From: Research <research@bartleetstock.com>
Date: Fri, Jul 8, 2011 at 5:29 PM
Subject: Expolanka Holdings Ltd (EXPO - LKR 13.70)
To: Research <research@bartleetstock.com>
Stable revenue growth in FY 2012E and FY 2013E
We expect a healthy top line growth, stemming primarily from the positive developments in the transportation sector. Expected volume growth in the Freight Forward business will be the catalyst for the growth in the Transportation sector. We expect a Group revenue of LKR 31.35bn (+2.6% YoY) for FY 2012E and LKR 40.75bn (+33.3% YoY) for FY 2013E respectively. Cessation of revenue stemming from Expolanka Aviation (the subsidiary which was disposed in FY 2011E) will be the key reason for the modest revenue growth in FY 2012E.
Healthy margins to be seen
We expect the Gross margins to rise 42.3% YoY to LKR 7.70bn in FY 2012E and 45.1% to LKR 10.26bn in FY 2013E. Growth in the top line will drive the growth at the Gross profit level. Gross margins are expected to hover at ~23% during the forecast period. We expect a recurring EBIT of LKR 2.60bn (+31.3% YoY) for FY 2012E and LKR 3.50bn (+34.9% YoY) in FY 2013E. Expected revenue growth, cost savings in the freight business and savings from the loss making subsidiaries that were disposed during FY 2011E, will strengthen the Group EBIT.
EPS estimates – LKR 0.80 (FY 2012E) and LKR 1.10 (FY 2013E)
We expect a EPS of LKR 0.80 (+33.0% YoY) and LKR 1.10 (+37.7% YoY) for FY 2012E and LKR 2013E respectively. EPS growth will be led by healthy EBIT growth and fall in debt servicing cost triggered by retiring debt from the IPO proceeds.
Valuation – Attractive, potential value of LKR 15.57, upside potential 14%
Based on Free Cash Flow valuation, the stock has a target price of LKR 15.57. The target price was based on a WACC of 10.9% and a terminal growth of 4%. Based on the expected future capital structure, we assumed a debt to equity ratio of 5%, risk free rate of 7.35%, equity risk premium of 4% and an adjusted beta of 0.9 . Based on relative valuations, the stock has a forward PE multiple of 17.1x and 12.4x for FY 2012E and FY 2013E respectively. The Diversified sector PE multiple stood at 33.8x on July 6,2011.
BMS Equity Research | Bartleet Mallory Stockbrokers
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BMS Equity Research | Bartleet Mallory Stockbrokers
+ 94 11 5 220200, + 94 11 2 434985, (Fax)
" Bartleet House", 65, Braybrooke Place, Colombo 02, Sri Lanka
----- DISCLAIMER -----
This email is intended only for the use of the individual or entity named above and may contain information that is confidential and privileged. It is intended solely for the use of the individual or entity to whom it is addressed and others authorized to receive it. If you are not the intended recipient, you are hereby notified that any disclosure, dissemination, distribution, copying or taking action in reliance of the contents of this information is strictly prohibited and unlawful. Bartleet Mallory Stockbrokers (Pvt) Ltd., is neither liable for the proper, complete transmission of the information contained in this communication nor any delay in its receipt. If you have received this email in error, please notify us immediately by return email and destroy the original message
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