Tuesday, April 12, 2011
Diesel & Motor Engineering PLC
CHEMICAL INDUSTRIES: Impressive 58.7% YoY Growth in 3QFY11
- Chemical industries (CIC.N.LKR154.70,CIC.X.LKR109.00), posted a net profit of LKR759.0mn for 1-3QFY11 (vs. a net profit of LKR485.3mn for 1-3QFY10), reflecting a growth of 56.4% YoY, where company achieved net earnings of LKR382.7mn for 3QFY11.
- Growth was supported primarily by strong growth in agricultural & livestock segment earnings ( 42.7% YoY growth). Further triggered by impressive performance from construction, consumer & pharmaceutical segments posting YoY growth rates of 46.8% and 37.6% respectively.
- With country’s agricultural sector showing significant growth with improved economic conditions (agricultural sector grew at an impressive 7.0% for the FY2010), where the growth is expected to continue(according to rice research & development institute, Sri Lankan Demand for rice for local consumption in 2020 expected to be 4.6mn tons. Production should increase by 50% in both dry & wet zone to meet this target), also with the improved performance of Poultry & Feed segments with the increasing consumption levels.
- Further with the boost in construction industry expected to continue with the rebuilding efforts and major undertakings in leisure industry, and with CIC’s plans expand overseas, counter is poised to benefit with the strong presence in Agricultural, Construction, consumer & pharmaceutical segments. Against this backdrop we expect CIC to record LKR935.2mn in FY11E (up by 56% YoY) and net earnings of LKR1, 143.4mn in FY12E (22% YoY growth).
- CIC (voting) currently trades at 15.7X forecasted FY11E net profit, 12.8X estimated FY12E net profit and 3.1X PBV. CIC non- voting currently trades at 11.4X forecasted FY11E net profit and 9.3X forecasted FY12E net profit, as opposed to a chemical & pharmaceutical sector PE of circa 17.7X and a current trailing market P/E of 18.7X. We believe counter holds strong upside.
Banking Sector – Riding the Growth Wave
Sri Lanka - Country Report 2011
Friday, February 4, 2011
Vallibel One: the growing conglomerate with a Rs.1.2 billion net profit in 2010 and beyond
Vallibel One Limited is a diversified holding company incorporated on 09th June 2010. Prior to the proposed private placement and initial public offering 100% of the shares in issue are held by the business tycoon Dhammika Perera and companies controlled by him. Through its subsidiary companies Vallibel One has made strategic investments in financial services,manufacturing and leisure industry.





The construction industry is booming on the back of higher consumer spending amidst low interest rates. Thus consumer spending on housing is anticipated to increase in the ensuing years. Further, reconstruction of north and east, refurbishment and construction of new hotels and resorts are key contributors to this boom with RCL being a key beneficiary.





Valuation
Based on FY11/12 forecasted earnings the share is issued at a PE of 13.65x (FY12/13 at 10.26x) and at a PBV of 0.83x (FY11/12 at 0.73x).
Vallibel One is likely to be listed under ‘Diversified Sector’ (DIV) or the ‘Investment Trust’ (INT). DIV sector is trading at a PE of 32.8x and at PBV of 3.6x, while the same for INT sector is 28.6x and 4.0x respectively. Thus Vallibel One shares are issued at a significant discount to its respective sectors.On a Forward Earnings based approach and on a forward PBV approach the share is issued at a discount to its intrinsic value. Hence investors can immediately expect capital gains on the counter and better prospects in the long term, thus we recommend a BUY.
Courtesy - Capital Trust Research
Thursday, February 3, 2011
at Thursday, February 03, 2011 | 0 comments | ODEL, OTARA, research, retail
ODEL seeking for incessant market expansion in Apparels, growing 26% YOY in 3Q in 2010
Odel which was established as a private limited company in 1990 by Otara Guawardene has today evolved as a foremost group of companies in Sri Lanka. It recently obtained the listing on Colombo Stock exchange, whilst being the first fashion retailer to go public in Sri Lanka.

The IPO was successfully oversubscribed by 63.8 times.

