Equity Analysis /

Singer Bangladesh: Q1 19 revenue in line, but earnings underperform; maintain Hold

    Tanay Kumar Roy
    Tanay Kumar Roy

    Research Analyst

    IDLC Securities
    16 May 2019
    Published by

    Earnings grew by 3% yoy. Despite 17.5% yoy growth in sales and 27.0% yoy growth in operating profit, bottom line under-performed our expectation by 12.9% (BDT 18mn, 2% of annual 2019f earnings) due to increase in finance expenses which doubled on yoy basis. We believe Singer increased inventory level to capacitate strong growth in the peak season (April – August) and hence required debt to finance working capital.

    Earnings growth is likely to recover next quarter; maintain Hold. We believe Singer will generate strong sales growth during its peak quarters (Q2 and Q3) led by two festivities (Eid Ul Fitr and Eid Ul Azha). We note that these two quarters generate 52% of sales and 78% of earnings. Hence, we believe that strong performance in the upcoming two quarters will compensate for the underperformance in the first quarter. Currently, Singer trades at 15.9x 2019f PE, 9.7x 2019f EV/EBITDA, 1.2x 2019f EV/Sales and offers 14.0% ETR. Therefore, we suggest waiting for a price correction for a better entry point.

    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 101 days (-19 days qoq) driven by weakening throughout all parameters: inventory (+5 days qoq), receivables (+6 days qoq).and payables (-8 days). We expect the working capital cycle to drop back to the previous level (80-85 days) after the peak season is over.