Hayleys Fabric

MGT - Rs.15.5

Kuhan Key Highlights

Vinayagasundaram 3Q21 Results Update
kuhan@ctclsa.lk
+94 11 255 2290
 MGT reported a 3Q21 net profit of US$1.4mn (vs. US$0.1mn in 3Q20 and +29%
QoQ), above our expectation of ~US$0.9mn. Consequently, 1-3Q21 net profit at
US$3.0mn
 In LKR terms, 3Q21 net profit was at Rs.261mn; EPS Rs.0.6 (vs. a net profit of
Rs.26mn in 3Q20; EPS of Rs.0.1). Resultantly, 1-3Q21 LKR net profit at Rs.569mn
(+45% YoY)
 MGT’s US$ net profit forecast revised up by +22% to US$4.2mn for FY21E (vs.
22 February 2021
US$1.3mn in FY20) whilst revised down by -6% to US$4.3mn for FY22E (+2% YoY)
Sri Lanka and at US$5.9mn for FY23E (+37% YoY). Meanwhile, LKR net profit forecasts at
Rs.788mn for FY21E (vs. Rs.231mn in FY20), Rs.833mn for FY22E (+6% YoY) and
Consumer Durables &
Rs.1,195mn for FY23E (+43% YoY)
Apparel
 The MGT share has outperformed the broader market over the past twelve months
BUY rising +108% (vs. the ASI’s increase of +31%). However, MGT has broadly
performed in line with the ASI in 2021YTD rising +12%
12M Price Target – Rs.20.5
 MGT trades at forward PER multiples of 8.2X for FY21E, 7.7X for FY22E and 5.4X
±% Potential - +32.0 for FY23E offering ROEs in the range of 20-26%
Market Capitalisation  Based on a blended valuation, which takes an equal weightage between DCF and PE
33.1
(US$ mn)
415.5
methodologies, we have derived a 12M target price of Rs.20.5, which represents a
Shares in Issue (mn)
~32% upside potential and we maintain our rating for the share as BUY
Estimated Free Float (%) 36.8
3M Average Daily Volume 2,064,400  Near term earnings to benefit from sustained order inflows for higher margin
3M Avg Daily Turnover
324,874 synthetic fabric from Tier 1 clients, enhanced gross margins on internal knitting of
(US$)
fabric and continuation of effective cost saving measures. Meanwhile, medium-long
12M High / Low (Rs) 21.5 / 3.5
term earnings growth is expected to be led by capacity additions which would allow
MGT to internalize currently outsourced production and cater to higher volumes of
orders stemming from rising demand for locally produced fabric
 Given MGT’s focus on Synthetic fabric manufacturing, it stands to benefit from the
accelerated shift in consumer preference towards casual wear and Athleisure
clothing amid lifestyle changes emanating from the pandemic

Financials
Stock Performance (%) Year to 31 March FY19 FY20 FY21E FY22E FY23E

1M 3M 12M Revenue (US$ '000) 69,941 67,116 81,005 95,311 117,957

Revenue (Rs mn) 11,983 12,225 15,210 18,528 24,014
Absolute -19.7 28.1 108.1
Net Profit (US$ '000) 1,058 1,271 4,195 4,285 5,869
Relative -9.6 3.1 77.6
Net Profit (Rs mn) 181 231 788 833 1,195
ASI MGT EPS (Rs) 0.4 0.6 1.9 2.0 2.9
310 EPS Growth (%) - US$ >+100.0 20.1 >+100.0 2.1 37.0
EPS Growth (%) – LKR >+100.0 27.6 >+100.0 5.8 43.4
240 P/E Ratio (X) 9.9 8.0 8.2 7.7 5.4
Gross Dividend per Share (Rs) 0.0 0.3 0.9 1.0 1.4
170
Gross Dividend Yield (%) 0.0 6.7 6.1 6.5 9.3
100 Price / Book Value (X) 0.6 0.5 1.6 1.5 1.3
Return on Equity (%) 6.2 6.9 21.1 20.1 25.7
30 Market Price per Share (Rs) 4.3 4.5 15.5 15.5 15.5
22-Feb-20 22-Aug-20 22-Feb-21 GP Margin (%) 11.9 13.0 14.0 14.6 15.2
Note: Valuations and ratios on a recurring basis; Adjusted for capital issues (if any)

CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 1

 Hayleys Fabric

A pioneer in Sri Lanka’s
fabric manufacturing
industry
3Q21 EPS of Rs.0.6, led
by GP margin expansion
and income tax reversal
The Business
Hayleys Fabric (MGT, formerly Hayleys MGT Knitting Mills) is a pioneer in Sri Lanka’s
fabric manufacturing industry and specializes in synthetic fabric manufacturing. MGT’s
current production capacity stands at ~28MT per day.
MGT primarily caters to globally reputed fashion brands that are quality conscious. It
also produces its own range of fabric called “Inno” which has gained popularity among
leading clothing brands. In FY20, Athleisure accounted for 45% of its product mix
whilst the United States remained its largest export market.
Recent Financial Performance
MGT reported a 3Q21 net profit of US$1.4mn (vs. US$0.1mn in 3Q20 and +29% QoQ),
above our expectation of ~US$0.9mn. Consequently, 1-3Q21 net profit at US$3.0mn.
 YoY earnings improvement was driven by a healthy top-line growth and an
expansion of margins combined with effective cost saving measures and an
income tax reversal during the quarter
 QoQ improvement in earnings is primarily attributable to an expansion of GP
margins, lower net finance costs and an income tax reversal during the quarter

MGT: Quarterly EPS (Rs) In LKR terms, 3Q21 net profit was at Rs.261mn; EPS Rs.0.6 (vs. a net profit of Rs.26mn
in 3Q20; EPS of Rs.0.1). Resultantly, 1-3Q21 LKR net profit at Rs.569mn (+45% YoY)
0.8

0.6

0.4 Key Figures & Ratios % % %

3Q20 2Q21 3Q21 1-3Q20 1-3Q21
(Rs mn) YoY QoQ YoY
0.2
Revenue (US$ 000) 16,992 22,386 20,463 20.4 -8.6 55,133 58,467 6.0
0.0 Revenue 3,109 4,206 3,845 23.7 -8.6 9,963 11,046 10.9
Gross Profit (US$ 000) 2,233 2,854 2,890 29.4 1.3 8,089 8,069 -0.2
-0.2
Gross Profit 409 536 543 32.9 1.3 1,462 1,524 4.3
-0.4 EBIT (US$ 000) 595 1,535 1,458 >+100.0 -5.0 3,291 3,945 19.9
1Q19 3Q19 1Q20 3Q20 1Q21 3Q21
EBIT 109 288 274 >+100.0 -5.0 595 745 25.3
Source: Company interims Net Finance Income / (Cost) -44 -54 -39 -11.8 -28.8 -128 -162 26.4
Net Profit (US$ 000) 143 1,078 1,389 >+100.0 28.8 2,179 3,011 38.2
Net Profit 26 203 261 >+100.0 28.8 394 569 44.5
Earnings per Share (Rs) 0.1 0.5 0.6 >+100.0 28.8 0.9 1.4 44.5
Avg. LKR per US$ & QoQ Variance GP Margin (%) - US$ 13.1 12.7 14.1 1.0 1.4 14.7 13.8 -0.9
(%) and US$ Spot Exchange Rate EBIT Margin (%) - US$ 3.5 6.9 7.1 3.6 0.3 6.0 6.7 0.8
YoY Var (%) - RHS Opex as a % of Revenue (%) 9.6 8.8 7.0 -2.6 -1.8 8.2 7.1 -1.1
QoQ Var (%) - RHS
Effective Tax Rate (%) 59.8 7.6 -11.0 -70.8 -18.6 15.6 2.4 -13.1
US$ Avg Exchange Rate
US$ Spot Exchange Rate^^ Net Cash / (Debt) (US$ 000) -13,717 -15,698 -10,752 -21.6 -31.5 -13,717 -10,752 -21.6
205 20 Net Cash / (Debt) -2,513 -2,943 -2,043 -18.7 -30.6 -2513 -2,043 -18.7
195 16 Capex (US$ 000) 859 187 2,561 >+100.0 >+100.0 1,169 3,395 >+100.0
185 12
Note: Valuations and ratios on a recurring basis; Adjusted for capital issues (if any).
175 8
Source: Company interims
165 4
155 0 Despite reporting a lower than anticipated top-line and a steep rise in distribution
145 -4
expenses during the quarter, MGT outperformed our earnings expectations in 3Q21
aided by higher than expected GP margin expansion, cost efficiencies on admin related
expenses and an income tax reversal
^ Avg. Exchange Rate from 01 Jan – 19 Feb
2021
^^ As at end of the period. 1Q2021 as at
19 Feb 2021
Source: Central Bank of Sri Lanka (CBSL)

A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 2

 Hayleys Fabric

Revenue (US$mn) and GP margin

(%) Component %QoQ %YoY Comments
Revenue (US$mn) - LHS
GP Margin LKR Revenue -8.6% +23.7% • YoY revenue growth led by higher order inflows from
25 20
MGT’s Tier 1 clients based in the US amid an accelerated
15 shift of apparel orders from China and Vietnam to South
20
Asia following the pandemic
10
• MGT has been operating at full production capacity since
15
5 May 2020 in order to meet the new orders. Additionally,

10 0 production of ~4/5MT per day was also being outsourced.