Company’s success is underpinned by its correct strategic view on market expansion and diversification. The group is seeking for incessant market expansion especially in concern to the apparel sector where company has expanded up to possessing 13 outlets with 136 square feet of high quality shopping.
The flagship store at the Alexandra Place is witnessed as an enthralling tourist destination.
Today Odel is highlighted amongst the leading apparel giants in Sri Lanka.
Financial Highlights for the 3Q ended 31st December 2010

The top line of Odel Group grew by 15% QoQ while YoY growth amounted to 26%.
Group seems to have imposed control over the cost structure to improve the gross profit margin to 39%.
Other income has declined by 72% to Rs.24 million YoY while QoQ there’s a marginal decline of 9%.
Distribution expenses saw an YoY decline of 18% while administration expenses saw only a marginal increase of 1%, thus operating profit margin improved from 12% to 14.6%.
During the 3Q Bottom line of ODEL reached SLRs.76mn up by 35% YoY, and 19% QoQ.
The remarkable QoQ top and bottom line growth rates posted during the 3Q of the current
financial year are backed by the increased demand and sales that occurred during the Christmas and New Year festive season and the increase in tourist arrivals.
Glance at first 9 months FY 10/11 results of the group

During the period top line grew by a staggering 42% YoY to reach 2.5bn.
Gross profit grew by 53% YoY to SLRs.967mn, with gross profit margin improving to 39%.
Group as a whole expressed a gratifying performance as the profitability of the group shows a strong upward movement with profit before tax increasing by 61% YoY to reach 287mn. Profit After tax for the same period amounted to SLRs.176mn up by 43% YoY however net profit margin remained at 7%.
Future Outlook

With the milestones of success that Odel has marked in its expedition, the group could shunt ahead exposing a significant competition to the existing market players and creating a strapping barrier to the new entrants whilst enhancing and strengthening its brand image impressively. The
key success of the Odel group lies on the apparel sector as Odel outlets are leading as sought after destinations amongst other shopping outlets of the country, reasoning being that its flagship store is becoming comparable to international department stores in any fashion capital.

As the next walk in their massive expansion stratagem, Odel which is acknowledged as the country’s definitive and life style brand, has announced its plan to expand to Kiribathgoda and Wattala regions which are situated in the highest populated Gampaha District, whilst increasing its retail space further by 22,000 square feet and number of outlets to 15. However important consideration is raised on the other hand that such aggressive expansion strategies would lead to the dilution of their “Exclusive” brand value.

