Earnings Report /
Bangladesh

Unilever Consumer Care: Q1 CY 20 – Substantial earnings growth but struggled to generate sales

  • 1Q CY 20 NPAT increased by c35% yoy due to smaller impact of discontinued operations

  • Revenue fell by 6% yoy to BDT1,154.4mn

  • We maintain a Hold recommendation with increased TP of BDT1,794

Auneea Haque
Auneea Haque

Research Associate

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IDLC Securities
11 May 2020
Published byIDLC Securities

Glaxow BD reported 1Q CY 20 NPAT of BDT180.4mn (EPS: BDT14.97), implying c35% growth against NPAT of BDT133.2mn (EPS: BDT11.06) in 1Q CY 19. However, if we exclude the effect of loss of discontinuing operations and lower tax, profit before tax shows mere c3% yoy growth.

Revenue continued to slide, falling by 6% yoy. Glaxow BD’s revenue decreased to BDT1,154.4mn in 1Q CY 20 from BDT 1,229.6mn in 1Q CY 19 as Glaxow BD is struggling to generate volume growth for quite some time mainly due to lower sales of Horlicks. One of the key reasons is that the customers now have other food options that are branded as fortified with vitamins and minerals such as milk, cereal etc. In addition, illegal import is still hurting the industry’s sales.

Gross margin expansion of 344bps yoy was offset by rising opex. Glaxow BD’s gross profit margin ratio increased substantially to 50.0% in 1Q CY 20 against 46.6% in 1Q CY 19. This was mainly attributable to lower raw material price and cost saving initiatives. On the other hand, operating expense as a percentage of sales increased by 395bps driven by higher marketing and selling expense. 

Net finance income stood at BDT58.2mn in 1Q CY 20 vs net finance income of BDT29.5 in 1Q CY 19.

We increase TP from BDT1,603 to BDT1,794 for Dec 2020 (ETR -9.6%) and maintain a Hold. It implied an upward TP revision by c12%. Glaxow BD has attained a new level of earnings through significant gross margin expansion due to the closure of less profitable Pharmaceutical unit and introduction of cost saving initiatives. Glaxow BD’s gross profit margin went up by +1,600bps from CY17 to CY19 which gave earnings a new base. Glaxow BD’s NPAT increased by 21% CAGR during the same time. We expect this new level of gross profit margin to sustain and we have revised our assumptions accordingly.

However, the company is struggling to grow sales. Amid the Covid-19 crisis we expect health food drinks (HFD) industry to be adversely affected and Glaxow BD’s sales to decline further in CY 20. We have trimmed 2020f revenue growth (-5.5% yoy from 4.5% yoy) and earnings growth (3.6% yoy from 3.5%). Overall, we increased our EPS estimation from BDT74.4 to BDT84.8 (+14%).

We think much of the upside potential has already been realised as our increased TP of BDT1,794 for December 2020 suggests an ETR of -9.6%. We have a Hold recommendation.