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Aitken Spence Hotel Holdings

AHUN – Rs.75.90 - 5 December 2014 - 2Q15 Results Summary

Quarterly Highlights:

  2Q15 reported Net Profit (NP) of Rs.212mn (-32% YoY). 2Q15 recurring NP of Rs.116mn (-63% YoY), below our expectations, mainly due to lower than anticipated returns from the key Maldives and Others (i.e. managed properties) segment

§  Recurring earnings adjusted for the third insurance claim tranche of an estimated ~Rs.100mn received during the quarter for the damaged water villas of Adaaran Hudhurunfushi (which were partly damaged by a fire in July 2013) and adjusting for a gain on loss of control of a subsidiary of Rs.45mn. 1H15 recurring NP of Rs.306mn (-47% YoY)


Outlook & Valuations:


§  AHUN recurring NP forecasts revised down by 20% for FY15E and FY16E to Rs.1,709mn (-16% YoY) and Rs.1,990mn (+16% YoY – off a low base) respectively, on account of lower revenue expectations, higher operating expenses and lower share of profits from associate (Browns Beach Hotel – BBH), amid completion of new property falling behind schedule 

§  Having outperformed the market during the first 11 months of 2014, the AHUN share has underperformed the market during the past month, falling -6% vs. the broader market’s decline of -2%. On revised earnings, AHUN is trading at 15.6x and 13.4x on FY15E and FY16E earnings respectively

§  AHUN’s valuations are at a discount to past premium valuations and the sector TTM PER of 23x, it is at a premium to peer John Keells Hotels (KHL). Further, more compelling value also appears to exist in other non-tourism related counters



Distilleries Co. of Sri Lanka

DIST - Rs.202.3 - 2Q15 Results Summary - 28 November 2014

  DIST reported a 2Q15 net profit of Rs.1,858mn (+25% YoY and up marginally QoQ), broadly in line with our expectations. Strong YoY earnings growth is largely on account of the group enjoying net finance income during the quarter (vs. an expense in 2Q14), supported by higher contribution from the diversified sector, and from increased associate contribution. Consequently, 1H15 net profit +18% YoY to Rs.3,705mn


Outlook & Valuations


§  Group net profit forecasts broadly maintained at Rs.7,513mn for FY15E (+13% YoY) and at Rs.8,588mn for FY16E (+14% YoY), with earnings driven by the core beverage sector and supported by higher contribution from the diversified sector and 41% owned associate, Aitken Spence (SPEN)

§  DIST trades at relatively undemanding PER multiples of 8.1X FY15E and 7.1X FY16E, at a discount to both the beverage, food & tobacco sector and most conglomerates. A valuation discount is however warranted, given relatively poor earnings visibility in its diversified sector (though volatility has decreased due to the transfer of a large portion of investments into a long term portfolio) and high regulatory risk attached to the alcohol industry

§  An approximate sum-of-the-parts (SOTP) valuation for DIST suggests that the share is trading at a ~38% discount to its break up NAV. The potential listing of investment holding subsidiary Melstacorp was to be the key catalyst in unlocking this value in the medium term; however, with this seeming to be delayed, DIST currently lacks an immediate catalyst to close the gap with its break up NAV, though the extent of the discount may be too steep

§  Currently it appears the value of DIST’s core business, which commands market dominance, strong brand equity and high FCF generation, is not clearly seen by investors, being clouded by potentially over diversification attempts, poor disclosures and earnings visibility and the group’s long term strategy still seeming opaque


Commercial Bank of Ceylon

COMB – N:Rs.177, X:Rs.120.50 - Results Summary 3Q2014 - 20 November 2014

3Q2014 EPS of Rs.3.9 (up 21% YoY and up 50% QoQ), above our expectations. 3Q2014 NP was driven by better than expected Non II growth on account of relatively higher gains from financial and other investment income

§  Net Interest Spreads fall to an all-time low

§  Loans up on LT-term loan up take in 3Q2014

§  Indra Finance was acquired during 3Q2014 for Rs.916mn


Outlook & Valuations


§  COMB’s NP forecasts revised up by 2% and 1% to Rs.11,020mn (up 4% YoY) and Rs.11,902mn (up 8% YoY) for 2014E and 2015E respectively on account of revised volumes, spreads and Non II assumptions

