Lion Brewery - An impressive leap to LKR189.99 mn in 3QFY10 vs LKR39.70 in 3QFY09

Lion Brewery (Ceylon) PLC (LION) has recorded a 378% YoY growth in net profit to LKR189.9 mn in 3QFY10. This was predominantly driven by the festive season in play during the quarter blended strongly with northern and eastern provinces opening for trade.

We believe a strong revival in demand for soft alcohol/beer would emerge with LION's expansion strategies underpinned by the opening up of the new markets in the war torn provinces, expected surge in tourist arrivals, increase in recreation activity and the expected rise in disposable income inline with the foreseen economic growth. This is evident with LION's 1-3QFY10 performance.

The Indian investment, though had not made any contributions during the 9 month period due to its nature of having a prolonged payback period, holds a lot of potential after being recognized as one of the fastest growing ventures with their moves in establishing strong presence in the vast Indian market.

Backed by LION's quick work in upgrading its logistics in the new regions and successful moves in efficiency enhancements, we revise up our forecast net profit to LKR555.2 mn (up 1,132.1% YoY) in FY10E and LKR669.0 mn (up by 20.5% YoY) in FY11E.

Share is valued on 12.1X forecast FY10E net profit and 10.0X projected FY11E earnings, trading at 1.5X PBV. Maintain BUY


Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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NDB Bank's net profit up 30% YoY in FY2009

National Development Bank's (NDB) net profit for FY2009 has increased by 30% YoY to LKR 2.1 bn, even though net profit 4Q2010 has dropped by 10.4% YoY.

Interest margins have increased to 3.99% from 3.62% resulting from deeper drop in borrowing costs. Interest yield for FY2009 is 14.12%, decreasing 0.74 percentage points from 14.86% FY2008. Interest cost for FY2009 was 10.13%, decreasing 1.11 percentage points from 11.24% in FY2008. Therefore net margin has improved by 0.37 percentage points.

Deposit base of NDB has increased by 61% over the FY2009 to LKR 50 bn from LKR 31 Bn.

Operating costs have increased by 11.8% YoY for FY2009 to 2.7 bn from LKR 2.4 Bn for FY2008. The key cost drivers that have increased during the financial year are personnel costs along with premises, equipment and establishment costs.

Cost /Income Ratio (CI ratio) remains at consistent levels for FY2008 and FY20009 hovering around approximately 63%.

NDB is well capitalized with CAR (Tier 1) is at 20.59% and CAR (Tier 1 & 2) stands at 23.79%.

NDB is currently trading at 8.5X PER and 1.2X PBV . NDB currently trades at 12.1X and 10.4X for FY2010E and FY2011E EPS forecasts. Maintain


Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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Distilleries :Outlook positive despite earnings dampened due to non-recurrent event (3QFY10 net profit dipped 37.4% YoY)

Distilleries (Sri Lanka's dominant hard liquor manufacturer with investments in diverse businesses) has posted a consolidated net profit of LKR841.4 mn, down by 37.4%YoY in 3QFY10.

DIST's hard liquor business has contributed LKR939.7 mn (down 14.0%YoY) to the consolidated 3QFY10 net profit.

The consolidated 3QFY10 operating profit has dipped by 32.7%YoY to LKR1,160.7 mn whilst the operating margin has improved to 22.8% in 3QFY10 (vs. 17.3% in 3QFY09). Liquor business PBT dipped 14.2% YoY to LKR1,086.8 mn whilst plantation sector PBT grew by an impressive 224% YoY to LKR80.6 mn and the Telecommunication arm posted a loss of LKR132.6mn (vs a loss of LKR112.0 mn).

We forecast FY10E net profit to reach LKR2,802.9 mn (-17.2% YoY) and to grow by 19.5%YoY to LKR3,349.1 mn in FY11E.

Given its proven ability to sustain robust earnings through new acquisitions coupled with the favourable macro environment and cash rich liquor business, the share is attractive at present trading on 10.4X forecast FY11E net earnings and 1.3X PBV. Maintain - BUY

 

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Plantation Sector : Strong earnings despite wage hike

Sri Lankan tea prices marked a strong recovery from 2QFY10 onwards where it touched the highest ever prices in mid September which was recorded at LKR456 per kg (up 70% YTD). The upswing was mainly attributable to the global supply shortage created by the production deficit in Kenya, India and Sri Lanka due to unfavourable weather conditions.

