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Latest Research


Hemas Holdings

1Q15 Results Summary - HHL Rs.51.50 - 1 September 2014 


  • Hemas Holdings (HHL) reported a Net Profit (NP) of Rs.247mn for 1Q15 (-11% YoY), the lowest quarterly NP since 2Q12 of Rs.225mn, below our expectations due to higher than anticipated losses in Power and Others sectors, which hampered the positive contribution in FMCG and Healthcare sectors



Outlook & Valuations:


  • ­Based on our sectoral forecasts revisions, HHL FY15E NP forecast revised down by 6% to Rs.2,063mn (+16% YoY) and forecast a NP of Rs.2,354mn in FY16E (+14% YoY), amidst steady earnings growth in HHL's FMCG (~50% of FY15E total NP) and Healthcare sectors (~45% of FY15E total NP). However, earnings to be affected by the Power sector, with modest earnings from purely hydro power earnings and the segment being highly dependent on rainfall levels. The Leisure sector contribution is expected to improve with continued investment in developing scale
  • ­An approximate sum-of-the-parts (SOTP) valuation for HHL suggests that the share is also trading at ~10% discount to its break up NAV
  • HHL share has sharply outperformed the broader All Share Price Index (ASPI) over the past year, rising +72% YoY vs. the ASPI's gain of 21% YoY. Notwithstanding its recent gains, the share still offers good value on 12.9X FY15E and 11.3X FY16E earnings for ~15% EPS growth - a reasonable value proposition relative to most of its main rival conglomerates
  • Although share liquidity remains relatively low, and management needs to focus on boosting ROEs (which is at ~14% for both years), back up to the high-teens at least, likely to be achieved through portfolio rationalisation with a focus on the key sectors
  • The share is trading at relatively undemanding valuations with potential further upside in the medium term, especially in view of HHL's dominant presence in the relatively stable FMCG and Healthcare sectors.

Nestle Lanka

NEST 2Q2014 Results Summary - Rs.2,110 - 15 September 2014

2Q2014 net profit of Rs.976mn (+24% YoY, but -12% QoQ - off a relatively high base; 1Q2014 net profit hit a record high of Rs.1,103mn), above our expectations. Strong YoY earnings growth amid higher than anticipated expansion in the GP margin to a record high, led by favourable commodity prices and a relatively stable currency. 1H2014 net profit +22% YoY to Rs.2,079mn


Outlook & Valuations:


  • On account of an upward revision to our GP margin forecasts amid the near term outlook for NEST’s key commodity prices remaining soft and the currency remaining relatively stable, NEST’s net profit forecasts revised up by ~4% for both 2014E and 2015E to Rs.4,052mn (+23% YoY) and Rs.4,648mn (+15% YoY) respectively
  • After three consecutive years of market outperformance, the NEST share has underperformed both YoY and in 2014YTD, +6% YoY and +1% 2014YTD (vs. the ASI’s gains of +25% and +21% respectively), as expected from the defensive share, especially given near term rich valuations
  • NEST continues to trade at premium PERs of 28.0X 2014E and 24.4X 2015E, whilst gross dividend yields are at 3.5% 2014E and 4.0% 2015E, despite a ~97% dividend payout. Premium valuations are however partly justified given NEST’s strong brand equity, with a proven track record (5-year CAGR EPS growth of 41%) and superior ROEs of ~89%
  • NEST has the expertise, distribution network and global strength to effectively and rapidly enter new segments and thereby further expand its dominance and presence in the local Food & Beverage (F&B) sector
  • Medium to long term investors favouring the consumer driven story in emerging markets may continue to accumulate the NEST share, which is one of the few fundamentally strong “buy and forget” shares on the Colombo Stock Exchange (CSE), also offering superior medium to longer term growth prospects than the other listed MNCs in Sri Lanka




Nations Trust Bank

NTB - Rs.90 - 2Q2014 Results Summary - 12 September 2014 


2Q2014 EPS of Rs.2.6 (up 27% YoY), above our expectations, supported by higher margin and non-interest income, offsetting sluggish credit growth

§  CASA ratio improved to best since 3Q2011, however, portfolio quality (measured by NPA) deteriorated to worst since 2Q2011

Outlook & Valuations


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

§  With the CBSL’s recent encouragement of consolidation within the banking sector, we believe there is a reasonable probability of NTB acquiring a small finance company, with likely limited impact on its balance sheet and financials.

