bangladesh presentation dec 06
TRANSCRIPT
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AGENDA
Introduction to Bangladesh
Investing in Bangladesh
Stock Exchanges in Bangladesh
Equity Partners Limited
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OVERVIEW OF BANGLADESH
Population: 140-150 million (slightly larger than Russia - 7th
largest in the World)
Land Area: 147,570 sq.km. (about the same size as Greece 101st largest in the World)
Main Towns: Dhaka (9.9 million), Chittagong (3.2 m), Khulna(1.2 m) and Rajshahi (0.6 m)
Geography: Flat fertile alluvial land, 147,570 sq km
Languages: 95% Bangla and 5% other dialects. Englishwidely spoken
Religions: Muslim 88.3%, Hindu 10.5%, Buddhist 0.3%,Christian 0.3%, others 0.6%
Bangladesh is the worlds 7th most populous country, locatedbetweenBurmaandIndia
LOCATION
Bangladesh
KEY STATISTICS
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A VICTIM OF PERCEPTION
Lookingbeneath the surface of public perception, Bangladeshs recent performance andfundamentals far exceeds its reputation
Since democracy was restored in 1990, all 3 elections have been free and fair
Primary education is now compulsory and free, with equal gender participation
Literacy is rapidly improving, and projected to reach 95% by 2010
Average annual GDP growth exceeded 5% for 16 consecutive years and is forecast to exceed 6.6% in 2006
Bangladesh is credit worthy, having never defaulted on its debt obligations, and has low foreign debt: USD 21 bill ion in2005; with 2005 exports at USD 9.3 billion
Government and opposition firmly pro-business, pro-FDI, having never annulled treaties, concessions, or agreementswith the private sector or foreign investors
It has two modern and efficiently managed stock markets, the oldest founded in 1954, the second in 1995
Such perception overshadows consistent and impressive socioeconomic developments
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AGENDA
Background on Bangladesh
Investing in Bangladesh
Stock Exchanges in Bangladesh
Equity Partners Limited
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0
20
40
60
1990 1992 1994 1996 1998 2000 2002 2004
0
2
4
6
8
10
1990 1993 1996 1999 2002 2005
SUSTAINED HISTORICAL GROWTH
Historicalgrowth has been high andconsistent, fuelled in part bya move away from anagricultural toan industrialeconomy
Floods and corruption notwithstanding, Bangladesh
consistently manages economic growth exceeding 5percent
Of 151 countries the World Bank reviewed, the GDP of
Bangladesh has expanded with the least volatility
Growth increasingly fuelled by change from agricultural to
industrial economy
Despite expiry of multi-fibre agreement, export growth
continues to be high in 2006
Bangladesh has had little difficulty competing on price, and
has recently benefited from the up-market move of
Chinese products
Export Receipts
(1990-2005, USD B in FY starting)
Source: World Bank Ease of Doing Business Study, Economist Intelligence Unit
GDP at current market prices
(1990-2004, USD B in FY starting)
6
52
26 21
21 25 2
1
5 1
5 2005
GDP Composition(1985-2005, % of total GDP)
Industry
Agriculture
Services
8.4%
CAGR
11.3%
CAGR
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WORLD BANK INVESTOR PROTECTION RANKING
FAVOURABLE INVESTMENT CLIMATE
Stronginvestor protection combinedwith favourable public policy climate has significantly increased the
number of foreign entrants over the pastnumber of years
EXAMPLES OF RECENT ENTRANTS
Energy
Consumerproducts
Telecoms
Cement
100% foreign ownership of companies with no exit restrictions
100% repatriation of capital plus dividend and investment profits
Reinvestment of repatriable dividend treated as new investment
No capital gains tax
5%+ shareholder of listed company gets a board seat
Strong policy encouraging companies to become public; if a companylists and pays at least 10% (of par value) dividend, its tax burdendecreases from 40% to 30% if it gives dividends above 20%, thecompany receives an additional 10% tax rebate
FAVOURABLE INVESTMENT CLIMATE
Source: World Bank Ease of Doing Business Study
New Zealand 1United Kingdom 9
Norway 16Bangladesh 17
India 29
Taiwan 65
Italy 86
Korea 87
Philippines 132
Vietnam 143
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STRONG GROWTH PROSPECTS
Proactive reforms are enablingBangladesh to capitalize on strongfundamentals andgain recognitionas
a keygrowth market from both Economists andInvestmentBanks
Donor agencies and development partners exerting
strong pressure to expedite reforms in every sector of
government
The independent Anti Corruption Commission working on
separating the judiciary from administration
Bangladesh has substantial gas reserves
Large exports of gas and coal are within our investment
horizon
Overseas Bangladeshis remit over $4 billion annually
through official channels and another $2 billion
unofficially.
