Profit expected to grow 12pc, with revenue soaring 12 times

Legacy Footwear announced a new contract that it signed with a Chinese company to earn an additional revenue of Tk 366 million a year over the next five years.

After the disclosure of the price-sensitive information on Thursday, the stock jumped 9.94 per cent to Tk 58.60 per share on the Dhaka Stock Exchange (DSE). With the price surge, the stock's price-to-earnings (P/E) ratio soared to an abnormal high of 837 whereas sectoral leaders Apex Footwear and Bata Shoe Company have P/E ration of 18.56 and 24.33 respectively, according to latest audited financial statements of the companies.

Legacy Footwear cited some eye-catching numbers in its latest disclosure.

It said it would sell about 1.5 million pairs of shoes to the Chinese company, Wenzhou Honshengda Industry Co. Ltd. (HSD) in the five years to earn approximately Tk 1.83 billion in extra revenue. However, the profit is expected to be only Tk 2.13 million during the entire period.

The additional revenue is anticipated to be 12 times the current revenue of Legacy Footwear, manufacturer of leather and synthetic footwear.

Legacy Footwear's FY24 revenue was only Tk 22 million, which is Tk 28.4 million in the first nine months of FY25.

Despite this twelvefold annual growth in revenue, the shoemaker expects only 12-14 per cent growth in profit year-on-year in the first year of the five years.

So, the company will make a profit of only Tk 0.116 against Tk 100 revenue, which is far below its current net profit margin. In FY24, the shoemaker earned nearly Tk 14 per Tk 100 revenue.

The average price of each pair sold to the Chinese company would come to Tk 1,220 and the sale of each pair would bring in a profit of a mere Tk 1.4.

Company secretary Mr. Shah Alam Swapan told The FE, "They [the Chinese company] will purchase a huge quantity from us. That will enhance our brand image. We will make a very low profit from them.

"This [the agreement] is a great success for our company; Honshengda Industry is a very good company working for many years in Bangladesh."

The HSD will supply raw materials, technical support and skilled technicians, according to the contact.

"The board believes that this agreement will have a positive and material impact on the company's revenue, profitability, and overall export market presence," reads the disclosure.

farhan.fardaus@gmail.com