Equity Valuation Report on. Initiation Coverage

Transcription

1 Equity Valuation Report on Initiation Coverage (This document has been prepared by the Research team of EBLSL Securities Limited) for information only of its clients. No part of this report should be copied or used in any other report or publication or anything of that sort without any reference given or permission taken from the authorized publisher of this report)

2 Key Growth Drivers Steady GDP growth driving the industry growth Projected Economic Growth 7.28% and 7.40% in 2017 and 2018 *Source: BBS Increased Per Capita Income USD 1,610 Population Growth 1.1% Last 10 Years Average Sales growth driven by Hire Purchase System Purchase Installment Payment 50.8% increase in Hire Purchase Account in % Business Fundamentals 12.07% In 2017 Associates became Profitable 21.04% Expected contribution to Profit Before Tax in 2017 BDT 35 million 56.94% Air Conditioner Television Home Appliance Other Revenue Composition (2016) Current Price Target Price 221.8

3 Singer Bangladesh Limited DSE: SINGERBD BLOOMBERG: SINGER:BD Target Price: BDT 221.8, Current Price: BDT Rating: Overweight Valuation date: 28 th December, 2017 Company Fundamentals Market Cap (BDT mn) 14,963.0 Market weight 0.4% Paid-up Capital (BDT mn) No. of Share Outstanding (in mn) 76.7 Free-float Shares (Inst.+For.+ Public) 37.8% 1 year Capital Gain 2.5% 1 year Avg. Daily Turnover (BDT mn) year Avg. Daily Volume 257,896.0 Current P/E 22.2 Current P/NAV week price range (BDT) Financial Information (BDT mn) 2015 Act Act Exp Exp. Net Sales 6,911 9,007 11,504 14,443 Gross Profit 1,843 2,593 3,312 4,158 EBITDA 626 1,001 1,359 1,693 Operating Profit ,290 1,620 Profit After Tax ,066 Total Assets 3,652 5,700 7,241 7,517 Total Debt 19 1,130 1,983 1,364 Total Equity 1,417 1,947 2,204 2,510 Retained Earnings ,158 Cash Dividend (C/B)% 65/- 70/- 100/- 100/- Margin Gross Profit 26.7% 28.8% 28.8% 28.8% EBITDA 9.1% 11.1% 11.8% 11.7% Operating Profit 8.1% 10.4% 11.2% 11.2% Pretax Profit 7.9% 9.1% 9.8% 10.6% Net Profit 5.3% 6.1% 6.9% 7.4% Growth Sales -4.8% 30.3% 27.7% 25.6% Gross Profit 0.2% 40.7% 27.7% 25.6% Operating Profit -7.2% 67.5% 38.3% 25.6% Net Profit 1.8% 48.1% 44.1% 35.3% Profitability ROA 9.9% 11.7% 12.2% 14.4% ROE 25.1% 32.5% 38.0% 45.2% Payout Ratio 135.1% 98.2% 97.3% 71.9% PEG ratio 0.1% 1.8% 2.4% 2.6% Leverage Debt Ratio 0.5% 19.8% 27.4% 18.1% Debt-Equity 1.3% 58.0% 90.0% 54.3% Altman Z-Score Valuation EPS (BDT) NAVPS (BDT) P/E P/NAV (x) EV/EBITDA EV/Sales Sector Analyst: MD. Mosavvir Al Ashick research@eblsecurities.com Engineering Rating Validity Up to June 2018 Potential Upside 13.49% Expected Dividend Yield 5.12% Singer Bangladesh Limited manufactures and markets color televisions, refrigerators, home appliance, furniture, sewing machine. The company is also engaged in marketing of electric cables, computer and instant power supply, kitchen appliances, other consumer electronics and household appliances of other brands. Robust growth in consumer durables industry and steady economic growth will accelerate the growth of Singer: The Government of Bangladesh targeted that Bangladesh will be a middle income country by Consequently, the GDP of Bangladesh is expected to grow more than 7% in the upcoming year. Consumer durable industry is expected to grow at the same pace with economy. As SINGERBD belongs to this industry, the company is expected to grow with the growth of the industry. Major revenue generating segments continued to record lucrative growth in topline: Major revenue earning segments air conditioner (12.07%), television (21.04%) and home appliance (56.94%) have experienced a five year sales CAGR of 23.6%, 13.7% and 10.3% respectively. Singer Bangladesh has recorded 49% sales growth of panel television, 47% sales growth of washing machines, 42% sales growth of refrigerators, 40% sales growth of furniture and 36% sales growth of air conditioner in Q2 of With the future growth of consumer durables industry, profitability of Singer Bangladesh Limited is likely to increase. Income from associate will grow up further while serving as a backward linkage for the company: International Appliances Limited, a 73.85% owned associate of Singer Bangladesh Limited has started commercial operation in July 2016 with a production capacity of 250,000 units. The Company has turned into a profitable one in 2017 Q3. Singer Bangladesh Limited has earned BDT 10 million from this associate in this time. It is expected that the associate will generate more profit in the future. Addition of new product in the product portfolio will increase the revenue of the company: Singer Bangladesh Limited adds a good number of products in its product portfolio each year. New product in the product portfolio helps the company to generate additional revenue each year. Major portion of revenue comes in EID festival and Summer Season: Singer Bangladesh earns major portion of revenue from selling television and refrigerator during the EID festival and from selling air conditioner during the summer season. We initiated a valuation based on Discounted Cash Flow method and Relative Valuation method while assuming next 5-Years CAGR of revenue will be 17.39%. Currently, SINGERBD is traded at BDT In our valuation, the target price based on Free Cash Flow and Residual Earnings is determined at BDT per share Price Volume Movement Volume Price Jan-15 1-Oct-15 1-Jul-16 1-Apr-17 2,500,000 2,000,000 1,500,000 1,000, ,000 0

