Equity Note on Singer Limited Date: October 8, 2020 Resistance: 187.40 MFI: 45.63 Offer Price (BDT): 167.80 Support: 147.00 RSI: 48.27

IPO Information Company Overview: Market Cap (BDT mn) 16,690.3 SINGERBD manufactures and markets home appliances, Equity Market Weight 0.4% , sewing machines, furniture and other Paid-up Capital (BDT mn) 997.0 appliances. Authorized Capital (BDT mn) 1,000.0 Company Profile: No. of Share Outstanding (in mn) 99.7  Incorporation: September, 1979 Free-float Shares (Inst.+For.+Public) (in mn) 42.9  Commercial Operation: September, 1979 3 Months Avg. Turnover (BDT mn) 48.5  Key Personnel: DR. Fatih Kemal Ebiçlioğlu (Chairman), M. 3 Months Return 12.7% H. M. Fairoz (Managing Director & CEO).  52-week price range (BDT) 130.6-211.0 Number of Employees: 1,653 Sector Forward P/E 22.8  Plant Location: Mousa Koulashur, Hemayetpur, Savar, Market Forward P/E 15.4 , Bangladesh (East) Extension area DEPZ, Ganakbari, Savar, Dhaka-1349, Bangladesh. Business Profile: SINGERBD has a distribution network of 405 company owned 2020(6m 2017 2018 2019 stores and 974 wholesale dealers. The company also sells An”) through e-commerce and corporate sales channel. The Financial Information (BDT mn): company currently manufactures 62% of its total product in Net Sales 11,059 13,559 15,485 12,118 Bangladesh. Gross Profit 3,119 3,760 4,353 3,310 Acquisition of Arçelik: Ardutch B.V., a subsidiary of Arçelik A.S. (a member of Koc Holdings, Turkey) completed the acquisition Operating Profit 1,185 1,659 1,951 1,064 of Retail Holdings Bhold B.V. (holding Company of Singer Financial Expenses 158 319 404 447 Bangladesh Limited) on 3rd April, 2019. Arçelik is the ultimate Profit After Tax 746 921 1,032 380 beneficial owner of the company however Retail Holdings Bhold B.V. still maintains its status as the holding company of Assets 7,072 8,487 10,332 14,721 Singer Bangaldesh Limited. Debt 1,865 2,775 1,998 7,163 Arçelik is based on Turkey and has 12 brands, 23 manufacturing Equity 2,223 2,378 3,192 2,616 facilities, 17 R&D centers, 31,500 employees and operates in 147 countries. Retained Earnings 815 971 1,626 1,052 Proposed Merger with Subsidiary: SINGERBD wants to merge Cash & Cash Eqiv. 36 98 129 245 with its 100% owned subsidiary International Appliance Margin: Limited (IAL) to avail tax benefit of a publicly listed company. Gross Profit 28.2% 27.7% 28.1% 27.3% SINGERBD will appeal to the high court regarding the merger. Operating Profit 10.7% 12.2% 12.6% 8.8% Revenue Composition: 2018 2019 Pretax Profit 9.3% 9.4% 9.5% 4.8% Revenue Amount Amount % Segments Net Profit 6.7% 6.8% 6.7% 3.1% (mn) % (mn) Gr owth (YoY): Home appliances 9,267 68.3% 11,050 71.4% Sales 22.8% 22.6% 14.2% -21.7% Consumer 2,721 20.1% 2,555 16.5%

