equity valuation report: golden harvest agro industries ... · golden harvest agro industries...

(This document has been prepared by the Research Team of EBL Securities Limited for information only for its clients. No part of this report should be copied or used in any other report or publication or anything of that sort without

any prior permission taken from the authorized publisher of this report)

Equity Valuation Report:

Golden Harvest Agro

Industries Limited

25%

Frozen food industry:

Market size: BDT 2 billion

Market Leader: GHAIL

CAGR

Expected

5 Years

Revenue

Expected

5 Years

NPAT

7.87%

17.18%

Global Highest food Standard

ICE cream industry:

Market size: BDT 10 billion

Market share of GHAIL: 12%

2GO Restaurant

Ownership: 30%

Current outlet: 10

Planned Outlet: 60

Largest Cold Chain

Network

11 Ware Houses

Ice Cream

57.48%

Snacks

41.06%

Dairy

1.46%

Revenue Contribution

5 Years Ice Cream revenue

CAGR: 33.5%

Contribution 2015-16 2016-17

Revenue 56.20% 57.50%

NPAT 41.44% 40.48%

DIVERSIFIED PRODUCTS

• 75 varieties premium Frozen Food

• 40 types quality Ice Cream

Golden Harvest Agro Industries Limited DSE: GHAIL BLOOMBERG: GHAI:BD Target Price: BDT 51.20 , Current Price: BDT 40.60 Rating: Overweight Valuation Date: 8th February, 2018

Analyst:

Asaduzzaman Ashik [email protected]

Particulars 2015-16

Act. 2016-17

Act. 2017-18

Exp. 2018-19

Exp.

Financial Information (BDT mn):

Net Sales 1,428 1,527 1,709 1,810

Gross Profit 655 698 794 841

EBITDA 537 633 745 786

Operating Profit 482 512 626 663

Profit After Tax 176 185 207 249

Total Assets 5,044 5,981 6,268 6,559

Total Debt 2,412 3,206 3,213 3,025

Total Equity 2,020 2,207 2,392 2,660

Retained Earnings 499 693 775 915

Cash 35 74 74 106

Margin:

Gross Profit 45.9% 45.7% 46.5% 46.5%

EBITDA 37.6% 41.5% 43.6% 43.4%

Operating Profit 33.8% 33.5% 36.7% 36.7%

Pretax Profit 15.8% 15.6% 15.5% 17.7%

Net Profit 12.3% 12.1% 12.1% 13.8%

Growth (YoY):

Sales 83.8% 6.9% 11.9% 5.9%

Gross Profit 79.3% 6.6% 13.8% 5.9%

Operating Profit 64.6% 6.2% 22.4% 5.9%

Net Profit 104.4% 5.6% 11.5% 20.6%

Profitability:

ROA 3.9% 3.4% 3.4% 3.9%

ROE 9.1% 8.8% 9.0% 9.9%

PEG ratio 0.16 4.80 2.38 1.10

Leverage:

Debt Ratio 47.8% 53.6% 51.3% 46.1%

Debt-Equity 119.4% 145.3% 134.3% 113.7%

Altman Z-Score 1.3 1.5 1.6 1.7

Valuation:

EPS (BDT) 1.6 1.7 1.9 2.3

NAVPS (BDT) 18.4 20.2 22.0 24.4

P/NAV (x) 1.5 2.3 2.4 2.1

EV/EBITDA 9.9 12.9 11.8 11.7

EV/Sales 3.7 5.3 5.2 5.1

P/E Ratio 16.3 26.8 27.4 22.8

Price-Volume Movement

We initiated a valuation on GHAIL based on Discounted Cash Flow methods and Relative Valuation models while assuming next 5-Years’ average YoY revenue growth at 8%. Currently, GHAIL is traded at BDT 40.60 (as on 8th February, 2018). In our valuation, the target price for GHAIL based on DCF and Relative Valuation is determined at BDT 51.20 per share.

Company Fundamentals

Sector Food & Allied

Market Cap (BDT mn) 4,469.4

Market weight 0.1%

Paid-up Capital (BDT mn) 1090.1

No. of Share Outstanding (in mn) 109.0

Free-float Shares (Inst.+For.+Public) 66.9%

3 Months Avg. Daily Turnover (BDT mn) 54.7

3 Months Avg. Daily Volume (mn) 1.2

3 Months Return 5.4%

52-week price range (BDT) 37.0-58.5

GHAIL is the market leader in Frozen Food Industry of the country having around 25% market share. The product line of GHAIL includes frozen ready to eat snacks, Ice Cream and dairy products.

The new Ice Cream brand ‘Bloop’ under GHAIL’s fully owned subsidiary has achieved 8.45% growth in revenue in FY 2016-17. The market share of ‘Bloop’ is around 12% and revenue contribution from the Ice Cream unit has been increased to 57.5% in FY 2016-17 compared to 56.2% in FY 2015-16.

GHAIL has noted 5 years CAGR of 19.5% in Gross Turnover while 5 years CAGR of 4.6% in Net Profit after Tax. This growth is being initiated by the increased market share of Ice Cream and fair growth of frozen foods.

GHAIL regularly introduces new products to meet the diversified customer needs and explore new frontiers. It has 75 varieties of premium quality frozen food items and 40 types of Ice Cream available in the market.

GHAIL has currently set up the nation’s first ever largest cold chain network for ensuring ideal storage of perishables. The project cost was around USD 50 mn and completed with the support of USAID under GDA program.

GHAIL has launched its first Compact Quick Service Restaurants branded as ‘2GO’ in December 2015 to prepare & serve fast food & drinks using mostly GHAIL’s existing products. Currently they have three owned outlet & seven franchised outlet in Dhaka City. GHAIL expects these outlets will enhance top line in coming years.

GHAIL is the only TESCO approved food processing factory in Bangladesh and this company have attained “British Retail Consortium Food Safety Standard” which is regarded as the highest global standard for food processing industry.

GHAIL is highly exposed to leverage. In FY 2016-17, Debt equity ratio was 145.26% compared to 119.42% in FY 2015-16. Besides, Interest coverage ratio was only 1.95 in FY 2016-17 which indicates higher debt burden for the company.

SD on powdered milk, butter & dairy oils has been upraised to 25% from 20% in latest budget of FY 2017-18 which may undesirably affect the earnings from Ice Cream.

0.00

2.00

4.00

0

20

40

60

2-Jun-15 2-Oct-15 2-Feb-16 2-Jun-16 2-Oct-16 2-Feb-17 2-Jun-17 2-Oct-17

Price-Volume Movement of GHAIL

VOLUME (mn) CLOSE PRICE

Valuation Report on Golden Harvest Agro Industries Limited. Date: 8th February, 2018

Current Price (BDT): 40.60 Target Price (BDT): 51.20

2

THE INDUSTRY Industry Growth Drivers:

1) Urban Population in Bangladesh The enlarged urban population of the country has stimulated reasonable growth for the food and consumer goods and has caused sizable needs for the related products. The growth of urban population of the country is remarkable over the years. In the end of 2017, the urban population of the country stood at 58.75 million which represents 35.70% of the total population. According to the projections of Bangladesh Bureau of Statistics (BBS), the urban population of the country will be 85.95 million within 2030 and 111.88 mn within 20401. The graph shows the historical urban population of the country and percentage of the total of population.

2) Middle Class Income Category: Like urban people, middle class people are also the target segment for processed foods, Ice cream, Milk and Dairy products. According to latest available data, 20% of the total population in Bangladesh belongs to the middle class income category compared with 24.1% in India. According to the data from Household Income and Expenditures (HIES), income for middle class income category ranges USD 2 or 3 per day (per day per person basis). Researchers believe that 25% of the total population will belong to middle class income category within 2025 and 33% will belong within 2030. The chart depicts the overall scenario of middle class income category of Bangladesh.

Frozen Food Industry: The global frozen food industry record exceeded USD 250 billion by the end of 2015 and in terms of volume the market was 43.5 billion kilograms in the same period2. Global frozen food market is expected to garner USD 306 billion by 2020, registering a CAGR of 4.1% during the forecast period 2015 - 20203. The deep frozen food products that can be stored and used over a long period are referred to as frozen foods. The most widely used frozen food products include frozen ready-to-eat meals, fruits & vegetables, meat & poultry, sea food, soups and similar array of products.

Global Frozen Food Market by Product Types: The frozen food market can be segmented into 6 major divisions based on product types. They are as follows:

1 http://bbs.portal.gov.bd/sites/default/files/files/bbs.portal.gov.bd/page/d6556cd1_dc6f_41f5_a766_042b69cb1687/PocketBook2016.pdf 2 http://www.grandviewresearch.com/industry-analysis/frozen-food-market 3 https://www.alliedmarketresearch.com/frozen-food-market

20% of total Population are

Middle class

USD 2 to 3 daily income

25% of total Population will

belong to Middle class in 2025

33% of total Population will

belong to Middle class in 2030

Source: Financial Express, January 16, 2016

Ready Meals Frozen Sea FoodFrozen Meat &

PoultryFrozen Fruits &

VegetablesFrozen Potatoes Frozen Soups

49.8251.61

53.4355.25

57.0958.75

32.00%32.80%

33.50%34.30%

35.00%35.70%

30. 00%

31. 00%

32. 00%

33. 00%

34. 00%

35. 00%

36. 00%

40

42

44

46

48

50

52

54

56

58

60

2012 2013 2014 2015 2016 2017

Urban Population in Bangladesh (In mn)

Urban Population % of total population

Source: World Bank & EBLSL Research



3

Bangladesh usually exports frozen sea food, frozen meat & poultry, frozen fruits and vegetables to different countries including USA, Canada and European Countries. But in Bangladesh, Frozen Meat, Sea Food, Snacks and Vegetables are available in the market.

