Valuation of Singer Bangladesh LTD
Valuation of Singer Bangladesh LTD
Valuation of Singer Bangladesh LTD
Prepared for:
Khairul Alam Siddique
Lecturer
Department of Finance
Faculty of Business Studies
University of Dhaka
Prepared by:
Minhajur Rahman Joy
ID: 23-106
Batch: 23rd, Section: A
Department of Finance
University of Dhaka
Dear Sir:
It is my pleasure to submit the term paper of my sixth semester of course Analysis of Financial
Investment (F-307). Making this term paper has provided me with a great opportunity for
gaining practical knowledge of statistics and how to use this knowledge. It has been a privilege
for me to have the opportunity to apply omy academic knowledge in real life situations.
I tried my level best to put sincere effort for the preparation of this term paper. As
undergraduate students, it is usual that inadequacy or error may arise and it may lack
professionalism in some cases. For any unintentional inadequacy in the term paper, your
sympathetic consideration would be highly appreciated. In addition, I will enthusiastically
welcome any clarification and suggestion about any view and conception disseminated in the
report.
I, therefore, pray that you would be kind enough to accept our report for evaluation and oblige
thereby.
Sincerely,
………………………………
Minhajur Rahman Joy
ID: 23-106
Batch: 23rd, Section: A
Department of Finance
University of Dhaka
Contents
Letter of Transmittal ............................................................................................................. 3
Executive Summary .............................................................................................................. 5
Chapter 1: Industry Overview ............................................................................................... 6
Background ....................................................................................................................... 6
Porter’s Five Forces ........................................................................................................... 7
Chapter 2: Company Specific Factors of Singer Bangladesh Ltd. .......................................... 8
Company Overview ........................................................................................................... 8
Revenue Decomposition .................................................................................................... 9
Revenue Drivers ................................................................................................................ 9
Cost Composition ............................................................................................................ 11
Seasonality in Business .................................................................................................... 11
SWOT Analysis ............................................................................................................... 11
Competitive Advantage ................................................................................................... 12
Future Prospect ................................................................................................................ 12
Chapter 03: Financial Analysis of Singer Bangladesh Ltd. .................................................. 14
Profitability Ratio ............................................................................................................ 14
Liquidity Ratio ................................................................................................................ 14
Efficiency Ratio ............................................................................................................... 14
Leverage Ratio ................................................................................................................ 14
Z-Score............................................................................................................................ 15
Chapter 04: Valuation Techniques Singer Bangladesh Ltd. ................................................. 16
Key Assumptions for Profit & Loss Statement ................................................................. 16
Key Assumptions for Statement of Financial Position ...................................................... 16
Discounted Cash Flow Valuation ..................................................................................... 16
DDM Methods................................................................................................................. 17
Relative Valuation ........................................................................................................... 17
Growth Duration.............................................................................................................. 17
Identification of Risks...................................................................................................... 18
Calculation of Expected Return ....................................................................................... 18
Chapter 05: Conclusion ....................................................................................................... 19
Chapter 06: Appendices ...................................................................................................... 20
References .......................................................................................................................... 22
Executive Summary
The objective of the report is to find a right investment opportunity. Upon conducting both
absolute and relative valuation on Singer Bangladesh Limited it was found the current market
price of SINGERBD as of 06 February 2020 was 171.00 BDT and the target price is 186.98
BDT which is leading to a return of 12.99%.
Firstly, in this report industry analysis has been conducted and it is found that there will be a
compounded annual growth rate of 15% which is mainly driven by the urbanization. Also it
was seen that within 2030 45.6% of the population will be urbanized resulting a huge electronic
products demand. The major growth driver of the industry is the increase in per capita income
level, the rise of the middle income class group etc.
Singer Bangladesh Limited was valued with absolute and relative technique and was found a
target price of 186.98 BDT. For absolute valuation Free Cash Flow to Firm and for relative
valuation P/E and EV/EBITDA method was used but more emphasize was given on FCFF.
After adjusting tax on capital gain and dividend we found that this investment would generate
a return of 12.99%.
Chapter 1: Industry Overview
Background
Bangladesh is the best placed in the region for electrical, electronic home appliances industry
due to cheap labor and favorable trade status with the EU. Thus the potential for backward and
forward linkage industry is growing very fast. Presently, about 50%-60% of this demand is met
by import from countries like China, India, Hong Kong, Thailand, Korea, Indonesia etc. This
offers a tremendous opportunity for further investment.