During the year Odel alsohas built up several important strategic links with corporate giants. A noteworthy one is the ODEL‐HNB co branded credit card which is a gold card that comes under VISA international brand that offers attractive benefits for the customers shop at Odel. This would strengthen the group’s sales to a greater extent.
Further the sophisticated and award winning Odel website also put in a remarkable contribution for heightening up sales, offering a comprehensive shopping experience through enhanced e‐commerce facilities.
Odel so far has carried out firm differentiation strategy offering a wider product change in their shopping outlets.
It’s products range from ladies ware, gents ware, kids ware, home ware, Sri Lankan souvenirs, food, backstage, embark collection, R&R whilst differentiating its outlets to that of other fashion retailers that Odel is hardly imitable.
An optimistic panorama is put forward specifically for Odel which is a leader in the market, by the augment in the tourism industry which is expected to grow by 40% to 850,000 in 2011 and reach 2.5million tourist arrivals by 2016 as per the Sri Lanka’s tourism authority in which case, Odel shopping outlets would play a key role in providing exceptional quality shopping facilities for the foreigners. This would grant a extraordinary backup for the boost of future demand for Odel apparel.
On 19th of November it was announced that the Odel acquired a prime land 250.4 perches in Thalangama for Rs.257.9 milion through its fully owned subsidiary Odel Lanka (Pvt) Limited witch is incorporated to plan the preliminary activities required to construct a high rise shopping mall complex. This provides an insight of a large scale strategic investment that the Odel is expecting to initiate with its hands on experience and victorious voyage whilst enjoying economies of scale and economies of scope advantages. Ability of the group as a whole for tapping superior profitability in a very healthy context in the upcoming years is thus evident.
The budget proposed on 22nd on November for year 2011 has projected many concessions favorable concessions. It proposed to reduce custom duties on selected goods and raw materials and also with the aim of promoting Sri Lanka as an attractive destination for international shopping for branded items, internationally branded items were exempted from VAT and import duty. Further the economic service charges on BOI enterprises were revised down to 0.1%. These policies would definitely have a positive impact on the Odel group creating a promising future to enhance the business.
Recommendation
Looking at the current performance together with the future outlook of the group the counter looks attractive in the medium to long term. Thus we recommend a BUY.
Courtesy-Capital Trust Research
Thursday, January 6, 2011
DISECTING 2010 - Sri Lanka Stock Market Perspective
GDP growth gathers momentum
A widening trade balance
The period January - October 2010 witnessed a trade deficit of USD 4,357.1 mn. There was a 32.8% YoY increase in import expenditure for the period in concern which amounted to USD 10,862.6 mn unmatched by the value of exports that reached USD 6,505.5 mn, an increase of 13.2% YoY.
However, CSE performance lost grounds thereafter shedding nearly 600 basis points till December.
The YTD foreign interest recorded an outflow of LKR32.6 bn. Having overcome few of the bottlenecks for investment in Sri Lanka; inclusive of political instability monetary and fiscal disciplines last year, we believe foreigners would revert their attention to Sri Lanka’s equity market.
2010 New Listings
Among the weak performers during 2010 were :
Sector “Hot-Picks” backed by healthy earnings
Courtesy- Asia Research
Monday, August 16, 2010
Hatton National Bank (HNB) net profit up 23% YoY in 2Q2010
Hatton National Bank's (HNB) net profit has grown 23% YoY to LKR1,220.3 mn in 2Q2010 mainly on the back of a 7% YoY increase in net interest income, 25% YoY increase in non interest income and a 94% YoY reduction in provisioning cost which enabled 1H2010 net profit to grow by 10% YoY to LKR1,888.5 mn. With the economy expected to grow by circa 6%-7% during the next few years and contributions from the previously war affected North and East to the main stream economy the banking sector outlook remains positive with loan growth (grew 2.2% YoY in May) expected to gather momentum from 2H2010 with the low interest rate environment. HNB's net interest margins are expected to be intact at around 5%, whilst continuing to benefit from the wider reach facilitated by 189 branches (20 branches in the North and East) and higher retail focus.
However, we maintain our forecast 2010E net profit at LKR4,101.0 mn (down 9% YoY)with slower credit growth in 1Q2010 than anticipated coupled with high operating costs and projected 2011E net earnings at LKR4,547.8 mn (up 11% YoY).
The voting share is fairly valued at 17.0x forecasted 2010E profit and 15.3x on forecast 2011E whilst trading 2.4x PBV. The non voting share remains attractive on 11.0x forecast 2010E net profit and 10.0x projected 2011E net earnings whilst 1.5x PBV. Maintain BUY.