Poultry Production: Bangladesh is self-sufficient in the supply of poultry meat to meet up the demand of the country. The total poultry production in Bangladesh was 329.20 million in 2016-17 whereas it was 320.63 million in 2015-16. Golden Harvest Agro Industries Limited usually collects chickens for their frozen & processed chicken products from the local sources. The graph shows the details production of poultry in Bangladesh.

Demand & Production of Meat: According to the recent information of Department of Livestock Services, there is around 120gm meat demand every day for per person which means 71.35 lakh Metric Ton meat is required every year. In comparison to this, 121.74gm meat is available for consumption per day per person. This refers to a 71.54 lakh metric ton production of meat every year which left a 0.19 lakh metric ton surplus every year. The graph shows the details.

Market of Ready-to-Cook & Processed Meat: The rising demand for easy and hygienically-prepared foods among the urban middle class is pulling in large investors to the processed chicken and ready-to-cook frozen foods sector. The market size for ready-to-cook food and processed chicken is around BDT 2,000 million4. The market is growing at a rate of 20% per year. The market has been growing for the last 10 years. The growth is initiating due to people’s rising interest in convenient foods. The graphical presentation of this market is as follows:

4 http://www.thedailystar.net/business/processed-chicken-market-heat-71871

71.35 lakh MT Demand

120gm per day per head demand

71.54 lakh MT Production

121.74gm per day per head Consumption

0.19 lakh MT Surplus

278.81288.57

296.26304.17

312.29320.63

329.2

260

270

280

290

300

310

320

330

340

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

Poultry Production (in mn)

Market Size

Market size for ready-to-cook food and frozen snacks is around BDT 2,000 mn.

Growth

The market is growing at 20% per year.

Horizon

The market is growing for last 10 years and Industry experts believe that the growing trend will sustain in coming years.

Source: Department of Livestock Services (2017) & EBLSL Research

Source: Department of Livestock Services (2017) & EBLSL Research

Source: Daily Star, March 20, 2015



4

Major Players in Processed Meat & Frozen Snacks: Along with Golden Harvest Agro Industries Limited, there are some others companies producing varieties of frozen food products and processed meats in the consumer market. Brac Chicken, Pran RFL, Kazi farms, CP Bangladesh, Igloo Foods, KFC Bangladesh, Rich Foods & Lamisa Foods have different products to meet the diversified needs of the clients. Relevant company and their available products are shown as follows:

Source: EBLSL Research

Golden Harvest Agro Industries

•Frozen Paratha, Samosa, Dal Puri, Aloo Paratha and others

•Chicken Nuggets, Chicken Samosa, Sausage, Meat Ball, Fish Ball, Fish Finger, Pop Chicken, Chicken Drumlets

BRAC Chicken

•Chicken Nuggets, Salami Slice, Pepperoni Sausage

•Chicken Sausage, Chicken Pepperoni Slice, Chicken BBQ

Pran RFL

•Paratha, Singara, Samosa, Chatpoti, Spring Roll, Dal Puri, Popcorn, French Fry

•Chicken Sausage, Nuggets, Chicken Burger Patty, White Meat Ball

Kazi Farms

•Paratha, Roll, Filo Pastry, Strips, Samosa, Aloo Puri

•Chicken Nuggets, Meat Balls, Sausage, Cutlets, Chicken Lollipop, Teasers

CP Bangladesh

•Fried Chicken

•Frozen Chicken

Igloo Foods Limited

•Crispy Chicken, Hot Crispy, Hot Wings, Chicken Pop, Burger, Drumsticks,

•Chicken Sausage, Chicken Ball, Vegi Burger

KFC Bangladesh

•Fried Chicken

Rich Foods

•Plain Paratha, Family Paratha

•Chicken Sausage, Nuggets

Lamisa Foods

•Paratha, Aloo Puri, Potato Smiles, Roti, Singara, Samosa, French Fry

•Chicken Nuggets, Chicken Ball, Wonton, Chicken Pop

Bengal Meat

•Chicken Sausage, Breaded Chicken Fillet, Chicken Singara, Chicken Nuggets

•Beef Singara



5

Market Share Breakdown In recent time, the products of Golden Harvest is very popular across the country. They have different products in their portfolio to meet up the demand of different purposes of the customers. They have 25% of the market share where the closest competitor Lamisa Foods has 15% market share. The market share break down of these companies in the frozen food industry is as follows:

Source: Golden Harvest Primary Research & EBLSL Research

Budgetary Change For FY’18 Which Will Affect The Business Operation of Frozen Food Industry

Extended VAT exemption on Palm Oil and Soya Bean Oil up to June 30, 2019 will help to reduce the

cost of goods sold for the companies operating in this industry.

Milk & Dairy Industry Overview: Milk production is one of the most important economic activities in Bangladesh, providing 3.6 million households with supplementary income. The dairy system in Bangladesh is characterized by small-scale operations, coupled with crops and other off-farm activities. Several government, NGO and private sector initiatives have made progress in transforming dairy into a more value-driven and market-oriented sector. The dairy market in Bangladesh is lucrative for investors given the country’s large population, rising incomes and evolving diet.

Growth Drivers:

One of the highest cattle density in the world: 172 large ruminants per square kilometers in 2016-17

Rising demand for milk-based food products in daily consumption and as beverages

Low cost of input (raw materials, human resources etc.)

Introduction of Ultra High Temperature (UHT) milk, milk powder, yogurt, flavored milk products and other popular product varieties by dairy enterprises

Introduction of aseptic milk packaging leading to longer shelf life Investment Insights on Dairy Market In Bangladesh Within the formal dairy sector in Bangladesh, over 90% of the milk is processed as pasteurized packaged milk and only 10% is processed into cheese, butter, ghee and milk powder. Key leverage points for expanding the dairy market are cattle feed production, improved breeds of high yielding cows, milk collection points and dairy cold chain as well as product varieties. The supply for milk and related products are not enough to meet the demands. There is a huge gap between the demands and supplies of dairy products.

25%

15%13%

9% 8% 8% 7% 6%9%

0%

5%

10%

15%

20%

25%

30%

GoldenHarvest

Lamisa Pran Kazi Farms Rich CP BRAC Igloo Others

M A R K E T S H A R E

148.65

92.83

55.82

30

50

70

90

110

130

150

170

Demand Supply Deficiency

Demand & Supply of Milk (in Lakh MT)

Source: Department of Livestock Services (2017)



6

Per Capita Milk Consumption in Bangladesh: Currently, each Bangladeshi consumes 159 ml of milk (per capita) daily where the Food & Agriculture Organization suggests that daily milk consumption should be 250 ml (per capita) for an adult. Our neighbors India and Pakistan are consuming around 247 ml and 521 ml (per capita) daily respectively. As people are getting more conscious about the balanced food, it is expected to increase the milk consumptions day by day.

*Source: Daily Star, Dec 2016; Dhaka Tribune, June 2017; Department of Livestock Services, 2017

Milk Production in Bangladesh Though, the milk production in Bangladesh is increasing but these quantity is not enough to meet the local demands. Hence, every year Bangladesh needs to Import a huge amount of liquid and powder milk. In 2008-09, milk production in Bangladesh was 22.90 lakh metric tons whereas the production of milk in 2016-17 is 92.80 lakh metric tons. The following graphs shows the production of milk in Bangladesh:

Source: Department of Livestock Services, 2017 & EBLSL Research

Milk Imports in Bangladesh: In 2016-17, Bangladesh imported 113 thousand tonne powder milk, worth BDT 35 to 45 billion5. So there is a good opportunity for the local dairy industries to contribute to this gap. Even if the local processing industries triple their output it would only offset the import.

