equity valuation report - ebl securities ltd. price range (bdt) 96.20-122.50 acme laboratories...

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EQUITY VALUATION

REPORT

( Initiation Coverage )

Acme Laboratories Limited, one of the leading pharmaceuticals company in Bangladesh, is engaged in and marketing of Generic manufacturing Pharmaceuticals Formulations Product both for human and animal.

We conducted a valuation on AC ME based on Discounted Cash Flow method and Relative Valuation method while assuming next 5 - Years’ CAGR of revenue will be 1 1. 76 % . Currently, ACME is traded at BDT 118.00 ( as on 20 th July , 2017). In our valuation, the

target price for AC ME based on the weighted average of DCF and Relative Valuation is determined at BDT 146.81 per share.

Acme Laboratories Limited DSE: ACMELAB BLOOMBERG: ACMELAB:BD Target Price: BDT 146.81, Current Price: 118.00 Rating: Overweight Valuation date: 20th July 2017

Analyst:

MD. Mosavvir Al Ashick [email protected]

2014-15

Act. 2015-16

Act. 2016-17

Exp. 2017-18

Exp.

Financial Information (BDT mn):

Net Sales 11,496 12,645 13,919 15,406

Gross Profit 4,301 4,874 5,387 5,962

EBITDA 2,875 3,768 3,788 3,940

Operating Profit 2,358 2,542 2,870 3,177

Profit After Tax 922 1,101 1,227 1,426

Total Assets 23,260 28,890 29,302 28,972

Total Debt 9,430 10,042 9,886 8,655

Total Equity 11,373 16,364 16,797 17,483

Retained Earnings 2,690 3,303 3,790 4,476

Cash 432 1,148 1,322 1,464

Dividend (C/B)% - 35/5 35/0 35/0

Margin:

Gross Profit 37.4% 38.5% 38.5% 38.7%

EBITDA 25.0% 29.8% 27.2% 25.6%

Operating Profit 20.5% 20.1% 20.6% 20.6%

Pretax Profit 11.7% 11.1% 12.3% 13.8%

Net Profit 8.0% 8.7% 8.8% 9.3%

Growth (YoY):

Sales 12.5% 10.0% 10.1% 10.7%

Gross Profit 8.1% 13.3% 10.5% 10.7%

Operating Profit 21.9% 7.8% 12.9% 10.7%

Net Profit 3.1% 19.5% 11.4% 16.2%

Profitability:

ROA 4.1% 4.2% 4.2% 4.9%

ROE 8.4% 7.9% 7.4% 8.3%

Payout Ratio - 53.4%* 60.3% 51.9%

PEG ratio - 1.13 2.22 1.35

Leverage:

Debt Ratio 40.5% 34.8% 33.7% 29.9%

Debt-Equity 82.9% 61.4% 58.9% 49.5%

Altman Z-Score 2.2 2.2 2.3 2.5

Valuation:

EPS (BDT) 4.4 5.2 5.8 6.7

NAVPS (BDT) 53.7 77.3 79.4 82.6

P/NAV (x) - 1.5 1.4 1.3

EV/EBITDA 11.7 8.9 8.8 8.1

EV/Sales 2.6 2.4 2.1 1.8

P/E 26.6 22.2 19.9 17.2 * Payout ratio is calculated based on 2015-16 dividend and EPS

We conducted a valuation on ACME based on Discounted Cash Flow method and Relative Valuation method while assuming next 5-Years’ CAGR of revenue will be 11.76%. Currently, ACME is traded at BDT 118.00 (as on 20th July, 2017). In our valuation, the target price for ACME based on the weighted average of DCF and Relative Valuation is determined at BDT 146.81 per share.

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Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Price-Volume Movement of ACMELAB

VOLUME CLOSEP*

Company Fundamentals

Sector Pharmaceuticals & Chemicals

Market Cap (BDT mn) 24,180.6

Market weight 0.7%

Paid-up Capital (BDT mn) 2,116.0

No. of Share Outstanding (in mn) 211.6

Free-float Shares (Inst.+For.+ Public) 60.1%

3 Months Avg. Daily Turnover (BDT mn) 43.6

3 Months Avg. Daily Volume 373,829

3 Months Return 3.32%

52-week price range (BDT) 96.20-122.50

Acme Laboratories Limited, one of the leading pharmaceuticals

company engaged in manufacturing and marketing of Generic

Pharmaceuticals Formulations Product both for human and

animal. Currently, the company has 22 categories with 798

different types of product. In 2015-16, the company had

launched 50 new different project in both human and veterinary

area.

Profitability of ACMELAB is likely to boost up with the

commercial operation of Steroid, Penicillin & API Project:

Currently, ACME has their three ongoing projects: Steroid

Project, Penicillin Project and API Plant. It is expected that the

company will get a huge boost in revenue after the completion

of those projects.

