Equity Note on MJL Bangladesh Limited

Analyst: Shohidul Islam

Company Overview
MJL Bangladesh Limited (MJL), incorporated in 1998, is a Joint Venture company in Company Basics
the petroleum industry between EC Securities Ltd (owning 52.06%), subsidiary of the DSE Code MJLBD
East Coast Group and Jamuna Oil Company Ltd (owning 19.45%). MJLBD’s basic
Current Price (BDT) 89.1
products are mainly divided into two categories namely locally blended products and
imported finished products. MJL is the largest lubricant Company of Bangladesh in Paid-up Capital (BDT mn) 3,167.52
terms of capacity, market share, revenues and profits. Besides, MJL is engaged in Market Cap (BDT mn) 27,494.08
LPG business through its subsidiaries. Market Weight 0.7%

MJLBD primarily receives base oils from ExxonMobil and additives from other global Free-float (Public + Inst.) 28.5%
suppliers. The base oils are blended in the country to produce the desired grade of Sector Fuel & Power
lube oil. The Company also imports the finished lubricant products to meet the local 52-Week High-Low 84.50 - 111.30
as well as the foreign market demand. The company has also Oil Tanker unit having
Company PE 15.12
two large ocean-going vessels with about 106,547 DWT and of 107,091 DWT capacity
that facilitate the global B2B petrochemicals trading business into the international Sector Forward P/E 12.5
petroleum markets.

Subsidiaries/Associate: 12 months Stock Price Movement with DSEX Index

Omera Petroleum Limited (OPL) (62.5% holding) is engaged in the storage, bottling 120
and distribution of liquefied petroleum gas (LPG) with a cumulative capacity of three
110
lacs MT per annum.
100

Omera Cylinders Limited (OCL) (98.77% holding) is engaged as a backward 90

integration in the manufacturing of internationally-compliant cylinders with an 80
installed capacity of 1,200,000 cylinders per annum.
70

MJL & AKT Petroleum Company Limited (51% holding) is operating in the 60 5/17/2018
5/31/2018
6/14/2018
6/28/2018
7/12/2018
7/26/2018

8/23/2018

9/20/2018
10/4/2018
10/18/2018
11/1/2018
11/15/2018
11/29/2018
12/13/2018
12/27/2018
1/10/2019
1/24/2019

2/21/2019

3/21/2019

4/18/2019

5/16/2019
5/3/2018

8/9/2018

9/6/2018

2/7/2019

3/7/2019

4/4/2019

5/2/2019
downstream petroleum business in Myanmar. The JV markets and distributes this
world-class lubricant in Myanmar sourcing Mobil branded products from
ExxonMobil. MJLBD DSEX

Omera Gas One (A step-down subsidiary, subsidiary of Omera Petroleum), a joint venture with Japan’s energy giant, Saisan Co. Limited,
was established for supplying LPG to residential and commercial complexes and the
industrial and automotive sectors of Bangladesh. Period 30-Jun-18 29-Feb-19 31-Mar-19 31-Apr-19

Sponsor 71.53% 71.53% 71.53% 71.53%

Corporate Profile
Govt 0.00% 0.00% 0.00% 0.00%
Key People:
Chairman Mr. Nazimuddin Chowdhury Institute 15.82% 17.79% 17.79% 18.00%
Managing Director Mr. Azam J Chowdhury
Foreign 0.50% 0.36% 0.36% 0.35%
Factory Location (LOBP) in Guptakhal, (OPL) in (OPL) East
Potanga,Chittagong , (OCL) in Habiganj, Public 12.15% 10.32% 10.32% 10.12%

Revenue Composition

Unit Basis 2018-19 (9m) 2017-18 (9m) Composition-2018-19 (9m) Composition 2017-18 (9m)
BDT mn BDT mn
18% 8%
Oil Tanker Unit 1,251 561
Oil Tanker Unit Oil Tanker Unit
39%
44%
Manufacturing Unit 3,050 3,212 Manufacturing Unit Manufacturing Unit
Trading Unit 48% Trading Unit
Trading Unit 2,733 2,944 43%

Consolidated Basis 2018-19 (9m) 2017-18 (9m) Composition -2018-19 (9m) Composition 2017-18 (9m)
BDT mn BDT mn
0% 1%
MJL 7,034 5,925 MJL MJL
46% OPL 46% OPL
OPL 8,164 6,796 54% 53%
MJL & Akt Pt. Ltd MJL & Akt Pt. Ltd

MJL & Akt Pt. Ltd 68 79

Note: Sales of OCL are adjusted with the sales of OPL.