Source: Bangladesh Bureau of Statistics, 2017

Ice-Cream Industry Overview: The total market size of branded ice cream was around BDT 6.5 billion in 2013 but the current size of the industry is around BDT 10 billion6. The nature of the ice cream industry in Bangladesh is oligopoly. The key player in the market is Igloo. The ground-breaking ice-cream company in Bangladesh started its operation in 1964 in Chittagong. The company is now the market leader since 1997 having the market share of 36%. Polar came into the market in 1987 from parent company Dhaka Ice Cream Industries Ltd. Polar tackled some inner management and financial complications and in 2009, and the whole brand changed that time. A foremost restoring of the brand and its products took place which got substantial responses from the customers which is replicated in their current market share of 26%. 5 http://www.dhakatribune.com/opinion/op-ed/2017/06/24/milk-money/ 6 http://www.thedailystar.net/news/brand-war-heats-up-in-ice-cream-market

85 79

105

130113

2012-13 2013-14 2014-15 2015-16 2016-17

Powder Milk Import ( in thousand tonnes)

22.9 23.7 29.5 34.6

50.760.9

69.7 72.8

92.8

3% 24% 17%

47%20%

14% 4%

27%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

10

20

30

40

50

60

70

80

90

100

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Milk Production in Lakh MT

Production Growth

250

158

247

521

50

100

150

200

250

300

350

400

450

500

550

FAO Standard Bangladesh India Pakistan

Per Capita Milk Intake (in ML)



7

Bellissimo is comparatively a new player in the ice cream market, they started operations in 2013. They belong to Kazi Farm Group Ltd. Bellissimo is dissimilar from all the other brands in the industry because they produce superior quality ice cream and hence are not competitive in terms of price with the other players. They currently hold 13% of the market share. The entry of Bellissimo has altered the dynamics of the industry as it presented many different new types of ice creams. The market players are now shifting attention to offering a varied range of products. Bloop belongs to parent company Golden Harvest and entered the market in the 1st week of April, 20137. They already had proficiency in cold chain and that’s why they decided to enter this market. They are different from every brand existing in the market in one distinct: communication material. All other brands in the industry focus on the superiority of their ice cream and relate ice cream to cold weather, e.g. Igloo’s logo contains an Eskimo and Polar’s brand mascot is a penguin. Bloop did not do that, rather their product is very summer based8. The brand color purple and the parent brand color yellow are summer colors. The ice cream industry of Bangladesh relative to the GDP is on par with global market and higher than some of its neighbors.

Major Market Players: Igloo is the market leader and after Igloo, Polar is in the foray. There are some other popular ice cream brands in the country. People usually prefer branded ice cream. 4 out of 5 consumers care highly about brands in their purchasing decisions along with budget and quality9. The key market players of the country are as follows:

7 https://www.coursehero.com/file/p7kumb7/The-current-size-of-the-ice-cream-market-of-Bangladesh-is-over-BDT-500-crores/ 8 https://www.coursehero.com/file/p7kumb7/The-current-size-of-the-ice-cream-market-of-Bangladesh-is-over-BDT-500-crores/ 9 http://www.lightcastlebd.com/blog/2015/12/10-key-points-from-the-bangladesh-consumer-market-report-by-bcg

0.064%

0.031%

0.069%

0.053%

0.0 00%

0.0 10%

0.0 20%

0.0 30%

0.0 40%

0.0 50%

0.0 60%

0.0 70%

0.0 80%

Bangladesh India Europe World

Ice Cream Market as % of GDP

Source: Euromonitor

Chocbar, Mini Choc, Mini Max, Malai, Bar, Pista Kulfi, Cornelli, Firni, Ripple, Nawabi Mithai

Royal Magnum, Lolly, U & Me, Kheersa, Caramelo, Nolen Gur, Butterscotch

Robusto, Crunchy, Rocks, Shor Malai, Doi, Kheer, Googly, Carnival

Scoop, Shor Malai, Mango, Malai, Maria, Magic, Choc o Papa, Lemon o Tung, Conetastic, Exotic Vanilla

Supremo Bianco, Nano, Mango, Biscotto, Perfetto, Ripple, Hiney Almond, Classic Vanilla

Source: Company Websites & EBLSL Research

http://www.lightcastlebd.com/blog/2015/12/10-key-points-from-the-bangladesh-consumer-market-report-by-bcg



8

Market Shares of Ice Cream Companies: According to the available information in the market, Igloo is the market leader with 36% market share and Polar is in the channel with 26% market share. Golden Harvest Ice Cream holds around 12% market share where Bellissimo holds 13%, Kwality holds 11% and other firms hold 2% market share. The market share based on available public information are as follows:

Source: Available Information in Market & EBLSL Research

THE COMPANY: GOLDEN HARVEST AGRO INDUSTRIES LIMITED

Company Profile

Golden Harvest Agro Industries Limited was established on August 04, 2004 as a Private Limited Company and converted to Public Limited Company on 30 June, 2010. The Company has been listed to both Dhaka Stock Exchange & Chittagong Stock Exchange on March 04, 2013. The company owns and operates the business of growing, procuring, purchasing, processing, packaging, warehousing, transporting, exporting, importing, distributing and selling agriculture based food, food products, vegetable processing and related products. Golden Harvest Ice Cream Limited and Golden Harvest Dairy Limited are the subsidiaries of Golden Harvest Agro Industries Limited.

Factories & Plant Location: (1) Golden Harvest Industrial Park, Goainghat, Sylhet; (2) Babanipur, Gazipur Sadar, Gazipur; (3) Bokran, Monipur, Gazipur Sadar, Gazipur.

Head Office: Shanta Western Tower, Gulshan, Dhaka.

Key Products: Frozen Vegetables, Frozen Snacks, Ice Cream & Dairy products.

Key Personnel: Enamuzzuman Chowdhury (Chairman), Ahmed Rajeeb Samdani (CEO).

Employees: 1060

Subsidiaries:

Golden Harvest Ice Cream Limited Golden Harvest Ice Cream Limited was formerly known as Golden Harvest Sea Food & Fish Processing Limited which was incorporated on January 05, 2005. Golden Harvest Agro Industries Limited owns 99.99% ownership of Golden Harvest Ice Cream Limited. The main objectives of Golden Harvest Ice Cream Limited are to carry out the business, promote & establish factories and chain shops, manufacture and manage food items, dairy, ice cream, baby food, soft drinks, mineral water and allied products. Total paid up capital of Golden Harvest Ice Cream Limited is BDT 300 mn.

36%

26%

13%

12%

11%

2%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Igloo

Polar

Bellissimo

Bloop

Kwality

Others

Market Share of Ice Cream Brands



9

Golden Harvest Dairy Limited Golden Harvest Dairy Limited is engaged in processing liquid milk and milk based products like butter, cream, cheese, yogurt and allied products. Besides, this project will initiate the meat processing and calf selling business. The company was established on 18 February 2015 as a private limited company. Total paid up capital of Golden Harvest Dairy is BDT 50 mn. Golden Harvest Agro Industries Limited owns 75% of shares of Golden Harvest Dairy Limited.

Associates: Golden Harvest QSR Limited Golden Harvest QSR started its operation on 2015 to penetrate the fast food industry of the country. Golden Harvest Agro Industries acquired 30% of shares of Golden Harvest QSR Limited. The fast food outlets, branded as “2GO”, are located at various locations in Dhaka City and sell the wide range of products including those are manufactured by the subsidiaries of Golden Harvest. There are 10 outlets of ‘2GO’, three of which are owned by the company and seven of which are franchisee of the entity. The company is focusing on increasing the number of franchisee to around 60 in coming years. Moreover, Golden Harvest is interested to commence a franchise business with one of the most popular global pizza brands in coming years.

Business Profile

Popular Products: Current product lines of Golden Harvest Agro Industries Limited include Frozen foods, Snacks, Ice Cream. The following chart shows the product lines in details:

Source: Company Website

Recent Financial Performance In Q1 of FY 2017-18, gross turnover of the company was BDT 471.0 million having 7.1% YoY growth. The gross profit increased by 13.1% and the net profit after tax increased by 14.7% in the same period. This increment of net profit after tax was mainly triggered by the decreased cost of sales, administrative expenses as well as selling & distribution expenses. In Q1 of FY 2017-18, COGS was 52.2% of gross sales compared to 54.8% in Q1 of FY 2016-17. The operating profit has up surged by 17.2% in Q1 of FY 2017-18 compared to Q1 of FY 2016-17. The financial performance of Golden Harvest Agro Industries Limited in the 1st Quarter of FY 2017-18 is as follows:

Frozen Foods

•Aloo Paratha, Aloo Puri, Atta Rooti, Beef Spring Roll, Chicken Burger Patty, ChickenSpring Roll, Dal Puri, Deshi Paratha, Fish Ball, Fish Finger, French Fries, Meat Ball,Singara, Chicken Nuggets, Pop Chicken, Chicken Sausage, Samosa, Chicken Strips,Chicken Wings & Drumlets

Snacks

•Bar B Q Mix Chanchur, Sauce & Ketchup, Googly, Potato Crackers, Potos, Motor Bhaja,Jhal Mix Chanchur, Dhal Bhaja, Bombay Mix Chanchur, Laccha SemaI, Vermicelli Semai

Ice Cream

•Bloop Conetastic, Exotic Vanilla, Exotic Chocolate, Choc-o-Papa, Mango Maria, MagicMalai, Litchi o Tung, Lemon o Tung, Orange o Tung, Carameloww, Berry Bomb, CrazyVanilla, Little sweet strawberry, Charming Chocolate, Maddy Mango, Awsummm Malai,Tropical Lush, Chocolate Lust, English Toffee, Fresco, Scoop, Shor Malai,

