We do see the possibility of Sisil and Singer brands being challenged by the reduction taxation for the imported brands. However, the imported brands- Hitachi and Samsung we believe continue to be sold at a significant market premium thus giving REG products the edge with the price conscious Sri Lankan consumer. We expect the forward three-year Sales CAGR to grow by 31.7%.
With strong cash flows, concrete brand equity, solid management and the growth figures displayed in 3Q2010, we believe REG is significantly undervalued given the trading multiples of its peers / related companies. With the country’s current economic upswing and the present market growth potential we are of the opinion that REG shows promise. We feel REG’s low cost positioning, expertise of its affiliate Singer PLC, financial resources, and superior product differentiation requires a premium.
Trades at a historical (TTM) PER of 7.8x and a PBV of 2.1x. This compares to the (TTM) PE ratios of 24.4x of Singer Sri Lanka PLC (SINS:LKR 195.00) and Negative recurring EPS of Singer Industries PLC (SINI:181.40). The already attractive historical PER of 10.2x of REG trades even favourably with a forward PER of 8.1x on 2011 forecast earnings and 6.2x of 2012 forecast earnings.