Legacy Footwear inks deal with Chinese firm: Projected 12pc profit growth, revenue to surge 12-fold
Business Report :
Legacy Footwear has secured a new agreement with a Chinese company, which is expected to generate an additional Tk 366 million in annual revenue over the next five years. Following the announcement of this significant development on Thursday, the company’s stock price has surged by 9.94%, reaching Tk 58.60 per share on the Dhaka Stock Exchange (DSE).
With this price jump, the company’s price-to-earnings (P/E) ratio skyrocketed to an unusually high 837, in contrast to the more typical P/E ratios of industry leaders like Apex Footwear and Bata Shoe Company, which stand at 18.56 and 24.33, respectively, sources said citing the company’s most recent financial data.
In its latest update, Legacy Footwear highlighted some striking figures. The company plans to supply approximately 1.5 million pairs of shoes to the Chinese firm, Wenzhou Honshengda Industry Co. Ltd. (HSD), over the next five years, which will bring in around Tk 1.83 billion in additional revenue. However, the expected profit from this contract is only Tk 2.13 million over the same period.
Despite this substantial 12-fold increase in projected revenue, Legacy Footwear anticipates only a modest 12-14% profit growth year-on-year in the first year of the deal. This translates to a net profit of just Tk 0.116 per Tk 100 in revenue, significantly lower than the company’s current profit margins. For reference, in FY24, Legacy Footwear earned nearly Tk 14 for every Tk 100 of revenue.
The average sale price per pair to the Chinese company will be around Tk 1,220, with each pair contributing a meager profit of only Tk 1.4.
Mr. Shah Alam Swapan, the company secretary, explained to The FE, “The Chinese company will be purchasing in large volumes, which will help raise our brand profile. We may make only a small profit, but this is a major achievement for us. Honshengda Industry has been operating in Bangladesh for years, and they are a reputable partner.”