Steroid Project is likely boost up current revenue by 8.74%: The

project cost of Steroid Project is BDT 1,358 million. The expected

commercial date of operation is end of 2018. The steroid project

will boost up current revenue by 8.74% as per memorandum

Penicillin Project is likely to contribute more than BDT 400

million: The estimated project cost of Penicillin project is BDT

400 million as per memorandum. It is to be noted that current

penicillin project yields 400 million revenue per year. Commercial

operation of penicillin project will yield additional revenue

coming from Penicillin project.

API Project will significantly decrease the cost of production:

The Company has applied for three API plot in Munsiganj. If the

three plot is approved, commercial operation of API

manufacturing unit begin, the cost of production will decrease

and thus will increase the profitability of the company.

Besides, the management plans to undertake Oncology, Harbal

& Ayurvedic plan and Nutraceuticals project after completion of

the above mentioned three projects.

Valuation Report on ACMELAB Date: 20th July, 2017

Current Price (BDT): 118.00 Target Price (BDT): 146.81

2

Pharmaceuticals Industry Review Global Perspective Pharmaceuticals market was valued at around USD 2.8 trillion in 2014-15 and projected to grow by USD 3 trillion by 2016-17 (Source: IMS Institute for Healthcare Informatics, December 2016). From 2011-12 to 2015-16, global pharmaceutical sector experienced a compound annual growth rate of over 5%. The pharmaceutical industry is concentrated in the U.S. and Europe, and the 10 biggest drug companies are located in those regions. Currently this developed market comprises of approximately 57% of global market but the emergence of pharmerging market (consists of India, China, Brazil and Indonesia) will decrease developed countries’ market share to below 50% within 2020. Rising incomes, combined with continued low costs for medicines will drive significant increases in affordability of basic medicines in pharmerging market thus it is expected that global spending on pharmaceutical products will grow substantially.

Bangladesh Pharmaceutical Industry Overview According to Bangladesh Association of Pharmaceutical Industries (BAPI), approximately 257 licensed pharmaceutical manufacturer are operating in Bangladesh and about 150 are functional. These manufacturing companies meet around 98% of local demand. Specialized products like vaccines, anti-cancers product and hormone drugs are imported to meet the remaining 2% of demand. 80% of the drugs produced in Bangladesh are generic drug, rest of the 20% patented drugs. According to DGDA, the industry has 1,268 generics of allopathic medicine under 23,568 brand names.

Domestic market of Pharmaceutical products in Bangladesh has shown an increasing trend over the past few years and the market size is USD 1,375 million as on June 2016 (Source: Bangladesh Association of Pharmaceutical Industries). According to Bangladesh Bureau of Statistics, the industry has contributed 0.90% to the GDP. Industry insiders estimate that by the year 2020, Bangladesh Pharmaceuticals market will be USD 2500 million (Source: Acme Laboratories Limited annual report 2015-16). Pharmaceutical industry of Bangladesh is largely protected from external competition, as there is a restriction regarding import of similar drug that is manufactured locally.

Export of Pharmaceuticals Product

According to Bangladesh Association of Pharmaceutical Industries

(BAPI), approximately 1200 pharmaceutical products received

registration for export within 2015-16 and are being exported to

more than 100 countries including USA, UK, Australia and Africa.

According to Export Promotion Bureau (EPB). Bangladesh has

exported pharmaceuticals worth about USD 82.11 million in the

last fiscal year 2015-16. Bangladesh earned USD 74.85 million by

exporting pharmaceutical products from July 2016- April 2017 for

10 month period. Over the last 7 years, export revenue CAGR is

15%.

Opportunities in Global Generic Drugs Market for Bangladesh

Bangladesh offers tremendous manufacturing cost advantages due to the lower cost of labor. Major generic hubs India and China are losing cost advantages. Cost of labor in Bangladesh is 3 to 4 time lower than that of China and India. Medicine price in Bangladesh is currently among the lowest in the world. Major producer of Pharmaceuticals product India and China won’t be able to legally produce Active Pharmaceuticals Ingredients. Thus Bangladesh can export to these country easily.

Key drivers for growth of Pharmaceuticals company in Bangladesh:

1. Population growth rate: Population of Bangladesh has one of the highest growth rate in the world. This contributes to the growth of

Pharmaceuticals sector of Bangladesh.

2. Growing Income level of people: Average income level of Bangladesh has increased. Thus, people have more money to allocate for

medical expenditure.

3. Increase in modern healthcare facilities: Medical and Pharmaceutical facilities Bangladesh is adopting modern technology. This will

largely contribute to the growth of Pharmaceuticals industry of Bangladesh.

4. Health awareness of mass people: People of Bangladesh is becoming aware of health day by day. Increase awareness of health and high life expectancy will lead to the growth of pharmaceutical sector of Bangladesh.