Gross Turnover 7.1% YoY Growth

Gross Profit 13.1% YoY Growth

Net Profit After Tax 14.7% YoY Growth



10

Shareholding Pattern and the Board of Directors: The latest shareholding composition is as follows:

As on…. Sponsor/Director Govt. Institute Foreign Public

Jun 30, 2016 35.03% 0.00% 31.75% 0.89% 32.33%

Jun 30, 2017 35.03% 0.00% 42.44% 0.57% 21.96%

Dec 28, 2017 33.03% 0.00% 31.97% 1.64% 33.36%

Source: DSE website

Distribution of Shareholding: Name/Status % of Shares No. of Shares

Mr. Enamuzzaman Chowdhury- Chairman 2.00% 1,981,980

Mr. Ahmed Rajib Samdani- Managing Director 21.94% 21,738,965

Mr. Mohius Samad Chowdhury- Director 2.00% 1,981,980

Mr.Matthew Graham Stock- Director (Retired) 2.00% 1,981,980

Ms. Nadia Khalil Chowdhury- Director 2.00% 1,981,9802

Mr. Azizul Haque- Director 2.26% 2,239,331

Mr. Moqsud Ahmed Khan- Director 2.46% 2,439,360

Mr. Ahmed Mehedi Samdani 0.38% 371,800

Foreign Investors 0.57% 561,000

ICB 21.39% 9,209,693

Institutions except ICB 22.06% 9,498,168

General Shareholders 20.95% 20,764,557 ***As on June 30, 2017

The board of directors has been formed with 9 members but one of the directors Mr. Matthew Graham Stock has resigned in last Annual general Meeting. Golden Harvest Agro Industries Limited holds regular election for nominating directors. The names of the Board of Directors are as follows:

Board of Directors

Enamuzzuman Chowdhury Chairman

Ahmed Rajeeb Samdani Managing Director

Mohius Samad Choudhury Director

Nadia Khalil Choudhury Director

Moqsud Ahmed Khan Director

Azizul Huque Director

Faisal Ahmed Choudhury Independent Director

Aleana Akhter Khan Independent Director

Source: Company Annual Reports

Corporate Governance Framework: Golden Harvest Agro Industries Limited and its subsidiary Golden Harvest Ice Cream & Golden Harvest Dairy have a Corporate Governance attitude instituted on a culture of performance within an agenda of conformance and acquiescence to succeed in the competitive business vicinities in a manner that is sustainable and equitable to the stockholders of the Company. The Corporate Governance framework of the company has been developed and enhanced based on the basic principles and best practices stated as follows:

1. Bangladesh Securities & Exchange Commission Corporate Governance Notification; 2. The Companies Act 1994 and other applicable regulations of Bangladesh; 3. Dhaka and Chittagong Stock Exchanges Listing Regulations, 2015; 4. Laws of the country; 5. Internal Policies and Guidelines of the Company; 6. Statement of Delegated Authorities of the Company; and 7. Statement of Risk Management of the Company;



11

Reporting & Compliance of Corporate Governance: The methodical rules, practices and process which direct and control a company is the corporate governance of that company. Golden Harvest Agro Industries Limited complies with the corporate governance guidelines by Bangladesh Securities & Exchange Commission. The major issues of reporting and compliance of corporate governance are as follows:

1. The significant deviations from last year in the operating results of the company have been highlighted in the annual report of the Company and reasons thereof have been explained.

2. The inter-company transactions in the form of ‘Trade Receivables’ is questionable to some extent. Total BDT 688 mn is due in FY 2016-17 compared to BDT 213 mn in FY 2015-16 from other companies operating under Golden Harvest’ Management.

3. In the annual report, the Company also discloses the following: The key operating & Financial data for last six years in details Compliance status report with the requirements of Corporate Governance as required by BSEC Directors’ profile & their directorship and business interest in other organizations The detailed pattern of shareholding structure

Revenue Decompositions: The major sources of revenue of Golden Harvest Agro Industries Limited are frozen snacks & frozen dairy products, liquid milk & allied products as well as Ice Cream. The frozen snacks contributed around 41% of the total revenue of the Company in the FY 2016-17 while the contribution was around 44% in FY 2015-16. The Ice Cream of Golden Harvest Ice Cream Limited popularly known as ‘Bloop’ contributed around 57.5% of the total revenue of Golden Harvest Agro Industries Limited in the FY 2016-17 while the contribution was 56.2% in FY 2015-16. The contribution of ice cream in the total revenue was mainly driven by the huge popularity of the ice cream brand in the country. The market share of this brand has increased in recent times. The contribution of Golden Harvest Dairy Limited to the total revenue is only 1.46% in FY 2016-17 compared to 0.07% in FY 2015-16. Albeit the utilization of the Dairy Unit was 18.39% in FY 2016-17 in contrast to 1.04% in FY 2015-16, revenue contribution stayed insignificant as total revenue has increased in greater proportion. If the firm increases the utilization of the dairy unit, then contribution from dairy products will go up in coming years. During the FY 2016-17, total sales revenue from Frozen Snacks stood at BDT 626.9 mn compared to BDT 624.4 mn in FY 2015-16. The sales amount from frozen snacks increased slightly in FY 2016-17 and the contribution to the total revenue remained almost same compared to FY 2015-16. The sales revenue from Ice Cream was BDT 877.5 mn in FY 2016-17 compared to BDT 802.2 mn in FY 2015-16. Revenue from ice cream had the major contribution of the total revenue in FY 2016-17 for the Company. Total revenue from Golden Harvest Dairy Limited was BDT 22.2 mn in FY 2016-17 compared to BDT 0.9 mn in FY 2015-16. This unit of Golden Harvest Agro Industries Limited has started its commercial operation lately and generated revenue with very little utilization rate of their resources. The following graph depicts the particulars:


472.1

520.6

624.4

626.9

0.9

22.2

256.1

802.2

877.5

2013-14

2014-15

2015-16

2016-17

Revenue Decomposition (in BDT mn)

Ice Cream Dairy Frozen Veg. & Snacks

100.00%

67.03%43.74% 41.06%

0.07% 1.46%

32.97%56.19% 57.48%

2013-14 2014-15 2015-16 2016-17

Segmental Revenue Contribution

Frozen Veg. & Snacks Dairy Ice Cream



12

Production Capacity Utilization: The major products of Golden Harvest Agro Industries Limited include Frozen Snacks, Liquid milk and Ice cream. Golden Harvest Agro Industries Limited (GHAIL) has an installed capacity of producing 750,000 KG snacks. In FY 2016-17, the actual production was 358,532 KG compared to 358,000 KG in FY 2015-16 which refers the utilization rate 48% and 48% respectively. The utilization rate is in decreasing trend over the last 5 years. In FY 2011-12, the utilization rate was 51% for snacks but in recent times it is around 48%. On the other hand, Golden Harvest Dairy Limited has an installed capacity of producing 1,512,000 KG liquid milk. In FY 2016-17, total production was 278,120 KG which refers a utilization ratio of 18.39%. Golden Harvest Dairy started its operation in 2015 and in few years the Company will be able to increase its operational utilization. The following graphs show the details:

Source: Company Annual Reports & EBLSL Research

Moreover, Golden Harvest Agro Industries Limited had an installed capacity of producing 2,500,000 KG frozen vegetables. In FY 2015-16, actual production was 1,315,000 KG compared to 1,461,000 KG in FY 2014-15. Utilization ratio was 53% in FY 2015-16 as against 58% in FY 2014-15. The utilization ratio for frozen snacks is in downward trend over the last 5 years like the frozen snacks of this Company. This Unit is not in operation since June 2017. Besides, Golden Harvest Ice Cream Limited has total production capacity of ice cream is around 7,500,000 KG. In FY 2016-17, the actual production was 5,117,089 KG compared to 4,505,000 KG in FY 2015-16. The utilization ratio for ice cream unit is remarkable. In FY 2015-16, the utilization ratio was 83% as against 35% in FY 2014-15. With the increased production capacity, the utilization ratio was 68% in FY 2016-17. The following graphs show the details:


1,480

1,655 1,571

1,461 1,315

59%

66%63%

58%

53%

40%

45%

50%

55%

60%

65%

70%

75%

80%

1,00 0

1,20 0

1,40 0

1,60 0

1,80 0

2,00 0

2,20 0

2,40 0

2,60 0

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

Frozen Vegetables (in '000 KG)

Production Capacity Actual Production Utilization Ratio

750 750 750 750 750 750

384 427 443 398 359 359

51%57% 59%

53%48% 48%

0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

700

800

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

Snacks (in '000 KG)


1,512 1,512

15.69278.12

1.04%

18.39%

0.0 0%

2.0 0%

4.0 0%

6.0 0%

8.0 0%

10. 00%

12. 00%

14. 00%

16. 00%

18. 00%

20. 00%

-

200

400

600

800

1,00 0

1,20 0

1,40 0

1,60 0

2015-16 2016-17

Dairy (in '000 KG)


5,400 5,400

7,500

1,879 4,505 5,117

35%

83% 68%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-

1,00 0

2,00 0

3,00 0

4,00 0

5,00 0

6,00 0

7,00 0

8,00 0

2014-15 2015-16 2016-17

Ice Cream (In '000 KG)




13

Raw Materials: Golden Harvest Agro Industries Limited (GHAIL) has basically 5 products line likely frozen snacks, frozen vegetables, Ice Cream, Liquid milk and regular snacks items. The raw materials for these products are varies due to the product natures. GHAIL uses the raw materials for the productions of their different products are as follows:

Seasonal Vegetables Poultry Meat Fish Beef Milk, Sugar & others

GHAIL usually collects these raw materials from local sources. The price hike of theses raw materials can adversely affect the profitability of the Company. The graph states the raw materials purchases as the percentage of the total sales. In FY 2016-17, total raw materials purchase was BDT 637 mn where total sales were BDT 1,527 mn compared to BDT 558 mn raw materials purchase and BDT 1,428 mn sales in FY 2015-16. The raw materials purchases as percentage of total sales was 41.7% in FY 2016-17 as against 39.1% in FY 2015-16. The raw materials purchase over the total sales amount ranges from 49% to 31% in last 5 years.

