Equity Analysis /
Bangladesh

Singer Bangladesh: Earnings grow by 40%, surpassing expectations by 12%

    Tanay Kumar Roy
    Tanay Kumar Roy

    Research Analyst

    IDLC Securities
    26 July 2019
    Published by

    Q2 2019 earnings grew by 40% yoy. NPAT of Singer stood at BDT389mn in Q2 2019 (EPS BDT 3.87), surpassing our expectation by 12%. Revenue growth of c25%, coupled with c137bps improvement in gross margin generated such strong earnings growth. On a half-yearly basis, earnings grew by c22% which was higher than our yearly growth expectation of c19%.

    Strong AC and TV sales propelled top-line growth. Q2 2019 usually is the second-best quarter in terms of earnings since this quarter accommodates Eid Ul Fitr, a religious festival in Bangladesh. People spend their festive bonus on consumer electronics and home appliances, among other things. But this year, we believe, the electronics and appliances got a larger share of consumer wallet due to two occasions – world cup cricket tournament and unexpected summer heat, thereby driving TV and AC sales respectively. While the increase in TV sales is somewhat anticipated, the increase in AC sales was pleasantly surprising. Singer inverter AC series was particularly popular among the consumers because it stood out for its value-for-money proposition and some popular models went out of stock roughly a week ahead of the Eid. During the first six months, revenue growth of the company stood at c24% compared to our annual growth estimation of 18%.

    Continuous increase in the working capital cycle. Strong growth and extended credit period required Singer to continue investing in working capital. Working capital cycle increased to 139 days (+11 days yoy) driven by weakening in inventory (+6 days yoy), receivables (+9 days qoq).and improvement in payables (+4 days). We expect the working capital cycle to drop back to the previous level (80-85 days) after the peak season (April – August) is over.

    We maintain our Hold recommendation with TP of BDT198.6. We revise 2019f revenue and NPAT expectation upwards by c2% and c4% upwards based on post-declaration figures. We maintain our Hold recommendation with TP of BDT198.6, implying 17.6x 2019f PE, 1.2x 2019f EV/Sales.