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TJL Rs.19.10 - 4Q14 Results Summary - 19 May 2014

      §   TJL reported a 4Q14 EPS of Rs.0.54 (+9% YoY and +17% QoQ), in line with our expectations, amidst expansion in profit margins particularly at the GP level due to enhancement of product mix


Quarterly Highlights


  • Quarterly revenue driven by strong Europe order book despite the slowdown in US volumes
  • GP margin expanded to 12.4%, amidst introduction of higher margin products and reduced requirement for low margin third party outsourcing
  • Strong balance sheet with net cash position of US$15.8mn as at 31 March 2014 (vs. US$14.5mn as at 31 March 2013) largely due to strong cash flow generation amid modest capex  
  • Capex on capacity expansions and sustainable energy sources, Rs.591mn (vs. Rs.82mn in 4Q13)
  • On 20 May 2014, TJL announced a FY14 final dividend of Rs.0.80 per share (XD: 08/08/2014 – PD: 18/08/2014) above our expectations, resulting in cumulative FY14 DPS of Rs.1.30 (vs. a FY13 DPS of Rs.1.24), at a 74% dividend payout (vs. 80% in FY13)


Outlook & Valuations


  • As result of revisions to our expectations of the timings of capacity expansion and cost saving initiatives, coupled with the extent of cost saving benefits, TJL’s FY15E net profit forecast revised down by 6% to US$11.1mn (+25% YoY), while a net profit of US$12.7mn is forecasted for FY16E (+15% YoY)
  • Revenue is forecasted to grow +15% YoY to US$112.1mn in FY15E (vs. +16% YoY in FY14) and +16% YoY to US$129.6mn in FY16E
  • GP margins are forecasted at 12.4% for FY15E (vs. 11.4% in FY14) and at 12.9% for FY16E due to the introduction of high margin products, alternative energy sources and the reduction of low margin outsourcing amid capacity expansion in 1H15E
  • TJL trades at PER multiples of 8.6X for FY15E and 7.4X for FY16E, whilst offering ROEs of 22% and 24% respectively
  • Dividend of Rs.1.5 per share is forecasted for FY15E and Rs.1.7 per share for FY16E. Amidst a 68% and 65% dividend payout, TJL offers attractive gross dividend yields of 7.9% and 8.8% for FY15E and FY16E respectively. Dividend payouts are however likely to be influenced by developments relating to inorganic expansion
  • Despite recent price gains, 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, robust EPS growth expectations and attractive dividend yields



Sampath Bank

SAMP 1Q 2014 Results Summary - Rs.195.00 17 June 2014


Sampath Bank  (SAMP) reported a 1Q2014 EPS of Rs.7.6 (up 17% YoY), below our expectations, driven by negative loan growth and deterioration in Net Interest Spread despite being cushioned by impairment reversal made against pawning portfolio on account rise in gold prices


Quarterly Highlights:

-        SAMP’s Net Interest Spread (NIS) continued to be under pressure and fell 67bps QoQ to lowest on record of 3.1% in 1Q2014 amidst declining interest rate environment

-        SAMP’s gross loans declined 4% QoQ (first quarterly growth contraction since 1Q2009) to Rs.257bn in 1Q2014 (vs. growth of 6% QoQ in 1Q2013) on account of lower private sector demand for credit

-        SAMP reduced its provisions to pawning portfolio to Rs.2.1bn from Rs.3.2bn in 2013, resulting in an impairment reversal of Rs.740mn in 1Q2014 (covers ~5% of total gold portfolio and ~25% of fallen due advances); relatively lower impairment provisions expected in 2014E amidst reduction on pawning portfolio

-        Non II rose 35% YoY in 1Q2014 due to higher Net Fee and Commission Income (NFCI) coupled with a rise in other income


Outlook & Valuations:

-        SAMP net profit forecast revised down by 21% to Rs.3,925mn (up 8% YoY) for 2014E and by 22% to Rs.4,575mn (up 17% YoY) for 2015E