3Q19 1Q20 3Q20 1Q20 3Q21 • QoQ decline in revenue is attributable to MGT limiting
Source : Company Interims outsourced production to maintain quality

3 Month Forward Cotton Index Gross Profit +1.3% +32.9% • The growth in gross profit was led by a higher GP margin
(US$/lb) of 14.1% (vs. 13.1% in 3Q20 and 12.7% in 2Q21). The
0.9
improvement in GP margin was due to a higher share of
0.8 high-margin generating Athleisure fabric in the mix.
0.7 • QoQ improvement in GP margin was partially helped by

0.6 lesser outsourcing of production

• The improvement in GP margins was despite a +11% QoQ
0.5
increase in Indian cotton prices between July-Sep 2020
0.4
(assuming a 3-4 month lag). This indicates that MGT
managed to pre-order cotton at favorable prices

Source : Bloomberg EBIT -5.0% +>100.0% • The YoY improvement is owing to lower admin related
expenses amid cost rationalization initiatives and changes
Producer Price Index: Polyester
Manufactured Fiber to working arrangements (such as less work related
travel) brought on by the pandemic.
95.0
• QoQ decline in EBIT is partly due to a steep +71% rise in
distribution expenses likely owing to elevated freight
90.0
costs and operations at the Colombo Port being impacted
by the second wave of COVID-19 infections in Sri Lanka
85.0 • EBIT margins expanded YoY and QoQ to 7.1% (vs. 3.5% in
3Q20 and 6.9% in 2Q21)
80.0 PBT +0.5% >+100.0% • Despite the reduction in EBIT, PBT remained broadly
Jan-18 Jan-19 Jan-20 Jan-21
unchanged QoQ aided by lower net finance costs (-29%
Source : Bloomberg
QoQ) which reflected the low interest rates environment
and MGT’s improved Net Debt position
Net Debt (US$mn) and Net Debt:
Equity (%) Net Profit +28.8% >+100.0% • QoQ NP growth was aided by an income tax reversal of
Net Debt (US$ mn) Rs.26mn in 3Q21 as MGT reclaimed Economic Service
Net Debt : Equity - RHS
24 60 Charges paid in 2018/19 that was previously written off

20
Net Debt -30.6% -18.7% • MGT’s net debt position improved to Rs.2,043mn as a

16
50 result of higher cash balance and a drop in short term
borrowings
12
40
Capex >+100.0% >+100.0% • Capex in 3Q21 increased to ~US$2.6mn (vs. capex of
8
US$0.9mn in 3Q20 and US$0.2mn in 2Q21) amid ongoing
4 30
3Q19 1Q20 3Q20 1Q20 3Q21 knitting capacity expansion at MGT. ~30% of the planned
knitting capacity addition was completed in 3Q21 and the
Source : Company Interims
rest is expected to be commissioned in 4Q21E

CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 3


US issues ban on cotton and
cotton related products
originating from XPCC
Only ~30% of fabric demand
in Sri Lanka is produced
locally
A CT HOLDINGS GROUP AND CLSA GROUP COMPANY
Hayleys Fabric
Recent Developments
 On 18 February 2021, The Central Bank of Sri Lanka (CBSL) published a Gazette
ordering exporters of goods to receive export proceeds within 180 days of
shipment and convert 25% such proceeds earned in foreign currency into LKR,
through a licensed bank immediately upon receipt. We believe this to affect foreign
currency asset-liability management of fabric manufacturers as they carry US$
denominated debt on their books which is matched against US$ cash reserves
 In December 2020, The United States (US) issued a ban on cotton and cotton based
product imports originating from China’s Xinjiang Production and Construction
Corps (XPCC) on the grounds of forced labour. XPCC accounts for ~30% of cotton
produced in China
 The ban has been a contributing factor to a ~25% rise in India cotton prices over
the past 3 months despite global cotton stockpiles remaining at elevated levels
 We expect this move to further accelerate measures taken by US clothing
brands to move orders away from China to other apparel producing countries in
the region like Sri Lanka
Favourable industry dynamics to propel local fabric manufacturers
 US clothing retailers have been focusing on mitigating risks attached to over-
reliance on China for apparel imports since the beginning of the trade war between
the two nations in 2018. This resulted in more apparel orders from US retailers
flowing to Vietnam and other countries in the region
 However, following the onset of the pandemic and the disruptions it caused to
global supply chains, US retailers have expedited measures to strengthen their
sourcing strategies from other smaller apparel producing countries to ensure
continued supply
 With trade shifting away from China and Vietnam amid these developments, Sri
Lankan apparel manufacturers have witnessed a healthy inflow of orders
 As seen in the previous two quarters, we expect local fabric manufacturers with
exposure to US clothing brands continue to witness order inflows in the near-
medium term
 With domestic sourcing of fabric for local and export use still hovering at around
30% of the total demand, we see opportunities for local fabric manufacturers to
expand production capacity to cater to rising volumes. Moreover, at present, only
10% of the country’s synthetic fabric demand is met locally and we see local fabric
manufacturers aiming to expand their presence in this high-margin segment
4
 Hayleys Fabric
Earnings Outlook
Forecasts and YoY Movement
Revenue • FY21E Revenue of Rs.15,210mn (+24%YoY)
• FY22E Revenue of Rs.18,528mn (+22% YoY)
• FY23E Revenue of Rs.24,014mn (+30% YoY)
Gross Margin • FY21E GP margin of 14.0% (+103bps YoY)
• FY22E GP margin of 14.6% (+57bps YoY)
• FY23E GP margin of 15.2% (+65bps YoY)
EBIT • FY21E EBIT of Rs.1,037mn (>+100.0%YoY)
• FY22E EBIT of Rs.1,239mn (+19% YoY)
• FY23E EBIT of Rs.1,714mn (+38% YoY)
Net Profit • FY21E NP of Rs.788mn (>+100.0%YoY)
• FY22E NP of Rs.833mn (+6% YoY)
• FY23E NP of Rs.1,195mn (+43% YoY)
Capex • FY21E capex of Rs.1,217mn (>+100.0%YoY)
• FY22E capex of Rs.1,482mn (+22% YoY)
• FY23E capex of Rs.1,681mn (+13% YoY)
Sources: CT CLSA
CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange
Comments
• We expect sustained order inflows from MGT’s Tier 1 clients to drive
top-line growth in FY22E and F23E
• Moreover, we expect MGT to take on price increases in 1HFY22E to
combat rising cotton prices. This along with average LKR depreciation of
~4-5% in FY22E and FY23E to improve LKR top-line growth
• MGT has been operating at full capacity and continues to adopt a
cautious approach in relation to its outsourcing strategy to mitigate any
quality issues.
• Given improved order visibility from its key clients, MGT has been
evaluating a capacity addition to cater to higher volumes. Given that any
capacity addition would likely require investments in infrastructure, we
estimate new capacity addition to come online only in mid 2022E
• We expect the share of high-margin generating Athleisure segment to
continue to rise in line with rising contributions from MGT’s tier 1 clients
• The completion of the internal knitting capacity addition in 4QFY21E to
improve gross profit margins by internalizing knitting which MGT
previously outsourced and curtail spending on Greige fabric
• Anticipated capacity additions in FY23E to further increase in-house
production and be accretive to margins
• In addition to healthy top-line growth and GP margin expansions, EBIT
growth in FY21E is attributable to reduced opex with admin expenses
forecast to only rise marginally (+1.4% YoY) amid effective cost
containment measures implemented by MGT and COVID-19 induced
changes to working arrangements.
• We conservatively assume a +40% YoY (from a low base) increase in
admin expenses in FY22E as we expect employees to return to office and
work related travel to resume with the roll-out of the vaccinations.
• We forecast an ETR of 14% in FY22E and FY23E. This results in higher
income tax expense in FY22E (from a low base). The increase in income
tax combined with higher net finance costs (+36% in FY22E) owing to a
rise in net debt to fund MGT’s capacity additions are forecast to weigh
down on YoY NP growth in FY22E
• We believe that MGT is at the beginning of a capex cycle which we
assume would continue till FY23E. MGT spent ~Rs.475mn in 3Q21
(highest quarterly capex in recent times) predominantly on the ongoing
knitting capacity addition which is expected to roll over to 4Q21E.
• Our capex forecast for FY22E and FY23E (~US$16mn) factors in
capacity additions which would allow MGT to cater to higher volumes of
orders from its Tier1 customers
5
 Hayleys Fabric

