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Join date : 2014-02-23
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Strong upside continues despite subpar growth: BUY
SUN recorded a recurring net profit ~5% higher YoY to LKR 391mn in Q3 FY 16 with an EPS of LKR 1.30 (BRS estimate – LKR 1.51). Agri segment continued to be the biggest contributor to bottom line with a contribution of ~45%. Profit margins in this segment improved to 16% from 13% YoY as improved quality in tea assisted the company to attract a higher price at the Colombo auction. Weakening of LKR affected the margins in healthcare segment. FMCG segment too saw EBIT margins contracting from 18.6% to 13.6% as raw material prices rose during Q3 FY 16. Group top line improved 5.3% YoY to LKR 4.2bn, with Healthcare being the highest contributor at 43%. We expect Healthcare and FMCG segments to continue to drive group’s performance going forward despite a contraction in margins in the short run. Based on a free cash flow valuation we have arrived at a target price of LKR 64 allowing an upside of 23% on CMP. We recommend BUY.