Natural rubber prices which were at the lowest ever (LKR120 per Kg in December 2008) which fell due to the global recession has now started rising, where it has reached a NSA of LKR350 per kg at present.

Backed by the rising commodity prices, the sector is poised to mark strong earnings in FY10E. But the growth was hindered by the estate labour wage hike which increased the cost of production by 20% with effect from April 2009. This cost each company with a gratuity provision closer to LKR100 mn, creating a substantial impact in the bottom-line.

However we believe the +70% rise in tea and three-fold rise in rubber prices would be able to wither the negative effects of the cost of production to a certain extent, making the last quarter of the most of the companies recording exceptional profits.

Our key buys would be Malwatta (MAL), Kegalle (KGAL), Kotagala (KOTA) and Namunukula (NAMU) mainly on the back of strong earnings potential (where most of the companies have recorded results above expectations) coupled with strategies to strengthen the bottom line though aggressive cost management policies.

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Dialog Telekom : Is it the end of dark days?

Revenue has increased by 9% YoY to LKR9.6 bn in 4Q2009 fuelled by positive gains in the mobile market on the back drop of aggressive price competition.

Net loss (excluding one-off charges) has been converted to a net profit (excluding one-off charges) of LKR761 mn owing to the improvements in mobile telephony operations, which made a Post Tax Profit of LKR1.2 bn on normalised basis.

DIAL's better performance particularly in 4Q2009 has driven us to revise up our forecast 2010E net profit to LKR2,948 mn. We believe the company is heavily investing to modernise its network infrastructure, improve quality, strengthen marketing activities to successfully combat competition in the future.

Though having nearly bottomed out, and trading on 18.6X forecast 2010E net profit, we expect DIAL to recover from 1Q2010E onwards. Whilst being a large cap company in the Colombo bourse, DIAL would continue to be a telecom sector pick and an institutional play, whilst the share has been supported with strong broad investor participation coupled with healthy earnings growth potentials. Further with the strong economic rebound we believe a commendable amount of investments would flow in to the sector in terms of infrastructure developments which would further strengthen the future earnings, we maintain our recommendation at medium- long term. - BUY

 

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AHPL' net earnings grow by 73% YoY to LKR158.2 mn in 3QFY10

Asian Hotels & Properties (AHPL) has recorded a near 73% YoY growth in earnings to LKR158.2 mn in 3QFY10 predominantly driven by the hotel sector performance. During the quarter the hotel sector contributed circa 75% of company's top line and bottom line.

lUnderstandably, the hotel sector (City hotels Cinnamon Grand and TRAN) performed considerably well (LKR117.9 mn in 3QFY10 vs LKR29.1 mn in 3QFY09) where the occupancy levels during the quarter picked up to an average of 65%-70%. Earnings from the Property Development sector dipped by 35.5% YoY to LKR40.3 mn during the quarter mainly on the back of better performance in 3QFY09 due to recognition of revenue from the completion of 'Monarch' and now relatively sluggish sales and delays in receiving the payment of already sold apartment tower 'Emperor.'

Forecast net profit to dip by 17.6% YoY to LKR461.0 mn in FY10E whilst projected FY11E earnings are estimated at LKR793.1 mn (up 72.0% YoY). This is mainly on the back of improving tourist arrivals and more percent age of property sector earnings recognized in FY11.

The share is attractive on just 2.2X PBV (its peers such as AHUN trades at 3.1XPBV) even though it trades at a high multiple of 56.4X forecasted FY10E earnings and 32.8X forecasted FY11E net profit. Further share offers good value due to its dynamism (derived from the John Keells group), ability to develop and market premium properties and also the envisaged dominant position of its five star hotel properties. We rate AHPL a HOLD.Asian Hotels & Properties (AHPL) has recorded a near 73% YoY growth in earnings to LKR158.2 mn in 3QFY10 predominantly driven by the hotel sector performance. During the quarter the hotel sector contributed circa 75% of company's top line and bottom line.