Proactive reforms combined with strongfundamentals
"Next Eleven" is a Goldman Sachs term coined to
describe economies with high growth potential, such as
the "BRICs" economies (Brazil, Russia, India, and China)
Asserts that Bangladesh will grow faster than earlier
predicted when comparing the 22 economies of the G7,BRICs and Next Eleven
Criteria for Next Eleven include macroeconomic stability,
political maturity, openness of trade and investment
policies and quality of education
Bangladesh promoted as a key growth prospect in Jeffrey
Sachs End of Poverty; Bangladesh today is far from a
basket case
has lead Goldman Sachs and others to identifyBangladesh as a key growth market
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KEY ECONOMIC RATIOS AND LONG-TERM INDICATORS
Economygrowingsteadily
1985 1995 2004 2005
GDP(US$ billions) 21.6 37.9 56.6 60.0
Gross capitalformation/GDP 16.3 19.1 24.0 24.4
Exports ofgoods andservices/GDP 5.6 10.9 15.5 16.1
Gross domestic savings/GDP 8.6 12.6 18.7 17.9
Gross nationalsavings/GDP 13.4 18.6 24.6 29.7
Currentaccount balance/GDP -2.8 -1.8 0.3 -0.5
Interest payments/GDP 0.6 0.5 0.3 0.4
Totaldebt/GDP 30.8 42.0 35.4 35.3
Totaldebt service/exports 21.0 14.2 8.0 8.3
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STRUCTURE OF THE ECONOMY
Movingaway from anagriculturaleconomy..
1985 1995 2004 2005
(% of GDP)
Agriculture 32.8 26.4 21.0 20.5
Industry 21.4 24.6 26.6 2 8.0
Manufacturing 14.2 15.3 16.1 17.0
Services 45.8 49.1 52.4 51.5
Household f
ina
lco
nsumptio
nexpe
nditure
87.2
82.7 7
5.8
76.6Generalgov'tfinalconsumption expenditure 4.2 4.6 5.5. 5.5
Importsofgoods andservices 13.2 17.3 20.8 22.6
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AGENDA
Background on Bangladesh
Investing in Bangladesh
Stock Exchanges in Bangladesh
Equity Partners Limited
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STOCK EXCHANGES IN BANGLADESH
Bangladesh has two stock exchanges, the Dhaka Stock Exchange (DSE) founded in 1954, andtheChittagongStock Exchange (CSE) founded in 1995
Two exchanges - Dhaka Stock Exchange (DSE), founded in 1954 which grew to 230 members, and the
Chittagong Stock Exchange (CSE), founded in 1995 now with 157 members
Clearance is T +6 for D.V.P and T+3 for Non-D.V.P. and international custodians operate in the local
markets
Supervision is exercised by the SEC which was set up in 1993 to regulate the development of the market
and enhance investors protection. Investor protection is ranked in the top 10% of the world by the World
Bank
Main institutional investors in the stock market are local insurance companies, commercial banks,
provident funds, trusts, and pension funds. Very few foreign institutional investors or funds have apresence in the market
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DHAKA STOCK EXCHANGE (DSE)
Dhaka Stock Exchange is a modern stock exchange with 303listedsecurities anda market capitalizationof over $4 billion
OperationalInformation
Dhaka Stock Exchange has automated screen-basedtrading facilities for its members
Previously an open outcry system, now a moderncomputer based matching system, facili tating traders toconduct online trading from their office
The central trading engine operates on TANDEM, a 24hour, 7 days a week system, popular worldwide for itsfault tolerance reliability.
Shares are bought and sold through stockbrokerslicensed by the DSE
The TESA system matches the best buy or sell order
and automatically confirms the deal. After the trade,both the buying and selling broker send a contract noteproviding details of the transaction
Trading sessions at the DSE are Saturday to Thursdaybeginning at 10:00 a.m. and ending at 2:00 p.m.
