The Lion Brewery Ceylon PLC [LION.

N0000]
3QFY2013 EARNINGS NOTE - HOLD
YEAR END MARCH (LKR mn) Revenue EBIT Profit after Tax EPS EPS Growth (%) PER (x) NAV/Share (LKR) EV/EBITDA (x) Price-to-Book Value (x) 9MFY12 12,700 1,750 850 10.5 NA FY12 17,600 2,300 1,218 15.2 55 13.5 65 5.4 3.2 9MFY13 16,500 1,200 800 10.2 (3) FY13E 22,700 2,000 960 12.0 (26) 25.6 77 10.2 4.2
Market Capitalization (USD): 200mn 1-year avg. Daily T/O (USD): 83k Free Float (end June): 15% 1-year Price H/L (LKR): 340/178

Current Price (LKR)

320
Fair Value (LKR)

296
Recommendation

HOLD
Date 15-Feb-13

As a result of lower GP margins (c.-9% YoY; c.-2% sequentially) and higher finance costs (c.+128% YoY; c.+130% sequentially) due to anticipated capacity expansion (c.+100k hectoliters p.a.), CAL has revised FY13E EPS down by 40% to LKR 12 (LKR 17.5 previous). However, following adjustments to our DCF variables (COE 22% and COD 14%), CALs fair value is up marginally to LKR 296 (c.+8%) from LKR 274. We continue to be positive on the long-term growth of Sri Lankas beer market (volume CAGR of c.17% FY12-15E) and LIONs +85% market share positions it to gain the most. LIONs current price of LKR 320 is at a c.8% premium to CALs fair value. We are maintaining a HOLD
Ongoing expansions are likely to have squeezed profits 9MFY13 EPS was down 3% although LIONs revenue grew c.30% YoY to LKR 16.5bn. Higher costs likely related to expansion plans drove gross margins down to 21% for the quarter (CAL estimates FY13 GP margins to be c.23% down from c.29% in FY12). Higher finance costs are also likely due to LIONs expansion plans. CAL estimates finance expense to reach LKR 560mn for the year. CAL is maintaining full-year revenue at LKR 23bn, however we have lowered our FY13E EPS down to LKR 12 from our previous LKR 17.6. Regional Trends and Growth Prospects CAL expects Sri Lankas beer production volume to hit c.180mn ltrs by 2015, translating to a per capita consumption of c.8.5ltrs (current regional avg. is 12ltrs) as disposable income levels increase. For LION, CAL translates this growth to a c.10% CAGR in volume growth through 2015E. Annual capacity expansion expense is estimated at c.LKR4-6mn. CAL maintains LION on a HOLD CALs fair value for LION is LKR 296. At the current price of LKR 320, LION is fairly valued HOLD

CAL Securities Level 5, Millennium House, No.46/58, Nawam Mawatha, Colombo 2 Tel: +94 11 2317786 Email: purasisi@capitalalliance.lk

Purasisi Jinadasa

REFER p.3 FOR DISCLAIMER

Appendix 1: DCF VALUATION

LION
Target Capital Structure (D/E) Cost of Equity Cost of Debt Terminal Growth Rate WACC

VALUE
30/70 22.0% 14.0% 1.0% 17.9%

LKR thsd EBIT Total FCF Terminal Value EV Price/Share

2014E 2,460,952 3,664,224 21,872,733 23,716,117 296

2015E 2,968,298 3,889,048 23,214,766 25,793,523 322

Appendix 2: INCOME STATEMENT

LKR (mn) Revenue Cost of Sales Gross Profit Other Income Distribution Expense Admin and Other Profit from Operations Finance Expenses Profit Before Taxation Income Tax Expense Profit for the Year Profit to Equity Holders EPS
DPS

FY2011

FY2012

FY2013E

FY2014E

11,250,330 17,649,146 22,658,354 25,500,597 (7,571,658) (12,596,394) (17,471,660) (19,694,320) 3,678,672 5,052,752 5,186,694 5,806,277 14,715 227,937 610,139 789,662 (1,593,874) (2,092,205) (2,651,027) (2,932,569) (546,713) (659,516) (915,788) (1,031,472) 1,552,800 2,528,968 2,230,018 2,631,899 (157,519) (376,278) (556,753) (566,210) 1,395,281 2,152,690 1,673,265 2,065,688 (562,994) (890,458) (667,273) (882,635) 832,287 1,262,232 1,005,992 1,183,054 788,537 9.86
3.0

1,218,482 15.23
4.0

962,242 12.03
3.4

1,139,304 14.24
4.0

Source: Company Reports and CAL Estimates

DISCLAIMER

This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources, believed to be reliable. Capital Alliance Securities (Private) Limited however does not warrant its completeness or accuracy. Opinions and estimates given constitute a judgment as of the date of the material and are subject to change without notice. This report is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities, investments or financial instruments mentioned herein. Securities or financial instruments mentioned may not be suitable to all investors. Capital Alliance Securities (Private) Limited its directors, officers, consultants, employees, outsourced research providers associates or business partner, will not be responsible, for any claims damages, compensation, suits, damages, loss, costs, charges, expenses, outgoing or payments including attorneys fees which recipients of the reports suffers or incurs directly or indirectly arising out actions taken as a result of this report. This report is for the use of the intended recipient only. Access, disclosure, copying, distribution or reliance on any of it by anyone else is prohibited and may be a criminal offence.

Contacts
Research Team
Tel No: +94 11 231 7777 (General) Email: teamresearch@capitalalliance.lk

Purasisi Jinadasa Tel No: +94 11 231 7786 Email: purasisi@capitalalliance.lk Udeeshan Jonas Tel No: +94 11 231 7746 Email: udeeshan@capitalalliance.lk Reshan Wediwardana Email: reshan@capitalalliance.lk Dushan de Silva Email: dushan@capitalalliance.lk Thushani de Silva Email: thushani@capitalalliance.lk Ananya Udeshi Email: ananya@capitalalliance.lk