Equity Note on Singer Bangladesh Limited (SINGERBD) Date: March 18, 2021 Resistance: 187.30 MFI: 55.66 Current Price (BDT): 170.00 Support: 162.90 RSI: 45.44 IPO Information Company Overview: Market Cap (BDT mn) 16,690.3 SINGERBD manufactures and markets home appliances, Equity Market Weight 0.4% consumer electronics, sewing machines, furniture and other Paid-up Capital (BDT mn) 997.0 appliances. Authorized Capital (BDT mn) 2,500.0 Incorporation & Commercial Operation: September, No. of Share Outstanding (in mn) 99.7 1979 Free-float Shares (Inst.+For.+Public) (in mn) 42.9 Key Personnel: DR. Fatih Kemal Ebiçlioğlu (Chairman), M. 1 Year Avg. Turnover* (BDT mn) 30.0 H. M. Fairoz (Managing Director & CEO). 1 Year Return 29.2% Plant Location: Mousa Koulashur, Hemayetpur, Savar, 52-week price range (BDT) 130.6 - 187.40 Dhaka, Bangladesh (East) Extension area DEPZ, Ganakbari, Sector Forward P/E 21.86 Savar, Dhaka-1349, Bangladesh. Market Forward P/E 15.03 Shareholding Structure: 2020 As on Sponsor/ Institutions Foreign Public 2017 2018 2019 (9m An”) Director Financial Information (BDT mn): Jan, 2021 57.00% 19.50% 6.69% 16.81% Net Sales 11,059 13,559 15,485 16,442 Dec, 2020 57.00% 19.39% 6.81% 16.80% Gross Profit 3,119 3,760 4,353 4,339 Dec, 2019 57.00% 19.27% 5.36% 18.37% Operating Profit 1,185 1,659 1,951 1,799 Dec, 2018 57.00% 12.68% 11.80% 18.52% Financial Expenses 158 319 404 497 Dec, 2017 57.00% 14.80% 7.42% 20.78% Profit After Tax 746 921 1,032 864 Assets 7,072 8,487 10,332 11,610 Business Profile: Debt 1,865 2,775 1,998 3,308 SINGERBD has a distribution network of 405 company owned Equity 2,223 2,378 3,192 3,073 stores and 974 wholesale dealers. The company also sells Retained Earnings 815 971 1,626 1,509 through e-commerce and corporate sales channel. The Cash & Cash Eqiv. 36 98 129 244 company currently manufactures 62% of its total product in Margin: Bangladesh. Gross Profit 28.2% 27.7% 28.1% 26.4% Acquisition of Arçelik: Ardutch B.V., a subsidiary of Arçelik A.S. Operating Profit 10.7% 12.2% 12.6% 10.9% (a member of Koc Holdings, Turkey) completed the acquisition Pretax Profit 9.3% 9.4% 9.5% 7.5% of Retail Holdings Bhold B.V. (holding Company of Singer Net Profit 6.7% 6.8% 6.7% 5.3% Bangladesh Limited) on 3rd April, 2019. Arçelik is the ultimate Growth (YoY): beneficial owner of the company however Retail Holdings Sales 22.8% 22.6% 14.2% 6.2% Bhold B.V. still maintains its status as the holding company of Gross Profit 20.2% 20.6% 15.8% -0.3% Singer Bangaldesh Limited. Operating Profit 26.8% 40.0% 17.6% -7.8% Arçelik is based on Turkey and has 12 brands, 23 manufacturing Net Profit 36.6% 23.4% 12.0% -16.3% facilities, 17 R&D centers, 31,500 employees and operates in Profitability: 147 countries. ROA 11.7% 11.8% 11.0% 7.9% Proposed Merger with Subsidiary: SINGERBD is in the process of merging with its 100% owned subsidiary International ROE 35.8% 40.0% 37.1% 27.6% Appliance Limited (IAL) to avail tax benefit (Listed Company- Leverage: 25%, Non-Listed Company-32.5%) of a publicly listed company. Debt Ratio 26.4% 32.7% 19.3% 28.5% The company has hold an Extraordinary General Meeting Debt-Equity 0.79 0.74 0.84 0.92 (EGM) on November 26, 2020 to secure approval of the Interest Coverage 7.5 5.2 4.8 3.6 Shareholders of Singer Bangladesh about this merger. Valuation: SINGERBD’s paid up capital will remain unchanged post-merger EPS (BDT) 9.79 9.24 10.35 7.85 as IAL is its 100% fully owned subsidiary. NAVPS (BDT) 28.99 23.18 32.02 32.2 P/E (x) 15.36 18.41 17.43 22.37 Revenue Composition: 2018 2019 P/NAV (x) 5.2 7.3 5.6 5.49 Revenue Amount Amount % Dividend (C/B)% 100/0 0/30 77/0 30/0 Segments % *Excluding block transaction (mn) (mn) Home appliances 9,267 68.3% 11,050 71.4% Price- Volume Movement of SINGERBD Consumer electronics 2,721 20.1% 2,555 16.5% Sewing machines 487 3.6% 792 5.1% 200 2,000,000 Other appliances 835 6.2% 919 5.9% 180 1,500,000 Furniture 249 1.8% 169 1.1% 160 1,000,000 Total 13,559 100% 15,485 100% 140 500,000 Capacity Utilization Matrix: 120 0 Air Conditioner and Refrigerator operated in over capacity in Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 2019 which indicates further capacity expansions of these two VOLUME CLOSEP* product lines are to be expected in near future. 