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Hefty sales costs likely to impede Singer’s profitability

Niaz Mahmud
23 Sep 2023 19:02:54 | Update: 24 Sep 2023 12:21:36
Hefty sales costs likely to impede Singer’s profitability

Singer Bangladesh, a leading home appliance maker and retailer, has witnessed an increase in sales operating expense, and the company’s profit margins will be cramped if this hefty cost remains unchecked.

The publicly traded company’s operating expense to sales increased by 211 basis points from 15.81 per cent in the January–June period of 2022 to 17.93 per cent in the first half of the current year.

This cost has gone up due mainly to an increase in shop operating expenses and demurrage costs, as per a report of EBL Securities Limited, a stockbroker.

The leading stock broker said in the equity report that if the company fails to contain the additional sales expense, this will hamper its profitability margins.

While the macroeconomic landscape is slowly improving, it’s important to note that Singer Bangladesh’s financial performance could negatively be affected if challenges such as a rise in foreign currency exchange rates or continued high inflation rates persist, the report read.

Despite a commendable performance in the recent quarter, the home appliance maker has faced continued downturn in profitability margins from 2020 to 2022 owing to difficult macroeconomic strains.

The company has failed to prove its resilience in delivering value to its shareholders when the macro situation is not favorable.

However, the multinational company posted a 153 per cent higher profit in the first half (Jan-Jun) of the current year on a year-on-year basis.

The listed company’s net profit stood at Tk 58.3 crore in the January-June period of the current year, which was Tk 23.0 crore in the same period last year.

Singer's earnings per share (EPS) rose to Tk 5.85 in January-June this year from Tk 2.31 reported for the same period one year ago.

The EPS for the April-June quarter of 2023 was Tk 4.72 against Tk 1.40 for the same quarter of 2022.

Singer Bangladesh has reported 17.93 per cent growth in YoY revenue in H1 of the ongoing year, largely driven by an increase in market prices, Eid-ul Adha season, and the gradual recovery of overall demand for consumer electronic products, said EBL Securities.

Despite facing hardships, the multinational has maintained a good dividend payout ratio ranging from 74 per cent to 136 per cent during 2015 to 2022 (with the exception of 2022). Investors can expect a hefty dividend amount in 2023 if it posts handsome earnings.

Singer Bangladesh is a leading consumer durables manufacturer in Bangladesh and is engaged in manufacturing and marketing home appliances, consumer electronics, sewing machines, furniture, and other appliances.

The company distributes its products through its 427 Singer Mega and Singer Plus retail outlets and also through its 928 Singer Pro dealers. Its revenue from products manufactured in Bangladesh has increased to 52 per cent from just 10 per cent a decade ago. The listed company intends to increase the percentage of locally manufactured products to 90 per cent.

In the equity note, the capacity utilization of Singer remains underutilized across all segments. This indicates suboptimal planning, inefficient resource utilization, and incurring of fixed costs that are likely exerting a detrimental impact on its profitability.

The company may see a rise in panel television sales in the third quarter due to the Cricket World Cup being around the corner, which can boost its earnings in this quarter. It is noteworthy to mention that the company has witnessed 12 per cent volume growth in Panel Television sales in 2022, largely driven by the FIFA World Cup 2022.

The overall macroeconomic and external challenges are expected to improve going forward, and consequently, sectors reliant on discretionary spending, such as consumer electronics, are expected to deliver growth, EBL Securities said.

Singer Bangladesh is 57per cent owned by Retail Holdings Bhold BV (Netherlands), and the shares of the company are publicly traded on the Dhaka and Chittagong stock exchanges.

The company’s principal activities are the manufacturing of refrigerators, panel televisions, air conditioners, washing machines, microwave ovens, and grinders, as well as the marketing of refrigerators, televisions, air conditioners, sewing machines, computers, washing machines, and other consumer electronics and household appliances.

Incorporated in Bangladesh as a private limited company in September 1979, Singer Bangladesh Limited (the Company) has been a direct subsidiary of Retail Holdings Bhold BV since 2003.

It became a public limited company in 1983 and is listed on the Dhaka bourse.

After the imposition of the floor price, Singer Bangladesh has largely remained illiquid, with the share being closed on the floor price in 236 days out of a total of 276 trading days.