Source: BASL Research and Company Annual Report

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 Equity Note on MJL Bangladesh Limited

Production Capacity & Utilization

The company is continuously increasing its production capacity of Particulars Capacity Utilization (%)
different product portfolio as well as utilization to meet up the 2017-18 2016-17
customer demand in the market. In 2017-18, the capacity Lube Oil (Mobil+Omera) 150kB 61.01% 56.70%

utilization of different products has increased by 5% -10% from Omera Grease 850 MT 4.87% 3.25%
2016-17. Viscocity Improver (VI) 800 MT 64.68% 58.96%

Omera Transfer Oil 2000 MT 4.83% 15.79%

Omera Queen 106,547 (DWT -MT)

Omera Legacy 107,091 (DWT -MT)

Financial Information Highlights (BDT mn)

Financials 2014 Jan 2015 - Jun 2016 2016-17 2017-18 2018-19(9m)
Revenue 8,294 14,286 13,979 17,516 15,266
Operating Profit 1,573 2,398 2,906 3,156 2,350
Profit After Tax 1,045 1,975 2,129 2,294 1,576
Assets 17,449 20,211 25,288 30,084 31,948
Shareholder Equity 8,573 9,737 11,150 12,431 12,795
Retained Earnings 1,294 1,876 2,932 3,703 3,560
Long Term Debt 1,565 1,597 1,048 809 2,207
Short Term Debt 4,375 3,292 4,872 7,490 7,121
Dividend (C/B) % 15%/15% 60%/10% 45%/- 45%/5% -
Dividend Yield % 1.19% 6.23% 3.70% 4.42% -
Efficiency Ratio
Inventory TO 4.51 7.93 10.03 9.77 6.52
A/C receivable TO 19.43 17.77 11.30 13.48 11.98
A/C Payable TO 21.68 9.47 7.80 15.12 13.09
Total Asset TO 0.48 0.71 0.55 0.58 0.48
Fixed Asset TO 0.60 0.77 0.57 0.63 0.71
Margin
Gross Profit 26% 29% 33% 26% 24%
Operating Profit 19% 19% 19% 19% 15%
Pretax Profit 19% 19% 19% 19% 15%
Net Profit 13% 14% 15% 13% 10%
Growth
Sales 2% 72% -2% 25% 16%
Gross Profit 46% 92% 9% 1% 6%
Operating Profit 64% 52% 21% 9% -1%
Net Profit 52% 89% 8% 8% -1%
Profitability
ROA 6% 10% 8% 8% 5%
ROE 12% 20% 19% 18% 12%
Leverage
Debt Ratio 36% 27% 28% 30% 33%
Debt-Equity 73% 57% 62% 72% 82%
Int. Coverage 8.41 5.23 7.85 5.46 4.93
Valuation
Restated EPS(BDT) 3.46 5.69 6.91 6.66 4.33
Restated NAVPS (BDT) 26 30.8 34.9 35.7 34.1

May 30, 2019

 Equity Note on MJL Bangladesh Limited

Industry Insights

The lubricants industry in Bangladesh largely used for railways, aviation, marine,
passenger and commercial vehicles (including trucks), motorcycles and other two Market Share (%) of Lubricant Brands
wheelers and industrial units etc. The government liberalized the market and
banned non-additive lubricants in 2001. Since then, more than 75 brands of
lubricants, including renowned multinationals, have entered the market. But Mobil
currently, about 7-8 brands account for as much as 54% of the total business. Other 30%
According to the news published in The Daily Star in 2013, Mobil is the market leader (70
with its 30 percent share, followed by British Petroleum at 11 percent, French brand brands)
Total at 5 percent and Shell, Castrol and Caltex with 2 percent each. Mobil has even 46%
seen an increase in the amount of its market share over the years, from 26% in 2009
to 30% in 2013.
BP
Bangladesh’s vehicle lubricant industry is extremely competitive, with many
11%
lubricant manufacturing and exporting companies in the country. This intensified by
an ever-growing vehicle industry huge number of vehicles are taking to the roads Caltex Castrol Omera Total
Shell 5%
every day. These lead to have potential demand for lubricants and is existing 2% 2% 2%
2%
consistent growth over the years.
Source: Daily Star & BASL Research

