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Aitken Spence Hotel Holdings

Aitken Spence Hotel Holdings (AHUN) 4Q15 Results Summary - 08 July 2015

Quarterly Highlights:

AHUN recurring 4Q15 Net Profit (NP) of Rs.1,100mn (+1% YoY), above our expectations, mainly due to higher contribution from key Maldives segment on account of marginally higher occupancy levels and ARRs

FY15 recurring earnings down -7% YoY to Rs.2,044mn, adjusted for the insurance claim proceeds of an estimated ~Rs.300mn received for damaged water villas of Adaaran HudhuRan Fushi and adjusting for a Rs.45mn gain on disposal of control of a subsidiary


Outlook & Valuations:


The AHUN share underperformed the market over the past year, declining -4% YoY vs. the ASI’s gain of +5% despite gaining +15% over the past three months

AHUN’s forward valuations are at a discount to past premium valuations and broadly on par with peer John Keells Hotels (KHL) at 10.6X and 9.6X for 2016E and 2017E respectively

AHUN’s ongoing expansion projects will add 360 rooms in the Maldives, 733 rooms in Sri Lanka and 143 rooms in India – a combined capacity of 1,236 new rooms to the existing portfolio of ~2000, which includes six managed properties in Oman

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 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


Distilleries Co. of Sri Lanka

Distilleries Co. of Sri Lanka (DIST) 4Q15 Results Summary - 30 June 2015

4Q15 net profit of Rs.2,057mn (+23% YoY on a recurring basis and +28% QoQ), broadly in line with our expectations. Earnings growth led by higher contribution from the core beverage sector, sharp decline in the effective tax rate. FY15 net profit of Rs.7,373mn (+12% YoY on a recurring basis)

Outlook & Valuations


Group net profit forecasts broadly maintained at Rs.8,170mn FY16E (+11% YoY) and at Rs.9,285mn for FY17E (+14% YoY), with earnings driven by the recovery in the core beverage sector (~80% of group PBT)

Amid being identified as one of the top investment picks to benefit from the domestic consumption pickup in 2015, the DIST share has sharply outperformed the market in 2015YTD, rising +28% (vs. ASI’s decline of -4%). Despite the recent sharp gains, DIST continues to trade at at relatively undemanding PER multiples of 9.9X FY16E and 8.7X FY17E. It is one of the select and few stocks in the consumer space still trading at attractive valuations whilst offering superior liquidity levels

An approximate sum-of-the-parts (SOTP) valuation for DIST suggests that the share is still trading at a 24% discount to its break up NAV. A valuation discount is however warranted, given relatively poor earnings visibility in its diversified sector and high regulatory risk attached to the alcohol industry. Nevertheless, it seems the current discount is too steep, indicating potential for further upside

The potential listing of investment holding subsidiary Melstacorp was to be the key catalyst in unlocking this value in the medium term. The near term driver of the share is the positive outlook for the core beverage sector demand amid cracking down of the illicit liquor segment under the new political regime and overall pickup in domestic consumption

Whilst the long term strategy of the group seems opaque, DIST’s core business, commanding market dominance, strong brand equity and high FCF generation, has both the expertise and capital to engage in industry related diversification and expansion in the medium to longer term as opportunities arise


National Development Bank

National Development Bank (NDB) 1Q2015 Results Summary - 17 June 2015

1Q2015 EPS of Rs.5.3 for 1Q2015 -27% YoY (+1% QoQ), below our expectations. NP fell due to declining (YoY) Spreads and Non-Interest Income

Net Interest Spreads down YoY, however recovered QoQ off a low base. Loan book remained relatively flat QoQ, whilst deposits rose 7% during the same period. Within the SME and retail book, auto finance, housing, SME and personal loans rose 59%, 31%, 40% and 30% YoY respectively


Outlook & Valuations:


  • NDB’s NP for 2015E has been revised down by 3% to Rs.5,097mn (+23% YoY) whilst its 2016E NP was revised down by 1% to Rs.5,943mn (+17% YoY) on account of lower than expected advances growth seen during 1Q2015
  • NDB share performed inline with the broader ASI, falling marginally in past three months. The share however outperformed the market rising 30% YoY compared to market’s 11% increase YoY. Consequently NDB trades on par with sector book multiples at 1.5X (PER – 8.4X) for 2015E and 1.3X (PER – 7.2X) for 2016E. The company is forecast to deliver ROEs of ~18% to 19% in the near term, above the sector average ROE of ~16%
  • With expected forecast growth in top line, improved margins via  penetrating into high yield Micro and SME segments, NDB has graduated as a systemically important bank surpassing Seylan Bank (SEYB) during the last year (amidst an improved assets market share of 5% for NDB as at end 2014, up 1% YoY)
  • However, due to the share re-rating up to sector par book multiples, we believe that the good news has already factored into the share price during the recent bank bull run. As a result we expect the share to perform in line with the ASI whilst value oriented investors are expected to collect the share in the short to medium term

Sampath Bank

Sampath Bank (SAMP) 1Q2015 Results Summary - 16 June 2015


1Q2015 EPS of Rs.9.4 (up +24% YoY), broadly in line with our expectations driven by the increase in Non-Interest Income (Non II) and decline in impairment charges


Pawning exposure fell to 7% of portfolio as at 31 Mar 2015 from 8% as at 31 Dec 2014 and 19% as at 31 Dec 2013

Outlook & Valuations


SAMP Net Profit (NP) forecast broadly maintained at Rs.6,268mn for 2015E (up +19% YoY). The growth in 2015E to be driven by increased Net II, steady contribution from Non II, and reduced impairments. Meanwhile, 2016E NP forecast maintained at Rs.7,095mn (up +13% YoY), aided by the anticipated expansion of interest margins and continuation of credit growth


The SAMP share has underperformed the market in last three months declining -3% (vs. ASI’s decline of -0.1%). The share outperformed the market in last 12 months rising +33% (vs. the ASI’s rise of +11%)


SAMP share trades at a discount to the sector, at PER multiples of 7.0X for 2015E (PBV – 1.2X) and 6.2X for 2016E (PBV – 1.0X), providing above sector average ROEs of 17-18%


The current discount for SAMP however appears to be unwarranted given the potential growth in earnings, reduced pawning exposure, lowest NPA in sector and above sector ROEs. The relatively inexpensive share would also find favour amongst value oriented investors


Hatton National Bank

Hatton National Bank (HNB) 1Q2015 Results Summary - 15 June 2015

1Q2015 EPS of Rs.4.8 (+75% YoY, however -48% QoQ), slightly below our expectations. Strong YoY growth was boosted by relatively lower collective impairment amid lower pawning related impairment in 1Q2015, whilst the QoQ decline is attributable to shrinking margins

Net Interest Spreads came under pressure during the quarter following a recovery during 2H2014 on account of interest income written back due to recoveries made on some long outstanding NPAs. Core fund based growth at moderate levels with loans and deposits rising 3% QoQ and 4% QoQ respectively. Non-Interest Income (Non II) rose on account of better fees and commission income growth and growth in general insurance business


Outlook & Valuations


-  HNB’s NP forecast revised down by 3% to Rs.10,178mn (up 14% YoY) on account of revised spreads (2015E spread revised down by 10bps). We maintain HNB’s 2016E NP at Rs.12,289mn (up 21% YoY) on account of forecast organic growth in both top line and spreads

-  On revised earnings, HNB voting share now trades at only a slight discount to the sector on PE multiples of 8.8X (PBV - 1.3X) for 2015E and 7.3X (PBV - 1.2X) for 2016E. HNB is forecast to offer recurring ROEs of ~15% for 2015E and 2016E. The significantly less liquid non voting share however trades at a 21% discount to the voting share

-  The current macro environment does not demand a loose monetary policy due to increasing macro vulnerabilities. Amid both HNB shares underperforming the market in the recent past, due to lackluster market expectations, we expect both voting and non-voting shares to further continue to perform in line with the market in the near term owing to increasing uncertainty in the market and the economy

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