Price, BDT Turnover, MM Parvez M Chowdhury Analyst: Pharmaceuticals and Consumer Goods parvez@bracepl.com Bata Shoe Bangladesh DSE: Bloomberg: BATASHOE BATASH:BD Company Summary 52-week Price Range BDT 430-820 Current Price BDT 478.8 12-month Target Price BDT 550.0 Total Return 21.6% Number of Shares mn 13.7 Market Cap BDT mn 6,550.0 BDT mn 2009A 2010E 2011E Revenue 4,995 5,982 7,212 Ops Income 1,109 1,226 1,473 Net Income 449 589 714 Margins Gross Margin 35% 35% 35% Operating Margin 13% 14% 14% Net Margin 9% 10% 10% Growth Revenue Growth 8% 20% 21% Net Income Growth 0% 31% 21% Per Share EPS 32.85 43.02 52.22 Dividend 22.0 32.3 39.2 Book Value/Share 81.91 92.66 105.72 Cashflow BDT mn Operating 535 480 560 Capex 109 76 60 Dividend 337 441 536 Valuation P/E 14.57x 11.13x 9.17x P/B 5.85x 5.17x 4.53x ROE 43% 49% 53% ROA 17% 20% 22% Miscellaneous BDT mn Total Debt 0 0 0 Cash 352 315 279 850.00 800.00 Price Performance (since 2010) 160.0 140.0 Bata Shoe FY10 Result Preview Rating: OUTPERFORM February 15, 2010 Bata Shoe Bangladesh is close to announcing its annual results. We expect the company to post a net profit of BDT 588.5 mn with an EPS of BDT 43.02 as compared to BDT 449.4 mn (EPS of BDT 32.85) in 2009, a solid 31% growth YoY. We expect the Q4 to be slightly weaker in performance compared Q3, for which Bata posted fantastic growth thanks to the buying frenzy on the eve of Eid festival in September. In Q3 alone, Bata enjoyed EPS of BDT 15.72, more than half of the cumulative EPS of BDT 30.00 for the first nine months of FY10. We expect net profit of BDT 178.2 mn (EPS: BDT 13.02) for Q4 compared to net profit of BDT 201.7 mn (EPS: BDT 12.32) for the same period a year ago. MM BDT 1Q10A 2Q10A 3Q10A 9M10A 4Q10E FY10E Revenue 1,208.1 1,100.9 1,830.5 4,139.4 1,842.9 5,982.3 COGS 792.3 720.5 1,157.9 2,670.7 1,237.3 3,908.0 GP 415.8 380.4 672.5 1,468.7 605.6 2,074.3 SGA 274.5 250.3 366.2 891.0 334.9 1,225.8 Operating Profit 141.3 130.1 306.3 577.7 270.8 848.5 Other Income 3.0 4.7 4.3 12.0 11.9 23.9 Interest Income 3.2 4.3-2.1 5.4-9.8-4.4 Profit before WPPF 147.5 139.1 308.5 595.1 272.9 868.0 WPPF 7.4 7.0 15.4 29.8 13.6 43.4 EBT 140.1 132.1 293.1 565.3 259.3 824.6 Tax 36.5 40.5 78.0 155.0 81.1 236.1 PAT 103.6 91.6 215.1 410.3 178.2 588.5 EPS 7.57 6.70 15.72 30.00 13.02 43.02 We also expect a final cash dividend of BDT 32 per share anticipating a payout ratio of 75%. For the first half, Bata has already declared an interim dividend of BDT 14.5 per share leaving BDT 17.5 per share for the remaining half. 2011 outlook Bata has just bounced back from a lackluster 2009, which was mainly due to the effects of global financial downturn. The company has recently established a fully export-oriented subsidiary. While the subsidiary is yet to come online, we think it could boost Bata s exports significantly 2011 onwards. 750.00 700.00 650.00 600.00 550.00 500.00 450.00 120.0 100.0 80.0 60.0 40.0 20.0 With an expected year end EPS of BDT 43.02 for 2010, the company is trading at a P/E of 11.1x (2010 EPS). Considering latest growth boost, we maintain our Outperform rating. Our estimated fair value of BDT 550 with a dividend yield of 6.7% implies a total return of 21.6% at the end of 2011. 400.00 0.0 Turnover Avg Price
