Equity Note on Linde Bangladesh Limited

Equity Note on Linde Bangladesh Limited Date: October 15, 2020

Current Price (BDT): 1,230.00 Resistance:1,295

Support:1,212

MFI: 95.51

RSI:42.07

1

EBL Securities Limited Research

Company Overview: Linde Bangladesh Ltd. is engaged in producing and supplying different types of industrial and medical gases, welding products and equipment and ancillary equipment. Company Profile:

Incorporation: 1973

Commercial Operation: 1976

Key Personnel: Ayub Quadri (Chairman), Mr. Sujeet Kumar Pai (Managing Director).

Number of Employees: 296

Plant Location: Tejgaon (Dhaka), Shitalpur (Chittagong),

Rupgonj (Narayanganj).

Business Profile: LINDEBD operates its business in three segments- bulk gases, packaged gas and products (PG&P) and healthcare. Growth in shipbuilding, steel and healthcare industries are some of the major drivers of growth in LINDEBD’s business. LINDEBD has developed bulk scheduling and delivery notification system to provide efficient and safe deliveries. Merger of Linde AG and Praxair: Linde AG, Germany and Praxair Inc., USA was merged on 31 October, 2018. A new company named Linde plc has been incorporated in Ireland as a consequence of the merger between Linde AG and Praxair Inc. As such, Linde plc is now the new ultimate holding Company of Linde Bangladesh Limited. Revenue Composition:

Revenue Segments

2018 2019

Amount (mn) %

Amount (mn)

%

ASU gases (M3)

(

949 17.38% 1,157 20.35%

Dissolved

acetylene (M.

Ton)

118 2.17% 99 1.74%

Electrodes (M3) 3,657 66.98% 3,768 66.30%

Others 736 13.48% 660 11.61%

Total 5,460 100% 5,683 100%

Capacity Utilization Matrix: ASU GASES (‘000 M3):

Particulars 2017 2018

2019

ASU

GASES

Carbon

Di Oxide

(M. Ton)

Capacity 30,200 43,100 35,018 10,585

Actual Production 11,903 20,542 25,269 4,626

Utilization % 39.4% 47.7% 72.2% 43.7%

Dissolved acetylene (‘000 M3): Particulars 2017 2018 2019

Capacity 1,150 1,150 300

Actual Production 214 188 174

Utilization % 18.6% 16.3% 58.0%

Electrodes (M. Ton): Particulars 2017 2018 2019

Capacity 31 31 31

Actual Production 25 26 25

Utilization % 81.2% 84.4% 81.2%

IPO Information

Market Cap (BDT mn) 18,910.2

Equity Market Weight 0.47%

Paid-up Capital (BDT mn) 152.2

Authorized Capital (BDT mn) 200.0

No. of Share Outstanding (in mn) 15.2

Free-float Shares (Inst.+For.+Public) (in mn) 6.1

3 Months Avg. Turnover (BDT mn) 18.33

3 Months Return -1.38%

52-week price range (BDT) 1137.0-1390.0

Sector Forward P/E 13.31

Market Forward P/E 15.35

2017 2018 2019 2020(6m

An”)

Financial Information (BDT mn):

Net Sales 4,942 5,460 5,683 4,016

Gross Profit 2,310 2,283 2,513 1,840

Operating Profit 1,357 1,407 1,676 1,018

Profit After Tax 953 1,004 1,231 766

Assets 5,945 6,849 7,652 7,852

Debt - - - -

Equity 3,676 4,472 5,108 5,446

Retained Earnings 3,523 4,304 4,985 5,323

Cash & Cash Eqiv. 1,132 1,604 1,005 1,654

Margin:

Gross Profit 46.7% 41.8% 44.2% 45.8%

Operating Profit 27.5% 25.8% 29.5% 25.3%

Pretax Profit 26.4% 25.0% 29.2% 25.9%

Net Profit 19.3% 18.4% 21.7% 19.1%

Growth (YoY):

Sales 15.7% 10.5% 4.1% -29.3%

Gross Profit 16.6% -1.1% 10.0% -26.8%

Operating Profit 15.9% 1.0% 8.5% -59.0%

Net Profit 8.1% 5.4% 22.7% -37.8%

Profitability:

ROA 16.7% 15.7% 17.0% 9.9%

ROE 27.8% 24.6% 25.7% 14.5%

Leverage:

Debt Ratio 0.0% 0.0% 0.0% 0.0%

Debt-Equity - - - -

Interest Coverage - - - -

Valuation:

EPS (BDT) 62.60 65.95 80.92 50.32

NAVPS (BDT) 241.5 293.9 335.7 357.9

P/E (x) 20.5 18.2 16.1 24.4

P/NAV (x) 5.3 4.1 3.9 3.44

Dividend (C/B) 340%/0%

375% /0%

500%/ 0%

n/a



Support:1,212

MFI: 95.51

RSI:42.07

2


Shareholding Structure:

Industry Overview Linde Bangladesh Ltd. supplies its products (liquefied gases, its solutions and equipment) to a number of industries like healthcare (Pharmaceuticals), Food and Beverage, Shipbuilding and ship recycling industry and construction etc. LINDEBD’s business is correlated with growth/de-growth in these industries.

About 257 licensed manufacturers of pharmaceutical products are operating in Bangladesh. Pharmaceutical industry’s CAGR for the last 5 years is 15.6%. Market size of pharmaceutical products of Bangladesh is BDT 205.12 bn. The market is expected to grow by 15% and reach a total size of $5.11 billion by 2023. Domestic players of this industry meet 98% of local demand and some specialized products are imported to meet the remaining 2% demand in the industry. About 1200 pharmaceutical products are being exported from Bangladesh and the major exporting destinations are India, Sri Lanka, Germany, USA, France, Italy, UK, Canada etc. Bangladesh has exported pharmaceutical products worth USD 129.95 mn in 2018-19 and USD 135.79 million in 2019-20. (Source: EPB).

There are more than 100 shipbuilding yards in Bangladesh which are mainly engaged in building and repairing inland and coastal vessels, up to 12,000 DWT (Dead Weight Tonnage). Bangladesh has a coastal line of 710 km, a sea boundary of 1,18,813 sq. km, 700 rivers and 24,000 km of waterway. At present 10,000 inland and coastal ships and 36 foreign going ships are plying all over the country, which carry more than 90% of total oil product, 70% of cargo and 35% of passengers. Bangladesh first started its export of ship in 2008 and within these last eight years, Bangladesh has emerged as one of the top small scale shipbuilding nation. Bangladeshi ship builders meet country’s internal demand for ships worth BDT 40 billion per year. Around 10 companies are exporting ship currently among which Western Marine and Ananda Shipyards are the largest player. Western marine shipyard and Ananda Shipyard has exported 40 small and medium size vessels worth $170 million to 14 countries from 2009 to 2017. Western marine shipyard is the major contributor with total export earnings of $150 million in this period.

In Bangladesh, urban population is showing positive growth over years which is stimulating the growth of construction sector and the real estate sector of Bangladesh. Urban population (%) of Bangaldesh has increased from 29.71% in 2009 to 37.41% in 2019. Real estate sectors contribution to the 2019-20 provisional GDP was 6.09%. Bangladesh Govt. has undertaken different large scale development projects in recent periods. Along with this, private sector investment is also growing which is boosting up the need for infrastructure and thus increasing the construction activities in Bangladesh. In 2019-20, contribution of construction sector in the provisional

GDP was 7.89%. Contribution of construction sector in GDP over years is showing a positive trend. The growth in construction sector both from private and public investment is conducive for the steel industry of Bangladesh.

Investment Insight

Investment Positive In 2019, LINDEBD has opened a 36 TPD new Carbon-

dioxide plant. In 2017, the company had set up the 100 TPD Rupganj ASU plant. As a result of these plants, the production capacity of ASU gases has almost tripled from the existing production capacity. Revenue from ASU gas has also been enjoying double digit growth with 2019 enjoying the highest growth rate of last 5 years. In 2020, LINDEBD can be expected to have a negative growth rate due to decreased industrial activities for COVID-19. However, from FY’21, the growth rate can be expected to return in its double digit rate.

As a result of the new ASU plant, LINDEBD no longer requires to import liquid oxygen and nitrogen. LINDEBD’s profitability can also be expected to increase due to this reason. LINDEBD has made further BDT 300 million investment in building 2*5 MW captive generator which has started functioning from 2019. This investment will have further positive impact on the profitability of LINDEBD going forward as the COGS and operating expense will decrease further.

In 2019, as a result of lower consumption quantity of Calcium Carbide and Blended Powder and lower cost per quantity in Wire, the COGS (%) has come down by 2.39% to 55.79%.