Financial Position & Forecast: The economic health of Golden Harvest Agro Industries Limited is fairly good. The asset base of this company in FY 2016-17 was BDT 5,981 mn. Time to time investment in Property, Plant & Equipment has accelerated the growth of the company. In FY 2016-17, PPE was BDT 3,112 mn where it was BDT 2,646 mn in FY 2015-16. Revaluation reserve and Retained earnings stood at BDT 972 mn in FY 2016-17 compared to BDT 783 mn in FY 2015-16. The historical & forecasted major balance sheet items of Golden Harvest Agro Industries Limited are as follows:

(In BDT mn) 2012-13 A 2013-14 A 2014-15 A 2015-16 A 2016-17 A 2017-18 E 2018-19 E 2019-20 A

Total Assets 2,614 3,443 4,007 5,044 5,981 6,268 6,559 6,762

Non-Cur. Assets 1,293 2,115 2,750 3,574 3,970 4,055 4,321 4,591

PPE 883 1,045 2,043 2,646 3,112 3,156 3,362 3,554

Current Assets 1,321 1,328 1,257 1,471 2,012 2,213 2,237 2,172

Trade Debtors 191 233 230 623 1,150 1,282 1,267 1,170

Cash & FDR 425 425 98 34 74 74 106 70

Share Capital 780 819 819 901 991 1,090 1,199 1,319

Retained Earnings 384 323 314 499 693 775 915 1,039

Non-Cur. Liabilities 194 886 1,158 1,284 1,749 1,622 1,560 1,544

Long Term Loan 45 739 1,020 1,122 1,507 1,407 1,307 1,247

Short Term Loan 368 460 514 1,065 1,436 1,454 1,352 1,200

Current Liabilities 554 716 971 1,705 2,025 2,254 2,338 2,294

The following graph shows the details of the asset composition of Golden Harvest Agro Industries Limited:

268 209

386 558

637 626 657 777

1,428 1,527

42.8%

31.9%

49.7%

39.1%41.7%

0.0 %

7.0 %

14. 0%

21. 0%

28. 0%

35. 0%

42. 0%

49. 0%

-

200

400

600

800

1,00 0

1,20 0

1,40 0

1,60 0

2012-13 2013-14 2014-15 2015-16 2016-17

Raw Materials Purchase (In BDT mn)

Raw Materials Purchase Total Sales % of total sales

1,321

1,328

1,257

1,471

2,012

1,293

2,115

2,750

3,574

3,970

883

1,045

2,043

2,646

3,112

2012-13

2013-14

2014-15

2015-16

2016-17

Asset Composition (in BDT mn)

Current Assets Fixed Assets PPE




14

Key Financial Performance & Forecast: The overall business performance of Golden Harvest Agro Industries Limited looks good. The total sales of GHAIL has increased over the years. The sales was triggered by the increased demand of ‘Bloop’ ice cream brand of Golden Harvest Ice Cream Limited in FY 2016-17. Moreover, the demands of frozen snacks are increasing day by day. In FY 2016-17, total sales stood at BDT 1,527 mn compared to BDT 1,428 mn in FY 2015-16. GHAIL noted 19.5% CAGR in sales revenue over the FY 2012-13 to FY 2016-17 while 4.6% CAGR in net profit after tax over the same periods. The historical and projected turnover is as follows:

(In BDT mn) 2012-13 A 2013-14 A 2014-15 A 2015-16 A 2016-17 A 2017-18 E 2018-19 E 2019-20 A

Sales 626 657 777 1,428 1,527 1,709 1,810 1,950

Gross Profit 281 311 365 655 698 794 841 906

EBITDA 234 228 322 537 633 745 786 844

Operating Profit 211 199 293 482 512 626 663 715

Profit After Tax 148 97 86 176 185 207 249 304

Golden Harvest experiences seasonality impacts on its business. The peak season for ice cream industry is from March to July while the frozen snacks’ demand remains almost same throughout the year. Quarterly Restated EPS of GHAIL is as follows:

Operating Profitability: In FY 2016-17, Gross profit margin was 45.7% compared to 45.9% in FY 2015-16. High gross profit margin indicates that Golden Harvest Agro Industries Limited (GHAIL) is efficient in using raw materials, labors and fixed assets to generate reasonable profits over the years. In FY 2016-17, operating profit margin was 33.5% compared to 33.8% in FY 2015-16. The operating cost has increased proportionately with the sales growth in FY 2016-17. The pretax profit margin of GHAIL in FY 2016-17 was 15.6% compared to 15.7% in FY 2015-16. Pretax profit margin is fairly consistent with net profit margin over the years. The net profit margin was 12.1% in FY 2016-17 compared to 12.3% in FY 2015-16. Return on total assets was 3.4% compared to 3.9% in FY 2015-16. The return on equity was 8.8% in FY 2016-17 as against 9.1% in FY 2015-16. The historical and forecasted margins are as follows:

Margins 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 E 2018-19 E 2019-20 E

Gross Profit 44.9% 47.3% 47.0% 45.9% 45.7% 46.5% 46.5% 46.5%

Operating Profit 33.7% 30.3% 37.7% 33.8% 33.5% 36.7% 36.7% 36.7%

Pre Tax Profit 33.7% 22.9% 16.2% 15.8% 15.6% 15.5% 17.7% 20.0%

Net Profit 23.7% 14.8% 11.1% 12.3% 12.1% 12.1% 13.8% 15.6%

ROA 7.1% 3.2% 2.3% 3.9% 3.4% 3.4% 3.9% 4.6%

ROE 10.5% 5.2% 4.6% 9.1% 8.8% 9.0% 9.9% 10.9%

0.53

0.14

0.38

0.210.27

0.03

0.31

0.13

0.31

0.04

0.33

0.17

0.50

0.64

0.54

0.19

0.31

0.69

0.60

Quarterly Restated EPS (in BDT)

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Source: Quarterly Reports & EBLSL Research



15

The following graph shows the historical trend of Gross Profit (GP), Operating Profit (OP), Pre Tax Profit (PBT) and Net Profit (NPAT) of Golden Harvest Agro Industries Limited:

Operating Efficiency: The Inventory Turnover Ratio of Golden Harvest Agro Industries Limited (GHAIL) was 3.97 times in FY 2016-17 compared to 4.99 times in FY 2015-16. Average Collection period was 209 days as against 107 days in FY 2015-16 which means they are taking some more days to collect the receivables compared to last year. The Inventory Conversion Period was 91 days in FY 2016-17 compared to 72 days in FY 2015-16. On the other hand, Operating Cycle was 300 days as against 180 days in FY 2015-16 while Cash Conversion Cycle was 257 days in FY 2016-17 compared to 115 days in FY 2015-16. GHAIL’s Cash Conversion Cycle is high because of their product nature. The types of products GHAIL produces and distributes need usually long time to produce and distribute and generate cash from sales. Payables Payment Period has decreased in FY 2016-17 which is 60 days compared to 66 days in FY 2015-16. This refers that GHAIL is paying its creditors & suppliers more quickly compared to receive cash from its clients. Total Asset Turnover is 27.69% in FY 2016-17 compared to 31.55% in FY 2015-16 while Fixed Asset Turnover was 53.03% in FY 2016-17 as against 60.89% in FY 2015-16. Fixed asset turnover is in a declining trend due to the increased PPE in recent time. The historical and projected operating efficiency ratios are as follows:

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 E 2018-19 E 2019-20 E Inventory Turnover 5.41 4.66 3.82 4.99 3.97 3.68 3.84 4.05 Receivable Turnover 3.51 3.10 3.35 3.35 1.72 1.41 1.42 1.60 Avg. Collection Period* 102.58 116.25 107.32 107.54 209.01 256.13 253.47 224.91 Inventory Conv. Period* 66.55 77.20 94.30 72.13 90.79 97.76 93.72 88.92 Operating Cycle* 169.13 193.46 201.62 179.67 299.80 353.89 347.19 313.83 A/C Payable Turnover 7.61 6.73 5.35 5.49 6.04 6.22 4.59 4.63 Payables Pay. Period* 47.33 53.46 67.32 65.55 59.57 57.91 78.45 77.79 Cash Conversion Cycle* 121.80 140.00 134.30 114.75 240.23 295.98 268.74 236.04 Total Asset Turnover 30.05% 21.68% 20.85% 31.55% 27.69% 27.90% 28.22% 29.28% Fixed Asset Turnover 85.00% 68.11% 50.30% 60.89% 53.03% 54.53% 55.53% 56.40%

[The star (*) signed ratios are in Days]

The following Graph shows the comparative scenario of Average Collection Periods (ACP), Inventory Conversion Period (ICP), Operating Cycle (OC), Payables Payment Periods (PPP) and Cash Conversion Cycle (CCC) of GHAIL over the last five year periods:

45% 47% 47% 46% 46%

34%30%

38%34% 34%34%

23%16% 16% 16%

24%

15%11% 12% 12%

2012-13 2013-14 2014-15 2015-16 2016-17

Historical Profit Margins

GP OP PBT NPATSource: Annual Reports & EBLSL Research

103 116 107 108

209

67 77 9472 91

169193 202

180

300

47 53 67 6643

122 140 134115

257

2012-13 2013-14 2014-15 2015-16 2016-17

Operating Efficiency (In Days)

ACP ICP OC PPP CCCSource: Annual Reports & EBLSL Research



16

Liquidity Performance: The Current Ratio of Golden Harvest Agro Industries Limited (GHAIL) was 0.99 in FY 2016-17 as against 0.86 in FY 2015-16. This ratio indicates GHAIL’s ability to pay short term obligations. In FY 2016-17, Quick ratio was 0.77 as against 0.67 in FY 2015-16. The cash ratio is 0.04 in FY 2016-17 which was 0.02 in FY 2015-16. The historical and forecasted liquidity ratios are as follows:

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 E 2018-19 E 2019-20 E

Current Ratio 2.39 1.86 1.29 0.86 0.99 0.98 0.96 0.95

Quick Ratio 2.16 1.64 1.04 0.67 0.77 0.77 0.76 0.73

Cash Ratio 0.77 0.59 0.10 0.02 0.04 0.03 0.05 0.03

The following graph shows the Liquidity Ratios of Golden Harvest Agro Industries Limited over the last 5 years periods:

Leverage: The total long term & short term outstanding debt of GHAIL was around BDT 3,205 mn in FY 2016-17 compared to BDT 2,411 mn in FY 2015-16. The Debt Equity Ratio of GHAIL was 145.3% in FY 2016-17 compared to 119.4% in FY 2015-16. On the other hand, Debt to Total Assets Ratio was 53.6% in FY 2016-17 as against 47.8% in FY 2015-16. The historical and forecasted leverage ratios are as follows:

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 E 2018-19 E 2019-20 E

Debt to Equity 23.1% 66.1% 90.1% 119.4% 145.3% 134.3% 113.7% 96.5%

Debt to Total Assets 16.5% 35.3% 41.8% 47.8% 53.6% 51.3% 46.1% 41.7%

The following Graph depicts the leverage ratios of GHAIL over the last 5 periods:

2.39

1.86

1.29

0.86 0.99

2.16

1.64

1.040.67 0.770.77

0.59

0.10 0.02 0.04

2012-13 2013-14 2014-15 2015-16 2016-17

Liquidity Ratios

Current Ratio Quick Ratio Cash Ratio

Source: Annual Reports & EBLSL Research

23.1%

66.1%90.1%

119.4%

145.3%

16.5%35.3% 41.8% 47.8% 53.6%

2012-13 2013-14 2014-15 2015-16 2016-17

Leverage Ratios

Debt Equity Ratio Debt to Total AssetsSource: Annual Reports & EBLSL Research



17

INVESTMENT INSIGHT

Company Positive GHAIL is the market leader in Frozen Foods industry of the country having around 25% market share

and the industry is growing globally at the rate of 4.1%. GHAIL has noted 19.5% CAGR in Gross Turnover while 4.6% CAGR in Net Profit after Tax over the

year 2012-13 to 2016-17. This growth was triggered by the fairly demand of Ice Cream, frozen ready to cook foods & Snacks along with dairy products.

The new Ice Cream brand ‘Bloop’ under the company’s fully owned subsidiary has achieved 9.39% growth in revenue in FY 2016-17. Revenue contribution from the Ice Cream unit has been increased to 57.5% in FY 2016-17 from 56.2% of total consolidated sales in FY 2015-16. On the other hand, net profit contribution from Ice Cream unit was 40.48% in FY 2016-17 compared to 41.44% in FY 2015-16 and only meagre 9.3% of total consolidated net profit in FY 2014-15.

The revenue growth of GHAIL will sustain as people’s lifestyle are trending towards convenience foods. Moreover, 57.09 million urban population of the country and 20% of the total population who are in the middle class income category will help to boost up the industry in coming years.

Golden Harvest Agro Industries Limited continuously invest in Quality Control, Research & Developments, Food Processing Plants, New Technologies, Innovations, Distribution Networks, and Supply Chain Developments. Recently, it has invested in an integrated Enterprise Resource Planning (ERP) which has started to deliver efficiency and cost savings for the business operations.

GHAIL regularly introduces new products to meet the diversified customer needs and explore new frontiers. It has 75 varieties of premium quality frozen food products of vegetables, ready to eat foods as well as 40 types of Ice Cream including sticks, cones, calippo, sorbets, tubs and many more.

Golden Harvest has launched its first Compact Quick Service Restaurants branded as ‘2GO’ in December 2015 to prepare and serve fast food & drinks using mostly Golden Harvest range of existing products which is expected to create a positive impact in the earnings of the company. ‘2GO’ generated 0.74% revenue in 2016-17 having three owned outlets and seven franchised outlets in Dhaka City. They are planning to increase the franchise outlets to 60 in coming years which will hit the bottom line of GHAIL.

GHAIL has set up the nation’s first ever largest cold chain network, which is helping in maintaining & providing a series of facilities for ensuring ideal storage for the perishables from point of origin to point of sale, under GDA program with the support of USAID. The project is estimated at over USD 50 mn. The first cold chain project of the company has been started in September 2014, which has increased the operational efficiency. Now GHAIL has 11 warehouses across the country covering Dhaka, Gazipur, Bogra, Comilla, Chittagong, Noakhali and Khulna.

Extended VAT exemption on Palm Oil and Soya Bean Oil up to June 30, 2019 will help to reduce the cost of sales for the company.

GHAIL attained “British Retail Consortium Food Safety Standard” which is regarded as the highest global standard for best practice in food processing industry. GHAIL is the only TESCO (Second largest British Multinational Grocery in the world) approved food processing factory in Bangladesh.

Investment Concern

Increased Supplementary Duty on powdered milk, butter and other dairy oils in the latest budget of FY 2017-18 (from 20% to 25%) will increase the cost of goods sold for ice cream production.

GHAIL is highly exposed to leverage. Debt equity ratio of the company was 145.26% in FY 2016-17 compared to 119.42% in FY 2015-16. Interest Coverage ratio of the company is lower which is 1.95 in FY 2016-17 which was same in FY 2015-16 which indicates higher burden of debt which threatens to some extent of bankruptcy or default.

GHAIL is paying higher interest on its long term debt which is 11.0% per annum compared to prevailing market rate. It has taken syndicated term loan facility amounting BDT 700 mn for establishment of Ice Cream project with 5 years tenure from September 2015.

Target market of the Company is still narrow and urban focused that poses concentration risk to the business significantly.



18

The company has around BDT 688 mn trade receivables from the companies under the same management in FY 2016-17 compared to BDT 213 mn. which indicates questionable inter-company transactions.

Golden Harvest doesn’t have any backward linkage for raw material sourcing. Moreover, growing market of traditional street foods as well as snacks can affect the overall the business of Golden Harvest.

Dividend History:

GHAIL declared 10% stock dividend in FY 2016-17 where it was same in FY 2015-16 & 2014-15. Before that, GHAIL declared 10% cash dividend in FY 2012-13 and 2013-14. The dividend history of GHAIL is as follows:

The following graph shows the historical dividend trend of the Company:

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

Cash Dividend - 10% 10% - - -

Stock Dividend 20% 5% - 10% 10% 10%

Payout Ratio 0.0% 66.9% 102.0% 0.0% 0.0% 0.0%

Retention Rate 100.0% 33.1% -2.0% 100.0% 100.0% 100.0%

Proposed budgetary change for FY’18 which may affect the business operation of GHAIL

Extended VAT exemption on Palm Oil and Soya Bean Oil up to June 30, 2019 will help to reduce the cost of goods sold for this Company.

Increased Supplementary Duty on powdered milk, butter and other dairy oils in the latest budget of FY 2017-18 (from 20% to 25%) will increase the cost of goods sold for ice cream production.