Understandably, the hotel sector (City hotels Cinnamon Grand and TRAN) performed considerably well (LKR117.9 mn in 3QFY10 vs LKR29.1 mn in 3QFY09) where the occupancy levels during the quarter picked up to an average of 65%-70%. Earnings from the Property Development sector dipped by 35.5% YoY to LKR40.3 mn during the quarter mainly on the back of better performance in 3QFY09 due to recognition of revenue from the completion of 'Monarch' and now relatively sluggish sales and delays in receiving the payment of already sold apartment tower 'Emperor.'
l
Forecast net profit to dip by 17.6% YoY to LKR461.0 mn in FY10E whilst projected FY11E earnings are estimated at LKR793.1 mn (up 72.0% YoY). This is mainly on the back of improving tourist arrivals and more percent age of property sector earnings recognized in FY11.

The share is attractive on just 2.2X PBV (its peers such as AHUN trades at 3.1XPBV) even though it trades at a high multiple of 56.4X forecasted FY10E earnings and 32.8X forecasted FY11E net profit. Further share offers good value due to its dynamism (derived from the John Keells group), ability to develop and market premium properties and also the envisaged dominant position of its five star hotel properties. We rate AHPL a HOLD.

Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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Stafford Hotels : In the era of renaissance.

STAF has exhibited overwhelming performance, posting a fourfold growth in net earnings YoY to LKR13.2 mn in 3QFY10. The cumulative 1-3QFY10 net profit has also   recorded an impressive growth of 84% YoY to LKR28.9 mn.

STAF's revenue has not only been supported by high occupancy levels, but also by the improved room rates, where STAF sustained an occupancy level of 87% round the quarter and also maintained an Average Room Rate (ARR) of circa USD51.

On the back of increasing tourist arrivals, the strategic location of the Club Hotel Dolphin, reduced discounts to Tour Operators and increasing average room rates; we forecast the FY10 earnings to rise 22% to LKR46.6 mn and FY11E earnings to rise 62% to LKR75.4 mn. 3QFY10 results are in line with our forecasts, where the Net profit has surged by 213% to LKR13.2 mn (vs. LKR4.2 mn in 3QFY09).

The share is fairly valued at 23.4X FY10E earnings and 14.5X FY11E earnings. Further the share being trading at 1.8X 3QFY10 PBV (reported) and just 0.7X 3QFY10 PBV (revalued), we recommend - BUY
Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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Hayleys : 1-3QFY10 net earnings record three-fold increase

Conglomerate, Hayleys PLC (HAYL) posted LKR278.9 mn net earnings for 3QFY10 (Vs LKR74.3 mn in 3QFY09) whilst recording LKR831.5 mn, a four-fold increase for the first nine months of the year.

HAYL's post tax earnings have increased three-fold during the quarter in concern, resulting cumulative earnings of LKR831.5 mn which has recorded a stunning four-fold growth when compared with the corresponding period last year.

This is on the back of a strong manufacturing sector with considereable stakes in the global market coupled with reviving consumer and leisure sector which have supported the reported group earnings.

We forecast FY10E net profit revised up to reach LKR1,031.5 mn (up by a staggering 231% YoY) and to mark the highest ever profits achieved by the group. Further we project the conglomerate to record a net profit of LKR1,083.1 mn in FY11E (up by a conservative 5% YoY) owing to diversity of the company which is poised for growth in manufacturing, agricultural and leisure sectors.

Share is fairly valued on 16.0X projected FY10E earnings and 15.2X forecast FY11E net profit whilst trading on 1.3X PBV. - Maintain BUY


Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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RCL's net profits up 124.3% YoY to LKR366.3 mn in 3QFY10 and outlook continues to be vivid

Royal Ceramic's (RCL) net earnings have increased by 124.3%YoY to LKR366.3 mn in 3QFY10 whilst the bottom-line grew by 61.0%YoY during the 9 months to LKR650.1 mn, mainly driven by strong demand and improved sales mix in the sizes of tiles (Bigger tiles tend to have higher margins).

RCL's gross turnover has grown 26.6% YoY to LKR1,550.9 mn on the back of a near 16% increase in sales volumes in 3QFY10 due to increased demand from home builders whilst sales price witnessed a marginal increase during the 9 months. The cost of sales has increased by 19.7% YoY to LKR717.7 mn in 3QFY10 however at a reduced pace than the growth in turnover. Accordingly, RCL's gross margin has improved to 43.4% in 3QFY10 (from 38.5% in 3QFY09).

