Equity Analysis /

Bangladesh consumers: Expect increase in economic activities from July

  • Covid-19 hit pre-Eid retail sales season, slow start of RMG in May; overall economic activities may increase from July

  • We recommend Buy for MBL and OLYMPI because of new product launch, low commodity prices and cheap valuation

  • BATBC (likely cigarette price hike), GLAXOW (high valuation), SINGER and GHAI (high Covid-19 impact) seem unattractive

Auneea Haque
Auneea Haque

Research Associate

IDLC Securities
22 May 2020
Published byIDLC Securities

The long ‘Holiday’ hits the season of the largest retail sales. Bangladesh identified the first Covid-19 patient on 8 March and has reported 25,121 confirmed cases, 370 deaths, and 4,993 recoveries till 19th May 2020. Bangladesh is set to experience a 66-day long ‘holiday’ till 30th May, comprising of 38 days of general holiday (i.e. lockdowns), 20 weekends, and 8 public holidays. The supply-side experienced distribution challenges from the law enforcement agency during the first two weeks of the holiday. However, these problems resolved soon. Production capacities across the industries are halved to ensure social distance among the employees. The demand, on the other hand, estimated to be 10%-15% down for consumer staples and 50%-80% down for consumer discretionary products during the holiday period. The holiday encompasses Eid-ul-Fitr retail sales in May, which, together with Eid-ul-Adha sales in July, grosses cUSD18bn (c6% of country’s GDP). The holiday resulted in limited operation in shops and caused income loss for the low and the middle-class population, thus affecting both demand and supply side during country’s largest retail sales reason. 

We expect an increasing level of economic activity in July. The debate of life vs livelihood continues and the policymakers are yet to take a clear stance. But we understand that the holiday becomes increasingly difficult for the informal sector, comprising of c72% of the workforce. To minimize the income loss, the govt. permitted the gradual opening of RMG manufacturing companies with proper safety measures from 26th April. Following up, the govt. also permitted operation in retail shops and shopping malls from 10th May to utilise half of the peak season that is left. Though the scale of business is far from usual and the continuation of the holiday is subject to the pandemic’s severity, these initiatives let us think that the economic activities are likely to increase from July. 

Mixed impact in our coverage. We prefer MBL BD (ETR +19.1%) and OLYMPI BD (ETR 36.8%). We prefer MBL BD (ETR +19.1%) and OLYMPI BD (ETR 36.8%). They are comparatively less affected by COVID-19, likely to recover quickly as the economic activities resume, enjoyed a low level of commodity prices (copra for Marico, sugar for Olympic), continuing their efforts to drive sales with new products and brands, and trading at a cheaper valuation because of price correction (Marico 19.1x 2021f PE vs 22.4x median, Olympic 13.3x 2021f PE vs 25.0x median). In our coverage - BATBC BD is likely to experience threat from an increase in illegal trading of cigarette because of expected tariff hike in the budget; SINGER BD is likely to see the worst year in its recent history for COVID-19, taking at least two years from now to recover; GLAXOW BD struggles to generate growth before the acquisition by Unilever is complete and it is trading at a c26% premium than the acquisition value; GHAIL BD is likely to experience continuous pressure on ice cream sales during the pandemic. 

Growth stumbles momentarily, but our long-term expectations remain intact. Covid-19 has interrupted the stable growth trajectory of consumer stocks. We recognise that the loss in purchasing power because of an increase in unemployment, a decline in remittance and exports may put pressure on the demand. However, we believe that the pandemic does not change the long-term course of our growth potential and the growth trajectory will resume once the economy recovers to normal. We still believe that the rising MAC population (c17% by 2025), demographic and density dividend from a young and homogenous population (65% working-class population with a median age of 27.6) are the cornerstones of Bangladesh’s growth story. The rise in the working-age population ratio is likely to continue until 2035, providing the country (and the consumer sector) with high growth for the next 15 years.