Outlook & Valuations

 MGT’s US$ net profit forecast revised up by +22% to US$4.2mn for FY21E
Revenue (US$ mn) & GP Margin (%)
(vs.US$1.3mn in FY20) whilst revised down by -6% to US$4.3mn for FY22E (+2%
Revenue (US$ mn) - LHS YoY) and at US$5.9mn for FY23E (+37% YoY). Meanwhile, LKR net profit
GP Margin
120 16
forecasts at Rs.788mn for FY21E (vs.Rs.231mn in FY20), Rs.833mn for FY22E
(+6% YoY) and Rs.1,195mn for FY23E (+43% YoY)
100 15

80 14
 Positive earnings revision in FY21E is owing to better than anticipated performance
in 3Q21 and improved margins following the commissioning of the internal knitting
60 13
plant. Negative earnings revisions in FY22E is owing to higher net finance costs
40 12
incurred on debt taken to fund capacity expansions in FY23E
20 11
 The MGT share has outperformed the broader market over the past twelve months
0 10
rising +108% (vs. the ASI’s increase of +31%). However, MGT has broadly
performed in line with the ASI in 2021YTD rising +12%
Source: Company interims & CT CLSA
 MGT trades at forward PER multiples of 8.2X for FY21E, 7.7X for FY22E and 5.4X
for FY23E offering ROEs in the range of 20-26%
 Based on a blended valuation, which takes an equal weightage between DCF and PE
methodologies, we have derived a 12M target price of Rs.20.5, which represents a
~32% upside potential and we maintain our rating for the share as BUY
 Near term earnings to benefit from sustained order inflows for higher margin
synthetic fabric from Tier 1 clients, enhanced gross margins on internal knitting of
fabric and continuation of effective cost saving measures. Meanwhile, medium-long
term earnings growth is expected to be led by capacity additions which would allow
MGT to internalize currently outsourced production and cater higher volumes of
orders stemming from rising demand for locally produced fabric
 Given MGT’s focus on Synthetic fabric manufacturing, it stands to benefit from the
accelerated shift in consumer preference towards casual wear and Athleisure
clothing amid lifestyle changes emanating from the pandemic

MGT: Income Statement Extracts

FY20 FY21E^ % YoY FY21E % YoY FY22E^ % YoY FY22E % YoY FY23E % YoY
US$ terms (US$’ 000)
Revenue 67,116 83,895 25.0 81,005 20.7 97,220 20.0 95,311 17.7 117,957 23.8
Gross Profit 8,700 11,305 29.9 11,337 30.3 14,235 25.6 13,880 22.4 17,943 29.3
EBIT 2,469 4,782 93.7 5,524 >+100.0 6,287 13.8 6,374 15.4 8,418 32.1
PBT 1,849 3,955 113.9 4,463 >+100.0 5,280 18.3 4,983 11.7 6,825 37.0
Net Profit 1,271 3,441 170.8 4,195 >+100.0 4,541 8.2 4,285 2.1 5,869 37.0

LKR terms (Rs mn)

Revenue 12,225 15,648 28.0 15,210 24.4 18,666 22.7 18,528 21.8 24,014 29.6
Gross Profit 1,585 2,109 33.1 2,129 34.3 2,733 28.4 2,698 26.7 3,653 35.4
EBIT 450 892 98.3 1,037 >+100.0 1,207 16.4 1,239 19.4 1,714 38.3
PBT 304 738 >+100.0 838 >+100.0 738 -12.0 969 15.6 1,389 43.4
Net Profit 231 642 >+100.0 788 >+100.0 872 10.7 833 5.8 1,195 43.4
EPS (Rs) 0.6 1.5 >+100.0 1.9 >+100.0 2.1 10.7 2.0 5.8 2.9 43.4

GP Margin (%) – US$ 13.0 13.5 0.5 14.0 1.0 14.6 0.6 14.6 0.6 15.2 0.6
EBIT Margin (%) – US$ 3.7 5.7 2.0 6.8 3.1 6.5 -0.4 6.7 -0.1 7.1 0.4
ETR (%) 23.9 13.0 -10.9 6.0 -17.9 14.0 8.0 14.0 8.0 14.0 0.0
Source: CT CLSA & Company interims ^ Previous Forecast

