Chevron Lubricants (LLUB) has posted a net profit of LKR375.0 mn in 1Q10 (vs LKR232.9 mn 1Q09) due to high gross profit margin enjoyed on the back of low raw material cost, broadly inline with our expectation.
LLUB's turnover has remained flat to LKR2, 291.5 mn in 1Q10 however the top line grew by 9.6% QoQ. 1Q10 saw an improvement (approximately 3%-4% YoY) in volume growth compared to the corresponding previous period due to the recovery in consumption mainly from the retail segment (LLUB sales to Retail and Industrial is circa 65:35). Further, in 1Q10 there has been no price increase however the downward price revision in the latter part of 2009 has held back the top line growth in 1Q10.
Despite the flat growth in the top line the gross profit for the quarter grew by a sound 39.2%YoY mainly on the back the drop in cost of sales. Cost of sales dipped to LKR1,536.1 mn (down 11.5% YoY) during the quarter. Consequently, the gross profit grew to LKR755.3 mn whilst the gross profit margin for the quarter grew by an impressive 9.1% to 32.9%.
On the back of anticipated increase in consumption and activity in the country (The anticipated revival in agriculture and fisheries specially in the North & East would have a marked upside impact on LLUB's earnings) coupled with growth stemming from Bangladesh, we conservatively forecast 31.5% YoY growth in LLUB's FY10E earnings to reach LKR1,965.8 mn.
The share is attractive on 10.4X2010E forecast net profit and 6.7% dividend yield. LLUB continues to be zero geared with a near 70% ROE. We maintain BUY.
Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com
Monday, May 10, 2010
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