$797 $977 $1,136 $1,206 $1,375

15.0%

22.6%

16.3%

6.2%

14.0%

5.0%

10.0%

15.0%

20.0%

25.0%

$40 0

$60 0

$80 0

$1, 000

$1, 200

$1, 400

$1, 600

2011-12 2012-13 2013-14 2014-15 2015-16

Market Size of Pharmaceuticals Product of Bangladesh and Growth (amount in US dollar million)

Local Sale YoY Growth

Source: Bangladesh Association of Pharmaceutical Industry & EBLSL Research

$44.30 $48.25 $59.82 $69.24 $72.64 $82.11 $89.82

8.05%

8.92%

23.98%

15.75%

4.91%

13.04%

9.39%

0.0 0%

5.0 0%

10. 00%

15. 00%

20. 00%

25. 00%

30. 00%

$20 .00

$30 .00

$40 .00

$50 .00

$60 .00

$70 .00

$80 .00

$90 .00

$10 0.00

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Export Revenue of Pharmaceuticals Product of Bangladesh and Growth (amount in US dollar million)

Export Growth

Source: Bangladesh Export Promotion Bureau & EBLSL Research



3

Market Position of Different Companies Pharmaceutical companies in Bangladesh usually provide branded-generic product as a result of which established brands become able to charge premium for its products. According to IMS Q1, 2017 top 10 companies hold 68.68% of Pharma market share. Companies that secured position ranging from 11th to 20th on the basis of their relative market shares hold only 17.53% market share. Top 20 companies hold 86.21% market share, leaving 13.79% market share to other existing companies (Source: IMS 2017 Q1). The Pharmaceuticals market is concentrated among few local companies only and entry barrier is higher due to large capital investment and legislative bindings. Square Pharmaceutical is the market leader having 18.06% market share followed Incepta, Beximco, Opsonin and Renata. The chart in the right side shows the current market share hold by leading pharmaceutical companies as per IMS health report for Q1, 2017. API Park: Pharmaceuticals industry of Bangladesh is depended on imported raw material for manufacturing drugs. According to International Trade Administration, about 80% of raw material is imported. Main suppliers of raw material are India, China, and Italy. Bangladesh Small and Cottage Industries Corporation (BSCIC) has begun the work of setting up Active Pharmaceuticals Ingredients (API) Park on 200 acres of land at Baushia, Gazaria, Munshigonj in 2008. The park is being built under the public-private initiative with the Bangladesh Association of Pharmaceutical Industries (BAPI). The cost of the project is USD 30 million. There will be about 42 number of plots to be set up. 32 member companies of BAPI has applied for 57 plots. All infrastructural facilities including Common Effluent Treatment Plant (CETP) and waste Dumping Yard will be available in this project. With the completion of API Park, Bangladesh will be able to decrease the cost of locally manufactured drugs and it will add to the cost advantage for exports. API can also be exported to other countries. Currently, Global API market stands at 135 billion USD. It is to be noted that major raw material supplying countries such as India and China are not legally able to produce the patented raw materials due to the WTO restriction. At the same time, The Government of Bangladesh has declared Pharmaceuticals sector as thrust sectors. This gives immense opportunity for Bangladesh to export API to these countries.

Trade Related Aspect of Intellectual Property Rights (TRIPS): Being a least-developed country, Bangladesh has been exempted from the obligations to implement patents and data protection for pharmaceutical products until January 2033 by the World Trade Organization. As a result, Bangladesh is allowed to produce any patented medicines without taking prior permission from innovator. Also, Bangladesh has the opportunity to export to any country if the medicine is not under patent.

Budgetary change for FY’18 which will affect the business operation of ACME Laboratories Limited

VAT exemption to 93 items of life saving drugs and Duty exemption facility to various raw materials used in pharmaceutical industry

will facilitate the business operation of ACME Laboratories Limited.

Duty exemption facility to various raw materials used in this industry such as API will help the company to maintain the cost of raw

material at current level.

1.17%

1.18%

1.26%

1.73%

1.74%

1.90%

1.91%

2.05%

2.15%

2.44%

3.91%

4.32%

4.40%

4.40%

4.42%

4.98%

5.57%

8.37%

10.25%

18.06%

SUN PHARMA

NUVISTA PHARMA

NOVARTIS

NOVO NORDISK

UNIMED &UNIHEALTH

POPULAR PHARMA

DRUG INTERNATIONAL

SANOFI BANGLADESH

RADIANT PHARMA

GENERAL

ACME

HEALTHCARE PHARMA

ESKAYEF

ARISTOPHARMA

A.C.I.