4 Industry Overview In the booming consumer industry of Bangladesh, television, refrigerator and air conditioner comprises major portion. Currently in Bangladesh, there is a demand of 1 million units of television every year. Local TV manufacturer includes Walton, Myone, Singer who are competing against branded television like Sony, Samsung etc. In the refrigerator segment, there is a yearly demand of 1.1 million units of refrigerator where the local manufacturer possess the capacity to produce 2.3 million units of refrigerator. Walton is the market leader of the refrigerator segment. LG and Singer Bangladesh secures 2nd and 3rd position based on their market share. Other refrigerator manufacturer include Miniter, Myone, Marcel etc. To promote the local manufacturer of consumer durables industry, the government of Bangladesh has declared 15% cash rebate on the imported refrigerator and air conditioner for the local manufacturer 1. Company Profile Manufacturer and Marketer: TV, Refrigerator, Home appliance, Sewing Machine, Air conditioner etc. Singer Bangladesh Limited is engaged in manufacturing and marketing of color televisions, refrigerators, home appliance, domestic furniture, sewing machine of Singer Brand. The company is also engaged in marketing of televisions, air-conditioners of other brand. It also distributes electric cables, computer and instant power supply, kitchen appliances and other consumer electronics and household appliances. Singer Bangladesh Limited holds 10% of the market shares in consumer durables industry which is the second largest market share in the industry (Source: Daily Star). Currently, the company has 374 sales centers in all the 64 districts of Bangladesh. Their sales centers are named as Singer Mega and Singer Plus. Apart from that, the Company has 425 dealers who work as distributors for the company. The company also has five services centers in Dhaka, Chittagong, Jessore, Borgra and Sylhet. Incorporation: In 4 th September, 1979 as a private limited company Conversion into public limited company: 1983 Listing: Dhaka Stock exchange: In 1983 Chittagong Stock Exchange: In 2001 Group Structure: UCL Asia Partners LLP Retail Holdings NV Gavin Walker (Sewko CEO) 41.1% 54.1% 4.8% SEWKO Holdings Ltd SINGER ASIA 100.0% 58.3% SINGER Bangladesh Ltd 73.9% International Appliances Ltd Source: SingerBD Website 1 2

5 Key personnel: Chairman Managing Director & CEO Director Director Director Director Independent Director Independent Director Secretary Mr. Gavin J. Walker Mr. Mohamed Haniffa Mohamed Fairoz Mr. Stephen H. Goodman Mr. Peter James O Donnell Mr. Gelmart M. Gellecanao Mr. Nayana Jagath Kumar Dissanayake A. F. Nesaruddin Dr. Syed Ferhat Anwar Mr. Mohammad Sanaullah Manufacturing Plant Location: Rajfulbaria, Jhamur, Savar Distribution Network Singer Plus: This is the main retail format with the store size of 123 square meter on an average. There are currently 354 Singer Plus operating in the country. Singer Mega: Average store size is 230 square meter. Singer mega targets affluent class people. There are currently 20 Singer Mega operating in the country. Signer Pro: Wholesale dealers are named as Singer Pro. Their store size is 100 square meter on an average. There are 425 Singer Pro operating in the country. Yearly Production Capacity: 250,000 refrigerators Commercial Operation: 26 th July 2016 SINGERBD s share: 73.85% Future economic growth is likely to drive the consumption of household durables People have more income to consume as income increased. Increased population drives the demand of household appliances Growth of local consumer market coupled with increased purchasing power will increase the consumption of consumer durables Superior quality makes SingerBD a trusted brand Associate Company: International Appliance Limited (IAL) Singer Bangladesh Limited has invested 40% in the shares of International Appliance Limited in In an agreement with Sunman, SINGERBD invested another 33.85% in International Appliance Limited which has previously held by Sunman. According to agreement, Singer Bangladesh granted Sunman an irrevocable and continuing call option to acquire 33.85% shares of International Appliance Limited, exercisable in one tranche only for the full amount effective and enforceable up to 1 st March 2023, with 60 days written notice. The exercise price of the call option will be equal to face value of 33.85% shares plus 12% compounded annual interest on the value of the shares less any dividend received from these shares. The Associate has yearly capacity to produce 250,000 refrigerators. The company started its commercial operation in 26 th July, Key Growth Drivers for Singer Bangladesh Limited 1. Robust economic growth: Bangladesh is one of the fastest growing economies in the world. In the fiscal year , Bangladesh has achieved a GDP growth rate of 7.28% according to Bangladesh Bureau of Statistics. The Government of Bangladesh has set up a GDP growth target of 7.4% for the fiscal year Word Bank predicts that Bangladesh will achieve a GDP growth rate of 6.4% to 6.8% in the year 2017 and With the rapid growth of economy, the household consumer durables industry is expected to achieve a significant growth in the future. 2. Growth of average income level and growth of population: Currently, there are 165 million people in Bangladesh with an annual growth rate 1.1% 2. Increased population is likely to drive the consumption of household durables. The demand of consumer durables also depends on income level of people. Per capita GNI of Bangladesh is USD 1,610 in the fiscal year where it was USD 1,466 in the fiscal year The average income level of people is showing an increasing trend. Income and population growth is likely to drive the demand of household appliances. 3. Growth in Local Consumer Market: Boston Consulting Group (BCG) in its report, titled Bangladesh: The Surging Consumer Market Nobody Saw Coming stated that Bangladesh is the one of the fastest growing consumer markets in the world. BCG states that within 2025, middle and affluent class Bangladeshis (individuals with annual household income of $5000 or more) will account for 17% of the population 4. The growth of local consumer market is likely to drive the growth of Singer Bangladesh Limited. 3. Strong brand & reputation: Singer is one of the most recognized brands for television, refrigerator and air conditioner. Singer Bangladesh has been operating in Bangladesh since Strong brand base is likely to help Singer Bangladesh to sell its products to the customer in a greater quantity