Gross Profit 20.2% 20.6% 15.8% -24.0% electronics Operating Profit 26.8% 40.0% 17.6% -45.4% Sewing machines 487 3.6% 792 5.1% Net Profit 36.6% 23.4% 12.0% -63.2% Other appliances 835 6.2% 919 5.9% Profitability: Furniture 249 1.8% 169 1.1% ROA 11.7% 11.8% 11.0% 3.0% Total 13,559 100% 15,485 100% ROE 35.8% 40.0% 37.1% 13.1% Capacity Utilization Matrix: Panel : Leverage: Particulars 2017 2018 2019 Debt Ratio 26.4% 32.7% 19.3% 48.7% Capacity 100,000 170,000 170,000 Debt-Equity 0.79 0.74 0.84 1.09 Actual Production 97,203 143,826 135,852 Interest Coverage 7.5 5.2 4.8 2.4 Utilization % 97.2% 84.6% 79.9% Valuation: Air conditioner: Particulars 2017 2018 2019 EPS (BDT) 9.79 9.24 10.35 3.82 Capacity 24,000 30,000 30,000 NAVPS (BDT) 28.99 23.18 32.02 26.24 Actual Production 23,500 28,601 40,237 P/E (x) 15.36 18.41 17.43 43.82 Utilization % 97.9% 95.3% 134.1% P/NAV (x) 5.2 7.3 5.6 6.4 Furniture: Dividend (C/B) 100% 0% 77%/ Particulars 2017 2018 2019 n/a /0% /30% 0% Capacity 5,300 5,300 5,300 Actual Production 5,108 5,108 3,072 Utilization % 96.4% 96.4% 58.0%

1 EBL Securities Limited Research

Equity Note on Singer Bangladesh Limited Date: October 8, 2020 Resistance: 187.40 MFI: 45.63 Offer Price (BDT): 167.80 Support: 147.00 RSI: 48.27

Refrigerator: sales are made in this period. 5Due to shutdown, this year’s E&E Particulars 2017 2018 2019 sales is forecasted to have downturn. Along with that, difficulty Capacity 120,000 120,000 132,000 of import of raw materials that are used in manufacturing E&E Actual Production 88,010 88,010 141,660 will negatively impact the industry. COVID-19 can change the Utilization % 73.3% 73.3% 107.3% buying behavior of general population and they could be more reluctant to purchase capital goods. This would adversely Shareholding Structure: impact the demand of the E&E product going forward. As on Sponsor/ Institutions Foreign Public Director Investment Insight Aug, 2020 57.00% 19.27% 5.36% 18.37% Investment Positive Jul, 2020 57.00% 17.55% 6.34% 19.11% . The recent acquisition of Arçelik will help SINGERBD to use Dec, 2019 57.00% 18.76% 5.66% 18.58% its global expertise in both manufacturing process to Dec, 2018 57.00% 12.68% 11.80% 18.52% increase the quality of its product and in distribution of its Dec, 2017 57.00% 14.80% 7.42% 20.78% product throughout the country. Arçelik has already assigned experts to & TV production team and is planning to assign expert to AC production as well. Industry Overview . SINGERBD has achieved 22.35% CAGR in the top line and The Electrical & Electronics (E&E) industry has mainly 29.33% growth in CAGR in the bottom line in the last 4 dependent on imported products, however this is changing as years. Growth in home appliances and consumer more local businesses have started manufacturing products electronics have driven the topline growth of Singer locally. Currently, the market is growing at 20% which has Bangladesh in last 4 years. encouraged both local and multinational manufacturers to . SINGERBD’s 100% acquired subsidiary international enter into the market. E&E sector employs around 1 million appliance limited (IAL) has achieved BDT 2,553 million people. Government has shown support to increase the sales revenue in 2019 and net profit before tax of BDT 38 in this industry by giving VAT exemption on the production of million. Although, due to high income tax expense, the compressors, and air conditioner till June 30, subsidiary contributed negatively in the bottom line. If the 2021. Online sales through Equal Monthly Installments (EMI) is planned merger between SINGERBD and IAL successfully becoming more prevalent in the E & E sector. happens, that would reduce the tax rate of IAL from 32.5% Freezer, frost & no-frost refrigerators are the main types of to 25% which would improve its bottom line contribution refrigerators that are sold in Bangladesh. Local manufacturing to SINGERBD. currently fulfils the 80% demand of the market. Some of the . Although, dividend payment is inconsistent, SINGERBD local manufacturers or assemblers are: Transcom, Minister, has given reasonably healthy dividend yield since 2015. In Vision, Jamuna, Singer Bangladesh and . Refrigerator the last 5 years, SINGERBD’s dividend yield ranged from industry has been growing at double digits over the last 5 4.27% to 6.65% and dividend payout ratio ranged from years.1 The current market size of refrigerators is estimated to 74% to 135%. be at BDT 100 million2. Increase in purchasing power, . Bangladesh’s current MAC (middle class and affluent availability of electricity in the rural areas, decrease in the price consumers) population is only 15% of 170 million of the refrigerators and installment system are currently population which is expected to triple by 2025 to 34 driving the refrigerator market’s growth. million. Bangladesh government has made plan to invest $40 billion to achieve 60,000 MW power generation Increased urbanization, increased global warming and increase capacity by 2041. Urban population (%) of Bangaldesh has in purchasing power are the factors driving the growth in AC increased from 29.71% in 2009 to 37.41% in 2019. All industry in Bangladesh. In the summer season, the highest these factors would increase demand for SINGERBD’s sales of AC is generally witnessed. Currently, there are 25 product portfolio. companies both local and foreign are selling ACs in Investment Concern Bangladesh3. In the last 5 years, AC demand has increased at . COVID-19 has caused the SINGERBD sales and the net the rate of 20%-25%. Current AC market size is BDT 65 billion profit to drop by 23.79% and 62.88% respectively in and local companies have 40% market share.4 Middle income Jan’20-Jun’20 compared to the same period in the and lower middle income people’s demand for AC is increasing previous year. Lockdown and economic hardship of as local manufacturers are providing AC at a lower and more potential customers have resulted in lower demand for affordable price and as a result the current market size is SINGERBD products and also operating expenses as a % of expanding. . sales have increased by 3.13%. Although, the final two COVID-19 had shut down the country for a 2 month period quarters can be expected to do better than the second from March 25 to May 30. Summer season is generally the peak quarter of this year, overall financial results is more likely sales season for Refrigerators and AC. Almost 40% of the total to experience de-growth which may also reduce the dividend payment by SINGERBD.