LINDEBD Ltd. is a zero leverage company. There is no short term or long term debt in its capital structure. All capital investments have been incurred from company’s own resources. As a result, LINDEBD has no financial risk and interest cost doesn’t create a large gap between EBIT and EBT.

The company offers handsome amount of cash dividend to its shareholders. LINDEBD has increased dividend percentage and payout ratio alongside increases in the EPS. LINDEBD’s dividend payout ratio was 61.79% in 2019 which was 53.54% in 2016. Dividend yield has also increased from 2.39% in 2016 to 3.85% in 2019.

LINDEBD currently has negative Cash Conversion cycle which indicates efficient working capital management and as a result LINDEBD does not have any issue in financing its short term working capital need.

Investment Concern

COVID-19 has slowed down economic activity by a large extent and as a result Bangladesh’s GDP growth in 2019-20 (5.24%) has slowed down compared to 2018-19 (8.15%). As LINDEBD’s business are tied to growth in other industries, both top line (56.62% de growth) and bottom line (74.09% degrowth) of LINDEBD have been impacted adversely in the 2nd quarter of 2019-20.

The company is facing low demand for its dissolved acetylene gas (colorless gas used in fuel and chemical building block). As a result, both total production (39.16% decrease in 2019 from 2014) and revenue contribution (36.39% decrease in 2019 from 2014) have been decreasing for last few years.

As on Sponsor/ Director

Institutions Foreign Public

Sep, 2020 60.00% 30.60% 0.00% 9.40%

Aug, 2020 60.00% 29.80% 0.00% 10.20%

Dec, 2019 60.00% 29.40% 0.00% 10.60%

Dec, 2018 60.00% 29.90% 0.00% 10.10%

Dec, 2017 60.00% 29.20% 0.00% 10.80%



Support:1,212

MFI: 95.51

RSI:42.07

3


LINDEBD’s business growth is inherently related to its customers’ industries’ growth and overall macroeconomic growth. Any volatility in macroeconomic and private sector growth will directly impact LINDEBD’s business.

Proliferation of Chinese import and lower cost local manufacturers of electrode present significant challenges in the growth of electrode business growing forward.

Recent Financial Performance The Company has reported Net profit after tax BDT 72.93 mn, and BDT 4.79 EPS for the first 6 months ended on June 20, 2020 compared to NPAT 281.41 million and BDT 18.49 EPS for the same period in the previous year. Besides, Net Asset Value per share was BDT 357.85 as on Jun 30, 2020 compared to BDT 258.52 as on December 31, 2019. LINDEBD has recommended 500% cash dividend for the year ended on December 31, 2019.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2016 2017 2018 2019 2020 6M An'

Profitability Margins of LINDEBD

GP Margin OP Margin PBT Margin NPAT Margin

57.90

62.60 65.95

80.92

50.32

0.50

10.50

20.50

30.50

40.50

50.50

60.50

70.50

80.50

90.50

2016 2017 2018 2019 2020 6M An'

Five Year's EPS (BDT)

310%310% 340%

375%

500%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

550%

2015 2016 2017 2018 2019

Five Year's Cash Dividend

0

20000

40000

60000

80000

100000

120000

140000

1000

1050

1100

1150

1200

1250

1300

1350

1400

Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20

Price Volume Movement of LINDEBD

VOLUME CLOSEP*

13.68

21.73

18.26 18.49 19.25

24.92

20.36

4.8

2018 Q3' 2018 Q4' 2019 Q1' 2019 Q2' 2019 Q3' 2019 Q4' 2020 Q1' 2020 Q2'

Last Eight Quarter's EPS (BDT)



Support:1,212

MFI: 95.51

RSI:42.07

4


STATEMENT OF COMPREHENSIVE INCOME (IN BDT)

Particulars Year 2016 Year 2017 Year 2018 Year 2019 Year 2020 6M An'

Net Turnover 4,270,585,000 4,941,799,000 5,460,190,000 5,683,441,000 4,015,924,000

Cost of Goods Sold 2,290,426,000 2,632,227,000 3,177,097,000 3,170,929,000 2,176,142,000

GROSS PROFIT 1,980,159,000 2,309,572,000 2,283,093,000 2,512,512,000 1,839,782,000

Other Operating Income -3,085,000 (18,847,000) 30,539,000 (2,954,000) (810,384,000)

OPERATING Income 1,977,074,000 2,290,725,000 2,313,632,000 2,509,558,000 1,029,398,000