Among the major products of consumer electronics and home appliances produced and
supplied by Singer Bangladesh. Refrigerator and Television generate most of the revenue in
the consumer durable goods. Currently, the annual demand of refrigerators in Bangladesh is
around 2.5 million units where Walton is the market leader in the refrigeration market and aims
to grab around 74% market share.
To promote the locally manufacturing of refrigerator, the government in the national budget
2017-18, have extended the VAT incentives to June 2019 for local manufacturing of
Refrigerator, Freedger and Air Conditioner. The percentage of domestic made refrigerators was
80 while the sale of imported refrigerators was only 20%.
The prominent local brands which are manufacturing Refrigerator are Walton, Marcel, Eco
Plus, Jamuna, RFL, MyOne and Minister. Among them, the annual production capacity of
Walton Hi-Tech Industries is 14 lakh units, Jamuna Electronics 3 lakh, Butterfly
Manufacturing Company Ltd (Eco Plus) 2 lakh, RFL Electronics 3 lakh while MyOne and
Minister’s capacity are 1 lakh.
Government of Bangladesh has keen to ensuring access of affordable and reliable electricity
for all by 2021. This will accelerate the demand of consumer durables in the coming days. The
demand of consumer electronics and home appliances mainly depends on income level and
purchasing power of consumer which shows increasing trend in our country. The television
market of Bangladesh is now stands at about 1 million units a year. Of the sum, branded
products account for around 40 percent.
Recently, South Korean technology giant Samsung has invested $100 million in Bangladesh to
established two manufacturing units. The company will produce televisions, refrigerators,
microwave oven and air conditioners for the local market and it has the plan to export in future.
It has started manufacturing television on a test basis from May 2017. Samsung’s other factory
which is located at Narsingdi will officially open from May 2018. The company is aiming to
grab 30 to 40 percent of the market share within next three to four years.
Life Cycle
Currently the industry is at the growth stage of the industry life cycle due to the following
characteristics:
Increasing Sales: The industry is experiencing increasing sales which is reflected on
the growth rate of this industry as well as the performance of the top players in the
industry.
Reducing Costs: With the help of economy of scale and enhanced innovation the
industry has started to reduce its production cost.
Stable Profits: As the major players in the industry are now earning profit and which
is seen to stable over the years thus the industry has opportunity in forward to improve
profits.
Company Overview
Singer Bangladesh Limited is engaged in manufacturing and marketing of color televisions,
refrigerators, home appliance, domestic furniture, sewing machine of Singer Brand. The
company is also engaged in marketing of televisions, air-conditioners of other brand. It also
distributes electric cables, computer and instant power supply, kitchen appliances and other
consumer electronics and household appliances. Singer Bangladesh Limited holds 10% of the
market shares in consumer durables industry which is the second largest market share in the
industry (Source: Daily Star).
Currently, the company has 374 sales centers in all the 64 districts of Bangladesh. Their sales
centers are named as Singer Mega and Singer Plus. Apart from that, the Company has 425
dealers who work as distributors for the company. The company also has five services centers
in Dhaka, Chittagong, Jessore, Borgra and Sylhet.
Acquisition of Singer’s Bangladesh business by Arçelik A.Ş at $75 million by acquiring Retail
Holdings Bhold B.V. (sponsor shareholder of Singer Bangladesh Ltd.). The $75 million deal
to acquire Singer BD by Arçelik represents fair valuation of stock however with Arçelik’s entry
in Bangladesh, future growth potential of the company looks attractive.
Group Structure:
Revenue Decomposition
From 2012 to 2016, air conditioner, television and home appliances have contributed major
portion of the company’s revenue. In 2016, those items contributed 90.5% of total revenue.
Contribution from different revenue segment is presented in right side.
Revenue Drivers
Production Capacity of Panel Television
Singer Bangladesh has yearly capacity to produce 89,829 units of panel television. In 2016, the
capacity utilization ratio was 112%. As the demand of Panel Television increased, the company
focused to produce more panel television. At the same time, SingerBD decreased the
production of CRT television to make room for producing more Panel Television.
Production Capacity of CRT Television
SingerBD possess the capacity to produce 20,000 units of CRT television in 2016. With the
decreased demand of CRT Television, the company decreased the production capacity. The
company utilized 89% capacity to produce CRT Television in 2016. Over the last five years,
the demand of Panel Television has increased and the demand of CRT Television has
decreased. The company adjusted its capacity according to the demand of the market.
Cost Composition
For the raw materials of the products almost 95-98% of materials are imported where just 1-
4% are locally procured which possesses the main difficulty in production of electronics goods.
