● Royal Ceramic's (RCL) net earnings have increased by 18.0%YoY to LKR283.8 mn in 1HFY10 whilst the bottom-line has dipped by 7.4%YoY to LKR151.4 mn during 2QFY10.
● RCL's gross turnover has dipped 7.1% YoY to LKR1,101.2 mn on the back of a near 10%-15% dip in sales volumes in 2QFY10 despite a marginal increase in sales price. The cost of sales has dipped 10.7% YoY to LKR532.4 mn in 2QFY10 owing to the ongoing vigorous cost cutting mechanisms(despite the increase in energy cost (mainly due to the rise in LPG and kerosene oil prices) which accounts for around 40% of the total cost of production). Accordingly, RCL's gross margin has improved to 41.4% in 2QFY10 (from37.4% in 2QFY09).
● RCL has recorded an operating profit of LKR251.6 mn in 2QFY10 (down 14% YoY) on the back of the increased cost base.
● Despite not having a strong presence in the war affected regions, a reconstruction boom in the North and East would drum up the overall economic growth whilst RCL would strongly benefit from the growing demand in the Western and Southern provinces. Further, with the local tourism expected to rebound hotel capacity building would prompt additional demand for highy quality tiles. Hence, with the economic conditions improving we conservatively project FY10E earnings to reach LKR585 mn (up by 13.0%YoY) and FY11E earnings to reach LKR695.5 mn (up by 18.9%YoY).
● The share remains attractive on 4.7X forecast FY10E net profit and just 4.0X projected FY11E earnings whilst trading at 0.7XPBV
SRI LANKA EQUITY ANALYTICS
World Trade Center
Colombo
Sri Lanka
Email: sriventure@gmail.com
Web: www.srilankaequity.com
Wednesday, November 11, 2009
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