RENATA

OPSONIN PHARMA

BEXIMCO

INCEPTA PHARMA

SQUARE

Top 20 Companies’ Market Share

Source: IMS Health 2017 Q1 & EBLSL Research



4

Acme Laboratories Limited

ACMELAB is the manufacturer, marker and distributor of generic pharmaceuticals formulation products which includes human drugs dosages form like tablet, capsule, dry syrup, cream, ointment, power, injection, dry power inhaler, metered dosage inhaler, suppository, eye and nasal drop, liquid, liquid in hard gelatin, veterinary drugs and herbal drugs dosage.

Incorporation & Commencement of Business: ACMELAB was incorporated as a private limited company in Bangladesh in March 17, 1976. It commenced its manufacturing operation in 1983.

Listing Year: DSE & CSE: 7th June, 2016

Key Personnel: Mr. Afzalur Rahman Sinha (Chairman), Mr. Mizanur Rahman Sinha (Managing Director) Shareholding Pattern:

Sponsor/ Director

Govt Institute Foreign Public

As on May 31,2017 39.95% 0.00% 25.90% 2.35% 31.80%

As on Jan 31, 2017 40.21% 0.00% 23.98% 1.80% 34.01%

As on Dec 29, 2016 40.25% 0.00% 23.20% 1.80% 34.75%

As on June 30, 2016 38.88% 0.00% 26.54% 0.48% 34.10%

Key products: The Company has human pharmaceuticals product category as well as veterinary pharmaceuticals product. In human pharmaceuticals product area, the company has 16 categories with 600 different products and in veterinary area the company has 6 categories with 198 different product, totalling a 798 product during the period 2016-17. Monas, Fix-A, PPI are three company brand ranked within top 100 pharmaceutical brands in Bangladesh.

Plant Location: The Production facility of the Company is situated at Dhulivita, Dhamrai, Dhaka

IPO Fund Utilization Plan

Initial Plan Revised Plan

Projects Amount BDT mn Projects Amount BDT mn

Steroid 1,358 Steroid 1,358

Oncology 1,141 Penicillin 400

Ayurvedic 1,746 API Projects 890

IPO Expense 68 Loan Repayment 1,360

TOTAL 4,312 TOTAL 4,008

The company has already spent BDT 1,358 mn for steroid project and BDT 400 mn for Penicillin project as well as spent the BDT 1,360 mn to repay loan as per revised IPO plan.

Current Condition of Projects

Projects Condition Expected Completion Date

Steroid & Hormone On going Late 2018

Penicillin On going Mid 2018

API Applied for 3 Plots Yet to declare

It is to be noted that company’s current penicillin project yields about BDT 40 million turnover per year.

Future Expansion Plan: After the completion of Steroid & Hormone, Penicillin & API Project, the company wishes to undertake Oncology and Herbal & Ayurvedic projects. The estimated cost of those projects are as follows.

Project the company wants to implement in the future

Project Implementation Cost (Amount BDT mn)

Oncology project 1,141.0

Herbal & Ayurbedic Project 1,745.5

Dividend History: ACMELAB has been listed in the capital market of Bangladesh in July 2016. In the year 2015-16, the company declared 35% cash dividend.



5

Investment Insight Company Positive

Once the Steroid and Penicillin project are implemented (Expected project completion date by December- 2018), the company might have a huge boost in its financials. The market of these products seems to be quite promising.

Steroid project of ACMELAB is expected to go on operation by late-2018. It is expected that this project will yield 20% of additional revenue.

ACMELAB is relocating their penicillin project by using BDT 400 mn from IPO proceeds as per regulation by Drug Administration. Approximate payback period of the project is 1 year and company expects to get foreign accreditation after the completion of the project. It is to be noted that current revenue generated from penicillin project is 400 mn. Commercial operation will yield 10% additional revenue from this project.

Company has applied for three (03) plots in API Park in Gazaria, Munshigonj. Allocation of API plot will enable ACMELAB to produce the API as required by Pharmaceuticals markets. It is expected that the cost of raw material will decrease when the operation of API Park initiates.

The company launched 20 new products in Human Product category and 30 new products in veterinary category during the period 2016-17. This new product is expected to generate additional profit for the company.

According to IMS Q1, 2017 report, ACMELAB holds the 10th position in the pharmaceutical market with a market share of 3.97%, which was 3.70% in 2014. ACME has 3 block blaster drugs (Monas, Fix-A, PPI) ranked within top 100 brands and generate significant amount of profit for the company.

NPAT & EPS shows an upward trend over the years. ACME seems to have good control over its COGS as it successfully retained COGS at ≈61% of its total sales for the last three years. Besides administrative costs stood at ≈3% of sales and selling and distribution costs were ≈12% of sales for the last five years.

Investment Concern

D/E ratio is high compared to peer companies. In 2016-17 as per Q3 statement, ACME D/E ratio was 57%and 39.43% of Operating Profit was used to pay Financial Expenses during the period. ACME has outstanding Loan (Short Term and Long Term) amounting BDT 9,580 million in 2016-17 as per their Q3 financial statement.