A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 6

 Hayleys Fabric

Local listed peer Teejay Lanka (TJL – Rs.44.0)

 Teejay Lanka (TJL, formerly Textured Jersey Lanka) is one of Sri Lanka’s largest
fabric manufacturers specialised in weft knit fabrics, with total capacity across both
local and Indian operations standing at 75 tons per day
 TJL was established in 2001 and operates as a Joint Venture (JV) between Brandix
Lanka (~33% holding) and Pacific Textiles Holdings (~28% holding)
 TJL reported a 3Q21 US$ net profit of US$4.2mn (+5% YoY and +24% QoQ), above
our expectation of ~US$3.5mn. Earnings growth was primarily driven by an
expansion of GP margins (highest since 2Q17) and effective cost control measures
implemented by the company, despite a single-digit decline in top-line.
Consequently, 1-3Q21 US$ net profit at US$7.5mn (-33% YoY)
 Predominantly a cotton based fabric manufacturer, TJL primarily caters to eight
strategic brands including PVH, Calzedonia, L Brands, Nike and Uniqlo. TJL has
been aiming to increase its presence in the high-margin generating synthetic fabric
space and the recent conversion of Nike and Uniqlo as strategic brands should bring
this strategy to fruition
 In order to cater to higher volumes of orders from Nike and Uniqlo and to realize its
next phase of growth to a US$300mn top-line, TJL has laid out a capex plan, which
will see the company spending ~US$30-40mn over FY22E and FY23E to increase
production capacity through new machinery and modernization measures. Teejay
India will see a capacity addition of 20 tons per day which will take overall capacity
to 95tons per day across both plants. The new machinery will have dual capability in
cotton and Synthetic fabric production providing greater flexibility.
 With improved visibility of orders from its strategic customers, we expect TJL to
fully fill additional capacity upon its expected commissioning in 4Q21E
 Although TJL seems to be offering a lower gross profit margin and return on equity
than MGT, we value TJL at a +15% premium to MGT and in line with other regional
peers citing its proven earnings track record and cash generation, scale of
operations, multi-location strategy and the presence of related industry players as
key shareholders
 Based on a blended valuation approach with equal weightage for DCF and PE
methodologies, our 12M TP for TJL is Rs.51.7 (+21.7% upside including dividend)
Performance Comparison of TJL vs Listed Local Peer MGT
3Q21 1-3Q21
TJL MGT TJL MGT
Revenue (Rs mn) 8,559 3,845 22,082 11,046
EBIT (Rs mn) 920 274 1,706 745
EBIT margin (%) 10.7 7.1 7.7 6.7
Net Profit (Rs mn) 778 261 1,378 569
NP margin (%) 9.1 6.8 6.2 5.1
Revenue (YoY %) -3.7 23.7 -16.1 10.9
Net Profit (YoY %) 8.3 >+100.0 -29.5 44.5
Earnings per share (Rs) 1.1 0.6 1.9 1.4
Avg Daily Turnover (US$)^^ 91,944 254,369 70,135 140,413
Source: Company interims & CT CLSA

A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 7

 Hayleys Fabric

In comparison with local listed peer Teejay Lanka (TJL – Rs.44.0)

FY21E FY22E FY23E

Year Ended 31 March
TJL MGT TJL MGT TJL MGT

Market price per share (MPS) 42.5 15.5 42.5 15.5 42.5 15.5

Earnings per share (EPS) 3.0 1.9 4.2 2.0 5.7 2.9

EPS growth (%) -10.9 >+100.0 38.5 5.8 36.3 43.4

Price / Earnings Ratio (X) 14.1 8.2 10.1 7.7 7.4 5.4
P/E Growth (X) N/A N/A 0.3 1.3 0.2 0.1
Dividend Yield (%) 5.1 6.1 7.0 6.5 9.6 9.3

Price / Book Value (X) 1.9 1.6 1.8 1.5 1.6 1.3

Return on Equity (%) 13.4 21.1 17.8 20.1 22.8 25.7

Gross Margins (%) 12.2 14.0 12.8 14.6 13.6 15.2

EBIT Margins (%) 7.3 5.7 8.1 6.5 8.6 6.9

Source: CT CLSA Estimates

Relative Price Performance Chart – 2016-2021

TJL MGT ASPI

220

180

140

100

60

20
19-Feb-16 19-Feb-17 19-Feb-18 19-Feb-19 19-Feb-20 19-Feb-21

Source: CT CLSA

TTM PER – 2019-2021

TJL MGT
60

40

20

0
19-Feb-19 19-Aug-19 19-Feb-20 19-Aug-20 19-Feb-21
Source: CT CLSA

 TJL has traded at an average TTM PER of 12.1X since the beginning of 2019, whilst
MGT has traded at an average TTM PER of 16.9X over the same period. Relatively
higher TTM PER recorded by MGT is due to inconsistent quarterly earnings
performances prior to 1Q21 and the steep rise in share price since May 2020