Operating Expenses 743,510,000 933,955,000 906,805,000 833,774,000 11,436,000

PROFIT FROM OPERATIONS 1,233,564,000 1,356,770,000 1,406,827,000 1,675,784,000 1,017,962,000

Interest Income 19,833,000 16,009,000 29,335,000 72,474,000 78,024,000

PROFIT BEFORE WPPF 1,253,397,000 1,372,779,000 1,436,162,000 1,748,258,000 1,095,986,000

Allocation for WPPF 62,675,000 68,645,000 71,814,000 87,420,000 54,800,000

PROFIT BEFORE TAX 1,190,722,000 1,304,134,000 1,364,348,000 1,660,838,000 1,041,186,000

Provision for Income Tax 309,634,000 351,522,000 360,700,000 429,401,000 275,544,000

PROFIT AFTER TAX FOR THE

YEAR

881,088,000 952,612,000 1,003,648,000 1,231,437,000 765,642,000

EPS 57.90 62.60 65.95 80.92 50.32



Support:1,212

MFI: 95.51

RSI:42.07

5


STATEMENT OF FINANCIAL POSITION (IN BDT)

Particulars Year 2016 Year 2017 Year 2018 Year 2019 Year 2020

Non-Current Assets: 2,644,737,000 3,317,837,000 3,547,974,000 3,732,686,000 3,629,471,000

Property, Plant and Equipment-Carrying Value

2,543,935,000 3,218,638,000 3,445,462,000 3,617,639,000 3,520,420,000

Intangible assets 26,412,000 18,699,000 11,755,000 5,295,000 1,907,000

Investement in subsidiary 40,000

Advance, Deposit & Prepayments

74,390,000 80,500,000 90,757,000 109,752,000 107,104,000

Current Assets: 2,835,149,000 2,626,970,000 3,301,253,000 3,919,018,000 4,222,211,000

Inventories 728,622,000 683,575,000 842,895,000 831,800,000 1,110,264,000

Trade Debtors 487,824,000 608,505,000 618,969,000 714,085,000 612,675,000

Advances,Deposits and Prepayments

217,181,000 180,886,000 224,415,000 123,868,000 142,914,000

Current Tax Assets 11,113,000

Investmetnt 10,299,000 10,535,000 10,753,000 1,244,619,000 702,274,000

Cash and Cash Equivalents 1391223000 1,132,356,000 1,604,221,000 1,004,646,000 1,654,084,000

TOTAL ASSETS 5,479,886,000 5,944,807,000 6,849,227,000 7,651,704,000 7,851,682,000

Shareholders' Equity: 3,184,899,000 3,675,659,000 4,472,404,000 5,108,270,700 5,445,876,000

Share Capital 152,183,000 152,183,000 152,183,000 152,183,000 152,183,000

General Reserves 3,032,714,000 3,523,474,000 4,304,151,000 4,984,999,000 5,322,605,000

Other Component of Equity

-28,911,000 -28,912,000

Non-Controlling Interest 2,000 2,000 16,070,000 -300

Non-Current Liabilities: 470,644,000 696,012,000 731,028,000 795,676,000 806,770,000

Employee benefits 139,007,000 161,342,000 155,465,000 166,963,000 167,236,000

Deferred Tax Liability 115,776,000 299,171,000 327,328,000 374,931,000 376,906,000

Other Non-Current Liabilities

215,861,000 235,499,000 248,235,000 253,782,000 262,628,000

Current Liabilities: 1,824,343,000 1,573,136,000 1,645,795,000 1,747,757,000 1,599,036,000

Accounts Payable 1,469,399,000 1,411,322,000 1,413,511,000 1,364,789,000 1,397,474,000

Current tax liabilities 218,589,000 86,267,000 166,726,000 86,975,000

Provision for Expenses 136,355,000 161,814,000 146,017,000 216,242,000 114,587,000

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES

5,479,886,000 5,944,807,000 6,849,227,000 7,651,703,700 7,851,682,000

Net Asset Value (NAV) per share

209.28 241.53 293.88 335.67 357.85

NAV RR Adjusted 209.28 241.53 293.88 335.67 357.85

No. of Share Outstanding 15,218,300 15,218,300 15,218,300 15,218,300 15,218,300

*2020 data are as on 30th June, 2020.