ACME has a lower net profit margin compared with other Pharmaceutical companies. This might be due to higher financial expenses of the company. The NOCF per share has been fluctuating over the years. Revenue growth reveals a decreasing trend so did net profit margin.

ACME imports API for their regular operation. At the same time, the company is in need of importing machinery for steroid, hormone and penicillin project. If the company gets 3 API plot, they will have to purchase more machinery from abroad. Dependence on imported raw materials and machinery increases the foreign exchange risk for the company.

Investment Thesis Assumption for DCF Valuations

Revenue: Acme lab’s average historical revenue growth was 14.12%. With the completion of steroid project the revenue will boost up.

The Steroid & Penicillin project is likely to go on operation by 2018. The pharmaceuticals industry of Bangladesh has experienced a

growth of CAGR 15% for the last 5 years. Operating in this industry we expect that the company will grow with the growth of the industry.

Considering the Steroid and Penicillin Project commercial operation by 2018, we assume the growth rate of revenue will be 15% onward

for the next five years.

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

17.90% 13.92% 10.53% 10.50% 10.68% 15.37% 15.27% 15.11%

Cost of Goods Sold: For the last four year, cost of goods sold has been consecutively 65.25%, 61.05%, 62.58%, and 61.45% of Total Sales.

The Cost of Goods Sold is decreasing year by year. Management states that they are achieving economy of scales and the cost of goods

sold will decrease. At the same time, with the commercial operation of manufacturing unit of API Park, the cost of cost of goods sold is

likely to go down. But API plots have not yet been allocated and expected commercial operation of manufacturing unit of API Park after

allocation of plot is unknown. Considering this situation, the projected cost of goods sold for forecasted year is 61.30%.

Selling & Distribution Expenses: Historical four year’s selling & distribution expense was 14.08% of sales. Selling & Distribution Expense

has stood closely to this rate over the four years period. Assuming the company will maintain its efficiency the selling & distribution

expense is expected to be 14.08% of sales.

Administrative Expenses: For the last four year, administrative expense has been consecutively 5.66%, 5.35%, 3.37%, and 3.90% of Total

Sales. Last two years administrative expense has been improved. Considering that the company will maintain this level, the

administrative expense has been assumed as 4% of revenue for the forecasted year.

Other Income: For the last two year, other income shows that it has been about 0.36% of total sales for the last four years. This rate has

been maintained for the projected five years.



6

Contribution to WPPF: Historical contribution to WPPF has been 4.67% of total sales. Considering this rate, forecasted contribution to

WPPF has been 4.70% of total sales for the next five year.

Capital Expenditure: The construction of Steroid and Penicillin Project is ongoing. The expected cost of those project BTD 1,358 and BDT

400 million consecutively. Considering this the expected capital expenditure for year 2016-17 and 2017-18 is BTD 1.6 billion and BDT 1.7

billion. After this the company will go back to its usual capital expenditure and the capital expenditure for year 2018-19 will be BDT 300

million only.

Attractive Value both on DCF and Relative Valuation matrices Discounted Cash Flow Valuation: Our DCF analysis with a discount rate of 10.7% & terminal growth rate of 4.0% gives us Net Present Value (PV) of Free Cash Flow to Firm (FCFF) of BDT 37.46 billion as of June, 2017. The fair value using DCF method stands at BDT 136.57 per share for the company, which implies an upside of 15.73% from current market price.

We have also checked the sensitivity analysis of DCF value per share on discount rate and terminal growth rate.

Relative Valuation Method: Attractive Valuation is derived based on relative valuation methodologies calculated over 2017 EPS estimates and industry multiples.