-        Despite a deteriorating NIS, 2014E earnings recovery is forecast to be driven by lower impairment provisions coupled with an expected pick up in private sector credit appetite in 2H2014

-        SAMP share rose to 2014YTD high of Rs.197.0 per share on 17 Jun 2014, outperforming the market rising 13% against ASPI’s rise of 7%. However, SAMP underperformed the market during the past year by declining 8% (vs. ASPI’s rise of 2%)

-        SAMP currently trades at PER multiples of 8.3X in 2014E (PBV - 0.9X) and 7.2X in 2015E (PBV – 0.8X), providing ROEs of ~12% for both 2014E and 2015E

-        Despite SAMP reducing its exposure to gold, a significant portion of SAMP’s loans and advances portfolio remain gold pawning (~17% of total loans as at 31 Mar 2014) and it is evident that it would continue to be affected by the volatility of gold prices. However, given the possibility of stabilizing gold prices and reduced exposure, SAMP is expected to benefit from lower impairment charges. Furthermore, asset and liability repricing coupled with an anticipated pick up in private sector credit appetite in 2H2014 is expected to cushion the pressure on earnings imposed by the contraction of the NIS. Despite economic headwinds, slow credit growth and gold price volatility expected to pressure earnings, we believe SAMP’s relatively inexpensive valuations to find favour among value oriented investors in the medium term



John Keells Holdings

JKH - Rs.233.5 - Results Summary 4Q14 -  28 May 2014


4Q14 recurring EPS of Rs.4.6 (+24.4% YoY), above our expectations, with continued recovery in Leisure sector coupled with above par performance in Property and Consumer Food & Retail (CF&R) sectors compensating for decline in earnings of Transportation sector


Quarterly Highlights:

§  Property sector earnings primarily driven by presales of “Seventh Sense” apartments coupled with increased revenue recognition on the apartment projects


§  CF&R sector bottom-line  growth largely attributable to pickup in consumer demand and margin improvement led by shift to higher margin products coupled with reduction in costs due to softer commodity prices


Outlook & Valuations:

§  JKH recurring net profit (NP) forecast maintained at Rs.12,528mn for FY15E (+7% YoY) and forecast a NP Rs.13,770mn (+10% YoY) for FY16E, driven primarily by the Leisure, Property and CF&R sectors


§  JKH proposed multi/mixed use luxury Integrated Resort, valued in excess of US$650mn received approval for the project from the Parliament of Sri Lanka, under the Strategic Development of Project Act No.14 of 2008 as published in Gazette dated 30 January 2014 in April 2014. The project site has been handed over to the contractors and construction has commenced


§  Near term valuations are still relatively demanding, subsequent to EPS dilution and earnings being under pressure in key transportation sector, coupled with weakening ROEs


§  Longer term institutional investors may continue to favour the share given its unrivalled share liquidity, country proxy characteristics and potential for the Integrated Resort(IR) to be a game changer, dwarfing JKH’s other businesses


Dialog Axiata

DIAL Rs 9.90 - 1Q2014 Results Summary - 23 May 2014

1Q2014 EPS of Rs.0.16 for 1Q2014 (down 21% YoY), below our expectations, due to relatively higher YoY depreciation and lower YoY EBITDA margins


Quarterly Highlights:

§  Group EBITDA margin contracted to 28.8% in 1Q2014 from 32.7% in 1Q2013 (albeit rising QoQ from 28.2% in 4Q2013) impacted by the recognition of a TDC (Telecommunications Development Charge) refund of Rs.429mn in 1Q2013

§  DIAL’s 1Q2014 capex declined 60% QoQ to Rs.3.2bn (19% of revenue) and was focused on coverage and capacity expansion alongside the extension of the Group’s Optical Fibre Network