§  We also believe that NTB may continue to seek acquisition and/or merger options within the LCB space, especially given the ambition of its main shareholder JKH. NTB remains one of the more attractive mid-sized banks, and we do not rule out a takeover/merger in the long term

§  Trades at a discount to sector on PERs of 8.2X in 2014E (however in line with sector on PBVs - 1.5X) and 7.0X in 2015E (PBV – 1.3X), offering sector high ROE’s of ~20% for both years.

§  We believe that the share may find favour among strategic investors in the medium term. Further, the share would be appealing for investors seeking exposure into banking sector, given NTB’s superior ROEs, coupled with potential for growth



Dialog Axiata

DIAL Rs 11.20 - 2Q2014 Results Summary - 12 September 2014

Dialog Axiata (DIAL) reported an EPS of Rs.0.2 for 2Q2014, up 69% YoY and up 28% QoQ, in line with our expectations. Profits driven by relatively lower YoY net finance costs


  • ARPU under pressure, due to drop in minutes of usage owing to increased Telco levy – capex intensity at 15%
  • Sector competition to remain intense on account of higher non price related competition
  • On better 2H2014 ARPU expectations on account of forecast increase in real consumption levels, we maintain DIAL’s net profits at Rs.5,672mn (up 9% YoY) and Rs.6,623mn (up 17% YoY) for 2014E and 2015E respectively


Share out performed YoY, but underperformed in past three months


  • The share outperformed the market rising 38% YoY (vs ASI’s increase of 26% YoY). However, during past three months, DIAL underperformed the market rising only 12% compared to market’s 15% increase. On current earnings, DIAL trades at PERs of 16.1X 2014E and 13.8X 2015E, with EV/EBITDAs of 5.6X 2014E and 5.1X 2015E and offers ROEs of 13.7% 2014E and 14.8% 2015E


Share to broadly perform in line with the market


  • Telco market in Sri Lanka is speculated to undergo consolidation in the near term with only top three players (out of five) reporting net profits
  • Despite DIAL’s continued enhancement of its product portfolio, better initiatives to counter non-price related competition and increased investments especially in the mobile and data segments, we expect the share to broadly perform in line with the market on account of its relatively expensive PE and enterprise multiples compared to the region and the sector



Textured Jersey

TJL Rs.19.30 - 1Q15 Results Summary - 28 August 2014

TJL reported a net profit of Rs.164mn for 1Q15 (-32% YoY and -53% QoQ) the lowest quarterly earnings since 2Q13, below our expectations, largely due to decline in sales volumes to the US and GP margin contraction

Outlook & Valuations

  • Due to higher than anticipated margin contraction and volume decline in 1Q15, TJL’s FY15E net profit forecast revised down by 7% to US$10.4mn (+17% YoY). Meanwhile, as a result of revisited GP margin assumptions FY16E net profit forecast is also revised down by 3% to US$12.3mn (+19% YoY)


  • GP margin forecast revised down to 11.8% for FY15E due to higher than expected margin contraction in 1Q15. Meanwhile, as a result of reduced expectations in high margin product volumes, FY16E GP margin is also revised down to 12.6%


  • The TJL share has outperformed the market, rising 27% YTD and 45% YoY (vs. the broader market’s gain of 18% YTD and 22% YoY), though a downward movement was witnessed following lower than anticipated 1Q15 earnings


  • Amid downward revision in earnings, TJL trades at PER multiples of 9.3X for FY15E and 7.8X for FY16E, whilst offering 21% and 24% ROEs respectively. Despite recent price movements, TJL share is still trading at undemanding valuations at a discount to global peers and likely commands further upside, given its strong balance sheet and net cash flow generation, steady EPS growth expectations and attractive dividend yields at low interest rate environment


  • Tax free dividend of Rs.1.4 per share is forecast for FY15E and Rs.1.6 per share for FY16E. Amidst a 68% and 65% dividend payout, TJL offers attractive gross dividend yields of 7.3% and 8.3% for FY15E and FY16E respectively


§   Expected initiative of inorganic expansion via acquisition of fabric mill in South Asia has not been factored in to our profit forecast due to a lack of information. Such initiative can be seen as a possible catalyst to boost TJL’s revenue and earnings, while potentially enhancing integrated value to group operations


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