Seasonality in Business
Singer Bangladesh is exposed to high seasonality in business. Major portion of revenue comes
in quarter 2 and quarter 3 (April to September). Usually, there are little sales on quarter 1 and
quarter 4. The sales of air conditioner increase during the summer period. The sales of
refrigerator and television reach at its peak during the EID period. The Company earns major
portion of the revenue during the EID festival and summer season.
SWOT Analysis
Internal External
Strengths Weakness Opportunities Threats
(1) Brand reputation (1) Dependence on (1) Production of (1) Intense
imported raw raw materials locally competition from
(2) Loyal Customer
materials international players
Base (2) Becoming the
market leader (2) Intense
(3) Strong
competition from
Distribution Channel
local players
Competitive Advantage
VRIN Model
Based on the VRIN Model it can be concluded that Singer Bangladesh Ltd. has a long term
competitive advantage.
Ansoff Matrix
Based on the Ansoff Growth Matrix it can be concluded that Singer Bangladesh Ltd. is at the
Product Development stage.
Existing Products New Products
Existing Market Market Penetration Product Development
New Market Market Development Diversification
Future Prospect
(1) Robust growth in consumer durables industry and steady economic growth will
accelerate the growth of Singer: The Government of Bangladesh targeted that Bangladesh
will be a middle income country by 2021. Consequently, the GDP of Bangladesh is expected
to grow more than 7% in the upcoming year. Consumer durable industry is expected to grow
at the same pace with economy. As SINGERBD belongs to this industry, the company is
expected to grow with the growth of the industry.
Major revenue generating segments continued to record lucrative growth in topline: Major
revenue earning segments air conditioner (12.07%), television (21.04%) and home appliance
(56.94%) have experienced a five year sales CAGR of 23.6%, 13.7% and 10.3% respectively.
Singer Bangladesh has recorded 49% sales growth of panel television, 47% sales growth of
washing machines, 42% sales growth of refrigerators, 40% sales growth of furniture and 36%
sales growth of air conditioner in Q2 of 2017. With the future growth of consumer durables
industry, profitability of Singer Bangladesh Limited is likely to increase.
(2) Income from associate will grow up further while serving as a backward linkage for
the company: International Appliances Limited, a 73.85% owned associate of Singer
Bangladesh Limited has started commercial operation in July 2016 with a production capacity
of 250,000 units. The Company has turned into a profitable one in 2017 Q3. Singer Bangladesh
Limited has earned BDT 10 million from this associate in this time. It is expected that the
associate will generate more profit in the future. Addition of new product in the product
portfolio will increase the revenue of the company: Singer Bangladesh Limited adds a good
number of products in its product portfolio each year. New product in the product portfolio
helps the company to generate additional revenue each year.
(3) Major portion of revenue comes in EID festival and Summer Season: Singer
Bangladesh earns major portion of revenue from selling television and refrigerator during the
EID festival and from selling air conditioner during the summer season.
Chapter 03: Financial Analysis of Singer Bangladesh Ltd.
Profitability Ratio
The profitability ratios of Singer Bangladesh Ltd. are as follows:
Liquidity Ratio
The liquidity ratios of Singer Bangladesh Ltd. are as follows:
Efficiency Ratio
The efficiency ratios of Singer Bangladesh Ltd. are as follows:
Leverage Ratio
The leverage ratios of Singer Bangladesh Ltd. are as follows:
Z-Score
Factor
A 0.20823 1.2
B 0.0918 1.4
C 0.13297 3.3
D 0.1215 0.6
E 1.48095 1
Z Score 2.37105
The Z Score of Singer Bangladesh Ltd. is 2.37 which lies in the Gray Zone.
Chapter 04: Valuation Techniques Singer Bangladesh Ltd.
