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DIAL Rs 12.50 - 1Q2015 Results Summary - 25 May 2015

  • EPS of Rs.0.2 for 1Q2015, up +56% YoY and up +34% QoQ, above our expectations. Profits driven by improved operational efficiencies centered on cost management initiatives
  • Group EBITDA rose to Rs.5,978mn (up +9% QoQ and up +27% YoY) due to operational efficiencies centered around cost management initiatives resulting in DIAL’s group EBITDA margin rising to 34.5% in 1Q2015 (from 31.8% in 4Q2014 and 28.8% in 1Q2014)
  • QoQ EBITDA improvement was due to lower network costs on account of lower electricity tariffs and improved efficiency during 1Q2015
  • One off taxes from the interim budget (and now proposed through the draft Finance Bill of 30 Mar 2015) are estimated at ~Rs.3bn (Super Gains Tax: Rs.1.7bn, Mobile Operator Levy: Rs.250mn and Satellite Operator Levy: Rs.1bn). Management however, stated that they have lobbied against the transfer of telecom levy of 25% on pre-paid subscriber revenue (from customer to company) as it is estimated at ~Rs.6.3bn per annum from DIAL’s prepaid revenue (on our 2015E revenue expectations); amid all mobile providers lobbying against the said proposal excluding participation of Government owned Mobitel

Outlook & Valuations:


  • We maintain DIAL’s forecasts at Rs.6,928mn (up +18% YoY) for 2015E and at Rs.7,413mn (up +7% YoY) for 2016E. NP forecasts maintained for 2015E (despite 1Q exceeding our expectations) on relatively higher FX translation book losses in 2015E
  • DIAL’s net finance costs are forecast at Rs.1,472mn and Rs.1,790mn (with net forex losses estimated at Rs.650mn and Rs.1,040mn) for 2015E and 2016E respectively
  • On current earnings, DIAL trades at PERs of 13.6X 2015E and 12.7X 2016E, with EV/EBTDA multiples of 5.0X 2015E and 4.5X 2016E and offers ROEs of 15.2% for 2015E and 15.3% for 2016E
  • A potential merger between DIAL and a smaller telco (Etisalat, Airtel or Hutch) player at reasonable valuations could act as a short term catalyst. With the share underperforming the market during the past three months, we believe that the bad news has already been factored into DIAL’s share price. Consequently we expect the share to broadly perform in line with the market on account of its market (and region) par valuations and on expected lower QoQ performance in the near term on account of DIAL’s forecast translation book losses in the near term (since it is only partly naturally hedged against DIAL US$ revenue)

Nations Trust Bank

NTB - Rs.100.90 - 3Q2014 Results Summary - 21 May 2015


§     3Q2014 EPS of Rs.3.6 (up 35% YoY), above our expectations, supported by higher margins and non-interest income

§     One off impairment charge of Rs.365mn related to lending to some customers against security that has been fraudulently provided increased impairment charges to Rs.530mn

Outlook & Valuations


§  Uncertainty related to promoter dilution continues, amid likely participation of banks in ongoing sector consolidation initiatives

§  We have revised down our 2015E NP forecast by -8% to Rs.2,712mn (up +7% YoY) due to the higher impairment provisions recorded during 1Q2015. Meanwhile, 2016E NP forecasts broadly maintained at Rs.3,500mn (up +29% YoY)

§  Share currently trades at a discount to the sector on PERs of 8.6X in 2015E (however in line with sector on PBVs – 1.5X) and 6.6X in 2016E (PBV – 1.3X), providing attractive ROEs of ~19-21% for both years

§  Despite being a smaller bank with above average funding cost, NTB has been able to lend at a higher rate leading to wider interest spreads, partially justifying its book multiples. Material share price gains may be limited in the near term and it appears that more compelling value exists in other banking sector stocks. Nevertheless, the share may find favour amongst medium to longer growth-oriented investors given NTB’s superior ROEs and greater potential for growth in the local banking sector


Ceylon Tobacco Company

CTC – Rs.1,011.90 - 1Q2015 RESULTS SUMMARY - 14 May 2015 

1Q2015 net profit of Rs.2,490mn (+23% YoY and +25% QoQ), above our expectations, amid higher than anticipated recovery in volumes, resulting in a record high quarterly revenue. The strong +11% YoY pickup in domestic volumes is attributable to higher consumer confidence and an increase in consumer disposable income subsequent to sweeping consumer relief measures

Outlook & Valuations


CTC’s 2015E and 2016E net profit forecasts revised up by ~3%  to Rs.9,499mn (+10% YoY) and Rs.10,202mn (+7% YoY), mainly on account of higher volume expectations, amid a recovery in consumer sentiment, though expected to moderate from the high levels witnessed in 1Q2015

CTC implemented the 60% pictorial health warning labels on cigarette packs w.e.f 01 Jan 2015. Subsequently, another bill was tabled in Parliament to increase the size of the health warnings to 80%, w.e.f 01 Jun 2015

The Super Gain Tax (SGT) liability for the company is ~Rs.3.8bn (25% of 2013 taxable profit of Rs.15.2bn) and CTC is estimated to have conserved ~Rs.3bn already for the potential payment, subsequent to reducing its historic ~100% dividend payout for the past two dividends