A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 8

 Hayleys Fabric

Outlook & Valuations

MGT: FY22E Earnings sensitivity to currency volatility MGT: Valuation Assumptions
Avg. LKR / US$ 184.4 189.4 194.4^ 199.4 204.4 Risk Free Rate (%) 6.6
Rs mn Market Risk Premium (%) 8.0
Revenue 17,575 18,051 18,528 19,004 19,481 Beta (X) 1.6
Gross Profit 2,559 2,629 2,698 2,767 2,837 Cost of Equity (%) 19.4
EBIT 1,175 1,207 1,239 1,271 1,303 Terminal Growth Rate (%) 3.0
Value per Share (Rs) - DCF 18.9
PBT 919 944 969 994 1,018
Value per Share (Rs) - Weighted FY22E PE (X) of
Net Profit 790 812 833 854 876 22.0
regional textile manufacturers^^
EPS (Rs) 1.9 2.0 2.0 2.1 2.1 12M Target Price (Rs) 20.5
Rev YoY (%) 15.5 18.7 21.8 24.9 28.1 Current MPS (Rs) 15.5
EPS YoY (%) 0.3 3.0 5.8 8.5 11.2 ±% Potential +32.0
Source: CT CLSA Source: CT CLSA
^Base Case Scenario ^^10.5X - 15% discount to FY22E peer median P/E.
Inclusive of MGT’s 12m forward dividend per share of Rs.1.0

MGT DCF Valuation: Sensitivity Analysis of Value per Share (Rs)

Cost of
Equity (%)
17.9 18.4 18.9 19.4^ 19.9 20.4 20.9
Terminal
Growth (%)
2.0 19.9 19.3 18.7 18.1 17.6 17.0 16.6
2.5 20.4 19.7 19.1 18.5 17.9 17.4 16.9
3.0^ 20.9 20.2 19.5 18.9 18.3 17.7 17.2
3.5 21.4 20.6 19.9 18.1 18.6 18.1 17.5
4.0 22.0 21.2 20.4 19.7 19.0 18.4 17.9
^ Base case scenario Source: CT CLSA

MGT: Absolute Share Price Movement, Vol (‘000) & ASPI Movement

Share Volume (mn) - RHS MGT (Rs) ASPI - Indexed to MGT Share Price (Rs)
25 18

15
20

12
15
9
10
6

5 3

0 0
2-Jan-15 17-Jan-17 2-Feb-19 17-Feb-21

Source: CT CLSA

CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 9

 Hayleys Fabric

Outlook & Valuations

Regional Textile Manufacturers – FY22E Relative Valuations

Market Cap
Mkt Cap ROE GP Margin
Company Name Weightage (%) PER (X) Weighted PER
(US$ mn) (%) (%)
(X)
Hayleys Fabric (MGT) 33.1 7.7 20.1 14.6
Regional Peers
Teejay Lanka (TJL) 160.1 3.9 10.5 0.4 17.8 12.8
Hoa Tho Textile & Garment Co Ltd - Vietnam 20.0 0.5 5.8 0.0 17.2 8.2
Square Textile Limited - Bangladesh 76.8 1.9 19.0 0.4 4.2 10.1
Pacific Textiles Holdings – Hong Kong 910.2 22.0 8.3 1.8 27.2 17.7
Luolai Lifestyle Technology – China 1,580.0 38.2 14.9 5.7 15.3 44.5
Toyobo Company - Japan 1,150.0 27.8 12.7 3.5 6.3 25.4
Arvind Ltd - India 240.9 5.8 9.6 0.6 7.5 49.0
Total (Regional Peers) 4,138.0 100.0 - 12.4 - -
Median (Regional Peers) 240.9 10.5 15.3 17.7
Source: Bloomberg and CT CLSA
Peer data as of 19 Feb 2021

