Hatton National Bank : Net profit up by 58% YoY in FY2009

Hatton National Bank Plc (HNB) is Sri Lanka's second largest private commercial bank with 186 customer centers (4302 employees). In FY2010E we expect net earnings to be driven by loan book expansion, given the revival of business sentiment and fresh markets in north and east (Bank has 20 branches in the region).Branch network is expected to be increased to 200 at the end of FY2010.

HNB net profit for FY09 was up by approximately LKR 1.7 Bn to LKR 4.5 Bn from LKR 2.8 Bn for FY08 showing a 58% increase .This was mainly boosted by strong 4Q FY09 performance showing a 156% increase YoY to LKR 1.8 Bn from LKR 0.7 Bn.

Net Interest income (NII) shows a YoY growth of 16% for FY09 where it has increased to LKR 14.5 Bn from LKR 12.5 Bn.4Q FY09 shows a similar pattern albeit at 11% YoY.NII for the 4Q FY09 is LKR 3.8 Bn and 4Q FY08 is LKR 3.4 Bn.

Interest expenses remain consistent for FY09 and FY08 hovering around approximately LKR 20 Bn even though for 4Q FY09 it has dropped by 18% YoY to LKR 4.5 Bn.

Upward trend in profitability of the Bank is evident by increases to ROE and ROA which at end of FY09 stands at 19.89%( up 3.39percentage points YoY from 16.5%) and 2.21%(up 0.23percentage points YoY from 1.98%) respectively. Further Interest Margin for the Bank has increased by 0.21% for FY09 to 5.45% from 5.24%.

Deposit base of HNB has grown by 13% over FY09 to LKR 213.8 Bn from LKR 189.8 Bn.

NPL has come down by 8% over FY09 to LKR 12.4 Bn (at the beginning of FY09 the NPL were at LKR 13.5 Bn) where the majority contribution to that comes from overdrafts which has undergone a drop by 29% (from LKR 2.1Bn to LK 1.5 Bn) over the same period.

Group EPS for FY 2009 is LKR 19, which is an increase of LKR 6 from previous year's EPS of LKR 12.Further Group BVPS for FY09 is at LKR 111.86 ,up by 15% from LKR 97.32 for FY08 -Maintain BUY


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

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Nations Trust Bank : Net profit up 16% YoY in FY2009

Nations Trust Bank's (NTB) net profit has grown by 5% YoY to LKR181.2 mn in 4Q2009 supporting the 2009 net earnings to grow by 16% YoY to LKR 686.1 mn.

The net profit growth in the last quarter is in line with our forecast and was mainly driven by a 23% YoY increase in net interest income and a 8% YoY reduction in operating cost.

NTB enjoys a cost/income ratio of 59% and the bank is well capitalized with Tier I CAR at 11.89% and Tier II CAR at 16.11%.

Despite NTB having a market share of near 3%, we believe the bank is poised to grow on the back of industry wide upside. Therefore, we are maintaining our forecast 2010E net profit at LKR969.7 mn (up 41% YoY) and projected 2011E net earnings at LKR1,296.9 mn (up 34% YoY)

The share is attractive on 8.9X forecast 2010E net profit, 6.6X projected net 2011E earnings, 1.2X PBV. BUY.


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

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Chevron Lubricants : Lube Luck in 2009 boost net earnings by 57.7%YoY

Chevron Lubricants (LLUB) has posted a net profit of LKR375.9 mn in 4Q09 (vs LKR31.5 mn 4Q08) due to high gross profit margin enjoyed on the back of low raw material cost whilst 2009 net earnings too have increased to LKR1,494.9 mn (up 57.7% YoY), broadly inline with our expectation.

The turnover grew by a marginal 2.1% YoY in 4Q09 whilst the revenue during 2009 dipped by 2.4%. Sales volume during 2009 has witnessed a circa 8% drop. However, the gross profit grew by a strong 162.4% YoY during 4Q09 and 45.6% in 2009 mainly due to a near 40%-50% dip in base oil prices which reached US $ 1800 levels per MT in October 2008.

On the back of rising economic activity in the North & East especially the anticipated revival in agriculture and fisheries we project 2010E net profit to grow by 31.5% YoY to record LKR1,965.8 mn given the base oil prices remain relatively stable.

The share is attractive on 10.3X2010E forecast net profit and 9.7% dividend yield. Maintain BUY.


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

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Sri Lanka Telecom : Tough going affirmed

SLTL had made a net loss of LKR379 mn in 4Q2009 vs. the net profit of LKR2.9 bn in 4Q2008 owing to the increased losses made in the mobile telephony operations and the core fixed line operations. Furthermore increased depreciation (on the back of heavy investments in Mobitel for their service expansions) and the Voluntary Retirement Scheme have led SLTL to a loss.

Forecast net profit revised down to LKR3, 115.4 mn in 2010E. SLTL's lackluster performance has driven us to revise down our forecast 2010E net profit to LKR3,115.4 mn. We believe the company is absorbing costs to modernise its network infrastructure, improve quality and to strengthen marketing activities to successfully combat competition in the future.

Share is evenly valued on 22.3X forecast 2010E earnings. Therefore given the high multiples which are normally attracted by the telecom sector the counter is evenly valued at 22.3X forecast 2010E net profit. However on the back of reduced profits and fairly high CAPEX costs, we maintain our recommendation - HOLD


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

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Colombo Dockyard : It is the Odyssey of Excellence….

Ship builder and repairer Colombo Dockyard's net profit has soared 48% YoY to LKR2,156.6 mn in 2009, whilst lifting the cumulative EBITDA by a strong 51% YoY to LKR2,683.1 mn.

DOCK's 2009 net earnings were bolstered on the back of strong performance from Ship building. The Ship building segment's sharp earnings growth can be attributed to the two Cargo Vessels and the two Anchor Handling Tug Supply Vessels delivered during the year, whilst the ship repair segment's net earnings growth was slightly hampered during the quarter under review.

Forecast 2009E net profits are in line with the actual with a moderate variance of 6%. Considering the increased ship building activities supported by heavy and off-shore engineering projects, we forecast 2010E net profit to LKR2,508 mn.

The share is attractive and trading on 8.5X forecast 2010E earnings and just 2.7X projected 2010E 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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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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