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Join date : 2014-02-23
Initiating Coverage - STRONG BUY
Current Price: LKR 120.5 Fair Value: LKR 200.0
Click the below link to download the Report of FC Research - RCL - Initiating Coverage - STRONG BUY - 20 09 16
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Royal Ceramic Lanka PLC, leader in high quality surface covering and bath-ware in Sri Lanka with subsidiaries providing a diversified product portfolio. RCL’s earnings is expected to grow at a CAGR of c.13% FY16-FY19E surpassing c.LKR 4.0Bn in FY18E and c.LKR 4.3Bn in FY19E. RCL is expected to grow its earnings mainly driven by the incline in its revenue streams coupled with the efficient management of operational costs. FC Research expect RCL to provide a return of 82% at LKR 200.0. STRONG BUY
Construction sector boom driven revenue: RCL’s revenue is expected to grow at a c.CAGR of 14% over FY16-19E to reach c.LKR 36.9Bn in FY18E as opposed to LKR 24.9Bn registered in FY16 on the back of the growth in the construction sector primarily driven by the increased demand for housing and residential property led by rising urbanization and the boom in the tourism industry deriving from the increase in the number of tourist arrivals result in an increased demand for tourist accommodation.
Increased volumes to Improve Margins and Earnings: Economies of scale deriving from increased volumes coupled with comparatively lower commodity prices to reduce the overall cost of sales thus record it at c.LKR 20.0Bn in FY18E with a CAGR of 14% over FY16-FY18E leading to an increase in RCL earnings to c.LKR 4.3Bn (CAGR of 17% over FY16-FY18E) while improving GP, EBIT and NP margins in FY18E to 39%, 21% and 12% respectively.
RCL to provide 82% return over 18-months period: FC Research expect RCL to achieve a fair value of LKR 200.0 providing a total return of 82% (Dividend yield 16%) over 18-month period. [DCF based LKR 141.2 and PER based LKR 253.1]
Risks associated: Given the nature of the business model of the company RCL is exposed to the risk resulting from the fluctuations in exchange rates and the changes in the government policies.
First Capital Group and its affiliates holds 246,842 shares in RCL. Neither First Capital Group nor its affiliates have traded in the shares in the three trading days prior to this document, and will not trade in the shares for three trading days following the issue of this document.