Support:1,212

MFI: 95.51

RSI:42.07

6


RATIO ANALYSIS

Particulars Year 2016 Year 2017 Year 2018 Year 2019 Year 2020

Liquidity Ratios

Current Ratio 1.55 1.67 2.01 2.24 2.64

Quick Ratio 1.15 1.24 1.49 1.77 1.95

Cash Ratio 0.76 0.72 0.97 0.57 1.03

Operating Efficiency Ratios

Inventory Turnover Ratio 3.32 3.73 4.16 3.79 2.24

Receivable Turnover Ratio 9.25 9.02 8.90 8.53 6.05

Avg. Collection Period (Days) 38.91 39.93 40.46 42.22 59.47

Inventory Conversion Period(Days)

108.54 96.57 86.48 95.07 160.64

Operating Cycle (Days) 147.45 136.50 126.95 137.28 220.11

A/C Payable Turnover Ratio 2.09 1.83 2.25 2.28 1.58

Payables Pay. Period (Days) 171.98 196.99 160.04 157.71 228.48

Cash Conversion Cycle (24.53) (60.49) (33.09) (20.43) (8.38)

Total Asset Turnover 0.89 0.87 0.85 0.78 0.52

Fixed Asset Turnover 1.92 1.72 1.64 1.61 1.13

Operating Profitability Ratios

Gross Profit Margin (GPM) 46.37% 46.74% 41.81% 44.21% 45.81%

Op. Profit Margin (OPM) 28.89% 27.45% 25.77% 29.49% 25.35%

Pre Tax Profit Margin 27.88% 26.39% 24.99% 29.22% 25.93%

Net Profit Margin (NPM) 20.63% 19.28% 18.38% 21.67% 19.07%

Leverage Ratios:

Total Debt to Equity 0.00% 0.00% 0.00% 0.00% 0.00%

Debt to Total Assets - - - - -

Coverage Ratios:

Times Interest Earned (TIE) - - - - -

Valuation Ratios:

NAVPS (Basic) 209.28 241.53 293.88 335.67 357.85

EPS (Basic) 57.90 62.60 65.95 80.92 50.32

Growth Rates:

EPS Growth Rate 35.47% 8.12% 5.35% 22.70% -37.81%

Sales Growth Rate 8.58% 15.72% 10.49% 4.09% -29.34%

Gross Profit Growth Rate 17.21% 16.64% -1.15% 10.05% -26.78%

EBIT Growth Rate 36.15% 9.99% 3.69% 19.12% -39.25%

Net Income Growth Rate 35.48% 8.12% 5.36% 22.70% -37.83%

Other Data:

Number of shares outstanding 15,218,300 15,218,300 15,218,300 15,218,300 15,218,300

DUPONT ANALYSIS:

Net Profit AT/Sales 20.63% 19.28% 18.38% 21.67% 19.07%

Sales/Total Assets 88.93% 86.51% 85.36% 78.39% 51.81%

ROA 18.35% 16.68% 15.69% 16.98% 9.88%

Net Profit AT/Total Assets 18.35% 16.68% 15.69% 16.98% 9.88%

Total Asset/ Total Equity 1.61 1.67 1.57 1.51 1.47

ROE 29.51% 27.77% 24.64% 25.71% 14.51%

Extended DUPONT ANALYSIS:

Net Profit/Pretax Profit 74.00% 73.05% 73.56% 74.15% 73.54%

Pretax Profit/EBIT 60.23% 56.93% 58.97% 66.18% 101.15%

EBIT/Sales 46.30% 46.35% 42.37% 44.16% 25.63%

Sales/Assets 88.93% 86.51% 85.36% 78.39% 51.81%

Assets/Equity 1.61 1.67 1.57 1.51 1.47

ROE 29.51% 27.77% 24.64% 25.71% 14.51%

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EBLSL Rating Interpretation

Overweight : Stock is expected to provide positive returns at a rate greater than its required rate of return Accumulate : Stock is expected to provide positive inflation adjusted returns at a rate less than its required rate of return Market weight : Current market price of the stock reasonably reflect its fundamental value Underweight : Stock expected to fall by more than 10% in one year Not Rated : Currently the analyst does not have adequate conviction about the stock's expected total return

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 five 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, foreign trading facilities, Bloomberg Terminal, online trading facilities, research services, panel brokerage services, trading through NITA for foreign investors & NRBs etc.

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

mailto:[email protected]









http://www.eblsecurities.com/

https://www.refinitiv.com/en

Documents

Equity Note on Linde Bangladesh Limited