Haycarb PLC (HAYC) a 67.7% owned subsidiary of Hayleys PLC (HAYL: LKR218.75), which commenced operations in 1973 accounts for circa 16% of the global activated carbon production. As the leading coconut shell based Activated Carbon (AC) producer, it has an installed capacity of 22,000 MT per annum with 04 manufacturing plants strategically located in Sri Lanka (12,000 MT per annum), Thailand (5,000 MT per annum) and Indonesia (5,000 MT per annum) whilst it has marketing offices in Thailand, Indonesia, UK, Australia and USA. In addition, HAYC has "Puritas Ltd" an ISO 9001 certified subsidiary which offers environmental protection solutions such as raw water treatment, solid waste management, air and noise pollution controls.
HAYC has posted a net profit of LKR632.9 mn in FY2010 (up by an impressive 182% YoY) which is the highest ever profits achieved by the company during the past threedecades.
YE 31/March (LKR mn) FY10
Revenue up by 12% YoY to 5,076 mn in FY2010. HAYC’s top line has grown by a moderate 12% YoY in FY2010 to LKR5076 mn, where 4QFY10 being the best quarter with a contribution of LKR1,338 mn. This is mainly attributable to the company’s effective sales and marketing strategies which made all four plants operate at near full capacity. Further, the company has improved its gross margin to 30% from 26% last year, owing to the cost rationalization policies which kept the cost of sales at LKR3576.2 mn (up by a mere 6% YoY).
Operating profits reached LKR675.6 mn in FY2010. Operating costs of HAYC has grown by 6% YoY to LKR850.7 mn in FY2010 on the back of effective cost rationalization strategies implemented by the company. As a result the company has posted an operating profit of LKR675.6 mn for FY2010 (rose by a stunning 66% YoY) whilst 4QFY10 contributed with a healthy LKR144.2 mn.
Profit before tax recorded a staggering growth of 129% YoY in FY2010 on the back of strong earnings posted by its associate along with reduced finance expenditure resulted from paying off debt coupled with low interest rates in the economy.
During the year in concern, company's 25% owned associate Carbotels Ltd; the hotels arm of Hayleys group divested a few hotel properties (including Sea Shells, Vil Uyana and Light House Hotel) resulting substantial capital gains to its holding entities where HAYC's portion of LKR144 mn is disclosed under "share of profit of Equity Investees".
Furthermore, HAYC has paid off a significant portion of borrowings from the cash generated from operation which has in turn reduced the finance expenses from a strong 26% YoY to LKR45.4 mn. On the other hand finance income has increased to LKR36.8 mn from LKR22.7 mn in FY2009 resulting a net finance expense of LKR8.7 mn for FY2010.Consequently, the company posted a pre tax profit of LKR819.8 mn in FY2010 which is a strong 66% increase from the year before.
HAYC records the highest ever profit of LKR632.9 mn in FY2010. Backed by the company's near 100% operating levels, effective cost rationalization strategies and the capital gains from its associate, HAYC has reached the highest ever profit of LKR632.9 mn in FY2010 which is up by an impressive 182% YOY.
Forecast FY2011E earnings to record LKR7693.5 mn. Backed by the growing global demand for environmental friendly coconut shell based activated carbon coupled with company's expansion focus we forecast the company to post a net profit of LKR693.5 mn (including the anticipated capital gains from the associate) in FY2011E (up 8.7% YoY) and reach LKR758.2 mn in FY2012E (up 8.5% YoY).
Share offers good value trading on 7.9X FY2011E earnings. The share currently trades on 7.9X forecast FY2011E net profits whilst trading at 7.2X projected FY2012E net earnings. Further the counter has gained 311% YoY which is far ahead the 110% gain recorded by the Colombo bourse. Furthermore, being the world’s largest coconut shell based activated carbon producer coupled with its focus on high value products, effective cost structures and further expansion strategies which would enhance and sustain the earnings growth, we maintain HAYC a BUY
Courtesy - Asia Research
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