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Chevron Lubricants

Chevron Lubricants Lanka (LLUB) 2Q2015 Results Summary - 14 August 2015

LLUB - Rs.415.0

  • 2Q2015 Net Profit (NP) of Rs.797mn (+18% YoY and +7% QoQ), broadly in line with expectations. Earnings growth driven by record high Gross Profit (GP) margin on the back of continued soft base oil prices 

Outlook & Valuations:


  • LLUB’s net profit forecasts broadly maintained at Rs.3,092mn (+13% YoY) and at Rs.3,299mn (+7% YoY) for 2015E and 2016E respectively, despite a decline in net revenue; forecast maintained on account of soft base oil price expectations
  • The estimated Super Gain Tax (SGT) liability for LLUB is Rs.817mn (25% of LLUB’s 2013 taxable profit of Rs.3,267mn). Despite the potential SGT impact, given its strong balance sheet and high free cashflow (FCF) generation, LLUB seems capable to manage cashflows and maintain its ~95% dividend payout for 2015E
  • At an expected dividend payout of 95% for 2015E and 2016E, having completed the capex cycle (vs. 87% payout in 2014), LLUB offers above market average gross dividend yields of 5.9% 2015E and 6.3% 2016E vs. current 12-month treasury bill yield of 6.6%
  • The LLUB share has outperformed the market rising +32% YoY (vs. the broader market’s gain of +7% YoY); total shareholder return of 39% during the past one year. The share corrected from an all-time high of Rs.460.0 on 13 January 2015, falling -10% vs. the ASI’s decline of -1% during the same period
  • A key concern for LLUB remains the decline in its market share on the back of two consecutive years of decline in overall industry volumes (2013 -5%, 2012 -4%). The decline in global oil price expectations is however expected to translate to improved earnings in the short to medium term. The defensive share is also favoured by medium to longer term investors seeking exposure to a relatively liquid MNC with strong brand equity and as an attractive dividend play

Nestle Lanka

Nestlé Lanka (NEST) 2Q2015 Results Summary - 12 August 2015

(NEST – Rs.2,125.0)

2Q2015 record high net profit of Rs.1,299mn (+33% YoY and +12% QoQ – surpassing the previous record high in 1Q2015), above our expectations, amid higher than anticipated expansion in gross profit margin. Consequently, 1H2015 net profit +18% YoY to Rs.2,458mn

Outlook & Valuations


NEST net profit forecasts revised up by ~7% for both 2015E and 2016E to Rs.4,589mn (+21% YoY) and Rs.5,067mn (+10% YoY) respectively, amid upward revision to the GP margin, mainly due to continued decline in global commodity prices, led by dairy. We however expect the margin to wane from the 2Q2015 high, as the second local dairy 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 share price has fallen -7% during the past three months (vs. the ASI’s gain of +3%). The negative publicity surrounding the Maggi noodles controversy partly contributed to the underperformance

Subsequent to the share price decline coupled with the upward revision in profit forecasts, NEST is trading at PERs of 24.9X 2015E and 22.5X 2016E, at a discount to NEST’s historic levels and its global peers. Though multiples still seem relatively rich to select local consumer plays, they are partly justified by NEST’s strong brand equity, superior ROEs of ~95% and gross dividend yields of ~4%, therefore a near term share price recovery seems likely

Further, medium to long term investors favouring the consumer driven story in frontier markets and those seeking retirement stocks may accumulate the NEST share, which remains best-in class in the industry and one of the few fundamentally strong “buy and forget” shares on the Colombo Stock Exchange (CSE)


Aitken Spence Hotel Holdings

Aitken Spence Hotel Holdings (AHUN) 1Q16 Results Summary - 12 August 2015

(AHUN – Rs.79.2)

Quarterly Highlights:

AHUN recurring 1Q16 Net Profit (NP) of Rs.196mn (+3% YoY), inline with our expectations; 1Q15 earnings adjusted for non-recurring insurance income received for damaged water villas of Adaaran HudhuRan Fushi. Recurring earnings growth mainly due to higher contribution from key Maldives sector


Outlook & Valuations:


AHUN recurring NP forecast maintained at Rs.2,410mn for FY16E (+18% YoY) and at Rs.2,653mn for FY17E (+10% YoY); growth to be primarily driven by higher revenue expectations consequent to near term currency depreciation (forecast to depreciate ~3-4% YoY)

The AHUN share underperformed the market over the past three months and one year, declining -2% and -8% vs. the ASI’s gain of +2% and +7% respectively

AHUN’s forward valuations are at a discount to past premium valuations and broadly on par with peer John Keells Hotels (KHL) at 11.1X and 10.0X for FY16E and FY17E respectively