The Asia Pacific, including Bangladesh, represents the largest and the fastest
growing market, with projected sales growth at a CAGR of 5% over the medium-
term. Where automotive lubricants represent the largest product market, industrial Lubricant Segment In Bangladesh
lubricants are supported by the huge demand for industrial engine oils and growing
consumption of process oils. The automotive sector accounts for 67% of the total
lubricant consumption in Bangladesh and the industrial sector the remaining 33%.
But the growth in the lubricants industry for last few years has mostly been due to
the growth in the industrial sector, especially the power sector. Cement, steel and
fertilizer industries also consume a good amount of lubricants. The proportion of
Industrial
lubricants consumed by the industrial sector is expected to increase even more in 33%
the future due to the growth of these industries.
Automotive
The Bangladeshi lubricants market is growing at almost 3% a year, which is on par 67%
with India, but is behind China. The sector has been witnessing steady growth
especially in the automotive and industrial sectors. The annual demand today
stands at nearly 1 lakh tonnes. Moreover, over the last decade or so, the market for
lubricants has nearly doubled to more than Taka 2,200 crore from Taka 1,100 crore
on increasing customer awareness leading to strong and sustainable demand. With Automotive Industrial
the falling oil prices, greater awareness and demand for lubricants and rise in the
demand of the resource from end-user industries, the country’s lubricants sector is
projected to expand at an even faster growth rate, going ahead. Source: Daily Star & BASL Research

A study by US-based global management consulting firm Boston Consulting Group

(BCG) revealed that every year, 2 million Bangladeshis achieve a middle-class Number of Imported Cars
economic status. A steady rise in the purchasing power of the middle-class and
affordable automobile loans are contributing to the growth of car sales in Bangladesh, June-Dec 2017 11,476
as per a report by The Daily Star. The auto loan portfolio of banks grew 22.36% to Taka
1,413 crore in 2016 compared to a year ago. Declining lending rates for the past two 2016-17 20,149
years have been pushing up the demand for auto loans. According to Bangladesh
Reconditioned Vehicles Importers and Dealers Association (BARVIDA), the total 2015-16 19,467
number of registered private cars in the country was 3.5 lakh as of March 2017. The
size of the car market now stands between Taka 4,000 crore and Taka 5,000 crore with 2014-15 17,066
an annual growth rate of 15-20%. BARVIDA data shows that 15,000 private cars are
2013-14 14,427
imported on an average per year. According to the Barvida, around 7,353
reconditioned cars were sold in FY2012-13, and 20,149 cars were sold in FY2016-17.
2012-13 7,353
A total of 20,304 new cars were registered by the Bangladesh Road Transport
Authority (BRTA) in 2016 and about 63 cars are sold in Bangladesh every day now – 2011-12 9,588
the highest in the country’s history since the 2012-13 fiscal year. The BRTA indicated
that 21,062 and 14,699 new cars were registered in 2015 and 2014, respectively. As
many as 16,160 cars were registered in the January–August 2017 period. Source: Dhaka Tribune & BASL Research