HSBC acts as the Funds custodian and trades DVP
Market Capitalization
0
100
1
0
200
2
0
00
01/04 0
/04 0
/04 01/0
0
/0
0
/0
01/0
0
/0
0
/0
($B Tk, 01/2004-0 /200 )
Market capitalization has grown steady over past two
years, and currently stands at USD$ 4.1 B However, DSE remains considerably smaller than
regional comparatives, reflecting the current low levels
of foreign investment in market
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RECENT PERFORMANCE
The DSE has avoided the substantive run up in emergingmarkets over the past two years, remainingundervalued, with considerable future growth prospects
Context
In contrast to the huge run up in Emerging Markets over
the last two years, the Bangladesh market has declined
sharply since its 2004 peak
In 2004 Bangladesh was one of the best performing
markets in Asia rising by 104%. In 2005 it declined by 16%
and it has continued to decline so that as of May 18, 2006,
the DSE General index was down 30% from the its peak in
2004
Fall primarily attributed to over-subscriptions of the few
IPOs which removed liquidity, speculative trading by the
general public, increase of interest rates on fixed income
and savings instruments, political turmoil and sale of stocks
by those who availed themselves of the opportunity to
clean undeclared income by paying a one-off 7.5% tax.
The forthcoming general election and expectation of lower
dividends also contributed to the decline. This is expected
to reverse shortly
Avg. DailyTurnover
100
200
300
400
500
600
01/04 05/04 0
/04 01/05 05/05 0
/05 01/06 05/06 0
/06
($M Tk, 01/2004-0 /2006)
DSE-20
(Month-end value, 01/2004-0 /2006)
1000
1200
1400
1600
1800
20002200
2400
01/04 05/04 0
/04 01/05 05/05 0
/05 01/06 05/06 0
/06
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POTENTIAL GROWTH
Buildingon its current strongbase, the localmarkets are poised for substantive growth in the medium tolongterm
Most of the remaining third generation banks and 17 finance companies will be listed in 2006/7 in line withCentral Bank requirements
Double regulatory supervision (Central Bank and the SEC), quality auditors, separation of Board andManagement, inclusion of outside directors (mandatory for newly listed companies), and continuousdividend payouts, make the banking / finance sector very attractive to both local and international
investors
The S.E.C. has drafted regulations requiring companies in operation for three years with paid up capital ofBDT 500.00 million or more to list
Foreign energy and infrastructure development companies are interested to float their shares, indicating asupply of quality stocks coming to market
The Central Bank forecasts real GDP growth for FY06 of between 6.3% to 6.8%
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SOME CAUTIONARY NOTES
The main impediments to unbridled growth in Bangladesh remain:
its political system
corruption
poor external liquidity
high dependence on multilateral/bilateral grants and soft loans
infrastructure problems, particularly in power generation and continued supply disruption,
transportation, and telecommunication.
On the other hand, the IMF praises it for following prudent macroeconomic policies. Quantitative targets and
performance criteria under a three-year fund facility are met or exceeded and it has a sustainable
medium-term fiscal path
The country seems to work despite, rather than because of, its politicians.
Elections are due early 2007 and the run up may buffet the market. We view any decline as a potential
buying opportunity.
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AGENDA
Background on Bangladesh
Investing in Bangladesh
Stock Exchanges in Bangladesh
Equity Partners Limited
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DIRECTORS AND OFFICERS OF EPL
EPL brings togetheran experienced, dedicatedandinternationalteam ofDirectors andadvisors,ensuringthatglobalknowledge is brought together with localunderstanding to best serve its partners
The Honorable Andrew Fraser, Chairman
Highly experienced in transit ion economies and Asia.Previously with Kleinwort Benson; Vickers Da Costa; Sun Hung Kai Securities; Henderson Crosswaithe; Barings Securities.Eton and Oxford educated founding Chairman of EPL.
Dr. Marc Faber, Director
Well respected strategist, lecturer, and market commentator.Author of iconic monthly Gloom Boom & Doom Report.Best-selling author and contributor to leading financial publications.
Mark Reinecke, Managing Director
Former Managing Director of Indosuez W.I. Carr Securities for Thailand, Indonesia, and the Philippines.Extensive Asian experience with Baring Securities and then ING Barings, followed by Asset Plus Securities, the leading localmerchant bank in Thailand.Educated in law at the London School of Economics, with a specialty in Islamic Jurisprudence.
Saiful Islam, Director and Head of Office
Former executive in custody department at Standard Chartered Bank.Founding member of Peregrines Dhaka office.
Latterly a Director of the Dhaka Stock Exchange.