1 EBL Securities Limited Research Equity Note on Singer Bangladesh Limited (SINGERBD) Date: March 18, 2021 Resistance: 187.30 MFI: 55.66 Current Price (BDT): 170.00 Support: 162.90 RSI: 45.44 Panel Television: Bangladesh3. In the last 5 years, AC demand has increased at Particulars 2017 2018 2019 the rate of 20%-25%. Current AC market size is BDT 65 billion Capacity 100,000 170,000 170,000 and local companies have 70% market share.4 Middle income and lower middle income people’s demand for AC is increasing Actual Production 97,203 143,826 135,852 as local manufacturers are providing AC at a lower and more Utilization % 97.2% 84.6% 79.9% affordable price and as a result the current market size is expanding. Air conditioner: Particulars 2017 2018 2019 The Government had shut down the country due to Covid-19 for a 2 month period from March 25 to May 30. Summer season Capacity 24,000 30,000 30,000 is generally the peak sales season for Refrigerators and AC. Actual Production 23,500 28,601 40,237 Almost 50% of the total sales are made in this period.5 Due to Utilization % 97.9% 95.3% 134.1% shutdown, E&E sales of 2020 stayed below 70% of the annual target level.6 Difficulty of import of raw materials that are used Furniture: in manufacturing E&E has also negatively impacted the Particulars 2017 2018 2019 industry. Capacity 5,300 5,300 5,300 Investment Insight Actual Production 5,108 5,108 3,072 Investment Positive Utilization % 96.4% 96.4% 58.0% . In the last third and fourth quarters of FY’20, SINGERBD has made 4.08% and 67.90% EPS growth respectively. Refrigerator: However, during the same period, many other companies Particulars 2017 2018 2019 in the consumer electronics and other industries suffered Capacity 120,000 120,000 132,000 negative growth in the bottom line. This strong recovery Actual Production 88,010 88,010 141,660 of SINGERBD indicates it is poised to have a positive FY’21 Utilization % 73.3% 73.3% 107.3% given stability in the macro and global economy. The recent acquisition of SINGERBD by Arçelik will help Industry Overview SINGERBD to use its global expertise in both The Electrical & Electronics (E&E) industry has mainly manufacturing process and supply chain. It will help dependent on imported products, however, this is changing as SINGERBD both to improve the quality of its product and more local businesses have started manufacturing products distribute product throughout the country. Arçelik has locally. Currently, the market is growing at 20% which has already assigned experts to Refrigerator & TV production encouraged both local and multinational manufacturers to team and is planning to assign expert to AC production as enter into the market. E&E sector employs around 1 million well. people. Government has shown support to increase the sales . International appliance limited (IAL), a 100% owned in this industry by giving VAT exemption on the production of subsidiary by SINGERBD, has achieved BDT 2,553 million compressors, refrigerators and air conditioner till June 30, revenue in 2019 and net profit before tax of BDT 38 2021. Online sales through Equal Monthly Installments (EMI) is million. Although, due to high income tax expense, the becoming more prevalent in the E & E sector. subsidiary contributed negatively in the bottom line. If the Freezer, frost & no-frost refrigerators are the main types of planned merger between SINGERBD and IAL successfully refrigerators that are sold in Bangladesh. Local manufacturing happens, that would reduce the tax rate of IAL from 32.5% currently fulfils the 80% demand of the market. Some of the to 25% which would improve its bottom line contribution local manufacturers or assemblers are: Transcom, Minister, to SINGERBD. Vision, Jamuna, Singer Bangladesh and Samsung. Refrigerator . SINGERBD has achieved 22.35% CAGR in the top line and industry has been growing at double digits over the last 5 29.33% growth in CAGR in the bottom line in the last 4 years.1 The current market size of refrigerators is estimated to years. Growth in home appliances and consumer be at BDT 57.80 billion2. Increase in purchasing power, electronics have driven the topline growth of Singer availability of electricity in the rural areas, decrease in the price Bangladesh in last 4 years. of the refrigerators and installment system are currently . Although, dividend payment is inconsistent, SINGERBD driving the refrigerator market’s growth. has given reasonably healthy dividend yield since 2015. In the last 5 years, SINGERBD’s dividend yield ranged from Increased urbanization, increased global warming and increase 1.75% to 6.65% and dividend payout ratio ranged from in purchasing power are the factors driving the growth in AC 38% to 98%.