May 30, 2019

 Equity Note on MJL Bangladesh Limited

Liquefied Petroleum Gas (LPG) is one of the most popular energy solutions for
domestic and commercial purposes. According to world LPG association, there are
Started in 1978 and BPC had 100% control then
more than a thousand applications of LPG - from cooking, heating, air conditioning and
transportation, to cigarette lighters and even the Olympic torch. LPG is the choice as
household energy in India, Sri Lanka, Thailand, Brazil, Vietnam, and other developing
nations. In our country, traditional cooking method and natural gas (NG) are the Bashundhara came into the market in 1999
primary solutions for domestic energy need. However, our NG reserve is depleting,
therefore, government is promoting LPG as the ultimate option. Moreover,
government’s latest plan is to reduce the dependency on CNG-run auto cars and Total market size is 1,000,000 MT and 95%
market share belongs to private sector
convert it to LPG. Currently, LPG industry is in transition phase from introduction to
growth stage. Fifty five (55) companies have been granted LPG license and among
these, twelve (12) are in operation. The market at present is not competitive but This is an oligopoly market and 55 companies
within next three to five years, scenario may be reverse since large companies with got license for manufacturing LPG
huge investment are entering into the market. Companies in operation are mainly
doing import-based LPG business. Almost 80% of the LPG is imported from different
45 lac cylinders were injected in 2016 and 2017 and the
countries. LPG supplier companies just bottle it and distribute to the market. market is growing at 10-15%
Therefore, logistics and distribution cost management are the significant mechanism
to control the price as well as increase the profitability. The companies who have
strong forward and backward linked LPG business may dominate the market in long run. Source: Industry Insides & BASL Research

Year Demand Forecast Supply Forecast

At present, LPG is mainly used by households for cooking and by some light engineering (MT) (MT)
workshops as fuel for welding. Increasing in LPG demand has been contributed by 2018 1,000,000 795,000
unavailability of fresh connection of natural gas, increasing price of alternative fuel and 2019 1,322,500 960,000
decreasing accessibility of firewood. Bangladesh has much potential in terms of LPG 2020 1,520,875 1,170,000
consumption as only 6~7% of the entire population has access to the natural gas, mostly in
2021 1,749,006 1,440,000
urban areas. The gap between demand and supply of natural gas is widening day by day
because of massive conversion of fuel-run automobile engines into CNG-run ones and 2022 2,011,357 1,780,000
increased pressure of the growing industrial and household on energy supply. Although the 2023 2,313,061 2,200,000
current Demand Supply Gap of LPG is around 205,000 MT in the current year, it will come 2024 2,800,000 2,750,000
down to 90,000 MT in 2025 due to increased efficiency and accelerated production of the 2025 3,550,000 3,460,000
market participants.
Source: ERL & RPGCL & BASL Research

At present, about 55 companies got licenses till now and 12 private companies along with
BPC are doing LPG business in Bangladesh. There are only few companies who produce their Production Capacity according to Production
Capacity (MT) in 2017
own cylinder, while majority companies import from abroad. However, local cylinder Beximco BPC Orion Gas
manufacturing companies are growing and most of the LPG marketers are planning to Navana LPG 1% 2% 2% G Gas
1% 2%
establish their cylinder plant soon. At present, a number of companies including SENA LPG
Bashundhara, Jamuna, Omera, Totalgaz, BM Energy, G-gas, Laughs, BPC, etc. are involved in Bashundhara 4%
Total Gaz
28%
LPG bottling and marketing operation. Boshundhara and Omera are playing leading role in 5%
Laugfs Gas
the industry achieving 28% and 17% market share respectively. Besides, Amin Mohammed 6%

Energy,Decan LPG, Sanwara LPG, BNB Energy, Intraco LPG, Super Petro Chemical LPG,
Eurogaz LPG, Padma LPG, Vigro LPG, Eastern Star LPG, MM Energy, R&R LPG are also
planning to come in LPG market soon. Most of the companies import LPG cylinder from
Jamuna
foreign countries. Due to increasing demand of LPG in various household, commercial and 16%
industrial sectors, local private companies are coming forward to establish LPG cylinder Omera
Petroleum
manufacturing plants. Some visionary companies are also planning to go for LPG cylinder 17%
production business soon. Major local LPG Cylinder Producing Companies are TK Group, BM Energy
16%
Shunderban Industrial Complex, Bashundhara Group, Omera Fuel and Jamuna LP Gas.
Source: Company Insides & BASL Research