1 https://www.thedailystar.net/business/news/made-bangladesh- 4 https://www.dhakatribune.com/business/2019/04/05/ac-sellers- refrigerators-dominate-market-1808239 brace-up-for-summer-sales i 2 https://www.thedailystar.net/business/news/rural-demand-drives- 5 https://www.dhakatribune.com/business/2020/04/29/coronavirus- fridge-sales-1636753 refrigerator-ac-sales-dip-in-peak-season 3 https://www.dhakatribune.com/business/2019/04/05/ac-sellers- brace-up-for-summer-sales

2 EBL Securities Limited Research

Equity Note on Singer Bangladesh Limited Date: October 8, 2020 Resistance: 187.40 MFI: 45.63 Offer Price (BDT): 167.80 Support: 147.00 RSI: 48.27

. SINGERBD’s long term debt as of June, 2020 is BDT 25.68 . Current Forward P/E of SINGERBD is 43.82. This is the million where there was no long term debt in 2017 and highest P/E SINGERBD had in the last 5 years. Unless, short term debt is BDT 7.13 billion which was only BDT SINGERBD makes significant earnings recovery, Forward 1.96 billion in 2019. Annualized financial expense of 2020 P/E of SINGERBD indicates the current price level of is BDT 447 million a 183% increase to BDT 158 million in SINGERBD is overpriced based on historical P/E level. 2017. As a result, times interest earned ratio of SINGERBD Recent Financial Performance as of June 2020 is 2.4, a very low number compared to 7.5 The Company has reported Net profit after tax BDT190.05 mn. in 2017. This indicates SINGERBD’s bottom line is getting Consolidated EPS was BDT 1.91 for the first 6 months ended on severely affected by increasing finance cost. June 20, 2020 compared to BDT 5.14 EPS for the same period . Inventory turnover ratio of SINGERBD has decreased from in previous year. Besides, Net Asset Value per share was BDT 3.90 in 2016 to 2.68 in 2019. Cash conversation cycle has 26.24 as on Jun 30, 2020 compared to BDT 32.02 as on increased from 88.76 days to 123.52 days in the same December 31, 2019. SINGERBD has recommended 77% cash period. This indicates working capital is not getting dividend for the year ended on December 31, 2019. optimized and it is fuelling the need to borrow more short

term loan.