§  On revised earnings, COMB voting share trades at a slight premium to the sector on PE multiples of 13.6X (PBV -2.2X) for 2014E and 12.6X (PBV - 2.0X) for 2015E. The significantly less liquid Non-Voting share however trades at a 32% discount to the voting share on PE multiples of 9.3X (PBV - 1.5X) for 2014E and 8.6X (PBV - 1.4X) for 2015E. COMB is forecast to offer ROEs of ~17% each for both 2014E and 2015E. Both Voting and Non-Voting shares outperformed the broader market rising 22% and 10% in past three months vs. market’s 8% increase during the same period respectively. On a YoY basis, COMB Vot and Non Vot shares rose 54% and 35% vs. ASPI’s 30% YoY increase

§  COMB’s valuations are a fair reflection of its conservative bank model and its above sector average ROEs. With demand for pvt credit picking up in Sep (4.6%, up from Aug ~2% levels), we expect same to benefit top line growth of LCBs such as COMB whilst improving overall spreads in the near term. With both shares appreciating significantly in the recent past and on account of fair near term premium valuations, we expect both voting and non-voting shares to perform only in line with the market in the short to medium term


Hemas Holdings

HHL - 2Q15 Results Summary - Rs 75.5 - 20 November 2014 

  • 2Q15 recurring EPS of Rs.1.1 (+62% YoY) for a recurring 2Q15 Net Profit (NP) of Rs.556mn (+62% YoY), above our expectations due to stronger than anticipated performance in the core FMCG and Healthcare sectors. 2Q15 earnings adjusted for a non-recurring estimated capital gain of Rs.84mn from the disposal of FMCG sector paper business, Nimex. Furthermore, reported 2Q14 reported earnings included a one off capital gain of Rs.364mn, on the transfer of Peace Haven property to PH resorts and Spa (Pvt) Ltd, a JV company

    Outlook & Valuations


    • FY15E NP forecast revised up by 2% to Rs.2,013mn (+13% YoY) and FY16E NP by 3% to Rs.2,276mn (+13% YoY)
    • Exit from volatile Power sector viewed positively, enabling greater focus on Wellness (i.e. Personal care and Healthcare) and Leisure sectors
    • The share is now trading above its estimated break up NAV of Rs.62.8 per share, suggesting that most near term positives are already priced in
    • Following 51% rise in share price over the past three months, HHL near term valuations appear fairly valued at 19.3x FY15E and 17.1x FY16E, with potential catalysts to further re-rating being of a likely medium to long term nature

Nestle Lanka

NEST 3Q2014 Results Summary - Rs.2,140 - 18 November 2014

§  3Q2014 net profit of Rs.1,093mn (+21% YoY and +12% QoQ), slightly above our expectations amid higher than anticipated expansion in the gross profit margin to a record high – third consecutive quarter of GP margin expansion - led by favourable commodity prices and a relatively stable currency. Consequently, 1-3Q2014 net profit +22% YoY to Rs.3,172mn


Outlook & Valuations


§  NEST’s net profit forecasts revised up marginally to Rs.4,188mn for 2014E (+27% YoY) and Rs.4,779mn for 2015E (+14% YoY), amid upward revisions to our GP margins forecasts, given the higher than anticipated expansion in 1-3Q2014 coupled with the near term outlook for NEST’s key commodity prices remaining soft and continued enhancement of NEST’s product portfolio focusing on greater value addition

§  After three consecutive years of market outperformance, the NEST share has underperformed in 2014YTD, +2% (vs. the ASI’s gain of +28%), as expected from the defensive share, especially given near term rich valuations. NEST continues to trade at premium PERs of 27.5X 2014E and 24.1X 2015E, whilst gross dividend yields are at 3.5% 2014E and 4.0% 2015E

§  NEST is however a stock on which most investors would take a much longer term stance, and given its potentially strong earnings upside, coupled with NEST’s solid fundamentals, with a proven track record (5-year EPS CAGR of 41%), superior ROEs of ~90%, ~97% dividend payout and robust balance sheet, partly justify its premium valuations

§  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 medium to longer term growth prospects than the other listed MNCs in Sri Lanka

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