Major Shareholder Movements

Major Shareholders as at 31 December 2020

No. Name No. of Shares % Change (Shares)* Comment

1 Hayleys PLC No 3 Share Investment Account 122,487,023 59.0 -

2 Employees Provident Fund 5,540,727 2.7 -
3 Hayleys Advantis Limited 5,036,850 2.4 -
4 Hayleys Agriculture Holdings Limited 3,472,257 1.7 -
5 Deutsche Bank AG - National Equity Fund 2,995,793 1.4 1,411,536
6 People's Leasing & Finance PLC/HI Line Trading (Pvt) Ltd. 2,636,266 1.3 New Entrant to Top 20
7 DFCC Bank PLC A/C No 02 2,000,000 1.0 -
8 Finco Holdings (Private) Ltd. 1,737,994 0.8 New Entrant to Top 20
9 DFCC Bank PLC A/C No 01 1,500,000 0.7 New Entrant to Top 20
10 Mr. K.N.J.Balendra 1,475,878 0.7 New Entrant to Top 20
11 Seylan Bank PLC / W.D.N.H. Perera 1,369,000 0.7 -372,100
12 Hatton National Bank PLC- Astrue Alpha Fund 1,320,910 0.6 -448,486
13 Insite Holdings Private Ltd. 1,007,500 0.5 New Entrant to Top 20
14 Mr. A.M.Weerasinghe 1,000,000 0.5 -850,000
14 Mrs. Swyrie Balendra 1,000,000 0.5 New Entrant to Top 20
15 Mr. K.Balendra and Mrs. S Balendra 996,818 0.5 New Entrant to Top 20
16 Mr. A.D.Gunewardene 986,475 0.5 New Entrant to Top 20
17 JN Lanka Holdings Company (Pvt) Ltd 850,000 0.4 -600,000
18 Deutsche Bank AG - Namal Growth Fund 818,570 0.4 New Entrant to Top 20
19 Mr. M.A.A.H. Esufally and Mrs. A.M.Esufally 681,077 0.3 New Entrant to Top 20
20 J.B.Cocoshell (Pvt) Ltd. 674,069 0.3 New Entrant to Top 20
Total 159,587,207 76.8
*Change since 30 September 2020
Exited Top 20 (Name & No. of Shares Held) : Govindasamy Ramanan – 3,937,548 shares, ARRC Capital (Pvt) Ltd – 3,472,257 shares, Mr. A.M. Iddamalgoda –
2,448,480 Shares, Mr. B. Srikumar – 2,000,000 shares, Mrs. N.K. Samaraweera – 1,850,000 shares, Mrs. V. Saraswathy – 1,814,623 shares, Buildmart Lanka (Pvt)
Ltd – 1,769,396 shares, Mr. H.S.R.Kariyawasan/ Mrs. K.H.S.Kariyawasan – 1,741,100 shares, Andaradeniya Estates (Pvt) Ltd. – 1,584,257 shares, Mr. Talib Tawfiq
Talib Al-Nakib – 1,450,000 shares

A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 10

 Contact Information

Research Trading & Sales Consultant / Sales

Sanjeewa Fernando Lasantha Iddamalgoda Rohan Fernando

sanjeewa@ctclsa.lk lasantha@ctclsa.lk rohan@ctclsa.lk
+94 77 742 7439 +94 11 255 2295 +94 11 255 2297
+94 77 778 2103 +94 76 778 2101
Rajitha Gunarathna
rajithag@ctclsa.lk Dyan Morris
+94 11 255 2290 dyan@ctclsa.lk
+94 11 255 2320
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kuhan@ctclsa.lk
+94 11 255 2290 Manura Hemachandra
manura@ctclsa.lk
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shahana@ctclsa.lk
+94 11 255 2290 Rosco Todd
rosco@ctclsa.lk
Oshadha de Vas Gunasekara +94 77 262 7233
oshadha@ctclsa.lk
+94 11 255 2290 Dhammika de Silva
dhammika@ctclsa.lk
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+94 11 255 2290 Arusha Michael
arusha@ctclsa.lk
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shenali@ctclsa.lk
+94 11 255 2290 Nuwan Madusanka
nuwan@ctclsa.lk
+94 76 858 9722

Ryan Jansz
ryan@ctclsa.lk
+94 77 547 9233

Rajitha Weerakoon
rajitha@ctclsa.lk
+94 77 320 4939

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developed data and other sources, believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated are accurate
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CT CLSAASECURITIES
CT HOLDINGS
(PVT) GROUP
LIMITED AND CLSA of
| A Member GROUP COMPANY
the Colombo Stock Exchange 11