Earnings Report /
Bangladesh

Reckitt Benckiser Bangladesh: Earnings grew by c27% driven by lower opex; downgrade to Hold

  • Revenue fell by c10% YoY in Q3 CY21 due to base effect

  • NPAT grew by 27% YoY due to lower OPEX/Sales, Effective tax rate and GPM expansion

  • Downgrade to Hold with unchanged TP of BDT5,090 (ETR 5.7%) for June 2022

Auneea Haque
Auneea Haque

Research Associate

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IDLC Securities
2 November 2021
Published byIDLC Securities

Q3 CY21 Revenue stood at BDT1,301.0mn against BDT1,452.3mn in Q3 CY20, implying c10% YoY de-growth. Revenue has started to normalize from the high base level of CY20 (growth of c29% YoY) when demand for hygiene-based products escalated amid the pandemic outbreak. Moreover, the quarter started with a strict lockdown which created some supply-side disruptions.

In the first nine months of CY 21, Reckit’s Revenue stood at BDT3,808.6mn, down by c6% YoY. As the revenue did not meet our expectations, we have trimmed our revenue forecast for CY21 by c2% to BDT5,014mn. Nevertheless, we expect revenue to pick up in the coming years as the industry remains highly underpenetrated.

Reckit reported Q3 CY21 NPAT of BDT204.0mn (EPS: BDT43.17) against BDT160.3mn (EPS of BDT33.93) in Q3 CY20, implying growth of c27% YoY. 510bps YoY lower net opex/sales, c706bps lower effective tax rate due to corporate tax rate cut benefit, and 60bps GPM expansion easily offset c10% de-growth in revenue.

In the first nine months of CY 21, Reckit’s NPAT stood at BDT497.1mn (EPS: BDT105.2), up by 15% YoY. As the earnings outperformed our expectations, we have increased our NPAT forecast for CY21 by c4% to BDT794.4mn (EPS: BDT168.1). Besides, our future outlook for Reckit remains strong riding on high revenue growth and margin expansion.

Downgrade to Hold with TP of BDT5,090 for June 2022 (ETR 7.9%). Reckit is currently trading at 28.5 x trailing PE. Our TP of BDT5,090.0 implies 25.6x 2022f PE and 3.9x 2022f EV/Sales. We believe Reckit has a strong potential to grow significantly in the favorable macroeconomic condition. However, based on valuation font, we downgrade our recommendation to Hold on Reckit.