6 90, , , , , , , , , , , , , , , , , 000 5, % 100 % 80% 60% 40% 20% 0% 140 % 120 % 100 % 80% 60% 40% 20% 0% Valuation Report on SINGERBD Date: 28 th December, 2017 SingerBD diversified its portfolio to generate revenue from different sources Singer possess a large distribution network so that customer can reach to them easily Hire purchase system makes SingerBD s product lucrative in the eye of the consumers 4. Extensive product portfolio: Singer Bangladesh Limited has extensive product portfolio. There are multiple numbers of models for television, air conditioner and refrigerators. Consumers have variety of options to choose from diversified model. Apart from this, the company has also furniture, electronic household product in its portfolio. Extensive number of products gives the company the opportunity to produce revenue from multiple sources. 5. Extensive distribution: Singer Bangladesh has one of the largest retail distribution networks in Bangladesh. The Company has 374 retail outlets and 425 dealers to distribute their products as on 30 June Singer Bangladesh has launched Singer Mega outlet which targets affluent class of the country. The company has 9 service centers in different districts to provide after sales service. Extensive distribution network helps the company to smoothly distribute product in accordance with the need of the consumers. 5. Multiple financial services offerings: The Company provides retail and consumer finance to customers. Hire purchase accounts increased by 50.8% in the year Hire purchase accounted for 67% of total retail sales in Offerings financial services help the company to increase footfall to the store. At the same time, hire purchase system helps the company to sell their products extensively % 2016 Retail Holding Bhold B.V.- The Netherlands Shareholding Pattern 20.00% 50.10% Retail Holding Bhold B.V.- The Netherlands: nonremittable shares Local Shareholders Nov Nov Nov Nov Sponsors 75.00% 75.00% 70.10% 57.00% Institution 5.17% 7.46% 9.56% 14.56% Foreign 0.00% 0.00% 0.00% 8.61% Public 19.83% 17.54% 20.34% 19.83% Source: Annual Report 2016 & EBLSL Research Products Portfolio 1. Air Conditioner 8. Refrigerator 15. Washing Machine 2. Chest Freezer 9. Iron 16. Water Purifier 3. Computer 10. Musical Instruments 17. Kitchen Appliances 4. IPS 11. Panel Television 18. Furniture 5. Air Cooler 12. Sewing Machine 19. Fan 6. Gas Burner 13. Voltage Stabilizer 7. Microwave Oven 14. Electric Oven Production capacity and capacity utilization is increasing over the years in all segments Demand of Panel television is increasing over the last five years Panel television grabs the market shares of CRT television Production Capacity Panel Television: Singer Bangladesh has yearly capacity to produce 89,829 units of panel television. In 2016, the capacity utilization ratio was 112%. As the demand of Panel Television increased, the company focused to produce more panel television. At the same time, SingerBD decreased the production of CRT television to make room for producing more Panel Television. CRT Television: SingerBD possess the capacity to produce 20,000 units of CRT television in With the decreased demand of CRT Television, the company decreased the production capacity. The company utilized 89% capacity to produce CRT Television in Panel Television Production Capacity Actual Production Capacity Utilization 71% 50,000 50,000 50,000 50,000 80,000 49% 33% 34% 112% 24,565 16,709 17,013 35,353 89, Source: Annual Report 2016 & EBLSL Research 118% CRT Television Production Capacity Capacity Utilization 95% 96% Actual Production 81% 89% 35,000 35,000 35,000 35,000 20,000 41,185 33,291 33,616 28,333 17, Source: Annual Report 2016 & EBLSL Research 4

7 25, , , , 000 5, ,0 00 5,0 00 4,0 00 3,0 00 2,0 00 1, % 100 % 80% 60% 40% 20% 0% 120 % 100 % 80% 60% 40% 20% 0% Valuation Report on SINGERBD Date: 28 th December, 2017 Over the last five years, the demand of Panel Television has increased and the demand of CRT Television has decreased. The company adjusted its capacity according to the demand of the market. Air Conditioner Production Capacity Capacity Utilization 101% Actual Production 99% Capacity was upgraded to meet the increased demand of air conditioner Air Conditioner: The Company introduced air conditioner in its production line in Over the last three years period, the company increased its capacity by 3.33 times. Demand for air conditioner is increasing year on year. The company adjusted its production capacity in accordance with demand. Production capacity stands at 20,000 unit per year with a utilization ratio of 99% in % 6,000 10,000 20,000 3,695 10,140 19, Source: Annual Report 2016 & EBLSL Research New furniture unit established in 2013 which attracted lots of customers; to meet the demand capacity was upgraded Furniture: The Company introduced furniture unit in its production line in The Company had a capacity utilization ratio of 84% in the year 2014 with a production capacity of 1,200 units. To keep pace with the increased demand in the consumer market, the company increased its furniture unit capacity to 5,300 unit in the year The company had highest utilization rate of 104% in the year Furniture Production Capacity Actual Production Capacity Utilization 5, % 5,300 94% 84% 1, ,200 1,005 5,489 4,957 7% Source: Annual Report 2016 & EBLSL Research Refrigerator sales increase dramatically in EID season Air conditioner sales increase in summer season Seasonality in Business: Singer Bangladesh is exposed to high seasonality in business. Major portion of revenue comes in quarter 2 and quarter 3 (April to September). Usually, there are little sales on quarter 1 and quarter 4. The sales of air conditioner increase during the summer period. The sales of refrigerator and television reach at its peak during the EID period. The Company earns major portion of the revenue during the EID festival and summer season. Quaterly EPS Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Annual Report 2016 & EBLSL Research 5