§  Blended Average Revenue Per User (ARPU – excluding indirect taxes) down to Rs.347 per month in 1Q2014 from Rs.359 per month in 4Q2013 due to aggressive competition in the IDD space, increase of Telco levy by 5% w.e.f. 1 January 2014 and continued floor rate violation through new promotional offers. In 1Q2014, Revenue Per Minute (RPM) rose 1% QoQ (and 5% YoY) to Rs.2.3 whilst Minutes Of Usage (MOU) declined 4% QoQ and 6% YoY to 151 minutes per month


Outlook & Valuations:

§  On revised ARPUs, EBITDA margins and finance cost assumptions, DIAL’s net profits revised down by 2% each to Rs.5,672mn (up 9% YoY) and Rs.6,623mn (up 17% YoY) for 2014E and 2015E respectively

§  The share modestly outperformed the market during past three months and YoY, rising 9% and 2% compared to ASPI’s 7% increase and 3% decline respectively (currently at its three month high).

§  On revised earnings, DIAL trades at PERs of 14.2X 2014E and 12.2X 2015E (at a slight discount to rival SLT), with EV/EBITDAs of 5.1X 2014E and 4.7X 2015E and offers ROEs of 13.8% 2014E and 14.8% 2015E. Telco market in Sri Lanka is expected to undergo consolidation in the near term with only top three players reported to generate net profits. Despite DIAL’s continued enhancement of its product portfolio 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 premium market multiples (albeit trading at a discount to rival SLT) and on forecast increase in competition in the near term.  


Hatton National Bank

HNB – N:Rs.158.00, X:Rs.122.70 - Results Summary 1Q2014 - 22 May 2014 

Hatton National Bank (HNB) reported an EPS of Rs.2.7 for 1Q2014 (down 2% YoY), below our expectations, due to deterioration in both Net Interest Spreads and delinquency rates

-       Pawning related impairment at Rs.400mn for 1Q2014 amid falling gold prices and higher pawning defaults


Quarterly Highlights:

-      HNB’s loan book grew 3% QoQ (amidst a 1% QoQ contraction in the banking sector loans) to Rs.362bn as at 31 March 2014 while its deposits base grew 2% QoQ to Rs.393bn as at 31 March 2014. Pawning advances as a % of gross loans stood at 10.9% as at 31 March 2014 (compared to 12.7% as at 31 December 2013)

-      Gross Non Performing Advances (NPA) ratio rose to 4.5% as at 31 March 2014 from 3.6% as at 31 December 2013. Consequently, loan loss impairment rose 41% YoY to Rs.1,441mn in 1Q2014. The management attributed the QoQ deterioration to relatively higher pawning defaults during 1Q2014

-       HNB’s group operating expenses (opex) rose 4% YoY and 16% QoQ to Rs.4,781mn in 1Q2014. The QoQ increase in opex is largely due to recognising Nation Building Tax (2% w.e.f. 1 January 2014) under other expenses in 1Q2014


Outlook & Valuations:

-      On account of revised spreads and fund growth assumptions, HNB’s net profit forecasts revised down by 8% and 6% for 2014E and 2015E to Rs.7,666mn (up 9% YoY) and Rs.8,774mn (up 14% YoY) respectively

-      On revised earnings, HNB voting share trades at a discount to the sector on PE multiples of 8.2X (PBV -1.0X) 2014E and 7.2X (PBV - 0.9X) 2015E. The less liquid non-voting share trades at a 22% discount to the voting share and provides DYs of 6.3% 2014E and 6.6% 2015E. The voting and non-voting shares underperformed the broader market YoY, falling -8.7% and -3.6% respectively vs. market’s -2.7% YoY decline. HNB is forecast to offer ROEs of ~13% in the near term, below the sector average

-      Despite near term economic headwinds expected to impact the banking sector’s short term performance, with the regulator’s financial sector consolidation initiative expected to stabilise the sector in the medium term, HNB’s relatively inexpensive valuations are likely to find favour among value oriented investors in the medium term. In the absence of any identifiable catalyst to re-rate the share higher in the short term though, the share will broadly perform in line with the sector and the market. 

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