1 John Keells Holdings [JKH.N0000] 1HFY15 Earnings N ote - Trading at a 30%+ p remium to FV - SELL YEAR END MARCH (LKR mn) 1HFY14 FY14 1HFY15 FY15E Current Price (LKR) Revenue 40,900 89,300 43,400 95,100 255 EBIT 3,300 16,600 3,900 18,100 Fair Value (LKR) Profit to Equity Holders 3,600 11,700 4,800 12,800 192 Recurring Profit¹ 3,500 9,400 3,700 10,400 Recommendation Reported EPS (LKR) 4.17 12.6 4.84 13.1 SELLEPS Growth (%) (12.7) (8.7) 16.1 4.1 Date Reported PER (x) 20.3 19.5 7-November-14 Recurring EPS (LKR)¹ 4.11 11.9 3.77 10.7 Recurring PER (x) 21.4 25.0 JKH’s 1HFY15 EPS of LKR 4.84 is a c . +16% YoY. Reported EPS benefited from c .LKR 670mn in interest income generated on funds raised by the rights issue and c .LKR 395mn in sales of equity investments. CAL estimates 1HFY15 recurrent EPS at LKR 3.77 (c .-9.6% YoY) and anticipates flat EPS in FY16E as funds from the rights issue are utilized. Revenue from the Property arm is in-line with CAL’s estimates of LKR 4.7bn for FY15E, as recognition of sales of 7 th Sense continues. The Transport segment is unlikely to see an improvement in the near-term, and we anticipate a c .4% YoY fall in FY15E revenue. CAL’s DCF-based SOTP value for JKH is LKR 152 and we attribute a LKR 40* for JKH’s IR project (total LKR 192). SELL LKR 670mn in interest income from rights funds supports profit –CAL expects LKR 15-20bn in funds to be utilized for the IR project during FY15E, which may result in finance income from rights funds of c.LKR 1.6bn for the year. Our FY15E recurrent EPS of LKR 10.7 (c.-10% YoY) excludes interest income from the rights funds and capital gains from the sale of shares. FY15E Property revenue to reach LKR 4.7bn (20% YoY) –Revenue from recognition of sales from 7 th Sense continues as expected. CAL expects sales from c.30 apartments to be recognized in FY15E. FY15E CF&R revenue to reach c.LKR 29bn (12% YoY) –The growth in revenue is likely to be fueled by increased consumption. An average household is likely to save c.LKR 2k/month due to the reduction in various energy prices, while the increase in gov’t wages of c.LKR 15k/month is likely to further contribute to the increase in discretionary spending. CAL expects CF&R EBIT margins to improve to c.7% from 5.8% in FY14. JKH trades at a c.33% premium to CAL’s SOTP –CAL is confident that the IR project will roll out as planned. However, at current price levels, all future opportunities are fully priced in. Our DCF-based SOTP is LKR 192. We recommend long-term investors to buy closer to LKR 210 to factor price volatility. SELLRefer p.6 for Impo rtant Disclaimer CAL Research Level 5, “Millennium House”,No.46/58, Nawam Mawatha, Colombo 2 Tel: +94 11 231 7786 Email: purasisi@capitalalli ance.lk Purasisi Jinadasa Market Capitalization (USD): 1.9bn 1-year avg. Daily T/O (USD): 2.2mn 1-year H/L (LKR): 263/206 Free Float: 98% ¹ Does not include interest earned on funds from rights issue and capital gains from share sales * Refer “A closer look at the integrated resort project” 4 July 2014
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Definition of rating distribution for long-term investment opportunities
CAL Research uses the following rating system:
STRONG BUY Strong upside. Total return (incl. dividends) is expected to be above 20%within the next 12 months.
BUY Good upside. Total return (incl. dividends) is expected to be between 15% to
20% within the next 12 months.
HOLD For existing shareholders. Total return (incl. dividends) is expected to bebetween 5% to 15% within the next 12 months.
SELL Strong downside. Total return (incl. dividends) is expected to be below 5%within the next 12 months.