Table 5: Income Statement Net Sales 3,976 4,623 4,995 5,982 7,212 8,498 COGS 2,653 3,031 3,238 3,908 4,709 5,545 Gross Profit 1,323 1,593 1,758 2,074 2,503 2,953 Administrative, Selling & Distribution Expense 821 952 1,109 1,226 1,473 1,732 502 641 649 848 1,030 1,221 Other Income 21 16 18 24 29 34 EBIT 523 657 667 872 1,059 1,255 Interest Expense 3 5 4 4 5 6 Profit before Contribution to WPPF 520 652 663 868 1,054 1,248 WPPF 26 33 33 43 53 62 EBT 494 620 630 825 1,001 1,186 Tax 169 170 180 236 287 340 PAT 325 449 449 589 714 846 Table 6: Cash Flow Statement Operating Cash Flow Net Income 589 714 846 Add Back Non-cash Expense 49 52 54 Change in Working Capital -157-206 -216 Cash Flow from Operations 302 354 535 480 560 685 Investing Cash Flow Capital Expenditure -76-60 -62 Cash Flow from Investing -78-81 -109-76 -60-62 Financing Cash Flow Change in Debt Dividend Paid -441-536 -635 Cash Flow from Financing -326-309 -337-441 -536-635 Net Cash -102-37 89-37 -35-12 Beginning Balance 402 300 263 352 315 279 Closing Balance 300 263 352 315 279 267
Table 7: Balance Sheet Inventories 1,312 1,460 1,433 1,717 2,069 2,438 Accounts Receivables 40 79 101 121 146 172 Advance, Deposits & Prepayments 181 210 278 333 402 474 Cash & Bank Balance 300 263 352 315 279 267 Total Current Assets 1,832 2,013 2,165 2,486 2,896 3,351 Net Fixed Assets 416 458 508 536 543 552 Capital Work In Progress 1 14 14 14 14 Deffered Tax Asets 3 12 16 16 16 16 Total Non Current Assets 420 470 558 585 593 601 Total Assets 2,252 2,483 2,723 3,071 3,490 3,952 Total creditors 788 871 971 1,172 1,412 1,663 Provision for tax 411 433 455 455 455 455 Unpaid dividend 90 81 45 45 45 45 Total Current Liabilities 1,289 1,384 1,471 1,671 1,911 2,162 Total Non Current Liabilities 140 127 132 132 132 132 Total Liabilities 1,429 1,511 1,602 1,803 2,043 2,294 Shareholders' Equity: Share Capital 137 137 137 137 137 137 Reserve & Surplus 686 835 984 1,131 1,309 1,521 Total Liabilities & Equities 2,252 2,483 2,723 3,071 3,490 3,952
Table 8: Indicators and Ratios Source: Company Data, BRAC EPL Research, January 2011 2007 2008 2009 2010 2011 2012 Sales growth 3% 16% 8% 20% 21% 18% EBITDA growth 19% 24% 2% 28% 21% 18% Net profit growth 17% 38% 0% 31% 21% 18% EPS 23.75 32.85 32.85 43.02 52.22 61.87 CFPS 22.10 25.89 0.04 35.10 40.93 50.06 Gross margin 33% 34% 35% 35% 35% 35% Operating margin 13% 14% 13% 14% 14% 14% EBITDA Margin 14% 15% 14% 15% 15% 15% Net margin 8% 10% 9% 10% 10% 10% Inventory turnover 2.31 2.19 2.24 2.48 2.49 2.46 Sales/assets 1.77 1.86 1.83 1.95 2.07 2.15 Working capital 543,175 628,852 694,319 814,121 984,929 1,188,412 Working capital ratio 1.42 1.45 1.47 1.49 1.52 1.55 Debt/equity 0% 0% 0% 0% 0% 0% Debt/assets 0% 0% 0% 0% 0% 0% Return on equity 40% 50% 43% 49% 53% 55% Return on assets 15% 19% 17% 20% 22% 23% Effective tax rate 34% 27% 29% 29% 29% 29% Equity growth rate 0% 18% 15% 13% 14% 15% Book value per share 60.13 71.06 81.91 92.66 105.72 121.18 P/E 20.16 14.57 14.57 11.13 9.17 7.74 P/B 7.96 6.74 5.85 5.17 4.53 3.95
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