The defensive share underperformed the market, falling -5% YoY (vs. ASI’s gain of +15% YoY). Underperformance partly attributable to the financial performance slowdown, resulting in relatively rich near term valuations vs. most regional peers. CTC trades at premium PERs of 20.0X 2015E and 18.6X 2016E, offering gross dividend yields of 4-5%

Growth in 1Q2015 earnings, driven by the sharp volume recovery may lead to a near term revival for CTC as investors increasingly favour consumer stocks in anticipation of Sri Lanka’s consumption pickup story. Nevertheless, valuations remain relatively pricey and the lower 2015E dividend payout (due to the SGT impact) may deter investor interest in the highly illiquid share. Further, we remain cognizant of the overall limitations for volume growth in the local tobacco market, potentially impacting the sustainability of profit growth over the long term

Long term investors favouring tobacco stocks and seeking a fundamentally strong defensive play on the CSE may however continue to accumulate CTC, given its monopolistic position, evolving focus on improving the portfolio and operations, exceptional ROEs of >100%, robust cashflows, ~100% dividend payout and its superior business model


Nestle Lanka

NEST 1Q2015 Results Summary - Rs.2,240 - 19 May 2015

1Q2015 record high quarterly net profit of Rs.1,158mn (+5% YoY – off a high base, surpassing the previous record high in 1Q2014 and +88% QoQ – off a low base), slightly above our expectations. Strong quarterly earnings on account of revenue growth – on a pickup in overall sales volumes - and expansion in profit margins, particularly at the gross profit level 

Outlook & Valuations


NEST net profit forecasts revised up marginally to Rs.4,306mn for 2015E (+14% YoY) and to Rs.4,756mn for 2016E (+10% YoY), amid upward revision to the GP margin, mainly due to global dairy prices tumbling after a brief rally in early-2015. We however expect the margin to wane from the 1Q2015 high, as the second local milk price hike kicks in 3Q2015E

The estimated Super Gain Tax (SGT) liability for NEST is Rs.654mn (25% of NEST 2013 taxable profit of Rs.2,617mn). Despite the potential SGT impact, given its strong balance sheet and high free cashflow (FCF) generation, NEST seems capable to manage cashflows, leverage as necessary and maintain its ~97% historic dividend payout for 2015E

NEST has outperformed in 2015YTD, rising +6% (vs. the ASI’s decline of -0.4%). Total shareholder return of +17% during the past year. The highly illiquid share has been broadly steady at ~Rs.2,300 levels since late-Jan 2015 and did not react even subsequent to the record high 1Q2015 profits, likely on account of relatively rich near term valuations vs. regional peers and select local consumer plays. NEST trades at premium PERs of 27.9X 2015E and 25.3X 2016E, offering gross dividend yields of 3-4%

Medium to long term investors favouring the consumer driven story in frontier markets and those seeking retirement stocks may accumulate the NEST share, which is one of the few fundamentally strong “buy and forget” shares on the Colombo Stock Exchange (CSE), offering superior ROEs of ~90%, approximate 97% dividend payout and robust balance sheet. NEST remains best-in class in the industry and is one of the key companies poised to benefit from the anticipated consumption pickup in Sri Lanka


Textured Jersey

TJL Rs.28.80 - 4Q15 Results Summary - 12 May 2014

TJL reported a steep recovery in earnings with a net profit of US$3.9mn for 4Q15 (+44% YoY and +35% QoQ) - above expectations, largely due to higher than anticipated margin expansion (GP margin expanded 308bps YoY in 4Q15). Benefiting from the continued recovery in volumes and expansion of margins, company secured a +15% YoY growth for FY15, reporting a cumulative net profit of US$10.2mn (following only +1% YoY growth during 1-3Q15)


Outlook & Valuations:


  • TJL’s FY16E net profit forecast broadly maintained at US$11.3mn (+11% YoY), amid continued product portfolio enhancement and partial cost savings of multi fuel boiler plant launch – however, steep margin recovery in 4Q15 not expected to be sustained throughout FY16E
  • FY17E net profit is forecast at US$11.9mn (+5% YoY) with full year benefit of utility cost savings and expected further product portfolio enhancement – lower earnings growth expectations amid likely slow volume growth and end of tax holiday in Sep 2016
  • Possible benefits of GSP+ re-implementation and inorganic expansions not yet factored in to our forecast due to lack of quantifiable information
  • In Feb 2015, TJL announced initiation of independent valuation and due diligence study for the purpose of acquiring controlling stakes in two entities
  • Reflecting positive investor sentiment on proposed inorganic expansions and improved 4Q15 profits, TJL share reached a record high of Rs.29.8 on 07 May 2015
  • Subsequent to rising +40% 2015YTD, TJL trades at PER multiples of 12.2X for FY16E and 11.5X for FY17E. Amid expectation of a 64% dividend payout for both FY16E and FY17E, TJL offers relatively attractive 5-6% gross dividend yields
  • We believe that potential acquisition advantage and benefits of GSP+ re-implementation are partly discounted by the market (especially given lack of quantifiable information), signaling limited space for further material share price upside in the near term. However, the share likely commands further upside in the medium to long term given positive earnings expectations, net cash positive balance sheet, strong ROEs and relatively attractive dividend yields
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