SQUARE reported BDT 5.6 EPS (NPAT BDT 4,997mn) in Q1 FY22, implying c27% growth over BDT 4.4 EPS (NPAT BDT 3,932mn) in Q1 FY21. The growth in earnings is driven by c18% YoY growth in top-line revenue and substantial growth in the textiles associates. In addition, YoY lower effective tax rate by 274 bps due to tax cut in FY21 national budget, further contributed to the bottom line.
Revenue reached BDT 14,877mn in Q1 FY22, implying c18% YoY growth. The local sales jumped up by c19% YoY while the export revenue increased by c5%. We think the growth in local sales revenue is driven primarily by two factors. Firstly, in wake of the novel virus, the doctor-patient consultancy was at 60%-70% of the normal level in Q1 FY21. This impacted the sales of prescription drugs. However, over the period of time, both doctors and the patients have overcome the fear of the novel virus and the doctor-patient consultancy has normalized now. As a result, the sales of prescription medicine has again picked up.
Secondly, the sales of medicine to treat the COVID-19 symptoms increased when the number of cases spiked in mid Q1 FY22. In addition, the consumption of drugs for seasonal flu and fever increased.
Share of profit from associates increased by whopping c107%. Because of higher demand for apparel in developed countries and shift of work orders from Myanmar (political unrest), India & Viet Name (COVID restrictions), the RMG export business of Bangladesh boomed in Q1 FY22. Hence, the total profit share for SQUARE BD from the two associate companies – Square Textiles Limited and Square Fashions Limited – jacked up by c132%.
Operating profit margin increased by 58 bps as opex to sales ratio improved by 46bps because of the scale effect. Also, the gross margin slightly improved by 12bps. We may see a pressure on gross margin in the upcoming quarter following the rise of API prices and oil price (resulting in higher packaging cost).
We updated our TP at BDT 280 (c2% upward) as we revised up 2022f revenue by 0.4% and EPS by c7%. The updated TP implies 13.7x FY22 P/E, 3.23x FY22 EV/Sales and 9.2x FY22 EV/EBITDA. Currently, SQUARE BD is trading at 11.9x LTM P/E and 11.2x FY22f forward P/E