Profitability Margins of SINGERBD Five Year's EPS (BDT) 35% GP Margin OP Margin PBT Margin NPAT Margin 12.50 9.79 10.35 30% 10.50 9.24

25% 8.50 7.12 20% 6.50 15% 4.50 3.82 10%

2.50 5%

0% 0.50 2016 2017 2018 2019 2020 6M An' 2016 2017 2018 2019 2020 6M An'

Five Year's Cash Dividend (%) Price Volume Movement of SINGERBD 110% 100% 300 3000000 100% 250 2500000

90% 200 2000000

77% 150 1500000 80% 70% 100 1000000 50 500000 70% 65% 0 0

60% Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20

50% VOLUME CLOSEP* 2016 2017 2018 2019 2020 6M An'

Last Eight Quarters' EPS (BDT)

4.41 4.41

3.91

0.82 1.23 1.11 0.81 0.79

2018 Q3' 2018 Q4' 2019 Q1' 2019 Q2' 2019 Q3' 2019 Q4' 2020 Q1' 2020 Q2'

3 EBL Securities Limited Research

Equity Note on Singer Bangladesh Limited Date: October 8, 2020 Resistance: 187.40 MFI: 45.63 Offer Price (BDT): 167.80 Support: 147.00 RSI: 48.27

STATEMENT OF COMPREHENSIVE INCOME (IN BDT)

Particulars Year 2016 Year 2017 Year 2018 Year 2019 Year 2020 6M An'

Gross Turnover 8,844,133,053 10,967,038,473 13,467,035,283 15,370,867,488 12,021,675,046

Earned carrying charges 163,336,157 92,100,854 92,214,224 114,367,991 96,755,560

Net Turnover 9,007,469,210 11,059,139,327 13,559,249,507 15,485,235,479 12,118,430,606

Cost of Goods Sold 6,413,780,897 7,940,639,289 9,799,164,928 11,131,991,883 8,808,135,814

GROSS PROFIT 2,593,688,313 3,118,500,038 3,760,084,579 4,353,243,596 3,310,294,792

Operating Expenses 1,660,079,486 1,961,971,433 2,269,575,658 2,556,920,102 2,359,810,198

Other Operating Income 1,536,354 28,797,286 168,795,783 154,708,430 114013980

OPERATING PROFIT 935,145,181 1,185,325,891 1,659,304,704 1,951,031,924 1,064,498,574

Interest Income 9,840,369 563,183 624,370 307,831

Financial Expenses 97,298,322 158,195,568 319,292,407 403,631,459 446,660,742

Net Finance Costs -87,457,953 -157,632,385 -318,668,037 -403,323,628 -446,660,742 Share of profit/(loss) of equity- accounted investees, net of tax -27,081,070 56,387,751

PROFIT BEFORE WPPF 820,606,158 1,084,081,257 1,340,636,667 1,547,708,296 617,837,832

Allocation for WPPF 41,030,308 56,958,437 65,702,515 77,335,951 34,135,738

PROFIT BEFORE TAX 779,575,850 1,027,122,820 1,274,934,152 1,470,372,345 583,702,094

Income Tax Expense 233,253,651 280,975,762 354,035,183 438,572,792 203,598,326 PROFIT AFTER TAX FOR THE 546,322,199 746,147,058 920,898,969 1,031,799,553 380,103,768 YEAR

EPS (Basic) 7.12 9.79 9.24 10.35 3.82

4 EBL Securities Limited Research

Equity Note on Singer Bangladesh Limited Date: October 8, 2020 Resistance: 187.40 MFI: 45.63 Current Price (BDT): 167.80 Support: 147.00 RSI: 48.27

STATEMENT OF FINANCIAL POSITION (IN BDT)