8 Financial Performance In order to analyze financial performance of Singer Bangladesh Limited, financial information from 2013 to 2017 (9 month annualized) has been considered. Liquidity Position: Decreased Over the last five years, current ratio of the company has significantly decreased mainly due to the increase of short term loan and trade creditors. Quick ratio of the company has also decreased over the time implying that the liquidity position of the company has weaken. Current Ratio A Quick Ratio A Operating Efficiency: Decreased Over the last 5 years, average collection period has increased. This implies that SINGERBD is taking more time to collect receivables from their customers, thereby decreasing liquidity. At the same time, inventory conversion period has also increased, implying that the company is taking more time to convert its inventory into cash. Average collection period and inventory turnover has increased as hire purchase accounts has increased by 50.8% in The impact was visible in The hire 52 Payables Payment Period (Days) Average Collection Period (Days) purchase account helps the company to generate more sales. On the other hand, the company has increased its payable payment period, meaning that the company is taking more time to pay to its suppliers, thereby requires less working capital. Overall, the cash conversion cycle of the company has increased meaning that the company taking more time to get its cash. The company has also experienced a lower total asset turnover ratio in 2017, meaning that the company is generating less sales utilizing its total asset base A A Inventory Conversion Period(Days) Cash Conversion Cycle (Days) A A 6 Profitability: Overall Increased Profit margin of Singer Bangladesh Limited has Gross Profit Margin (GPM) Operating Profit Margin (OPM) shown a decreasing trend from 2013 to Gross profit margin has decreased margin has slightly decreased from 2016 to 2017 (9 month annualized). Operating profit 27.0% 25.3% 26.7% 28.8% 27.4% 8.9% 8.3% 8.1% 10.4% 9.9% from 2016 to The company has achieved highest A A GP and OP margin in the year 2016 during the five years period from 2013 to Although, Gross profit and operating profit margin has declined, net profit margin has increased. International Appliance Limited, an associate of Singer Bangladesh Limited became profitable. As a result, the net profit margin increased

9 despite the negative growth of gross profit and operating profit margin. Other profitability measures like Return on equity and Return on asset has increased over the time period. Net Profit Margin (NPM) 5.8% 5.0% 5.3% 6.1% 6.2% A ROA & ROE 19.3% 14.8% 17.4% 25.1% 32.5% 10.9% 8.8% 9.0% 9.9% 11.7% Leverage ratio: High Singer Bangladesh Limited does not rely on long term loan. However the company relies on short time loan when required. The company took short term loan of BDT 1,130 million in As a result debt to equity ratio and debt to total asset ratio has increased. At the same time, interest coverage ratio has fallen Leverage Ratios Total Debt to Equity 19.5% 1.0% 14.3% 1.3% 58.0% Debt to Total Assets 11.0% 0.6% 5.7% 0.5% 19.8% Coverage Ratios Times Interest Earned (TIE) Valuations & Key assumptions Air conditioner, home appliance and Television contributes 90% of total revenue Revenue From 2012 to 2016, air conditioner, television and home appliances have contributed major portion of the company s revenue. In 2016, those items contributed 90.5% of total revenue. Contribution from different revenue segment is presented in right side Revenue contribution from different segments Air conditionar Home Appliance (Other than air conditionar) Sewing Machine Other consumer durables 12.07% 21.04% 11.45% 20.57% 10.54% 21.46% 8.78% 18.57% 7.04% 18.96% Television Consumer electronic (other than television) Furniture 56.94% 4.76% 1.54% 58.94% 5.11% 2.85% 58.86% 4.96% 1.86% 61.30% 4.36% 4.56% 59.42% 4.09% 8.29% 7 Source: Annual report 2016, EBLSL Research Air conditioner: Air conditioner contributes a significant portion of revenue. In the year 2016, air conditioner contributed 12.07% to total sales. Over the time, contribution from air conditioner is increasing. The average sales growth rate of air conditioner was 29% excluding that of 2015, where sales experienced a low-growth of 3% due to the political instability. Current rise of temperature will contribute to the sales growth of air conditioner in the future. Recent press release states that air conditioner unit has achieved 36% sales growth in the first six month of Therefore, we have assumed 30% growth rate in 2017 and 25% growth rate 2018, followed by 3% growth in 2019 considering that national election may held in early Again, the sales growth rate of air-conditioner is assumed as 15% in the year 2020 and Growth of Sales of Air Conditionar 25% 23% 32% 3% 37% 36% ( 6 Month) Source: Annual report, Press Release Growth of Sales of Television 33% 27% 27% % Television: Television contributes significant portion in the revenue -9% of Singer Bangladesh Limited. In the year 2016, television Source: Annual report, EBLSL Research contributed 21.04% of total revenue. The company maintained heavy growth rate during the politically stable period. The average sales growth during the politically stable