RCL has recorded an operating profit of LKR459.1 mn in 3QFY10 (up 50.7% YoY) whilst the operating profit margin has grown to 29.6% in 3QFY10 (from 24.8% in 3QFY09).

Despite not having a strong presence in the previously 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. With the economic conditions improving we project FY10E earnings to reach LKR898 mn (up by 73.4%YoY) and FY11E earnings to reach LKR1,211.4 mn (up by 34.9%YoY).

The share remains very attractive on just 6.0X forecast FY10E net profit and 4.4X forecast FY11E net profit whilst trading at 1.1XPBV. Maintain - BUY



Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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AHUN records 20% top-line growth despite the off season in tourist

Aitken Spence Hotel Holdings' (AHUN) has recorded a net profit of LKR210.5 mn in 3QFY10 from a loss of LKR105.8 mn in 1HFY10, which is directly attributable to the reviving domestic tourism with higher occupancies and earnings from its Maldivian hotels.

We believe that with the complete end to 3 decade long terrorist conflict coupled with the favourable macro economic outlook, the hotel sector would mark a turnaround in the near future. AHUN will be a prime beneficiary of this situation, with 09 properties in all strategic locations in the island which have been upgraded and ready for the boom.

Backed by the slower recovery of the South Asian sector which accounts for a plus 80% of the top line, we revised down our forecast net profit to LKR423.5 mn (down by 28.5% YOY) in FY10E and LKR851.8 mn (up by 101% YoY) in FY11E.

The share has gained three-fold (246%) since the end of war on 18th May 2009 whilst we believe further upside possible with growing earnings materialising in the coming quarters. AHUN is fairly valued on 37.7X forecast FY10E net profit and 18.7X projected FY11E earnings whilst it is trading on a PBV of 3.2X, we maintain - BUY



Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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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
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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Ceylon Tobacco : 2009 net earnings grow by a staggering 49% YoY

Ceylon Tobacco (CTC) has posted a net profit of LKR2,020.6 mn in 4Q2009 (up 59.9% YoY) whilst total earnings for 2009 are also up by a strong 49% YoY to LKR4,112.6 mn .

Earnings have been driven by a sharp 10.5% YoY growth in net revenues to LKR12,353.9 mn, supported by a shift into high margin brand/product mix along with the company's focus on effective cost rationalisation where the company has been able to cut down its cost base by a significant 17.6% YoY during the year 2009 .

We forecast 2010E net profit to grow by a conservative 6.1% to LKR4,367 mn whilst projecting 2011E net profit to increase by a further 5.3% to LKR4,600 mn on the back of the company's continued focus on improving its brand mix coupled with successful cost rationalization exercises.

The share is attractive on 9.3X forecast 2010E net profit and 8.8X projected 2011E net earnings. Further given the historical dividend payout ratio of a near 95%, we believe the share would continue to be a key dividend play in the Colombo bourse - Maintain BUY



Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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Chemical Industries : 3QFY10 earnings record an impressive growth to reach LKR327.2 mn

Chemical Industries Colombo (CIC) has reported an impressive net earnings growth in 3QFY10 to reach LKR327.2 mn (vs LKR(21.3) mn in 3QFY09).

CIC's 3QFY10 profits have been driven predominantly by the key agriculture and livestock sector (EBIT up 242%YoY) coupled with 658.9%YoY increase in other income (mainly the subsidy payments for fertilizer received from the government) and improved contribution from the construction sector (EBIT up 180% YoY). The consumer and pharmaceutical sector along with the packaging segment has weathered a challenging period where the EBIT contribution from these segments dipped 37% and 5% respectively.

CIC is positioned to successfully gain from the changing macro environment of the country where we believe the company is to benefit significantly from an anticipated revival in the agribusiness sector specially from the previously war torn North.

With the group's plans for growth, retooling of the value chain and diversification of risk, we expect CIC to enjoy a 42.9% growth in earnings to reach LKR583 mn in FY10E and a 32.5% growth in FY11E earnings to reach LKR772.5 mn.

The voting counter trades at 10.4x FY10E earnings (7.9x FY11E) and the non-voting counter trades at 6.5x FY10E earnings (4.9x FY11E) whilst trading at discount to market. On the back of prospects of steady growth along with growth stemming from agriculture in the long term and untapped potential in the North & East, we maintain BUY
Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com

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