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Commercial Bank of Ceylon

CT CLSA – Commercial Bank of Ceylon (COMB) 4Q2015 Results Summary - 07 March 2016


Commercial Bank of Ceylon (COMB N – Rs.124.0, COMB X – Rs.111.0)


COMB reported a 4Q2015 Net Profit (NP) of Rs.3,424mn (+1% YoY, +5% QoQ), broadly in line with our expectations, resulting in its 2015 NP rising +6% YoY to Rs.11,855mn. Profits improved on a QoQ basis due to improved asset quality

§  Effective Tax Rate (ETR) increases on a YoY basis due to the tax credits received in 4Q2014 on COMB’s acquisition of NBFI Indra Finance Limited

§  COMB reported fair value (M2M) losses from Govt securities held for trading amounting to -Rs.219mn in 4Q2015 resulting in its cumulative M2M losses rising to Rs.6.7bn for 2015 amid an increasing interest rate environment; recognized in comprehensive income below the income statement. However, we believe that COMB may maintain these investments till they reach maturity in ~2018. Financial investments in COMB’s AFS book amounted to ~Rs.204bn as at 31 December 2015 (vs. Rs.214bn as at 31 December 2014) with an average duration of 2 - 2.5 years


Outlook & Valuations:


§  NP forecast for 2016E slightly revised down by 2% to Rs.12,548mn (+6% YoY) while we forecast its 2017E NP at Rs.13,902mn (+11% YoY). Near term earnings are expected to pick up on strong demand for credit amid a recovery in overall spreads albeit slightly worsening (YoY) asset quality

§  COMB voting share underperformed the market during past three months and one year by falling -13% and -31%, whilst the non-voting share fell -12% and -20% (compared to ASI’s -12% and -16% respectively). On revised earnings, COMB voting share trades at a premium to the sector on PE (and book) multiples of 8.7X (PBV - 1.4X) for 2016E and 7.9X (PBV - 1.3X) for 2017E. The less liquid non-voting share trades at a 10% discount to the voting share on PBV multiples of 1.2X 2016E and 1.1X 2017E. The company is forecast to provide ROEs of 17% in the short to medium term

§  COMB’s recent aggressive strategies to gain market share in the core banking space remains a strong case for bank’s sustainable earnings growth in the near term. However, its treasury related activities during the recent past (i.e. aggressively betting against interest rate behavior) has reduced the average historical premium COMB demanded above its other listed LCB peers in the recent past. As a result, we believe COMB’s current PBV multiple is a fair reflection of its changed risk profile. With the Bank however expected to provide above sector average ROEs during next two years, we expect both voting and non-voting shares to perform in line with the market in the near term.




Asiri Hospitals

CT CLSA – Asiri Hospital Holdings (ASIR) Initiation Report - 17 March 2016

ASIR – Rs.23.2


§  Asiri Hospital Holdings (ASIR), a 50.7% owned subsidiary of listed conglomerate Softlogic Holdings (SHL), is Sri Lanka’s leading and the largest private listed hospital group in terms of market capitalization and bed capacity – with 610 beds in four hospitals - three in capital Colombo and the other in Southern city Matara, commanding one third of the bed capacity in the listed segment. Recording a revenue of Rs.8.6bn for FY15, recurring net profit of Rs.903mn for FY15 and Rs.972mn for 1-3Q16 (+26% YoY), the group ranks on top of the sector in terms of both revenue and profitability


§  The group is the country’s leader in diagnostics with an estimated market share of ~60%, with an extensive network of 11 fully fledged laboratories, satellite laboratories as well as own and third party collection centres across the island. The diagnostic business will continue to be an integral part of ASIR, especially given its major expansion plans


§  ASIR continues to invest in increasing capacity, The most recent being the expansion into Sri Lanka’s hill capital, Kandy, via a 140 bed multi discipline facility at an investment of Rs.4bn, to be operational in FY18E. With regular investments, the company is also at the forefront in terms of technology and innovation to enhance its healthcare offerings


§  The ASIR share is trading at PER multiples of 20.6x FY16E and 17.6x FY17E on the back of double digit EPS growth expectations, with further upside amid the group expanding its hospital portfolio to be operational in FY18E. ASIR trades at a premium TTM PER of 18x (vs. CSE healthcare sector TTM PER of 16.8x), though largely justified by its superior ROEs of ~20% vs. ~10% for the sector and its stronger operating margins compared to peers. The share offers good value proposition in view of its market dominance in Sri Lanka’s private hospital space and diagnostic services


§  Trading at discounted valuations to regional peers, ASIR provides exposure to one of the strongest brand names in the local healthcare industry and one that seems best poised to capitalize on the upcoming surge in demand for private healthcare in Sri Lanka



Nations Trust Bank

CT CLSA -  Nations Trust Bank (NTB) 4Q2015 Results Summary - 24 Mar 2016

NTB – Rs.77.0


4Q2015 EPS of Rs.2.9 (+21% YoY and -1% QoQ), slightly above our expectations, largely due to lower impairment provisions and higher Non Interest Income

Net Interest Spread continued to contract amid increased price competition within the banking and financial sector

Outlook & Valuations:


We revise up our 2016E NP forecast by 12% to Rs.2,636mn (+1% YoY), largely due to upward revisions in interest spreads and loan book. Meanwhile, 2017E NP forecast at Rs.3,104mn (+18% YoY off a low base), supported by the growth in both core and non-core income

The NTB share has performed broadly in line with the market decreasing -12% 2016YTD and has underperformed YoY declining -26% (vs. ASI’s decline of -7%)

Following the declines, share currently trades at a discount to the sector on PERs of 6.7X in 2016E (however in line with sector on PBVs – 1.0X) and 5.7X in 2017E (PBV – 0.9X), providing attractive ROEs of 16-17% for both years

With the recent performance, we expect the negatives to have been largely priced in relating to the operating performance and do not expect a further significant decline. However, the near term growth in share price would be limited given the uncertainty surrounding the rule of granting leases by banks

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


Aitken Spence

CT CLSA - Aitken Spence (SPEN) 3Q16 Results Summary - 28 March 2016

SPEN – Rs.73.0

  • 3Q16 net profit -27% YoY on a recurring basis to Rs.637mn, below our expectations, due to below par performance in tourism sector and lack of contribution from Ace Power Embilitiya (APE), under the Strategic Investments sector, on account of non-renewal of the Power Purchase Agreement (PPA), which expired in April 2015

Outlook and Valuations

  • SPEN’s group recurring net profit forecasts revised down by -12% to Rs.2,396mn for FY16E (-43% YoY) and by -6% to Rs.3,028mn for FY17E (+26% YoY, off a low base) largely due to the downward revision of Aitken Spence Hotel Holdings (AHUN) amid lower occupancy and ARR expectations in the Maldives on account of political uncertainty, slower than anticipated uptake for Turyaa Chennai and delays in opening of Heritance Negombo (BBH)
  • The share has underperformed the market, declining -27% over the past 12 months vs. the ASI’s decline of -12% during the same period - lowest since December 2009
  • On revised earnings, SPEN trades at PER multiples of 12.4X FY16E and 9.8X FY17E, at relatively weak ROEs of ~7%. The share is trading at a ~3% premium to its estimated break up Net Asset Value (NAV) of Rs.71.1 per share, with ~61% of the total value arising from the tourism sector
  • Non-renewal of the APE PPA (~70% of Strategic Investments Sector revenue) and absence of an alternative source of earnings of similar scale remain a negative overhang for SPEN – Strategic Investments Sector contributed an average ~22% to group PAT from FY11-15. The CEB is however expected to acquire APE at book value, as a source of backup power generation
  • Given that ~69% of SPEN’s PAT contribution is expected from the tourism sector and major upcoming plans are also likely to materialise in this sector, SPEN is now primarily a tourism stock. Amid the recent downward revision in AHUN’s near term earnings expectations and in the absence of a near term catalyst to rerate the share however, we believe more compelling value currently exists in other listed diversified conglomerates

Tokyo Cement

CT CLSA - Tokyo Cement Company (Lanka) (TKYO) 3Q16 Results Summary - 28 March 2016


Tokyo Cement Company (Lanka) (TKYO-N: Rs.35.0, TKYO-X-Rs.33.0)


TKYO reported a 3Q16 net profit of Rs.339mn (vs. Rs.100mn in 3Q15, although -31% QoQ), broadly in line with our expectations, largely due to higher growth in other income (which is not expected to be sustainable and lacks clear visibility). Meanwhile, cumulative earnings rose +16% YoY in 1-3Q16


Outlook & Valuations:


  • 3Q16 EPS of Rs.1.0 (vs. EPS of 0.3 in 3Q15, -31% QoQ), broadly in line with our expectations, largely driven by higher growth in other income
  • TKYO is currently in the process of adding a new blending plant with an annual capacity of 1mn MT (to current 1.8mn MT plant; ~55% capacity expansion), by end 2016E – to impact TKYO’s revenue from mid FY17E
  • TKYO’s net profit forecasts revised down by -18% and -15% respectively to Rs.1,541mn for FY16E (-6% YoY) and Rs.1,691mn for FY17E (+10% YoY), largely due to downward revision of margins and upward revision of tax rates
  • Amid sluggish nature of local construction activities and increased concerns on currency pressure, share performance of both TKYO-N and TKYO-X witnessed a downward momentum in past 12M and 2016YTD. However, limited scope exist for further price declines, with relatively positive outlook on local construction landscape, and TKYO-N and TKYO-X having fallen -53% and -43% from Jan 2015 high levels
  • Share currently trades at relatively attractive valuations, at a discount to most regional peers at forward PERs of 7-8X offering relatively attractive ROEs of ~14%
  • Ongoing US$50mn capacity expansion can be seen as the main catalyst for TKYO, providing scope to achieve higher margins and increasing economies of scale, while successfully facilitating anticipated rise in demand. Whilst the company is expected to face near term headwinds due to currency depreciation and increase in market competition (via cheaper imports), investors seeking direct exposure to Sri Lankan construction industry (which is anticipated to experience a growth in coming years) can take comfort from TKYO’s strong brand equity, market positioning and three decade long industry expertise


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