May 30, 2019

 Equity Note on MJL Bangladesh Limited

Investment Rationale
• MJL has been playing as market leader considering brands, consumers and price points with the long-established relationships of a
strong global brand (ExxonMobil). MJL under the Mobil and Omera brands holds 70% market share in the industrial lubricant segment
and overall about 26% market share in the country’s lubricant industry.
• The company belonging in highly competitive industry in 2017-18 was able to respectably grow revenues by 24% and achieved 22.30%
growth in revenue in Q1-Q3, FY’19. The CAGR revenue and net profit was 23.04% and 35.27% respectively for last five years.
• The revenue from Oil Tanker unit was Tk. 1247.54 mn and Tk. 1,231.69 mn in FY’18 and FY’17 respectively and earning per share
contribution was approximately Tk. 1.57 & Tk. 1.09 respectively for those years. Here, the company acquired their second and
Bangladesh’s largest ocean going Aframax oil-tanker of 107,091 DWT in Q2, 2018. More than doubling Aframax oil-tanker capacity will
accelerate business revenues and profitability from FY 2018-19 onwards. The EPS contribution from Oil-Tanker might be around Tk. 3
on full year operation. Here, revenue from Oil Tanker Unit for nine months of FY’19 has increased by 123% to 1,251 mn against 561
mn compared to same period of last year.
• The revenue contribution from Omera Petroleum (OPL) to MJL was 53.5% to Tk. 8,164 mn in the first nine months of FY’19 against
53.1% to Tk. 6,796 mn in the same period of last year. The revenue contribution from Omera Petroleum (OPL) to MJL was 62.7% to Tk.
8,988.6 mn and net profit was Tk. 499.91 mn, grown by 417.8% in FY’18. EPS contribution from OPL to MJL was around Tk. 0.99.
• Saisan Co. Limited, Japan’s energy giant, as our joint venture partner in Omera Gas One, subsidiary of OPL, is mandated with the B2B
supply of LPG across the country i.e. bulk LPG supply to power generation companies, autogas stations.
• The Myanmar business is under MJL & AKT Petroleum well progress as ExxonMobil selected MJL to be their exclusive Mobil
distribution partner in Myanmar. The company expects to enjoy a first-mover’s advantage in this scenario.
• Bangladesh Economic Zone Authority and Omera Petroleum Limited signed a Memorandum of Understanding (MoU) to develop the
Mirsarai Economic Zone near Chittagong to develop a planned industrial zone covering across 30,000 acres area. According to the MoU,
Omera Petroleum, employing 5,000 people will set up a LPG import terminal and reforming process unit. The specialized terminal is due
to be completed in 2019.

Risk Factors

• Although the annualized revenue growth was 16.3% in the first nine months of FY’19 but there was negative profitability in the
bottom line due to global price hike of base oil and finished lubricants. Depreciation of the local currency to the extent of about
3% vs the USD also increased import costs during the year. The combined effect of those resulted 5% de-growth in profit before
tax for the lube oil segment.
• The crude oil price movement in the international market has a direct impact on the Company as the Company procures base oils from
international market. The rising trend of the crude oil price will scale up the raw material cost.
• Any kind of change in economic recession, and entrance of new technology, changes in industrial policy, increasing competition, power
supply disruption and political unrest may affect the business of the Company

Valuation

Relative Valuation Multiple Fair Value

Industry Forward P/E 14.5 83.9
Market Forward P/E 15.6 90.0
Pricing Sensitivity
Stock at 15x PE 15 87
Stock at 20x PE 20 115
Stock at 25x PE 25 144
Stock at 30x PE 30 173
Stock at 35x PE 35 202
Stock at 40x PE 40 231

Note: The annualized EPS for FY’19 is BDT. 5.77 as per 3rd Quarter Financial Statements.

May 30, 2019

 Equity Note on MJL Bangladesh Limited

Disclaimer

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and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy
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investors or any other persons from outside of BASL.

About Bank Asia Securities (BASL)

Bank Asia Securities Limited (BASL) is one of the leading full-service brokerage companies in Bangladesh. The company was formed
in 2009 and running its operation as a majority owned subsidiary of Bank Asia Limited. BASL offers full-fledged standard brokerage
services for retail, institutional and foreign clients with a dedicated team of skilled professionals. The company is currently providing
the brokerage services under the membership of Dhaka Stock Exchange Limited (DSE).

BASL Research Team

Mr. Shariful Alam Chowdhury

Head of Research & Investments tushar@basl-bd.com, tusharbd@bloomberg.net
Mr. Shohidul Islam
Research Analyst shohidul@basl-bd.com, shohidulbd@bloomberg.net
Tanzin Naher
Research Associate tanzin@basl-bd.com

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May 30, 2019