Walton Hi-tech Industries Limited

VALUATION REPORT OF SECURITIES

PREPARED BY THE ISSUE MANAGER
The valuation report is prepared analyzing relevant financial information as well as the
information directly or indirectly associated to the issue of securities. Incorporating the
guided Rule No 4(2) (a) (i) and Annexure- E (B) (14) of Bangladesh Securities and Exchange
Commission (Public Issue) Rules 2015, this valuation report is prepared.

While preparing the valuation report, a number of qualitative factors are measured to ensure
the optimum fair value of the securities. Apart from that, the probable impact of these
mentioned qualitative factors is reflected in the valuation.

Qualitative Factors:

1. The management body of the company is highly experienced in managing the

operations of the company. Additionally, the financial management history reveals
that the firm has an impressive track record of earnings management.

2. The profit margin, EPS, ROE, and ROI are providing signals of strong performance as
well as indicating better performance in the forthcoming years.

3. The company produces Hi-tech electronics and the company is continuously

developing its products design and quality.

4. The company has captured more than 70% market shares, and it is the industry leader
in Bangladesh.

5. The market trend is suggesting a rapid growth in the demands for refrigerator, AC
and other Hi tech products, which indicates the company will experience growth in
future.

Quantitative Valuation:

The guided principles of Rule No 4(2) (a) (i) and Annexure- E (B) (14) suggest that the
valuation of a company stock should be duly done under four (4) different methods. Hence,
the quantitate valuation of the company stock is done as per the prescribed Rules. The
following table represents a summary of the quantitative valuation.

Calculated Fair
Reference Valuation Method
Value (BDT)
Method - 1 (A) Net Asset Value (NAV) Per Share with Revaluation 243.16
Method - 1 (B) Net Asset Value (NAV) Per Share without
138.53
Revaluation
Method - 2 (A) Earning Based Value Per Share (Market P/E) 391.37
Method - 2 (B) Earning Based Value Per Share (Sector P/E) 396.58
Method - 3 Average Market Price of Similar Stocks 207.95
Method - 4 P/BV Multiple of Similar Stocks 994.04
Based on Audited Financial Statement for the year ended June 30, 2019
 METHOD 1 (A)

VALUATION USING NET ASSET VALUE (NAV) PER SHARE WITH REVALUATION

The Net Asset Value (NAV) is calculated using the information from the most recently
published audited financial statements on June 30, 2019. To calculate the NAV the net assets
of the company is divided by the total number of outstanding shares. The company have
revaluation surplus of Tk. 31,390,563,206 in the reported year. Therefore, the NAV of the
company with revaluation reserve is found to be 243.26 Taka per share. Details calculation of
the valuation is given in the following table:

As on June 30, 2019

Note Particulars Amount in Taka
A Share Capital 3,000,000,000
B Retained Earnings 38,587,504,162
C Revaluation Surplus 31,390,563,206
Total Shareholders’ Equity as on June 30, 2019
D 72,978,067,368
(A+B+C)
E Number of Shares Outstanding 300,000,000
F Net Asset Value (NAV) per share with revaluation [D/E] 243.16

METHOD 1 (B)

VALUATION USING NET ASSET VALUE (NAV) PER SHARE WITHOUT REVALUATION

The net asset value of the company would stand at 138.63 Taka per share if the revaluation
reserve is not incorporated in the valuation of the stocks of the company. The calculations are
given in the following table:

As on June 30, 2019

Particulars Note Taka
Share Capital A 3,000,000,000
Retained Earnings B 38,587,504,162
Total Shareholder's Equity A+B=C 41,587,504,162
Number of Shares Outstanding D 300,000,000
Net Asset Value Per Share [C/D] 138.53
METHOD 2(A): EARNING BASED VALUATION PER SHARE USING MARKET P/E

The base of earning based valuation is the historical financial information. To calculate the fair
value per share, last five years financial statements were used. Especially the historical net
income after tax of last five years (2015-2019) were used along with the number of outstanding
shares of the company in the respective year. Using the cumulative shares, a weighted average
earning per year is calculated, which is then used to calculate weighted average net profit after
tax. The weighted average EPS is calculated to be 28.42 Taka. The average market P/E is
calculated using the market returns of DSE. It is found that the average market P/E is 13.77,
which is multiplied with the weighted average EPS 28.42 to find the fair value of the share of
391.37 Taka per share. Details is given in the following table:

Weight on Weighted Average

No. of Net Profit after
SL. Year Total Number Net Profit after Tax
Shares Tax (BDT)
of Shares (BDT)
A 30.06.2019 300,000,000 13,761,138,603 0.48 6,552,923,144
B 30.06.2018 300,000,000 3,523,210,384 0.48 1,677,719,230
C 30.06.2017 10,000,000 7,344,818,375 0.02 116,584,419
E 30.06.2016 10,000,000 6,214,633,475 0.02 98,644,976
F 30.06.2015 10,000,000 5,025,571,574 0.02 79,770,977
G Total 630,000,000 1 8,525,642,747
H Number of Shares Before IPO 300,000,000
I Weighted Average Earning Per Share [G/H] 28.42
J Relevant P/E Multiple * 13.77
K Historical Earning Based Value Per Share [I*J] 391.37

THE MARKET P/E CALCULATION:

Walton Hi-Tech Industries Limited could be categorized as a company under “Engineering”
category according to the analysis on the Nature of the business. The monthly P/E of the
market of six months (April 2019 to September 2019) were collected from the monthly review
of DSE, and then the average P/E of the market is calculated, which is 13.77. The details of the
market P/E calculation are given in following table:

Market P/E
Month Market
April 2019 14
May 2019 13.97
June 2019 14.25
July 2019 13.46
August 2019 13.59
September 2019 13.36
Average 13.77
Source: DSE Monthly Review
METHOD 2(B): EARNING BASED VALUATION PER SHARE USING SECTOR P/E

To calculate the fair value per share, last five years financial statements were used. Especially
the historical net income after tax of last five years (2015-2019) were used along with the
number of outstanding shares of the company in the respective year. Using the cumulative
shares, a weighted average earning per year is calculated, which is then used to calculate
weighted average net profit after tax. The weighted average EPS is calculated to be 28.42 Taka.
The average sector P/E is calculated assuming the “Engineering” sector as the ideal match to
the company. It is found that the average sector P/E is 17.37, which is multiplied with the
weighted average EPS 28.42 to find the fair value of the share of 396.58 Taka per share. Details
is given in the following table:

Weight on Weighted Average

No. of Net Profit after
SL. Year Total Number Net Profit after Tax
Shares Tax (BDT)
of Shares (BDT)
A 30.06.2019 300,000,000 13,761,138,603 0.48 6,552,923,144
B 30.06.2018 300,000,000 3,523,210,384 0.48 1,677,719,230
C 30.06.2017 10,000,000 7,344,818,375 0.02 116,584,419
E 30.06.2016 10,000,000 6,214,633,475 0.02 98,644,976
F 30.06.2015 10,000,000 5,025,571,574 0.02 79,770,977
G Total 630,000,000 1 8,525,642,747
H Number of Shares Before IPO 300,000,000
I Weighted Average Earning Per Share [G/H] 28.42
J Relevant P/E Multiple * 13.96
K Historical Earning Based Value Per Share [I*J] 396.58

THE SECTOR P/E CALCULATION:

Walton Hi-Tech Industries Limited could be categorized as a company under “Engineering”

category according to the analysis on the Nature of the business. The monthly P/E of the
sector of six months (April 2019 to September 2019) were collected from the monthly review
of DSE, and then the average P/E of the sector is calculated, which is 13.96. The details of the
market P/E calculation are given in following table:

Engineering Sector
Month P/E
April 2019 13.63
May 2019 14.3
June 2019 14.56
July 2019 14.56
August 2019 13.9
September 2019 12.78
Average 13.96
Source: DSE Monthly Review
METHOD 3: VALUATION USING THE AVERAGE MARKET PRICE OF SIMILAR STOCKS

Walton Hi-Tech Industries Limited is a company that produces refrigerator, air conditioner,
and others hi-tech products, therefore, it is categorized as a company under the “Engineering”
sector. To determine the similar stocks that are similar to the company a number of factors
were considered.

Sources of Information:

Identification of peer companies required a thorough analysis on all the stocks that are being
traded under the “Engineering” sector of Dhaka Stock Exchange (DSE) & Chittagong Stock
Exchange (CSE). Hence, the primary information about the peer companies is collected from
DSE and CSE websites.

Secondary information such as company operations, products, services, and facilities etc. is
collected from the respective company websites. Relevant financial information that is
considered for the valuation is taken from the last audited financial statements published on
June 30, 2018.

Similarities that were considered:

Although many attributes are considered, while selecting the peer companies, such as
company paid up capital, dividend behavior, market category, gross turnover etc., but we put
more emphasize on the companies that produces similar products. The following condition
would justify the action:

1. The risks of the business operations of electrical and electronics product-based

companies are quite different from the other producing companies. This type of
companies experience dynamicity risks as majority of these companies’ products
seems to be replaced by a new technology at a faster speed than any other production-
based industry.

2. Company that are selling electrical and electronics products are dependent on hi
quality raw materials and parts that are being imported from outside countries.

3. Therefore, it is concluded that the ideal peer company of Walton Hi-Tech Industries
Limited would be the companies that produces similar products and signify similar
business nature.

After considering the above, Singer Bangladesh Ltd. is considered to be the best representative
company for WHIL’s valuation.
Average Closing Price of Similar Stocks [1 Year]

Yearly Average Market Price of Similar Stocks

Month Singer Bangladesh Ltd.
October-18 216.40
November-18 215.10
December-18 221.20
January-19 235.90
February-19 240.00
March-19 193.80
April-19 169.90
May-19 178.60
June-19 193.20
July-19 211.40
August-19 209.40
September-19 210.50
Average 207.95

METHOD 4: VALUATION OF STOCKS USING P/BV MULTIPLE OF PEER COMPANIES

Information collected from the audited accounts of Singer Bangladesh Ltd. for the date June
30, 2018. To calculate the value of stock, the average 12 months’ (October 2018 to September
2019) market price of the peer company is divided by respective NAV to find the P/BV ratio
of the respective company. The P/BV is then multiplied with the WHIL’s NAV to find the fair
value of the stocks to be 994.04 Taka per share. The details calculation is given in the following
table-

Sl.
Company Average Price NAV P/BV
No.
1 Singer Bangladesh Ltd. 207.95 29 7.17
Average P/BV of Above Company 7.17
NAV Per Share of Walton Hi-Tech Industries Limited 138.63
Share Price of Walton Under P/BV Valuation 994.04

____________________________________________________________________________________

Excerpt from Red-Herring Prospectus of Walton Hi-Tech Industries Limited dt. 02.01.2020 (Pg: 357-363)

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