Relative Valuation

Particulars Multiple Expected EPS Valuation

Peers Forward P/E 28.33 5.80 164.30

Sector Forward P/E 19.90 5.80 115.42

Multiple NAVPS on June 2016 Valuation

Peers P/NAVPS 2.41 79.38 191.47

Average price per share 157.06

(Figures in BDT million) 2016-17 2017-18 2018-19 2019-20 2020-21 Terminal

Profit for the Year 1,227 1,426 1,842 2,234 2,736

Add: After Tax Interest Expenses 927 903 924 981 1,062

Add: Depreciation & Amortization 763 253 250 249 249

Less: Investment in NWC -567 -1,575 692 608 784

Less: Capital Expenditures 1,609 1,689 300 345 400

Free Cash Flow to the Firm 1,875 2,468 2,025 2,511 2,862 44,707

Enterprise Value 37,461

Plus: Cash & cash equivalent 1,322

Less: Interest Debt 9,886

Equity Value 28,898

No. of Share Outstanding 211.6

Value per Share (BDT) 136.57

Sensitivity Analysis

Discount Rates

Term

inal

Gro

wth

163.1 9.0% 9.5% 10.4% 10.5% 10.7% 11.0% 11.5% 12.0%

3.50% 177.3 158.9 132.0 129.9 126.0 118.3 108.2 99.3

4.00% 196.3 174.5 143.3 140.9 136.5 127.8 116.3 106.4

5.00% 248.5 216.1 172.2 169.0 163.0 151.3 136.4 123.5

5.00% 248.5 216.1 172.2 169.0 163.0 151.3 136.4 123.5

5.50% 285.8 244.7 191.0 187.2 180.1 166.3 148.9 134.1

6.00% 335.6 281.5 214.1 209.5 200.8 184.3 163.6 146.5



7

Calculation of Peer Forward PE(x) and P/NAVPS(x) multiple

P/E P/NAVPS

ACTIVEFINE 15.15 2.19

CENTRAL 21.74 1.88

BECONPHARMA 64.44 1.82

BXPHARMA 21.27 1.89

SQURPHARMA 19.04 4.28

Average 28.33 2.41

P/E and P/NAVPS is based on 20th July 2017

Determination of Target Price We recommend 50% weight on the value that we derived from DCF valuation and 50% weight on the relative value derived from average relative price-earning based valuation and price to book value based valuation and sector Forward P/E valuation. Based on the weighted average of the DCF and relative valuation we get a target price of BDT 146.81 for the company.

At current market price, ACME’s shares have a P/E multiple of 16.02x for 2016-17 Q3 annualized earnings. With our recommended target price the stock gives a total of 24.42% expected capital gain with an expected dividend yield of 2.97% i.e. total 1 year return of 27.39%. We therefore state an ‘Overweight’ rating on the ACME’s stock at its prevailing price level.

STOCK RATING DEFINITION

Overweight: Expected to outperform the broader market averages;

Market weight: Expected to equal performance of broader market averages;

Underweight: expected to underperform broader market averages.

Not-Rated: Currently the analyst does not have adequate conviction about the stock's total return relative to the broader market average

Valuation Methods Estimated Value Weights

Discounted Cash Flow (FCFF)- Fair value 136.57 50%

Price/Earnings Multiple 157.06 50%

Weighted Average Price Per Share 146.81 100%

Current Price 118.00 Target Price 146.81 Expected Capital Gain 24.42% Expected Dividend Yield 2.97% Total 1 Year Return 27.39%



8

Statement of Comprehensive Income

Amount in BDT million (Except Otherwise Stated)

Particulars 2013-14 2014-15 2015-16 2016-2017 2017-18 2018-19

Gross Turnover 11,566 13,175 14,562 16,091 17,810 20,548

Less: Value Added Tax 1,348 1,679 1,917 2,172 2,404 2,774

Net Turnover 10,218 11,496 12,645 13,919 15,406 17,774

Cost of Goods Sold 6,238 7,195 7,771 8,532 9,444 10,842

GROSS PROFIT 3,980 4,301 4,874 5,387 5,962 6,932

Total Operating Income 3,980 4,301 4,874 5,387 5,962 6,932

Operating Expenses: 2,046 1,943 2,332 2,516 2,785 3,213

Selling and Distribution Expenses 1,500 1,556 1,838 1,959 2,169 2,502

Administrative Expenses 546 387 494 557 616 711

PROFIT FROM OPERATIONS 1,934 2,358 2,542 2,870 3,177 3,719

Financial Expenses 777 983 1,116 1,202 1,236 1,203

Other Non-Operating Income 108 41 46 50 56 64

PROFIT BEFORE WPPF 1,265 1,417 1,472 1,718 1,997 2,579

Allocation for WPPF 60 67 70 82 95 123

PROFIT BEFORE TAX 1,205 1,349 1,402 1,636 1,902 2,457

Provision for Income Tax 427 311 312 409 475 614

Provision for Deferred Income Tax (116) 117 (12) - - -

PROFIT AFTER TAX FOR THE YEAR 894 922 1,101 1,227 1,426 1,842

Other comprehensive income/(loss) - 1 - - - -

Total Comprehensive Income for the Year 894 923 1,102 1,227 1,426 1,842

EPS (BDT) 4.2 4.4 5.2 5.8 6.7 8.3

No. of Share Outstanding 212 212 212 212 212 212



9

Statement of Financial Position

Amount in BDT million (Except Otherwise Stated)

Particulars 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

ASSETS

Non-Current Assets 15,545 16,061 17,286 17,989 18,916 17,989

Property, Plant and Equipment- 15,512 16,027 17,240 17,931 18,858 17,931

Investment - Long Term (at Cost) 26 26 26 26 26 26

Investment in Marketable

Securities (Fair Value)

