- 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: research@ilslbd.com
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