We recommend our clients to Subscribe to Service Global Footwear (SGFL) with a projected valuation of PkR60/sh, which is 58% higher than the floor price. We think the target multiple of 14x is amply justified from its footprint in export market catering a non-cyclical consumer segment. Comparable listed company, Bata Pakistan Limited (BATA) trades has traded at a P/E of 14.1x averagely for the last 9 years. We are excited on the Service Long March (SLM) tyre production project, which generates another export based income stream. We are comfortable with the growth prospects going forward.
Service Global Footwear Limited (SGFL) is the lead footwear export company in Pakistan. SGFL exports stood at USD43mn during the period despite the onset of COVID-19 restrictions. Currently, it accounts for 35% of all footwear exports from Pakistan. In FY20, footwear exports from Pakistan stood at USD122mn.
The company has filed intention to list and raise PKR1.55bn by offering 40.9mn shares. Service Industries Limited is the sole owner of the company, a reputed and listed rubber goods manufacturer. The proceeds will be used to attain stake in the SLM.
The investment entails setting up the first Truck & Buses Radial (TBR) Tyre plant in Pakistan with a capacity of 600k tyres with an outlay of PkR16bn. We think the investment is value accretive to SGFL, which aims to attain 18.9% of the stake in Service Long March Tyres. The footwear business is already operating near capacity. The income expansion from a diversified base is the value driver going ahead. The floor price of the offer is PkR38 per share, which values the business at PkR7.8bn. This implies 8.9x PE multiple on CY21E earnings.