10% 10%

20%5%

10% 10% 10%

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

Dividend Trend

Cash Dividend Stock Dividend




19

INVESTMENT THESIS

KEY ASSUMPTIONS UNDERLYING THE VALUATION

Revenue: The top line average growth of Golden Harvest Agro Industries Limited (GHAIL) has been assumed at 8% per annum. We expect that the top line growth will be achieved by the increased demand of Ice Cream as well as frozen ready to eat foods and dairy products. The dairy unit has a huge growth opportunity in coming years. It is expected the utilization rate of Dairy unit will go up from its present rate which was 18.39% in FY 2016-17. Moreover, earnings from QSR 2GO will increase as they have further expansion plan to increase the franchise outlets in next 3 or 4 years. The historical and projected revenue (In BDT mn) and growth of GHAIL are as follows:

Cost of Goods Sold: The historical average cost of goods sold is 53.5% from FY 2012-13 to FY 2016-17. In FY 2016-17, the cost of sales was 54.3% which is 0.16% lower compared to the FY 2015-16. The stable price trend of raw materials is the impetus in such decrease of cost of sales. As the historical raw material price trend is stable, we expect that the cost of direct materials will remain steady within the forecasted periods. The average COGS as percentage of sales has been considered as 53.5% in FY 2017-18 and in forecasted years. The following graph shows the historical & projected trend of cost of goods sold: Selling & Distribution Expenses: The selling and distribution expense was 10.9% of total sales in FY 2016-17 compared to 12.1% in FY 2015-16. Last seven years average selling and distribution expense as percentage of sales is 9.2%. In forecasted periods, selling and distribution expenses as percentage of total sales has been assumed at 9.17%. Administration Expenses: GHAIL’s historical average administration expense as percentage of sales is 6.5%. In FY 2016-17, administration expense was 4% of sales compared to 4.4% in FY 2015-16. In the forecasted periods, the expenses are expected to remain same as percentage of sales at 4.18%.

626 657 777

1,428 1,527 1,709 1,810 1,950 2,152

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

200

700

1,20 0

1,70 0

2,20 0

2,70 0

3,20 0

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Revenue Growth

345 346 412

773 829

915 969

1,044 1,152

55.1%

52.7%53.0%

54.1%54.3%

53.5% 53.5% 53.5% 53.5%

51. 0%

51. 5%

52. 0%

52. 5%

53. 0%

53. 5%

54. 0%

54. 5%

55. 0%

55. 5%

150

350

550

750

950

1,15 0

1,35 0

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Cost of Goods Sold (in BDT mn)

COGS % of Sales



20

Favorable Valuation both on DCF and Relative Valuation matrices

Discounted Cash Flow Valuation: Our updated DCF analysis with a discount rate of 10.24% & terminal growth rate of 4.50% gives us Net Present Value (PV) of Free Cash Flow to Firm (FCFF) of BDT 8.9 billion as of 8th February, 2018. The fair value using DCF method stands at BDT 52.42 per share for the company, which implies an upside of 29.11% from the current market price. The details of the valuation are as follows:

Sensitivity Analysis:

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

Discount Rates

Term

inal

Gro

wth

8.5% 9.0% 9.5% 10.0% 10.2% 11.0% 11.5% 12.0% 12.5%

3.0% 60.6 52.6 45.9 40.2 37.7 30.9 27.0 23.7 20.6 4.0% 78.1 66.8 57.6 49.9 46.7 37.9 33.1 29.0 25.3 4.5% 90.1 76.3 65.2 56.1 52.4 42.3 36.8 32.1 28.0 5.0% 105.6 88.1 74.5 63.6 59.1 47.3 41.1 35.8 31.2 5.5% 126.2 103.3 86.1 72.7 67.3 53.3 46.1 40.0 34.7 6.0% 155.1 123.5 101.0 84.1 77.4 60.5 52.0 44.9 38.8 6.5% 198.4 151.9 120.9 98.7 90.2 69.3 59.0 50.6 43.7

Relative Valuation Method: Favorable Valuation is derived based on relative valuation methodologies calculated over 2017-18 EPS estimates and industry multiples.

Multiples (1, 3 & 4) The historical Average PE Multiple of GHAIL stands at 26.95x. On the other hand, the historical average P/NAVPS stands at 1.98x as on 8th February, 2018.

(Figures in BDT mn) 2017-18 2018-19 2019-20 2020-21 2021-22 Terminal

Profit for the Year 207 249 304 366 409

Add: After Tax Interest Expenses 273 257 240 233 209

Add: Depreciation & Amortization 119 123 129 134 138

Less: Investment (Divestment) in NWC 79 -179 -128 -29 -219

Less: CAPEX 588 329 321 315 321

Free Cash Flow to the Firm -69 479 480 447 654 11,920

PV Adj. Free Cash flow to the Firm -69 435 395 333 443 7,322

Enterprise Value 8,860

Plus: Cash & cash equivalent 74

Less: Interest Debt 3,213

Equity Value 5,714

No. of Share Outstanding 109.01

Value per Share (In BDT) 52.42

Relative Valuation

Particulars Multiples EPS & NAVPS Valuation

Average Historical PE Multiple 26.95 (1) 1.90 51.23

Peer Firms Average Forward PE 27.08 (2) 1.90 51.47

P/NAVPS 1.98 (3) 21.95 43.34

P/NAVPS (without Rev. Res.) 2.31 (4) 21.95 50.70

Sector PE 27.10 (5) 1.90 51.51

Market PE 17.00 (6) 1.90 32.31

Weighted Average price per Share 49.88

Historical PE of GHAIL P/E (1) P/NAVPS (3) P/NAVPS Without Rev. Res. (4)

Current P/E 16.16 2.13 2.43

PE at YE 2012-13 30.89 2.45 2.91

PE at YE 2013-14 33.43 1.77 2.09

PE at YE 2014-15 38.08 1.77 2.12

PE at YE 2015-16 16.34 1.45 1.69

PE at YE 2016-17 26.81 2.28 2.61

Average 26.95 1.98 2.31



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Multiple (2, 5 & 6)

AMCL Pran, Fu-wang Food, Rangpur Dairy Food, Olympic Industries Limited and Gemini Sea Food ltd - these listed firms have been considered as the close peer firms of Golden Harvest Agro Industries Limited. The forward PE of these firms has been presented in the table. On the other hand, Food & Allied Sector Forward PE was considered 27.10 as on 25th January, 2018 and the Market Forward PE was considered 17.00 as on 25th January, 2018.

Determination of Target Price

We recommend 50% weight on the value that we derived from DCF valuation, 25% weight on FCF EV/EBITDA Multiple and 25% weight on Relative Valuation Models. Based on the weighted average of the DCF, FCF EV/EBITDA Multiple and Relative Valuation, we get a July 2018 target price of BDT 51.20 for the Company. Based on historical P/E, GHAIL’s shares have an average P/E multiple of 26.95x for 2017-18 earnings.

Valuation Methods Estimated Value Weight

Discounted Cash Flow (FCFF)- Fair value 52.42 50.0%

FCF EV/EBITDA Multiple 50.08 25.0%

Relative Valuation Models 49.88 25.0%

Weighted Average Price Per Share 51.20 100%

Current Price 40.60

Target Price 51.20

Target Holding Period 6 Months

Expected Capital Gain 26.11%

STOCK RATING

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.

Peer Firms in DSE Forward P/E

AMCL PRAN 27.1

FUWANG FOOD 29.7

RD FOOD 21.0

OLYMPIC 31.9

GEMINISEA 25.6

Peer Firms’ Average PE 27.08



22

Statement of Comprehensive Income (In BDT)

Particulars 2014-15 A 2015-16 A 2016-17 A 2017-18 E 2018-19 E 2019-20 E

Net Turnover 776,658,989 1,427,568,390 1,526,709,565 1,708,825,435 1,809,721,413 1,950,479,891

Cost of Goods Sold 411,672,817 773,012,955 829,107,901 914,779,457 968,791,743 1,044,143,480

GROSS PROFIT 364,986,172 654,555,435 697,601,664 794,045,978 840,929,670 906,336,412

Total Operating Income 457,293,310 717,115,896 738,709,750 854,494,848 904,947,687 975,333,691

Operating Expenses: 164,510,323 235,091,715 227,022,316 228,125,135 241,594,567 260,385,572

PROFIT FROM OPERATIONS 292,782,987 482,024,181 511,687,434 626,369,714 663,353,120 714,948,120

Financial Expenses 170,263,268 247,796,255 262,416,647 350,340,021 329,917,976 307,721,772

Interest Income 9,783,815 2,859,127 1,234,893 3,016,258 3,194,350 3,442,804

Profit or loss on associates - -300,000 - - - - PROFIT BEFORE WPPF 132,303,534 236,787,053 250,505,680 279,045,950 336,629,494 410,669,151

Allocation for WPPF 6,309,226 11,972,717 12,273,709 13,890,762 16,757,241 20,442,896

PROFIT BEFORE TAX 125,994,308 224,814,336 238,231,971 265,155,189 319,872,254 390,226,255

Provision for Income Tax 40,118,973 49,273,139 52,892,951 58,492,635 70,563,096 86,083,029