Interest income has dipped 16% YoY to LKR7,576.7 mn in 2Q2010. HNB’s interest income has dipped 15.6% YoY to LKR7,576.7 mn in 2Q2010, mainly due to a 19.4% YoY dip in interest income from loans and advances to LKR5,827.8 mn. The dip in interest income from loans and advances was on the back of low rates despite performing loans growing by 4.4% during the quarter to LKR164.2 bn. However interest income from fixed income securities remained flat at LKR1,748.8 mn even though treasury bill and bond portfolio (held to maturity) grew by 9.5% to LKR61.6 bn during the quarter which is approx. 21% of the banks’ total asset base.
Interest expenses dipped 31% YoY to LKR3,714.1 mn in 2Q2010. Group’s interest expenses have dipped 30.9% YoY to LKR3,714.1 mn in 2Q2010, on the back of 30.5% YoY drop in interest cost on deposits to LKR3,295.5 mn. The drop in deposit cost is largely attributable to low deposit rates and the shift in the deposit mix from high cost time deposits to low cost CASA products (CASA mix improved to circa 50% of total deposit base from 48% in 1Q2010). Further deposit base also recorded a marginal 1% growth to LKR216.4 bn during the quarter. Interest expenses on other interest bearing liabilities also dipped by 34.3% YoY to LKR418.7 mn.
Net interest income grew 7% YoY to LKR3,862.6 mn. The dip in interest income was off set by a faster decline in interest cost enabling net interest income to grow by 7.1% YoY to LKR3,862.6 during 2Q2010. Interest margins also improved to 5.3% (up 1.3% QoQ) in 2Q2010.
Non interest income grew 25% YoY to LKR2,000.6 mn in 2Q2010. Non interest income has grown by 24.8% YoY to LKR2,000.6 mn in 2Q2010 due to 31.6% YoY increase in other income to LKR1,764.1 mn. Other income growth was supported by the capital gains made by selling off shares it held in Commercial bank and Distilleries.
Foreign exchange income fell by 9.7% YoY to LKR236.5 mn, due to stagnant exchange rates.
Operating cost has increased by 13% YoY in 2Q2010 to LKR3,400.2 mn. Operating costs have risen by 12.6% YoY to LKR3,400.2 mn, mainly due to a 17.7% YoY increase in personnel costs to LKR1,283.4 mn. Increase in personnel cost was a result of salary revision undertaken across all staff grades of the bank during 2009. Consequently the operating cost per branch stands at LKR18.0 mn per quarter and the cost to income ratio is at circa 58%.
Provisioning cost has dipped 94% YoY to LKR 10.0 mn in 2Q2010. Total provisions have dipped 94.0% YoY to LKR10.0 mn, mainly due to a 160.0% YoY improvement in recoveries and 50.8% reduction in specific provisions. Gross NPL ratio for HNB is at 6.5% (compared to 7.4% in 1Q2010) and net NPL ratio stands at 3.3%. HNB’s non performing loans reduced by 8.0% to LKR13.4 bn during the quarter and the provision cover stood at 42%. (compared to 39% in 1Q2010).
Total tax bill has risen 13% YoY to LKR1,217.9 mn in 2Q2010. Value added tax (VAT) has increased by 19.5% YoY to LKR630.4 mn and corporate tax increased 7.1% to LKR587.5 mn pushing up the total tax bill (VAT and Corporate tax) by 13.2% YoY to LKR1,217.9 mn in 2Q2010. Thus the effective tax rate of the bank is near 50% in 2Q2010.
Net profit up 23% YoY to LKR1,233.1 mn in 2Q2010. Consequent to a 7% YoY increase in net interest income, 25% YoY increase in non interest income and a 94% YoY reduction in provisioning cost helped HNB’s profitability in 2Q2010. Cumulative 1H2010 profits also rose 10% YoY to LKR1,870.1 mn.
Forecast 2010E net profit maintained at LKR4,101.0 mn (Down 9% YoY). With the economy expected to grow by circa 6%-7% during the next few years and contributions from the previously war affected North and East to the main stream economy, the banking sector outlook remains positive where loan growth expected to gather momentum from 2H2010 onwards with the low interest rate environment. HNB’s net interest margins are expected to be intact at around 5%, whilst continuing to benefit from the wider reach facilitated by 189 branches (20 branches in the North and East) and higher retail focus (Retail mix is circa 60%).
However, we maintain our forecast 2010 net profit at LKR4,101.0 mn (down 9% YoY) with slower credit growth in 1Q2010 than anticipated (private sector credit growth in January 2010 was 0.6% MoM and 1.6% MoM in February 2010) coupled with high operating costs. However we expect 2011E net earnings to grow by 11% YoY to LKR4,547.8 mn on the back of loan book expansion (where the private sector credit is expected to grow from 2H2010 onwards) and cost rationalisation strategies expected to be adopted by the bank.
The voting share is fairly valued on 17.0x forecast 2010E net profit. The voting share is trading at 17.0x forecasted 2010E profit and 15.3x on forecasted 2011E whilst trading 2.4x PBV.
The non voting share remains attractive on 11.0x forecast 2010E net profit and 10.0x projected 2011E net earnings whilst 1.5x PBV. Given the stable macro economic outlook and expected credit growth HNB, is in a better position to reap the benefits out of it with its island wide coverage (has the largest presence in North and East). Further HNB’s new branches (specially in North and East) breaking even in the coming years will contribute positively to banks bottom line. Bank also has a divesified product portfolio where they aggressively look at growing areas such as foreign worker remittences, credit card business and pawning. Further we believe HNB would adopt necessary measures to curtail its costs with its newly adopted core banking system in the future. Thus we Maintain BUY.