Shafqat Ahmed, Senior Investment Analyst
Mohammad Menhaz Uddin, Manager-Institutional Sales
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EPL Top Picks
SQUARE PHARMACEUTICALS LIMITED
Mkt. Cap BDT 13,681 m / US$ 195 m*
Free float 37%
BEXIMCO PHARMACEUTICALS LIMITED
Mkt. Cap BDT 5,528 m / US$ 79 m*
Free float 41%
*Price as on 23 November 2006
Y/E 31 Dec FY04A FY05A FY06E FY07E
Net Sales 2,402.70 3,327.02 4,158.78 5,198.47
Net Profit 329.38 489.26 540.25 690.16
EPS 5.88 5.10 5.63 7.20
P/E (x) 9.02 10.41 9.43 7.38
EV/EBITDA (x) 10.67 10.79 10.66 10.49
P/Bv (x) 0.61 0.75 0.61 0.58
ROA 3.80% 4.47% 3.70% 3.77%
ROE 6.81% 7.17% 6.79% 8.19%
Y/E 31 Mar FY04A FY05A FY06E FY07E
Net Sales 5,708.48 6 ,369.23 7,256.04 8,245.37
Net Profit 1,007.82 1 ,311.34 1,354.53 1,392.45
EPS 279.95 303.55 272.65 233.57
P/E (x) 8.20 7.56 8.42 9.83
EV/EBITDA (x) 6.74 6.91 7.20 7.45
P/Bv (x) 1.61 1.61 1.59 1.54
ROA 14.75% 14.63% 12.38% 11.70%
ROE 19.62% 21.25% 18.83% 15.62%
Key Financials (In Mn BDT) Key Financials (In Mn BDT)
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EPL Top Picks contd.
DHAKA ELECTRIC SUPPLY COMPANY LIMITED (DESCO)
Mkt. Cap BDT 4,931 m / US$ 70 m*
Free float 25%
*Price as on 23 November 2006
Key Financials (In Mn BDT)
Y/E 30 June FY04A FY05A FY06E FY07E
Net Sales 4,955.04 5,475.90 6,590.84 8,642.77
Net Profit 338.00 540.39 565.68 1,026.73
EPS 26.59 42.51 44.50 80.77
P/E (x) 14.59 9.13 8.72 4.80
EV/EBITDA (x) 9.08 6.44 4.66
P/Bv (x) 3.64 2.60 2.23
ROA (%) 3.83% 5.24% 4.52% 6.89%
ROE (%) 24.98% 28.47% 25.60% 34.43%
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EPL Top Picks contd.
PRIME BANK LIMITED
Mkt. Cap BDT 7,932 m / US$ 113 m*
Free float 43%
DHAKA BANK LIMITED
Mkt. Cap BDT 5,264 m / US$ 75 m*
Free float 25%
*Price as on 23 November 2006
Key Financials (In Mn BDT) Key Financials (In Mn BDT)
Y/E 31 Dec FY04A FY05A FY06E FY07E
Interest Income 2,640.91 3,445.52 4,326.63 5,700.63
Non Int. Income 946 1,232 1,520 1,900
Net Int. Income 1,024.73 1,174.51 1,107.33 1,482.16
PAT 611.94 568.20 671.82 892.83
ROA (%) 1.89% 1.37% 1.30% 1.39%
ROE (%) 27.32% 20.23% 20.66% 25.03%
NIM (%) 4.50% 3.94% 2.86% 2.95%
EPS 61.19 40.59 38.39 51.02
P/E (x) 7.41 11.17 11.81 8.88
P/Bv (x) 2.02 2.26 2.44 2.22
DivY 8.83% 5.52% 4.41% 4.41%
Y/E 31 Dec FY04A FY05A FY06E FY07E
Interest Income 2,010.92 2,897.12 3,719.88 4,824.22
Non Int. Income 648.09 738.87 929.97 988.09
Net Int. Income 621.75 748.21 1,012.23 1,520.88
PAT 357.57 462.56 561.02 728.01
ROA (%) 1.27% 1.40% 1.32% 1.41%
ROE (%) 24.03% 20.87% 22.59% 25.48%
NIM (%) 2.95% 2.81% 3.09% 3.64%
EPS 53.86 37.66 43.51 56.46
P/E (x) 7.58 10.84 9.38 7.23
P/Bv (x) 1.82 2.26 2.12 1.84
DivY 11.02% 6.12% 6.12% 6.12%
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