Other Non-Operating Income % of Sales 0.96% 0.01% 1.19% 2.16% 2.58% 2.50% 2.50% 2.50% 2.50% 2.50%
Profit Before WPPF
Provision For WPPF 2476.92% 2751.85% 1750.00% 1976.92% 1834.62% 0.00% 0.00% 0.00% 0.00% 0.00%
Profit Before Tax
Income tax 32% 32% 32% 32% 32%
Earning After Tax 23.23% 23.23% 23.23% 23.23% 23.23% 22.69% 20.98% 23.22% 23.76% 24.67%
Profit/(Loss) from Associates Undertaking % increase
Earning After Tax 24.85% 24.85% 24.85% 24.85% 24.85% 24.74% 23.04% 25.29% 25.86% 26.80%
CAPEX % sales 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
DEP % sales 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%
DIVIDEND 36% 36% 36% 36% 36% 36% 36% 36% 36% 36%
Relative Valuation
Relative Valuation Methods
Current P/E 17.33
PE at YE 2013 38.1
PE at YE 2014 46.1
PE at YE 2015 35.7
PE at YE 2016 27.1
PE at YE 2017 18.2
Avg 30.42
Target Price
Valuation Methods Valuation Weights
Average Historical PE multiple 549.22 10%
DCF £186.98 90%
Average Value Per share 223.21
Growth Duration
Growth Duration
Particulars Engineering Industry SingerBD
P/E Ratio 17.4 14.61538462 Price per share 171
Expected Growth Rate 0.15 0.028818959 EPS 11.7
Dividend Yeild 0.06 0.059064327
Ln(p/E)/(p/E) 0.839964633
Ln(1+g+d)/(1+g+d) 0.899077096
Duration 1.639263506
Decision Rule
The decision rule to decide whether the firm is a possible buy or it should be offloaded from
the portfolio will be based on these criteria:
Rating Expected Return
(Annualized)
Buy More than 15%
Hold 0 to 15%
Sell Below 0%
As the total expected return from the investment of Singer Bangladesh Ltd. Is 12.98% thus it
is recommended to hold the investment which neither to buy nor sell the security.
Chapter 06: Appendices
Cost of Goods Sold 5422 5067 6413 7,940 9,799 11,416 13,541 15,978 18,535 21,500 24,940
Gross Profit 1,716 1,686 2,431 3,027 3,813 4,522 5,078 5,992 6,951 8,063 9,353
Operating Expenses: 1239 1286 1660 1,861 2,169 2,602 2,821 3,329 3,861 4,479 5,196
Operating Income
Operating Profit 477 400 771 1,166 1,644 1,920 2,257 2,663 3,089 3,583 4,157
other non operating income -1 65 1 130 294 411 470 555 644 747 866
Profit Before WPPF 478 335 770 1,036 1,350 1,509 2,727 3,218 3,733 4,330 5,023
Provision For WPPF 11 13 27 56 65 78 80 85 90 95 100
Profit Before Tax 467 322 743 980 1,285 1,431 2,647 3,133 3,643 4,235 4,923
Income tax expense-Current 138 148 233 280 354 464 847 1,003 1,166 1,355 1,575
Income tax expense-Deferred
Defferred Tax Assets
Total Tax 138 148 233 280 354 464 847 1,003 1,166 1,355 1,575
Earning After Tax 329 174 510 700 931 967 1,800 2,130 2,477 2,880 3,347
Profit/(Loss) from Associates Undertaking
Net Profit After Tax 329 174 510 700 931 967 1,800 2,130 2,477 2,880 3,347
Shareholders' Equity 1,526 1,415 1,945 2,310 2,316 2,556 2,771 3,085 3,949 5,005 6,580
Share Capital 613 766 766 766 766 997 997 997 1,250 1,250 1,250
Reserve 395 421 585 573 573 571 588 606 624 643 662
Retained Earnings 518 228 594 971 977 988 1,186 1,482 2,075 3,112 4,668
Non-current Liablities 1,324 1,409 1,445 1,751 1,725 2,676 3,603 4,472 4,702 4,818 4,479
Long Term Loans 126 126 109 63 37 37 125 245 220 220 300
Other non current liabilities 1198 1283 1336 1,688 1,688 2639 3,478 4,227 4,482 4,598 4,179
Current Liabilities 1,112 822 2,306 3,830 4,382 5,530 6,601 7,804 9,003 10,352 11,866
Short Term Bank Loans 217 18 1157 2,118 2,728 3357 3,893 4,608 5,296 6,052 6,878
Trade Creditors 892 804 1130 1,712 1,646 2170 2,708 3,196 3,707 4,300 4,988
Other Current liabilities 3 0 19 0 8 3 - - - - -
Total Shareholders' Equity &3,962
Liabilities
3,646 5,696 7,891 8,423 10,762 12,975 15,360 17,654 20,175 22,925
RFRR 9.150%
RM 14.2%
Risk premium (Rm - Rf) 5.00%
Beta (ß) 1.0964
Cost of equity (Ke) 14.632%
Cost of debt (Kd) 9%
Tax Rate 32%
After tax cost of debt 6.120%
Weight for equity (We) 30%
Weight for debt (Wd) 70%
WACC 10.6896%