Particulars Year 2016 Year 2017 Year 2018 Year 2019 Year 2020 Non-Current Assets: 1,610,705,191 1,770,972,719 1,815,103,824 2,939,159,082 2,894,743,232 Property, Plant and 1,034,080,145 1,424,361,116 1,411,211,583 1,420,024,293 1,399,565,681 Equipment-Carrying Value Intangible assets 36,032,923 39,542,064 35,472,985 29,765,141 26,957,640 Right-of-use (ROU) asset 1448941241 1403827063 Investments 288,278,188 4,199,450 4,199,450 4199450 4199450 Deferred tax assets 37,391,385 18,871,202 26,507,800 24272333 Deposits and 214,922,550 283,998,887 337,712,006 36228957 35921065 prepayments Current Assets: 4,089,413,802 5,300,612,072 6,672,046,886 7,392,519,609 11,826,331,928 Inventories 2,159,740,405 2,968,387,371 3,897,325,730 4,398,389,858 6,806,759,048 Accounts Receivable 1,538,442,838 1,856,060,667 2,225,136,036 2,471,880,052 3,559,453,311 Advances, Deposits and 238,801,245 237,332,959 256,024,530 212,030,470 687,989,350 Prepayments Current Tax Assets 35,896,460 98,490,242 128,507,136 244,716,579 Cash and Cash Equivalents 152,429,314 202,934,615 195,070,348 181712093 527413640 TOTAL ASSETS 5,700,118,993 7,071,584,791 8,487,150,710 10,331,678,691 14,721,075,160 Shareholders' Equity: 1,947,030,527 2,223,431,133 2,377,578,543 3,192,075,074 2,616,271,661 Share Capital 766,944,910 766,944,910 766,944,910 997,028,380 997,028,380 Reserves 585,380,060 577,857,676 573,075,690 569,134,429 567,505,871 Retained Earnings 594,705,557 815,464,263 971,039,498 1,625,912,265 1,051,737,410 Non-Controlling Interest 63,164,284 66,518,445 Non-Current Liabilities: 1,444,915,010 1,474,393,261 1,725,215,637 2,647,383,314 2,822,172,219 Long Term Loans - 37,150,985 25,682,777 25,682,777 Secured Deferred Tax Liability 1,110,395 Lease liability (non- 896,938,482 896,344,418 current option) Other liabilities 1,335,297,010 1,470,774,961 1,688,064,652 1,723,651,660 1,894,248,490 Retirement Obligations 109,618,000 3,618,300 5,896,534 No. of Share Outstanding 9,920,000 9,950,000 285,054,820 285,054,820 285,054,820 Current Liabilities: 2,308,173,456 3,373,760,397 4,384,356,530 4,492,220,303 9,282,631,280 Accounts Payable 1,157,720,304 1,508,412,542 1,646,432,946 2,386,901,238 2,022,573,747 Short Term Bank Loan 1,130,878,507 1,587,039,816 2729201744 1,961,093,776 7,132,011,913 Lease liability (current 132,757,081 122,311,512 portion) Current tax liabilities 19,574,645 Short term portion of long 278,308,039 8,721,840 11,468,208 5,734,108 term debt TOTAL SHAREHOLDERS' 5,700,118,993 7,071,584,791 8,487,150,710 10,331,678,691 14,721,075,160 EQUITY AND LIABILITIES Net Asset Value (NAV) 25.39 28.99 23.18 32.02 26.24 per share No. of Share Outstanding 76,694,491 76,694,491 76,694,491 99,702,838 99,702,838 *2020 data are as on 30th June, 2020.

5 EBL Securities Limited Research

Equity Note on Singer Bangladesh Limited Date: October 8, 2020 Resistance: 187.40 MFI: 45.63 Current Price (BDT): 167.80 Support: 147.00 RSI: 48.27