10 period is 29%. The sales of television suffered de-growth in 2013 and 2015 due to political issues. Increased income of people will attribute to the sales growth of television in the future. It is assumed that the company will experience 30% sales growth of television in 2017 and 20% growth rate in 2018 followed by 6% growth in the year The sales of television will then experience a growth rate of 15% in the year 2020 and Home Appliances: Home appliance contributes major portion of the revenue. In the year 2016, home appliance contributed 56.94% of total revenue. According to the annual report, about 95% of home appliance sold by Singer Bangladesh is refrigerator. The company has invested 73.85% in International Appliances Limited (IAL) with a production capacity of 250,000 unit which manufactures Singer branded refrigerators, deep freezers and other appliances. International Appliance Limited has started commercial operation from 26 th July, 2016 (Source: Prothom Alo). According to recent press release, refrigerator unit has achieved 42% of sales growth in the first six month of The average growth rate of home appliance was 26% during the politically stable period. Increased income of people and rapid urbanization will attribute to the sales growth of home appliance in the future. As International Appliance Limited has started its commercial operation, it is expected that sales of refrigerator will increase. It is assumed that the sales of home appliance will grow at the rate of 30% 2017 and 2018, followed by 6% growth in The sales growth of refrigerator will revert to 15% in the year 2020 and % Growth of Sales of Home Appliance (other than air conditioner) 2% 6% -5% 26% Source: Annual report, EBLSL Research Sewing Machine: Sewing machine contributes minor part to the total revenue of Singer Bangladesh Limited. In 2016, sewing machine contributed 4.76% of total revenue. The average sales growth rate of sewing machine was 23% during the politically stable period. It is assumed that sales of sewing machine will continue to grow at the rate of 15% per year in 2017 and 2018, followed by de-growth of 1% in The sales growth of sewing machine will revert to 10% in the year 2020 and Furniture: Furniture contributes minor part to the total revenue of Singer Bangladesh Limited. In the year 2016, furniture contributed 1.75% to the total revenue. The Company initiated furniture unit in the year Since then furniture unit has experienced massive year on year growth. According to the recent press release, the company has achieved 40% sales growth in furniture sector in the first six month of It is assumed that sales of furniture will grow at the rate of 20% in each of the year 2017 and 2018, followed by de-growth of 1% in The sales growth of furniture will revert to 10% in 2020 and Growth of Sales of Sewing Machine 22% 5% 25% -2% 22% Source: Annual report, EBLSL Research Growth of Sales of fuurniture 242% 185% 114% 40% ( 6 Month) Source: Annual report, EBLSL Research Consumer Electronic: Consumer electronic contributes minor part to the total revenue of Singer Bangladesh Limited. In 2016, consumer electronic contributed 1.89% to the total revenue. The Company had the following amount of consumer electronic sales in the last six years. (Amount in BDT Million) Year 2012 Year 2013 Year 2014 Year 2015 Year 2016 Sales from Consumer Electronic YOY Growth 1.17% 3.51% -6.49% % 33900% The sales of consumer electronic had a range from 143 to 170 million (without considering the sales of year 2015 because there is de-growth in sales due to political instability). It is assumed that the consumer electronic will grow at the rate of 6% in the year 2017 and 2018, followed by de-growth of 1% in the year The sales growth will revert to 4% in the year 2020 and Other Consumer Durables: Consumer durables contributes minor part to the total revenue of Singer Bangladesh Limited. In the year 2016, consumer durables contributed 1.54% of total revenue where in 2012 consumer durables contributed 8.29% of total revenue. Contribution from consumer durables to total 8

11 Assumed rate: 71% of Total Sales Assumed rate: 18% of Total Sales Assumed rate: 0.02% of Total Sales Assumed rate: 10 % of Total Short term debt Assumed rate: 5% of profit before WPPF & taxes revenue decreased as the sales of consumer durables decreased. The Company had the following amount of consumer durables sales in the last four years. (Amount in Million) Year 2012 Year 2013 Year 2014 Year 2015 Year The sales of consumer durables has experienced de-growth over the four years. It is assumed that the consumer durables will experience 29% de growth over the next five years period. Cost of Goods Sold Historical trend shows that the cost of goods sold was consistent as percentage of sales from 2012 to This trend continues to prevail in the first six month of The cost of goods sold 2017 A ranges from 71% to 75% for the period to 2017 (annualized). Average cost of goods sold was 73%. As Singer 2015 Bangladesh has established an associate 2014 for backward linkage (Previously raw material was imported for refrigerator), 2013 it is expected that the cost of raw 2012 material will decrease. Thus, considering the fact that cost of goods sold will decrease from this level in future, cost of goods sold has been assumed as 71% of sales for the forecasted years. Operating Expense Average historical operating expense has been accounted for 18% of total sales. From 2012 to 2016 period, operating expense had a range of 17% to 18%. Latest month annualized information shows that selling & distribution expense was 18% of total sales. Considering the average rate operating expense has been set as 18% of total sales for the forecasted years. Other Income: The sources of non-operating income for Singer Bangladesh Limited are sales of scrapped inventories, dividend income from Central Depository of Bangladesh and Gain from sell of discarded fixed assets. Other income contributes 0.055% to total revenue on an average. In 2015, other income contributed 0.95% to total revenue. Other income increased in 2016 due to the reversal of interest accrued on non-remittable dividend. However in 2016, other income came to normal level and contributed 0.02% to total revenue. This rate has been assumed for the forecasted periods. Finance Expense The average interest rate of last five years was 13.10%. However, considering the declining interest rate, interest rate 10% has been assumed on the short term loan for the forecasted years. Provision for WPPF From 2012 to 2016 period, Provision for WPPF was 5% of profit before WPPF & taxes. This rate will prevail in the forecasted years. Share of Profit and loss from associates International Appliances Limited, an associate of Singer Bangladesh Limited has incurred loss of BDT 14 million and BDT 27 million in the year 2015 and However, the associate generated BDT 140 million revenue and achieved profit of BDT 24.7 million in the first nine month of International Appliance Limited has the capacity to produce 250,000 units of refrigerator each year. The company has utilized 85% of capacity up to 2017 Q3. The revenue of the company is determined by assuming that the capacity utilization ratio will be increased up to 90% in the forecasted years multiplied by per year revenue. It is also assumed the NPAT margin will improve. Considering that SingerBD owns 73.85% of International Appliance Limited, the income from associate has been calculated. 72% 71% 73% 75% 73% 73% Source: Annual report, EBLSL Research Historical Costs as % of revenue Cost of Goods Sold Operating Expenses 18% 18% 19% 17% 18% 16% 9