6 7 20 32 32 32

Current Assets: 6,635 7,199 11,603 11,313 10,056 11,313

Inventories 2,223 2,485 2,750 3,079 3,408 3,079

Accounts Receivables 645 730 892 1,009 1,086 1,009

Other Debtor 75 41 7 97 108 97

Advances, Deposits and

Prepayments

1,097 986 1,034 1,350 1,494 1,350

Advance Income Tax 1,334 1,821 1,843 2,065 2,065 2,065

Investment in FDR 553 419 3,575 2,000 - 2,000

Material in transit 294 286 354 390 431 390

Cash and Cash Equivalents 413 432 1,148 1,322 1,464 1,322

TOTAL ASSETS 22,180 23,260 28,890 29,302 28,972 29,302

SHAREHOLDERS' EQUITY AND

LIABILITIES

Shareholders' Equity 10,692 11,373 16,364 16,797 17,483 16,797

Share Capital 1,616 1,616 2,116 2,116 2,116 2,116

Share Premium 1,605 1,605 5,128 5,128 5,128 5,128

Revaluation Reserve 1,949 5,320 5,643 - - -

Tax Holiday Reserve 91 140 172 - - -

Retained Earnings 5,430 2,690 3,303 5,579 5,579 5,579

Gain on Marketable Securities 1 2 2 179 179 179

Non-Current Liabilities: 3,058 4,905 3,958 3,793 3,441 3,793

Long Term Loans - Secured 3,018 4,721 3,638 3,438 3,048 3,438

Net defined benefit plans 30 58 206 230 254 230

Deferred Tax Liability 9 126 114 125 139 125

Current Liabilities: 8,430 6,982 8,567 8,712 8,048 8,712

Bank Overdraft 4,874 3,100 4,710 5,142 4,372 5,142

Long Term Loans - Current Portion 1,015 1,609 1,695 1,306 1,234 1,306

Trade Creditors 528 432 391 431 478 431

Liabilities for other Finance 160 133 166 188 208 188

Current Tax Liabilities 1,246 1,556 1,543 1,611 1,722 1,611

Unclaimed Dividend 607 152 62 34 34 34

TOTAL SHAREHOLDERS' EQUITY

AND LIABILITIES

22,180 23,260 28,890 29,302 28,972 29,302

Net Asset Value per share (BDT) 50.5 53.7 77.3 79.38 82.62 87.83



10

Ratio Analysis

Particulars 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Liquidity Ratios:

Current Ratio 0.79 1.03 1.35 1.30 1.25 1.24

Quick Ratio 0.52 0.68 1.03 0.95 0.83 0.81

Cash Ratio 0.05 0.06 0.13 0.15 0.18 0.19

Op. Efficiency Ratios

Inventory Turnover Ratio 4.65 4.88 4.83 4.78 4.75 4.84

Receivable Turnover Ratio 18.31 16.73 15.60 14.64 14.71 15.20

Avg. Collection Period (Days) 19.00 21.00 23.00 24.50 24.40 23.00

Inventory conversion Period 77.38 73.71 74.51 75.37 75.79 74.33

Operating Cycle (Days) 97.00 95.00 97.00 99.00 100.00 98.00

A/C Payable Turn. ratio 12.05 14.98 18.88 20.75 20.78 21.08

Payables Pmt. Period (Days) 29.00 24.00 19.00 17.00 17.00 17.00

Cash Conversion Cycle (Days) 67.00 71.00 78.00 82.00 82.00 80.00

Total Asset Turnover 48.41% 50.60% 48.49% 47.84% 52.87% 60.03%

Fixed Asset Turnover

71.59% 72.90% 76.02% 79.15% 83.75% 94.13%

Operating Profitability Ratios

Gross Profit Margin 38.95% 37.42% 38.55% 38.70% 38.70% 39.00%

Operating Profit Margin 18.93% 20.51% 20.11% 20.62% 20.62% 20.92%

Pre Tax Profit Margin 11.79% 11.74% 11.09% 11.76% 12.34% 13.82%

Net Profit Margin 8.75% 8.02% 8.71% 8.82% 9.26% 10.37%

Return on Total Assets 4.23% 4.06% 4.22% 4.22% 4.89% 6.22%

Return on Equity 8.26% 8.36% 7.94% 7.40% 8.32% 10.22%

Leverage Ratios

Total Debt to Equity 83.3% 82.9% 61.4% 58.9% 49.5% 45.5%

Debt to Total Assets 40.2% 40.5% 34.8% 33.7% 29.9% 28.0%

Times Interest Earned (TIE) 2.49 2.40 2.28 2.39 2.57 3.09

Valuation Ratios

P/B (price to book) Ratio - 2.16 1.50 1.46 1.40 1.32

Book Value Per Share 50.53 53.75 77.34 79.38 82.62 87.83

EPS 4.22 4.36 5.20 5.80 6.74 8.71

Dividend per Share - - 3.50 3.50 3.50 3.50

Dividend Payout Ratio - - 67.25% 60.35% 51.93% 40.20%

Retention Rate 100% 100% 32.75% 39.65% 48.07% 59.80%

P/E Ratio - 26.60 22.27 19.98 17.20 13.31

EV/EBITDA 1.92 11.66 8.87 8.74 8.05 7.88

EV/Sales 0.83 2.92 2.64 2.38 2.06 1.76

Price/Sales 0.00 2.13 1.94 1.76 1.59 1.38

Sales/ Share 48.29 54.33 59.76 65.78 72.81 84.00

Growth Rates

EPS Growth Rate 67.55% 3.14% 19.45% 11.44% 16.21% 29.19%

Sales Growth Rate 4.17% 12.51% 9.99% 10.07% 10.68% 15.37%

Gross Profit Growth Rate 16.82% 8.07% 13.32% 10.07% 10.68% 15.37%



11

EBIT Growth Rate 27.10% 21.94% 7.80% 10.51% 10.68% 16.27%

Net Income Growth Rate 67.55% 3.14% 19.45% 12.90% 10.68% 17.05%

Total Asset Growth Rate 10.70% 4.87% 24.20% 11.44% 16.21% 29.19%

Extended DUPONT ANALYSIS

Net Profit/Pretax Profit 74.19% 68.32% 78.54% 75.00% 75.00% 75.00%

Pretax Profit/EBIT 62.30% 57.22% 55.15% 57.01% 59.85% 66.06%

EBIT/Sales 18.93% 20.51% 20.11% 20.62% 20.62% 20.92%

Sales/Assets 48.41% 50.60% 48.49% 47.84% 52.87% 60.03%

Assets/Equity 1.95 2.06 1.88 1.75 1.70 1.64

ROE 8.26% 8.36% 7.94% 7.40% 8.32% 9.78%



12

DISCLAIMER This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients residing both in Bangladesh and abroad, 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 taken as an offer or solicitation to buy or sell or subscribe to any security. Neither EBLSL 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. EBLSL will not take any responsibility for any decisions made by investors based on the information herein.

ANALYST DISCLAIMER The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal views about the subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. The views of the author(s) do not necessarily reflect the views of the EBL Securities Limited (EBLSL) and are subject to change without any notice. All reasonable care has been taken to ensure the accuracy of the contents of this document and the author(s) will not take any responsibility for any decisions made by investors based on the information herein.

ABOUT EBL SECURITIES LTD. EBL Securities Ltd. (EBLSL) is one of the fastest growing full-service brokerage companies in Bangladesh and a fully owned subsidiary of Eastern Bank Limited. EBLSL is also one of the top ten leading stock brokerage houses of the country. EBL Securities Limited is the TREC-holder of both exchanges of the country; DSE (TREC# 026) and CSE (TREC# 021). EBLSL takes pride in its strong commitment towards excellent client services and the development of the Bangladesh capital markets. EBLSL has developed a disciplined approach towards providing capital market services, including securities trading, margin loan facilities, depository services, online trading facilities, panel brokerage services, trading through NITA for foreign investors & NRBs etc.

EBLSL KEY MANAGEMENT

Md. Sayadur Rahman Managing Director [email protected]

Md. Humayan Kabir SVP & Chief Operating Officer (COO) [email protected]

EBLSL RESEARCH TEAM

M. Shahryar Faiz FAVP & Head of Research [email protected]

Md. Asrarul Haque Senior Officer-Research [email protected]

Mohammad Rehan Kabir Officer-Research [email protected]

Tajkera Rahman Officer-Research [email protected]

Md. Nazmus Sakib Officer-Research [email protected]

Md. Mosavvir Al Ashick Officer-Research [email protected]

Asaduzzaman Ashik Officer-Research [email protected] Farzana Hossain Laizu Assistant Officer- Research [email protected]

For any queries regarding this report: [email protected]

EBLSL BRANCHES

Head office: HO Extension-1 HO Extension-2 Dhanmondi Branch Chittagong Branch

59, Motijheel C/A (1st Floor) Dhaka-1000 +8802 7119631, 9556539 +8802 47111935; FAX: +8802 47112944 [email protected]

Modhumita Building 160 Motijheel C/A (2nd Floor) Dhaka-1000. +88 02 9569480, 9564393, +88 02 8825236 FAX: +8802 47112944 [email protected]

Bangladesh Sipping corporation (BSC) Tower 2-3, Rajuk Avenue (4th floor), Motijheel, Dhaka-1000 +880257160801-4

Sima Blossom (4th Floor) House # 390 (Old), 3 (New), Road # 27 (Old), 16 (New), Dhanmondi R/A, Dhaka-1209. +8802-9130268, +8802-9130294

Suraiya Mansion (2nd Floor); 30, Agrabad C/A Chittagong-4100 +031 2522041-43

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equity valuation report - ebl securities ltd. price range (bdt) 96.20-122.50 acme laboratories...

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