, varying by manufacturer.
Did the 15% Increase in Medical Consultations Last Year to 175 Million Visits Impact Long Chau’s Sales?
Nguyen Bach Diep, Chairman of the Board of Directors: While there was