12 Capital Expenditure The Historical capital expenditure of Singer Bangladesh Limited is presented in right side. Over the last five years period, Singer Bangladesh invested BDT 90 million for the acquisition of property, plant and equipment with a range of BDT 41 million to BDT 119 million. It is assumed that the company will spend BDT 90 million of capital expenditure in the year 2017 with an expected growth of 5% in each of the following years. Dividends: Historical dividends of the company is given in the chart. The dividend payout ratio of Singer Bangladesh Limited is 98.2% in The assumed payout ratio for 2017, 2018 and 2019 are 97.3%, 71.9% and 78.7% respectively (6 month) 25% % Capital Expenditure (in BDT million) Source: Annual report, EBLSL Research 25% 100% 25% 195% 65% 70% Dividend History Cash Dividend Stock Dividend Effective Tax rate: The historical effective tax rate of Singer Bangladesh Limited is as follows A Average 26.6% 27.5% 27.7% 28.7% 29.9% 26.5% 27.8% However, month annualized effective tax rate has been maintained in the forecasted years. Terminal growth rate: The growth of Air conditioner, refrigerator and home appliance is closely related to average income level of people, population growth and economic growth of the country. The average income level of people of Bangladesh is USD 1,610 in the fiscal year where it was USD 1,466 in the fiscal year (Source: Bangladesh Bureau of Statistics). Average income of the people grew at 9.3% in this period. Growth of income level of people is likely to prevail due to the economic growth of the country. At the same time, there are 165 million people living in the country who are consumers of the products (Source: World Bank). The annual population growth rate of Bangladesh is 1.1%. Meanwhile, World Bank predicts a high GDP growth rate of 6.4% to 6.8% in The economy of Bangladesh has achieved a GDP growth rate of 7.28% in (Source: Bangladesh Bureau of Statistics) and the targeted GDP of the government of Bangladesh is 7.4% in It can be concluded that as the economy is expected to grow more that 7%, it is likely that electronic products and home appliance will become a booming sector in the future. Therefore, terminal growth rate is assumed as 4.5% for Singer Bangladesh Limited. Technical Indicators and performance in DSE From January 2016 to December 2017, Singer Bangladesh Limited has outperformed the DSEX index. However, from January 2016 to December 2017, Singer Bangladesh Limited showed a mixed performance with DSEX. The resistance and support level for Singer Bangladesh Limited is and respectively. 155% 135% 115% DSEX vs SINGERBD DSEX SINGERBD 95% 2-Jun-16 2-Sep-16 2-Dec-16 2-Mar-17 2-Jun-17 2-Sep-17 10

13 Investment Insights Investment Positive Major revenue earning segments: air conditioner (12.07%), television (21.04%) and home appliance (56.94%) have experienced a five year sales CAGR of 23.6%, 13.7% and 10.3% respectively. SINGERBD has posted 26% YoY growth in revenue and 22.5% in YoY growth in NPAT during the January to June period of Recorded 49% sales growth of panel television, 47% sales growth of washing machines, 42% sales growth of refrigerators, 40% sales growth of furniture and 36% sales growth of air conditioner in Q2 of The company launces a good number of products in each year. This substantially increase the revenue growth of the company. In the year 2015, the Singer Bangladesh Limited has increased its equity participation to 73.85% from 40% in International Appliance Limited. The company has started its operation in July 2016 with an initial capacity to produce 250,000 units of refrigerator. The company has turned into a profitable one in the first six month of International Appliance Limited has earned million of net profit during this period Investment Concern Singer Bangladesh Limited has possibility to lose 33.85% share of International Appliance Limited due to the call option granted to Sunman. The exercise price for the call option will be equal to the face value of 33.85% shares plus 12% compounded annually less any dividend or distribution received in respect to the shares. The company is exposed to foreign exchange risk as huge portion of raw materials are imported (In 2016, 93.59%) Thus, unfavorable foreign exchange movement may hamper the earnings of the company. The company is highly exposed to seasonality. Revenue of the company increases significantly during the Q2 and Q3 period while remain shaky in other two quarters. Intense competition from a large number of local manufacturers as well as low priced imported Chinese goods is a major concern for the company to retain its market share. Revenue of SINGERBD is highly contingent with political instability. In the year 2013 and 2015, the company experienced degrowth of sales about -1.35% and -5.38% respectively. Future political instability may hamper revenue growth of the company. Sponsors and directors are selling a huge portion of their shares recently. Discounted cash flow valuation Free cash flow to firm With discount rate of 10.7% and terminal growth rate of 4.5%. DCF analysis gives Net Present Value (NPV) of Free Cash Flow to Firm (FCFF) of BDT billion as of December, The fair value using FCFF method stands at BDT per share for the company, which implies an upside of 0.7% from current market price. (Figures in BDT million) Terminal Profit for the Year 788 1,066 1,169 1,336 1,576 Add: After Tax Interest Expenses Add: Depreciation & Amortization Less: Investment in NWC 1, Less: Capital Expenditures Free Cash Flow to the Firm ,415 1, ,211 20,413 Enterprise Value 16,985 Plus: Cash & cash equivalent 103 Less: Interest Debt 1,983 Equity Value 15,105 No. of Share Outstanding 76.7 Value per Share (BDT) as on December

