Lanka Tiles has recorded a staggering 71% YoY growth in its 3QFY10 net earnings

Lanka Tiles (TILE) net earnings have increased by 71%YoY to post a net profit of LKR107.9 mn in 3QFY10.

TILE's net sales increased by 23% YoY in 3QFY10 to LKR787.1 mn on the back of 97%YoY increase in export sales and 16%YoY increase in local sales which was triggered by the strong demand from the construction boom in the North and East of the country.

During the 3QFY10 Cost of Sales of the Company increased by 17% while the cumulative figure dipped 1% due to both cost rationalization exercises and lower operating level in the first two quarters of the year.

The Company has recorded an operating profit of LKR179.7 mn in 3QFY10, up by 49% YoY whilst the cumulative 1-3QFY10 profit has also increased by 23% YoY to LKR386.5 mn. This was directly attributable to the strong contribution from improved gross profits coupled with the threefold growth in other operating income to LKR10.9 mn as a result of charging interest for delayed payments from dealers and distributors in 3QFY10.

With the economic conditions improving we project FY10E earnings to reach LKR320 mn (up by 11%YoY) this significant increase would arise mainly due to the sale of stocks that were built-up in FY09 due to adverse economic conditions. Therefore in FY11E we project the earnings to increase over FY09 level but below FY10E at LKR302 mn (down by 5.9%YoY). This overall growth in earnings is expected to be propelled from the infrastructure boom in the North and East and the increase in tariff on imported tiles.

The share remains attractive on 9.5x forecast FY10E net profit and 10.09x projected FY11E earnings whilst trading at 1.6xPBV. Maintain - BUY
Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
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Web: www.srilankaequity.com