Aitken Spence Hotel Holdings' (AHUN) has recorded a net profit of LKR523.8 mn in FY2010, whilst its 4QFY2010 earnings grew by a stronger 28% YoY owing to the turnaround performance in the local tourism sector coupled with the recovering Maldivian sector earnings. However, the 12% YoY dip in full year earnings (LKR592.6 mn in FY2009) is directly attributable to the poor performance in the Maldivian sector which suffered lower occupancy levels and deteriorating profit margins as a result of the global economic downturn.
AHUN, a 71.7% owned subsidiary of local conglomerate Aitken Spence PLC (SPEN, LKR1552.00) currently operates 9 hotels in Sri Lanka, 7 in Maldives, 5 in Oman and another 5 in India. The company operates its resort portfolio under three brands; namely "Heritance", the premier brand with 5 star luxury properties, "Adaaran", the Maldivian resorts and "Aitken Spence Hotels", comprising of all managed properties. The company is continuously searching avenues to expand its presence regionally and globally using its expertise in hotel management with minimal capital participation as part of their asset light strategy.
Gross revenue up 11% YoY to LKR7,320.5 mn in FY2010. AHUN's top line has grown by 11% YoY in FY2010 mainly on the back of revived Sri Lankan operations coupled with the improved performance in the South Asian sector. The company's local resort and hotel operations has posted a sharp increase of 19% YoY in its revenue whist the South Asian sector has grown by a slower 9% which was severely affected during the first half of the year by the tourism off season and global recession.
However, AHUN has posted a top line of LKR2,416.4 mn in 4QFY10, where Sri Lankan resort and hotel operations (23% of the total revenue) grew by an impressive 42% YoY along with a 8.5% YoY growth in South Asian operations.
Operating costs have increased by 9%YoY in FY2010. The company’s operating costs have increased by 9% YoY to LKR5,936.9 mn in FY2010 whilst the final quarter recorded a faster growth of 12% YoY due to high activity levels in the hotels.
Staff costs and direct operating costs have risen by 15% YoY during FY2010 whilst depreciation and amortization costs increased by 18% YoY owing to the increased asset base. Other indirect expenses have increased by a marginal 1% YoY in FY2010 resulted by the successful cost rationalization exercises implemented in its hotels.
Operating profit of LKR1,152.8in FY2010. AHUN has recorded an operating profit of LKR1,152.8 mn in FY2010 (dipped by 5% YoY) whilst recording a sharp rise of 20% YoY in 4QFY10. The company’s healthy results in the last quarter is mainly attributable to the revived local tourism which generated better margins coupled with the Maldives earnings which were above expectations.
However the year as a whole posted a dip in operating profits due to stagnant prices and pressurized margins in the South Asian operations.
Pre-tax profits grow by 36% YoY in 4QFY2010. The company has recorded a pretax profit of LKR628.8 mn (up 36% YoY) in 4QFY10, whilst its FY2010 earnings dipped by 6% YoY to LKR792.8mn. AHUN’s Sri Lankan resorts and hotels have halved its pre tax losses to LKR135.3 mn (dipped 52% YoY) in FY2010 whilst the contribution from associates (Hotel Hill Top and Browns Beach Hotel) posted a profit of LKR4.6 mn from a loss of LKR3.2 mn an year ago.
However, South Asian sector which comprises of Maldivian properties recorded a dip of 26% YoY in its pre tax profits on the back of slower recovery of global economy (where the occupancy is
still at 80%) and the downward pressure on the rates. With the recovery of the global economy coupled with the company’s world class hotel chain we believe the sector will rebound and get back to its lucrative ways in the near future.
AHUN recorded a net profit of LKR523.8mn for FY2010. Backed by the booming local leisure industry and recovering Maldivian tourism, AHUN has recorded a net profit of LKR523.8mn despite the first half of the year falling into tourism off season.
However when comparing the bottom line with the result quarter ago, AHUN has narrowed its dip to 12% YoY from 60% YoY. It should be noted that the previous years net earnings includes the profit of LKR219 mn (included in Other operating income) which was gained from the disposal of Bathala Island Resort in FY2009.
Therefore, looking at the numbers excluding the capital gain AHUN has posted a staggering 40% YoY growth in its net earnings for FY2010.
Future outlook
With the end to the 3 decade long terrorist conflict coupled with the positive macro economic outlook, AHUN is positive on strong growth in local tourism. As part of their expansion strategy the company is planning to build one or more hotels in Trincomalee (where they have 100 acres) whilst seeking prospects in Jaffna and Kalpitiya.
In March 2009, AHUN announced a right issue at LKR260 per share (1 for 4 ordinary shares held) to raise LKR2.5 bn to fund its expansion strategies, which was successfully subscribed (Post to Balance Sheet date). Also, the company acquired Golden Sun Resorts (Pvt) Ltd ("Ramada Resort, Kalutara") which is a managed property of AHUN for a purchase consideration of LKR350 mn during the year in concern.
In addition, AHUN is currently refurbishing Neptune Hotel, one of its beach properties in the south to be rebranded under its premier brand "Heritance". Once refurbished, it will be a wellness resort and a spa specialising in ayurvedic treatments which will be opened in winter 2010. Plans have also been finalised to build a new up market hotel in Ahungalla (down south) which would be a venture with world renowned Six Senses spa.
According to their regional expansion strategies, plans have been finalised to add more properties in India (Under Heritance Brand) which would be operational in the coming years.
Forecast FY11 earnings revised up to LKR901.8 mn. Backed by the recovering South Asian sector where occupancies are improving, coupled with the booming local leisure industry, we revise up our forecast net profit to LKR965 mn (up by 72.2% YoY) in FY11E and LKR1,250 mn (up by 38.7% YoY) in FY12E.
Share is fairly valued on 37.7X forecast FY10E earnings. The share has gained two fold since the end of war in May 2009 whilst we believe further upside possible with growing earnings materialising in the coming quarters. The share is fairly valued on 22.1X forecast FY11E net profit and 15.9X projected FY12E earnings.
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