With an existing room count of 2,051 across four countries of operation, AHUN’s ongoing expansion projects will boost capacity by 53%, adding a combined 1,094 rooms to its portfolio – increasing capacity to 3,145 rooms by 4Q18

A major portion of AHUN’s Sri Lanka segment capacity expansion will be via the 501 room RIU project, which will employ an operating model centered on charter flights, which proved successful in Sri Lanka, unlike other southern coastline properties which have been facing pressure on room rates amid low occupancies on the back of increased supply

Although near term occupancy remains a concern, ongoing capacity expansion will allow AHUN to cater to the growth in tourist arrivals – expected to double in five years


Nations Trust Bank

Nations Trust Bank (NTB) 2Q2015 Results Summary - 10 Aug 2015

(NTB – Rs.105.10)

2Q2015 EPS of Rs.3.3 (+26% YoY and +55% QoQ), above our expectations, driven by higher non-interest income coupled with the slow growth in operating expenses and lower than expected impairment provisions

Leasing book contracted QoQ amid the increased competition, whilst credits cards and overdrafts supported the overall loan book

Outlook & Valuations


Uncertainty related to promoter dilution continues, amid likely participation of banks in ongoing sector consolidation initiatives. A near term acquisition/merger related to NTB may not materialise amid the flexible stance adopted by the Central Bank of Sri Lanka (CBSL)

We have revised up our 2015E NP forecast by +2% to Rs.2,753mn (+9% YoY) due to the higher than expected income growth and lower expenses recorded in 2Q2015. Meanwhile, 2016E NP forecasts revised down by -7% to Rs.3,231mn (+17% YoY off a low base) on account of the anticipated slowdown in asset base and lower interest spreads

Share currently trades at a discount to the sector on PERs of 8.8X in 2015E (however in line with sector on PBVs – 1.6X) and 7.5X in 2016E (PBV – 1.3X), providing attractive ROEs of ~19% 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 with the anticipated pressure on margins and slowdown in loan growth. Further, it appears that more compelling value exists in other banking sector stocks. Nevertheless, the share may find favour amongst medium to longer term growth-oriented investors given NTB’s superior ROEs and greater potential for growth in the local banking sector


Dialog Axiata

Dialog Axiata (DIAL) 2Q2015 Results Summary - 10 August 2015

(DIAL - Rs.11.4)

  • Dialog Axiata (DIAL) reported a Net Profit (NP) of Rs.1,907mn for 2Q2015 (+19% YoY but down -4% QoQ), above our expectations, due to relatively higher revenue growth and improved operational efficiencies (especially at Dialog Broadband Networks) centered on cost management initiatives

Outlook & Valuations:


  • Revenue rose due to better Data revenue (+13% QoQ and +61%YoY; driven by higher subscriber additions) and better Dialog TV (DTV) revenue growth (+25% YoY) amid a 2% QoQ decline in Mobile Voice revenue growth
  • Mobile Voice revenue however declined -2% QoQ due to DIAL offering 25% free talk time on domestic calls to its pre-paid customers w.e.f. 07 April 2015 (with an estimated quarterly impact of ~Rs.400mn to DIAL’s bottom-line), as a proactive measure to counter Government’s proposed pre-paid producer tax. This resulted in DIAL’s ARPUs declining 2% QoQ to Rs.346 in 2Q2015
  • DIAL’s 2015E NP revised up by 4% to Rs.7,178mn (+22% YoY) on revised revenue growth expectations (amid higher subscriber growth expectations) and revised finance costs whilst we maintain DIAL’s NP forecast for 2016E at Rs.7,413mn (up 3% YoY) on account of expected lower Data margins from 2Q2016E due to Google’s initiative to reduce Data prices w.e.f.  March 2016 via its project “Loon”
  • Expected LKR depreciation by late 2015E / early 2016E to result in Forex book losses
  • DIAL share underperformed the market in 2015YTD falling -16% YoY (vs ASI’s +1% increase). However, during the past month, DIAL outperformed the market by increasing +8% compared to market’s +6% increase
  • On revised earnings, DIAL trades on PERs of 12.9X for 2015E and 12.5X for 2016E, with EV/EBITDA multiples of 5.0X for 2015E and 4.5X for 2016E and offers ROEs of 15.7% and 15.2% for 2015E and 2016E respectively
  • With the share outperforming the market during the past month amid increased cost savings and subscriber additions, we believe the share will likely continue to outperform in the near term on expected withdrawal (during mid 2H2015) of DIAL’s offer on 25% free pre-paid talk time. However, we expect the share to only slightly outperform the market in the medium term, on account of its mediocre 2016E EPS growth
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