FC Research : TJL - Earnings Update - HOLD - 09 06 17

by CSE.SAS on Wed Jun 14, 2017 2:37 pm

TEEJAY LANKA PLC

Earnings Update – HOLD

Current Price: LKR 41.0 Fair Value: LKR 47.0

“Cotton absorbing the Margins”

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Earnings Performance

Earnings dip by 40%YoY: TJL’s earnings for 4QFY17 was recorded at LKR 494Mn with a dip of 40%YoY in comparison to LKR 825Mn recorded in 4QFY16 while QoQ basis earnings saw a marginal increase of 4% in comparison to LKR 473Mn recorded in 3QFY17. For FY17, TJL’s earnings was recorded at LKR 1.96Bn as opposed to LKR 2.17Bn with a dip of 10%YoY.

Marginal growth in Revenue: During the 4QFY17, TJL’s topline registered a marginal growth of 6%YoY to record at LKR 5.8Bn amidst the continuing uncertainty prevailed in global market conditions coupled with softer demand. During the FY17 period TJL’s topline registered a YoY growth of 24% to reach LKR 22.2Bn in comparison to LKR 17.2Bn recorded in the previous year.

Cost of Sales increases 17%: Amidst the continuous upward movement in cotton prices impacted the increase in Cost of Sales by 17%YoY to record at LKR 5.1Bn during the 4QFY17 as opposed to LKR 4.0Bn recorded in 4QFY16 while for the FY17 the same was recorded at LKR 19Bn with a 29%YoY incline in comparison to LKR 14.8Bn in FY16. Cotton being the main contributor to the cost of sales with a share of over70%.

GP Margin shrink to 11%: Amidst the 17%YoY increase in Cost of Sales in comparison to marginal 6%YoY increase in Topline led to a dip in Gross Profit to record at LKR 656Mn in 4QFY17 as opposed to LKR 832Mn and LKR 1.1Bn recorded in 3QFY17 and 4QFY16 respectively. GP Margin for the period dipped to register at 11% while the same was recorded at 13% and 20% in 3QFY17 and 4QFY16 respectively.

Selling, Distribution and Admin expenses increase by 30%: TJL’s saw a 30%YoY incline its Selling, Distribution and Administrative expenses reaching LKR 379Mn during the 4QFY17 (LKR 292Mn in 4QFY16) while the same was recorded at LKR 1.3Bn for FY17 as opposed to LKR 937Mn in FY16 drive by the one off expense incurred resultant to the expense reallocation due to the consolidation.

NP Margin 9%: Despite the shrink in GP margins, NP margin was registered at 9% in 4QFY17 in comparison to 7% recorded in 3QFY17 driven by the increase in other income to record at LKR 94Mn (LKR 39Mn in 3QFY17) and net finance income of LKR 25Mn in 4QFY17 (Finance cost of LKR 5Mn in 3QFY17). However, for the FY17 the NP margin eroded to register at 9% while the same was recorded at 12% for FY16.

Recommendation

Total return of 13% over 22 Months period: FC recommends a HOLD on TJL.N with a fair value of LKR 47.0 [LKR 41.7 on DCF based and LKR 51.9 on PER based] providing an annualised total return of 13%. HOLD

Disclaimer on Shareholding:

First Capital Group and its affiliates do not hold shares in TJL and will not trade in this share for the three trading days following the issue of this document.