- International Leasing Securities Limited
Transcription
- International Leasing Securities Limited
APEX TANNERY LIMITED Company Overview Apex Tannery Limited (ATL) was incorporated on 26 July, 1976. The company is the largest tannery in Bangladesh. It is 100% export oriented company. The primary activities of the company are to produce quality leather, by using Italian chemicals, technology, fulfilling the world fashion standards and specification with imported machinery from Italy, France and Germany. The Company’s annual production capacity is 26 mn Sft. of finished goat and cow leather, of which rented capacity (wetblue only) is 7.5 mn Sft. per year. In 2013-14, the Company has utilized 98.59% of its total production capacity. At the same period, around 81% of total revenue was generated from finished cow leather whereas rest 19% was generated from finished goat leather. It has two manufacturing facilities – unit-I is situated at Hazaribagh and the unit-II is situated at Gazipur. Both the facilities are engaged in processing and finishing cow and goat leather for 100% export. From 01 October, 2011 unitII has been leased out to Apex Footwear Ltd. for 10 years. The Company annually receives rental income amounting BDT 5,000,000 from Apex Footwear Ltd. In 2013-14, net profit after tax of the company was BDT 84.0 million decreased by 16% than that of the previous year mainly due to higher raw material cost. Decrease in Net profit caused the ROA and ROE to decline to 5.8% and 7.8% respectively which was 6.6% and 9.7% in the last year. DSE: APEXTANRY BLOOMBERG: APEXTA:BD A project has started, on 200 acres of land with CETP facilities costing BDT 10.78 bn, to relocate tanneries from Hazaribagh to Savar Tannery Estate. EU will not allow export beyond 2014 until a full-fledged CETP becomes operational. In 2014-15 proposed budgets, the Government has imposed 1% ‘Environment Protection Surcharge’ or ‘Green Tax’ on advalorem basis upon the industries which pollute the environment. Company Fundamentals 1,766.3 Market Cap (BDT bn) 0.1% Market weight 15.2 No. of Share Outstanding (in mn) Free-float Shares 48.0% Paid-up Capital (BDT mn) 152.0 2.4 3-month Average Turnover (BDT mn) -12.0% 3-month Return 115.9 Current Price (BDT) 110 – 181 52-week price range (BDT) 24.7 Sector Forward P/E 2011-12 2012-13 2013-14 2014-15 (HY Annu.) Financial Information (BDT mn): The company enlisted in the DSE and the CSE on 1985 and 1995 respectively. Around 52% shares of the company are held by the Sponsors whereas 48% shares are held by General Investors. Sales Operating Profit Profit After Tax Assets Long Term Debt Equity Dividend (C/B)% Industry Overview Margin: Tannery Industry is the 3rd largest export earning sector in Bangladesh. It contributes about 3.5% to the overall export earnings up to July-June 2013-14 (Source: Export Promotion Bureau). Tannery industry generated employment about 850,000 people directly. More than 400 million square feet of raw hides and skins are processed and exported by tanneries each year in the recent times. About 95% of the leather sector output in the form of crushed leather, finished leather, leather goods and footwear are exported. There are 200 tanneries, 3,500 MSMEs (Micro Small & Medium Enterprises) and 110 large firms related to leather tanning, leather goods and footwear sub-sectors in the country. However, few large companies control more than 90% of the export market. Main exporting countries are Hong Kong, Italy, Korea, Japan, China, Vietnam, Spain, UK, Germany, France, USA, Saudi Arabia, etc. Gross Profit Operating Profit Pretax Profit Net Profit 8.8% 4.9% 4.3% 3.5% 7.8% 3.1% 3.9% 3.1% 6.0% 1.8% 2.8% 2.2% 5.3% 1.2% 1.7% 1.4% Growth: Sales Gross Profit Operating Profit Net Profit 21.9% 20.5% 18.8% 11.2% 5.9% -6.6% -32.8% -7.0% 16.8% -10.9% -31.2% -16.1% -2.9% -13.7% -33.5% -38.8% 6.7% 11.2% 6.6% 9.7% 5.8% 7.8% 3.0% 4.8% According to Export Promotion Bureau data, leather export grew by 2.89% to USD 671.21 mn in July-January