14 Sensitivity Analysis We have also checked the sensitivity analysis of free cash flow to firm value per share on discount rate and terminal growth rate. We considered a discount with a range from 9.0% to 12.0% and terminal rate with a range from 3.5% to 6.5%. As a result, we got values range from to Terminal Growth Sensitivity Analysis of Free Cash flow to firm Discount Rates 9.0% 9.5% 10.0% 10.70% 10.9% 11.0% 11.7% 12.0% 3.50% % % % % % Residual Earnings Model With discount rate of 10.7% and terminal growth rate of 4.5%. Residual Earnings analysis gives Net Present Value (NPV) of Residual Earnings (RE) of BDT billion as of December, The fair value using RE method stands at BDT per share for the company, which implies an upside of 26.2% from current market price Net Profit Equity 1,947 2,204 2,510 2,919 3,343 4,008 Benchmark Income Residual Income PV of Residual Income Summation of PV of residual income 3051 Continuing value 20,536 PV of terminal value 13,675 Equity Value 18,930 Number of Shares 76.7 Value Per Share as on December Sensitivity Analysis We have also checked the sensitivity analysis of Residual Earnings value per share on discount rate and terminal growth rate. We considered a discount with a range from 9.0% to 12.0% and terminal rate with a range from 3.5% to 6.5%. As a result, we got values range from to Terminal Growth Sensitivity Analysis of Residual Earnings Discount Rates 9.0% 9.5% 10.0% 10.5% 10.9% 11.0% 11.7% 12.0% 3.50% % % % % %

15 Determination of Target Price We recommend equal weight of 50% on the value that we derived from free cash flow to firm valuation and Residual Earnings model valuation. Based on the weighted average of the free cash flow to firm and residual earnings valuation we get a target price of BDT for the company. Valuation Methods Estimated Value Weights Free Cash flow to firm % Residual Earnings Model % Target Price % Current Price Target Price Expected Capital Gain 13.49% At current market price, SINGERBD s shares have a P/E multiple of for Target Holding Period 6 Months Q3 annualized earnings. With Expected Dividend Yield 5.12% our recommended target price the stock gives a total of 18.6% expected return. Total Return 18.60% We therefore state an Overweight rating on the SINGERBD s stock at its prevailing price level. 13

16 Appendix 1: Yearly Financial Statements and Analysis Statement of Comprehensive Income Amount in BDT million (Except Otherwise Stated) Revenue 6,605 7,261 6,911 9,007 11,504 14,443 15,163 17,416 Net Revenue 6,605 7,261 6,911 9,007 11,504 14,443 15,163 17,416 Cost of Goods Sold 4,820 5,422 5,068 6,414 8,192 10,285 10,766 12,365 Gross Profit 1,785 1,839 1,843 2,593 3,312 4,158 4,397 5,051 Total Operating Income 1,785 1,839 1,843 2,593 3,312 4,158 4,397 5,051 Operating Expenses: 1,199 1,239 1,286 1,660 2,022 2,538 2,665 3,061 Operating Profit ,290 1,620 1,732 1,990 Financial Expenses Other Non-Operating Income 9 (2) Finance Income 2 10 Share of Profit and loss from associates (14) (27) Profit Before WPPF ,129 1,527 1,674 1,914 Provision For WPPF Profit Before Tax ,072 1,451 1,591 1,818 Income tax expense Total Tax Earning After Tax ,066 1,169 1,336 Total Comprehensive Income ,066 1,169 1,336 Restated EPS

17 Statement of Financial Position Amount in BDT million (Except Otherwise Stated) ASSETS Non-Current Assets ,269 1,611 1,772 1,922 2,012 2,147 Property, Plant and Equipment ,034 1,073 1,102 1,124 1,146 Intangible Assets Investment Deposits & Prepayments Deferred tax asset Current Assets 3,353 2,885 2,384 4,089 5,469 5,595 5,860 6,707 Inventories 1,254 1,522 1,127 2,160 2,531 3,177 3,336 3,831 Accounts Receivables ,042 1,538 2,432 1,752 1,839 2,113 Advances, Deposits and Prepayments Current Tax Assets 2 Short Term Investment Cash and Cash Equivalents Assets classified as held for sale Total Assets 4,236 3,821 3,652 5,700 7,241 7,517 7,872 8,854 EQUITY AND LIABILITIES Shareholders' Equity 2,633 1,527 1,417 1,947 2,204 2,510 2,919 3,343 Share Capital Reserve Retained Earnings/ Revenue Reserve 1, ,158 1,567 1,991 Non-Current Liabilities: 858 1,181 1,413 1,445 1,633 1,881 2,057 2,314 Net defined benefit plans Deferred Tax Liability 1 Other Non-Current Liabilities 737 1,061 1,283 1,335 1,492 1,705 1,872 2,101 Current Liabilities: 745 1, ,308 3,404 3,126 2,896 3,197 Short Term Bank Loans ,130 1,983 1,364 1,077 1,281 Trade Creditors ,158 1,307 1,618 1,668 1,742 Current Tax Liabilities TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 4,236 3,821 3,653 5,700 7,241 7,517 7,872 8,854 Net Asset Value (NAV) per share No. of Share Outstanding 77 15

