LHBL BD reported Q3 CY 19 NPAT of BDT381mn (EPS: BDT 0.33), vs loss of BDT34mn (EPS: BDT-0.03) in Q3 CY 19. Higher gross margin (380 bps yoy) slightly offset by revenue de-growth (-7% yoy) led to positive earnings. 9M CY 19 NPAT stood at BDT1175mn (EPS: BDT1.01), vs 9M CY 18 NPAT of BDT494mn (EPS: BDT0.43) which is in line with our expectation.
Gross margin increased to 29.2%, implying 380bps yoy expansion. This increase is attributed to higher retail price in Q3 coupled with LHBL’s cost benefit. Unlike other manufacturers, LHBL has integrated plant as it has own source of raw material (clinker) whereas other grinders have to import it. Therefore, the merged company is insulated from clinker price hike and enjoyed the benefit of price increase in Q3. For the other grinders, the increase in costs surpassed the benefits of price increase. Due to competitive pressure, they could not pass on the costs to the customers, therefore resulting in margin dent.
Revenue decreased to BDT 3,558mn (-7% yoy), attributed to dent in sales due to retail price increase in Q3. All manufactures increased the retail price from July 6, 2019 but lowered it soon after to push their sales. The company could not lower the increased price as quick as the grinders did hence suffered from sales decline. The setback affected the topline more than usual due to monsoon season.
Finance cost stood at BDT52mn in Q3 CY 19 vs BDT160mn in Q3 CY 18 due to quicker loan repayment resulting in significant improvement in interest coverage ratio (12.3x in Q3 CY 19 vs 2.7x in Q3 CY 18) and 115% yoy growth in PBT.
Reiterate Hold (ETR 10.1%). LHBL BD trades at 18.6x 2019f PE, 8.9x 2019f EV/EBITDA. We reiterate our Hold recommendation.