of FY 2014-15 from USD 652.38 mn in the same period of the last FY. Of the subsectors i.e., leather, leather goods and footwear, of tannery industry, the footwear export totaled USD 296.8 mn with a 23.63% growth and leather goods export totaled USD 130.82 mn with a 6.28% growth. All these subsectors except leather footwear failed to achieve their respective strategic target set for the July-January of 2014-15 FY. Debt-Equity 27.1% 42.8% 2.8 15.0% 20.3% 3.3 15.5% 21.1% 3.7 35.0% 63.4% 1.4 14.6 1.6 7.1 3.5 66.4 13.2 1.2 6.6 4.0 69.4 25.6 2.0 5.5 4.5 71.7 34.4 1.7 3.4 --69.8 1 3,067.2 148.8 107.7 1,596.6 58.1 1,012.6 35/- 3,248.8 100.0 100.2 1,436.1 67.4 1,057.3 40/- 3,793.2 68.8 84.0 1,485.0 79.7 1,092.3 45/- 3,684.7 45.7 51.4 1,918.4 84.3 1,063.8 -/- Profitability: ROA ROE Leverage: Debt Ratio Int. Coverage Valuation: Price/Earnings Price/BV EPS (BDT) DPS (BDT) NAVPS (BDT) April 16, 2015 Investment Positives Last 5 Years Price Movement The company exports around one fourth of the total leather export of the country. The Company sourced its raw materials i.e., raw hides and skins from local market, mostly during the time of Eid-ulAzha festival. Therefore, the company’s production process enjoys relatively less uncertainty throughout the year. The company has established steady growth in its dividend policy over the years (as mentioned in the table). 250 200 BDT 150 100 50 0 Apr-11 Apr-12 Apr-14 Apr-15 Source: DSE Website & ILSL Research Investment Negatives Apr-13 The Company operates in low profit margin scenario. Moreover, increasing raw material price and other associate costs squeeze the margins gradually. In 2013-14, the Company’s per unit selling price of cow leather dropped by 6.56% while raw cow hide price increased by 3.19%. In such condition all the profit margins faced shrinkage. On the National Budget 2014-15, the Government has imposed 1% ‘Environment Protection Surcharge’ for those companies which have no ETP plant. Such regulatory penalty might have adverse effect on the firm’s profitability. As a 100% export oriented firm, the Company’s revenue might suffer substantial setback because of adverse foreign exchange rate movement. The Company’s prime export destination – Italy, has gone through the financial crisis in the last couple of years. Therefore, ATL now put more concentration on the Chinese, Indian and Japanese market to smooth the operations. Pricing Based on Relative Valuation: Sector Forward P/E Sector Trailing P/E Market Trailing P/E Market P/B Multiple Value (BDT) 24.7 20.7 17.0 1.5 83.3 114.1 93.7 104.7 Concluding Remark Apex Tannery Ltd. is the leading tannery in Bangladesh and one of the largest in South Asia. In its latest Half Yearly earnings declaration, the company reported net profit after tax of BDT 25.7 mn which was BDT 36.9 mn for the same period of the previous year registering 30% negative growth mainly due to increase in costs of goods sold. Source: Annual Reports, http://promotebdleather.net/, Export Promotion Bureau, the Financial Express, the Daily Star and ILSL Research Last 5 Years Reastated EPS (BDT) 6.4 7.1 6.6 5.5 3.4 2010-11 2011-12 2012-13 2013-14 2014-15 (HY Ann) Source: Annual Reports & ILSL Research ILSL Research Team: Name Rezwana Nasreen Md. Tanvir Islam Towhidul Islam Mohammad Asrarul Haque Designation Head of Research Sr. Research Analyst Research Analyst Jr. Research Analyst For any Queries: [email protected] Disclaimer: This document has been prepared by International Leasing Securities Limited (ILSL) for information only of its clients on the basis of the publicly available information in the market and own research. This document has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy or sell or subscribe to any security. Neither ILSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources used in the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. ILSL will not take any responsibility for any decisions made by investors based on the information herein. 2 April 16, 2015