PROFIT AFTER TAX 85,875,335 175,541,197 185,339,020 206,662,554 249,309,158 304,143,226

EPS 0.79 1.64 1.72 1.90 2.28 2.78

Outstanding Share 99,099,000 99,099,000 109,008,900 109,008,900 119,909,790 131,900,769



23

Statement of Financial Position

(In BDT)

Particulars 2014-15 A 2015-16 A 2016-17 A 2017-18 E 2018-19 E 2019-20 E

ASSETS:

Non-Current Assets: 2,750,054,728 3,573,568,441 3,969,501,245 4,055,013,398 4,321,545,129 4,590,697,694

PPE-Carrying Value 2,043,007,481 2,646,078,977 3,111,515,064 3,155,727,510 3,362,160,151 3,553,867,296

Capital Work-in-Progress 669,487,697 737,137,698 613,618,985 614,010,044 625,321,785 643,702,331

Intangible Assets, net 12,379,666 57,896,652 92,291,793 115,806,146 138,967,376 166,760,851

Biological Assets 74,887,804 78,293,068 81,853,175 85,575,165 89,466,400

Current Assets: 1,256,509,485 1,470,822,173 2,011,727,496 2,212,759,375 2,237,216,488 2,171,589,782

Inventories 251,548,833 320,478,072 449,612,024 478,471,122 463,756,862 499,827,447

Trade Debtors 230,130,164 622,758,844 1,149,976,495 1,281,619,076 1,266,804,989 1,170,287,935

Adv. Dep. And Prepay. 676,538,313 493,053,645 338,074,273 378,401,976 400,744,362 431,913,893

Cash and Cash Equiv. 98,292,175 34,531,612 74,064,704 74,267,201 105,910,274 69,560,507

TOTAL ASSETS 4,006,564,213 5,044,390,614 5,981,228,741 6,267,772,773 6,558,761,617 6,762,287,476

Shareholders' Equity: 1,878,133,430 2,019804,788 2,207,021,636 2,392,217,597 2,660,470,645 2,924,748,058

Share Capital 819,000,000 900,900,000 990,990,000 1,090,089,000 1,199,097,900 1,319,007,690

Share Premium 408,766,054 326,866,054 236,776,054 236,776,054 236,776,054 236,776,054

Retained Earnings 313,605,166 499,493,608 693,397,688 774,509,932 914,810,190 1,039,088,731

Revaluation Reserve 303,525,145 298,356,679 278,351,144 283,850,938 302,508,159 321,348,839

Non-Current Liabilities: 1,157,863,837 1,283,754,501 1,749,028,149 1,621,803,184 1,559,919,231 1,543,912,956

Long Term Loans - Secured

1,019,563,390 1,122,438,336 1,507,224,829 1,407,224,829 1,307,224,829 1,247,224,829

Obligation under finance lease

5,550,753 34,605,096 42,488,979 43,734,223 46,595,107 45,258,517

Deferred Tax Liability 132,749,694 126,711,069 199,314,341 170,844,131 206,099,295 251,429,610

Current Liabilities: 970,566,946 1,705,009,506 2,025,178,956 2,253,751,993 2,338,371,741 2,293,626,462

Short Term Bank Loans 514,461,293 1,064,755,756 1,435,548,926 1,453,545,133 1,352,060,667 1,200,379,633

Trade Creditors 96,319,442 182,443,676 89,239,865 205,059,052 217,166,570 234,057,587

Accruals 217,506,265 223,704,924 223,406,265 228,694,864 387,516,697 469,864,566

Fin. Lease Obligation 2,331,898 9,243,801 13,863,143 14,646,736 15,604,855 15,157,227

LT Loan- Curr. Portion 139,948,048 224,861,349 263,120,757 351,806,207 366,022,952 374,167,449

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES

4,006,564,213 5,044,390,614 5,981,228,741 6,267,772,773 6,558,761,617 6,762,287,476

NAVPS 16.92 18.44 20.18 21.95 24.41 26.83



24

Ratio Analysis

Particulars 2014-15 A 2015-16 A 2016-17 A 2017-18 E 2018-19 E 2019-20 E Liquidity Ratios

Current Ratio 1.29 0.86 0.99 0.98 0.96 0.95 Quick Ratio 1.04 0.67 0.77 0.77 0.76 0.73 Cash Ratio 0.10 0.02 0.04 0.03 0.05 0.03

Operating Efficiency Ratios

Inventory Turnover Ratio 3.82 4.99 3.97 3.68 3.84 4.05 Receivable Turnover Ratio 3.35 3.35 1.72 1.41 1.42 1.60 Avg. Collection Period (Days) 107.32 107.54 209.01 256.13 253.47 224.91 Operating Cycle (Days) 201.62 179.67 299.80 353.89 347.19 313.83 A/C Payable Turn. ratio 5.35 5.49 6.04 6.22 4.59 4.63 Payables Pmt. Period (Days) 67.32 65.55 59.57 57.91 78.45 77.79 Cash Conversion Cycle (Days) 134.30 114.75 240.23 295.98 268.74 236.04 Total Asset Turnover 20.85% 31.55% 27.69% 27.90% 28.22% 29.28% Fixed Assets Turnover 50.30% 60.89% 53.03% 54.53% 55.53% 56.40%

Operating Profitability Ratios

Gross Profit Margin (GPM) 46.99% 45.85% 45.69% 46.47% 46.47% 46.47% Op. Profit Margin (OPM) 37.70% 33.77% 33.52% 36.65% 36.65% 36.65% Pre Tax Profit Margin 16.22% 15.75% 15.60% 15.52% 17.68% 20.01% Net Profit Margin (NPM) 11.06% 12.30% 12.14% 12.09% 13.78% 15.59% Return on Total Assets (ROA) 2.31% 3.88% 3.36% 3.37% 3.89% 4.57% Return on Equity (ROE) 4.65% 9.06% 8.77% 8.99% 9.87% 10.89%

Leverage Ratios Total Debt to Equity 90.1% 119.4% 145.3% 134.3% 113.7% 96.5% Debt to Total Assets 41.8% 47.8% 53.6% 51.3% 46.1% 41.7%

Coverage Ratios Times Interest Earned (TIE) 1.72 1.95 1.95 1.79 2.01 2.32 Valuation Ratios P/B (price to book) Ratio 1.77 1.45 2.28 2.37 2.13 1.94 P/E Ratio 38.08 16.34 26.81 27.35 22.75 18.70 EV/EBITDA 15.10 9.88 12.88 11.83 11.65 11.39 EV/Sales 6.26 3.72 5.34 5.16 5.06 4.93 Price/Sales 4.21 2.05 3.28 3.32 3.44 3.51 Sales/ Share 7.12 13.10 14.01 15.68 15.09 14.79

Growth Rates EPS Growth Rate -11.63% 108.17% 4.63% 10.76% 20.20% 21.63% Sales Growth Rate 18.28% 83.81% 6.94% 11.93% 5.90% 7.78% Gross Profit Growth 17.44% 79.34% 6.58% 13.83% 5.90% 7.78% EBIT Growth Rate 47.29% 64.64% 6.15% 22.41% 5.90% 7.78% Net Income Growth -11.63% 104.41% 5.58% 11.51% 20.64% 21.99% Total Asset Growth Rate 16.37% 25.90% 18.57% 4.79% 4.64% 3.10%

Other Data Stock price- Period End 30.00 26.80 46.00 51.97 51.97 51.97 No. of shares (In mn) 99.10 99.10 109.01 109.01 119.91 131.90 Market Cap (In BDT mn) 2,972.97 2,655.85 5,014 5,665 6,232 6,855 EBITDA (In BDT mn) 321.82 537.48 633 744 785 844 EV (In BDT mn) 4,561.09 5,042.59 8,153 8,810 9,158 9,615 Depreciation (In BDT mn) …

29.03 55.45 121 118 122 129

DUPONT ANALYSIS Net Profit AT/Sales 11.06% 12.30% 12.14% 12.09% 13.78% 15.59% Sales/Total Assets 20.85% 31.55% 27.69% 27.90% 28.22% 29.28% ROA 2.31% 3.88% 3.36% 3.37% 3.89% 4.57% Net Profit AT/Total Assets 2.31% 3.88% 3.36% 3.37% 3.89% 4.57% Total Assets/ Equity 2.00 2.33 2.61 2.66 2.54 2.39 ROE 4.65% 9.06% 8.77% 8.99% 9.87% 10.89%

Extended DUPONT ANALYSIS Net Profit/Pretax Profit 68.11% 79.52% 78.51% 77.94% 77.94% 77.94% Pretax Profit/EBIT 43.03% 46.64% 46.56% 42.33% 48.22% 54.58% EBIT/Sales 37.70% 33.77% 33.52% 36.65% 36.65% 36.65% Sales/Assets 20.85% 31.55% 27.69% 27.90% 28.22% 29.28% Assets/Equity 2.00 2.33 2.61 2.66 2.54 2.39



25

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