18 Ratio Analysis Liquidity Ratios: Current Ratio Quick Ratio Cash Ratio Operating Efficiency Ratios Inventory Turnover Ratio Receivable Turnover Ratio Average Collection Period (Days) Inventory Conversion Period(Days) Operating Cycle (Days) A/C Payable Turnover Ratio Payables Payment Period (Days) Cash Conversion Cycle (Days) Total Asset Turnover Fixed Asset Turnover Operating Profitability Ratios Gross Profit Margin (GPM) 27.0% 25.3% 26.7% 28.8% 28.8% 28.8% 29.0% 29.0% Operating Profit Margin (OPM) 8.9% 8.3% 8.1% 10.4% 11.2% 11.2% 11.4% 11.4% Pre Tax Profit Margin 8.0% 7.3% 7.9% 9.1% 9.8% 10.6% 11.0% 11.0% Net Profit Margin (NPM) 5.8% 5.0% 5.3% 6.1% 6.9% 7.4% 7.7% 7.7% Return on Total Assets (ROA) 8.8% 9.0% 9.9% 11.7% 12.2% 14.4% 15.2% 16.0% Return on Equity (ROE) 14.8% 17.4% 25.1% 32.5% 38.0% 45.2% 43.1% 42.7% Leverage Ratios Total Debt to Equity 1.0% 14.3% 1.3% 58.0% 90.0% 54.3% 36.9% 38.3% Debt to Total Assets 0.6% 5.7% 0.5% 19.8% 27.4% 18.1% 13.7% 14.5% Coverage Ratios Times Interest Earned (TIE) Valuation Ratios P/B (price to book) Ratio Book Value Per Share EPS P/E Ratio EV/EBITDA EV/Sales Price/Sales Sales/ Share

19 Extended DUPONT ANALYSIS Net Profit/Pretax Profit 72.49% 72.3% 71.3% 70.1% 73.5% 73.5% 73.5% 73.5% Pretax Profit/EBIT 89.93% 83.6% 92.9% 83.6% 83.1% 89.6% 91.8% 91.4% EBIT/Sales 8.87% 8.3% 8.1% 10.4% 11.2% 11.2% 11.4% 11.4% Sales/Assets % 180.3% 185.0% 192.6% 177.8% 195.7% 197.1% 208.2% Assets/Equity ROE 14.8% 17.4% 25.1% 32.5% 38.0% 45.2% 43.1% 42.7% TERMINOLOGIES P/E = Price to Earning P/B = Price to Book Value P/OCF = Price to Operating cash flow P/S = Price to sales EBIT = Earnings before Interest and Tax EBITDA = Earnings before Interest, tax, depreciation and amortization STOCK RATING Overweight: Expected to outperform the broader market averages; Market weight: Expected to equal performance of broader market averages; Underweight: expected to underperform broader market averages. Not-Rated: Currently the analyst does not have adequate conviction about the stock's total return relative to the broader market average. 17

20 DISCLAIMER This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients residing both in Bangladesh and abroad, on the basis of the publicly available information in the market and own research. This document has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be taken as an offer or solicitation to buy or sell or subscribe to any security. Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources used in the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. EBLSL will not take any responsibility for any decisions made by investors based on the information herein. ANALYST DISCLAIMER The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal views about the subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. The views of the author(s) do not necessarily reflect the views of the EBL Securities Limited (EBLSL) and are subject to change without any notice. All reasonable care has been taken to ensure the accuracy of the contents of this document and the author(s) will not take any responsibility for any decisions made by investors based on the information herein. ABOUT EBL SECURITIES LTD. EBL Securities Ltd. (EBLSL) is one of the fastest growing full-service brokerage companies in Bangladesh and a fully owned subsidiary of Eastern Bank Limited. EBLSL is also one of the top ten leading stock brokerage houses of the country. EBL Securities Limited is the TREC-holder of both exchanges of the country; DSE (TREC# 026) and CSE (TREC# 021). EBLSL takes pride in its strong commitment towards excellent client services and the development of the Bangladesh capital markets. EBLSL has developed a disciplined approach towards providing capital market services, including securities trading, margin loan facilities, depository services, online trading facilities, panel brokerage services, trading through NITA for foreign investors & NRBs etc. EBLSL KEY MANAGEMENT Md. Sayadur Rahman Managing Director sayadur@eblsecurities.com Md. Humayan Kabir SVP & Chief Operating Officer (COO) humayan@eblsecurities.com EBLSL RESEARCH TEAM M. Shahryar Faiz FAVP & Head of Research shahryar@eblsecurities.com Md. Asrarul Haque Senior Officer-Research asrarul@eblsecurities.com Mohammad Rehan Kabir Officer-Research kabir@eblsecurities.com Tajkera Rahman Officer-Research tajkera@eblsecurities.com Md. Nazmus Sakib Officer-Research sakib@eblsecurities.com Md. Mosavvir Al Ashick Officer-Research mosavvir@eblsecurities.com Asaduzzaman Ashik Officer-Research ashik@eblsecurities.com Farzana Hossain Laizu Assistant Officer- Research farzana@eblsecurities.com For any queries regarding this report: research@eblsecurities.com EBLSL BRANCHES Head office: HO Extension-1 HO Extension-2 Dhanmondi Branch Chittagong Branch 59, Motijheel C/A (1st Floor) Dhaka , ; FAX: info@eblsecurities.com Modhumita Building 160 Motijheel C/A (2nd Floor) Dhaka , , FAX: info@eblsecurities.com Bangladesh Sipping corporation (BSC) Tower 2-3, Rajuk Avenue (4th floor), Motijheel, Dhaka Sima Blossom (4th Floor) House # 390 (Old), 3 (New), Road # 27 (Old), 16 (New), Dhanmondi R/A, Dhaka , Suraiya Mansion (2nd Floor); 30, Agrabad C/A Chittagong