RATIO ANALYSIS

Particulars Year 2016 Year 2017 Year 2018 Year 2019 Year 2020 Liquidity Ratios Current Ratio 1.77 1.57 1.52 1.65 1.27 Quick Ratio 0.84 0.69 0.63 0.67 0.54 Cash Ratio 0.07 0.06 0.04 0.04 0.06 Operating Efficiency Ratios Inventory Turnover Ratio 3.90 3.10 2.85 2.68 1.57 Receivable Turnover Ratio 6.98 6.52 6.64 6.59 4.02 Avg. Collection Period (Days) 51.57 55.25 54.18 54.60 89.59 Inventory Conversion 92.25 116.25 126.12 134.14 228.98 Period(Days) Operating Cycle (Days) 143.82 171.49 180.29 188.74 318.57 A/C Payable Turnover Ratio 6.54 5.96 6.21 5.52 4.00 Payables Pay. Period (Days) 55.06 60.44 57.95 65.22 90.11 Cash Conversion Cycle 88.76 111.06 122.34 123.52 228.46 Total Asset Turnover 1.93 1.73 1.74 1.65 0.97 Fixed Asset Turnover 9.67 9.00 9.56 10.94 8.60 Operating Profitability Ratios Gross Profit Margin (GPM) 28.79% 28.20% 27.73% 28.11% 27.32% Op. Profit Margin (OPM) 10.38% 10.72% 12.24% 12.60% 8.78% Pre Tax Profit Margin 8.65% 9.29% 9.40% 9.50% 4.82% Net Profit Margin (NPM) 6.07% 6.75% 6.79% 6.66% 3.14% Leverage Ratios: Total Debt to Equity 0.74 0.79 0.74 0.84 1.09 Debt to Total Assets 19.84% 26.38% 32.70% 19.34% 48.66% Coverage Ratios: Times Interest Earned (TIE) 9.61 7.49 5.20 4.83 2.38 Valuation Ratios: NAVPS (Basic) 25.39 28.99 23.18 32.02 26.24 EPS (Basic) 7.12 9.79 9.24 10.35 3.82 Growth Rates: EPS Growth Rate 48.22% 36.58% 23.42% 12.04% -63.16% Sales Growth Rate 30.34% 22.78% 22.61% 14.20% -21.74% Gross Profit Growth Rate 40.73% 20.23% 20.57% 15.78% -23.96% EBIT Growth Rate 50.25% 26.75% 39.99% 17.58% -45.44% Net Income Growth Rate 48.22% 36.58% 23.42% 12.04% -63.16% Other Data: Number of shares outstanding 76,694,491 76,694,491 76,694,491 99,702,838 99,702,838 DUPONT ANALYSIS: Net Profit AT/Sales 6.07% 6.75% 6.79% 6.66% 3.14% Sales/Total Assets 192.61% 173.18% 174.30% 164.57% 96.74% ROA 11.68% 11.68% 11.84% 10.97% 3.03% Net Profit AT/Total Assets 11.68% 11.68% 11.84% 10.97% 3.03% Total Asset/ Total Equity 2.78 3.06 3.38 3.38 4.31 ROE 32.48% 35.78% 40.03% 37.05% 13.09% Extended DUPONT ANALYSIS: Net Profit/Pretax Profit 70.08% 72.64% 72.23% 70.17% 65.12% Pretax Profit/EBIT 83.36% 86.65% 76.84% 75.36% 54.83% EBIT/Sales 10.38% 10.72% 12.24% 12.60% 8.78% Sales/Assets 192.61% 173.18% 174.30% 164.57% 96.74% Assets/Equity 2.78 3.06 3.38 3.38 4.31 ROE 32.48% 35.78% 40.03% 37.05% 13.09%

6 EBL Securities Limited Research

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Our Locations

Head Office:

Jiban Bima Bhaban, HO Extension: 10 Dilkusha C/A, 1st Floor, Bangladesh Sipping Corporation Dhaka-1000 (BSC) Tower +8802 9553247, 9556845 2-3, Rajuk Avenue (4th floor), +8802 47111935 Motijheel, Dhaka-1000 FAX: +8802 47112944 +880257160801-4 [email protected]

Dhanmondi Branch: Chattogram Branch:

Sima Blossom, House # 390 (Old), 3 (New), Suraiya Mansion (6th Floor); Road # 27 (Old), 16 (New),Dhanmondi R/A, 30, Agrabad C/A Dhaka-1209. Chattogram-4100 +031 2522041-43 +8802-9130268, +8802-9130294