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Hemas Holdings PLC is a family run diversified conglomerate with business interests in
FMCG, healthcare, transportation and leisure.
Well positioned to grab untapped market share in the private healthcare sector
With its unique strategy of locating the hospitals in sub urban areas with high population
density away from Colombo, Hemas will have a competitive advantage over other players
SHARE INFO:
Sector
: Diversified Holdings
mas hospitals throughout the past few years especially with high end surgeries succeed-
CSE Ticker
: HHL.N0000
ing at the Wattala hospital. This is further strengthened by the partnership with the Kerala
who are located in the capital of Colombo. Increased confidence has been seen on He-
12 Month (High/Low)
: LKR65.10/LK32.00
: 32.9b
of 19.2% from FY2012-14. With rising per capita income, demand for personal care prod-
: 253.7mn
ucts has been on the rise which saw considerable volume growth as well as price in-
: 28.25%
: 367,284
Despite heavy competition from similar products, Hemas FMCG revenue grew at a CAGR
creases favoring the manufacturers. We expect this trend to continue in to the future and
expect FMCG revenue to grow at a CAGR of 13.3% through FY2015E-17E.
: 17.61%
pancy to improve to 80% by FY2017E from current 75%. The acquisition of J. L. Morison
: 16.77%
Son and Jones (Ceylon) PLC (JLM) should also contribute to increased revenue.
: 16.65%
: 16.65%
in two hotel properties, Club Hotel Dolphin and Hotel Sigiriya, we expect average occu-
The acquisition of JLM should bring about efficiencies in the manufacturing plants and
the distribution network to improve profitability. The divestment of the loss making power
sector should also contribute to improved profitability.
5.29%
VALUATION SUMMARY:
Valuation
We have used the SOTP method as the primary valuation method to arrive at a per share
TTM EPS
: LKR4.91
price of LKR78 which is further justified by our EV/EBITDA valuation which gives a per
: 13.2x
Latest BVPS
: LKR28.05
PBV (x)
: 2.3x
LKR '000
Revenue
EBIT
EBIT Margin
Net Profit for equity
Net Profit Margin
EPS - LKR
Net Operating Cash Flow
Gearing
Price to earnings (P/E)
Price to book (P/B)
FY2012
FY2013
FY2014
FY2015E
FY2016E
FY2017E
2,436,994
3,378,598
3,256,852
3,829,979
4,331,622
8.3%
9.3%
10.3%
11.0%
11.2%
11.3%
1,164,525
1,659,660
2,409,276
2,235,628
2,862,617
3,357,634
5.9%
7.4%
7.8%
8.2%
9.3%
9.6%
2.45
3.76
4.97
4.72
6.17
7.16
1,507,983
1,863,616
2,895,800
3,872,027
3,511,183
4,246,482
15.5%
16.7%
22.9%
16.6%
12.7%
9.8%
10.7x
7.2x
13.1x
13.8x
10.5x
9.1x
1.3x
1.1x
2.3x
2.1x
1.8x
1.5x
40.00
30.00
20.00
10.00
-
28-Oct-11
28-Apr-12
28-Oct-12
28-Apr-13
28-Oct-13
28-Apr-14
Pg
|
Company Overview
Hemas Holdings PLC quoted in 2003, is a family run diversified conglomerate with LKR32.9bn (USD253.6mn) market capitalization and focuses on five key sectors i.e. FMCG, healthcare, transportation and leisure. The group was founded as a
pharmaceuticals and trading enterprise in 1948.
The status of Hemas as the largest private organization in the healthcare industry and the dominant distributor of pharmaceuticals, surgical & diagnostic products in Sri Lanka was further strengthened by the acquisition of J. L. Morison Son and
Jones (Ceylon) PLC (JLM) recently. Hemas hospitals focus on the middle income population in suburban areas gaining a
competitive advantage over other players centered in Colombo.
Hemas personal care product range offers trusted products to consumers contributing significantly to growth in group
revenue which are exported directly to 12 countries including Malaysia, New Zealand and Bangladesh.
Hemas is the leader in airline General Sales Agency (GSA) business in Sri Lanka for both passenger and cargo and also
has significant interest in Sri Lankas largest ship owning company (Mercantile Shipping Company PLC).
The group, under its leisure segment owns 4 hotels offering diversity to customers which will be further strengthened with
the investment in the luxury 5 star resort expected to commence operations in FY2016E.
The group recently announced the divestment of the power segment (Hemas Power PLC) with the aim of concentrating
on more profitable business ventures.
Figure 1: Business Interests
Hemas Group
FMCG
Healthcare
Leisure
Transportation
Other
Own Brands
Hospitals
Hotels
Aviation
Vishwa BPO
International
Healthcare
Distribution
Destination
Management
Logistics
N-Able
Contract
Manufacturing
Maritime
Source : HHL
Pg | 2
SWOT Analysis
Strengths
Weakness
Position as Sri Lankas leading pharmaceutical importer and distributor for over 6 years
Being located away from Colombo, attracting specialist doctors can be difficult
Opportunities
Increasing ageing population resulting in higher demand for healthcare (rising longevity and low fertility
Threats
demand
for
FMCG products
rates)
Pg | 3
Investment Highlights
Diversified into growing and profitable segments of the economy
HHL has been operating in key fast growing segments of the economy such as healthcare, pharmaceuticals and personal care. The well experienced management team of the company regularly assesses profitability and growth aspects of
the current segments as well as other rewarding segments of the economy and decides upon the strategies to capitalize
on the opportunities available through divestment of unprofitable segments (e.g. Hemas Power PLC, Skynet Worldwide
Express (Pvt) Ltd) and acquisition of profitable segments (e.g. J. L. Morison Son and Jones (Ceylon) PLC). This would assist Hemas in expanding their portfolio to remain profitable and to offer higher returns to investors.
Healthcare sector to benefit from increasing demand for private healthcare services and lucrative synergies through
the acquisition of JLM
With increasing demand for private healthcare in Sri Lanka and its unique strategy of locating the hospitals in sub urban
areas with high population density away from Colombo, Hemas will have a competitive advantage over other players
who are located in the capital of Colombo. The newly opened hospital in Thalawathugoda should also contribute to increased revenue and profitability. Hemas group integrated vertically during FY2014 with the acquisition of J. L. Morison
Son and Jones (Ceylon) PLC (JLM) expanding the pharmaceuticals distribution network and the product portfolio. With
this acquisition we expect efficiencies in the manufacturing plants and the distribution network to improve. With these
improvements we expect healthcare sector revenue to grow at a CAGR of 11.0% over FY2015E-17E.
Pg | 4
Hemas Healthcare
Wattala
Galle
Hospitals
Thalawathugoda
Medical Laboratories
37%
Healthcare
Revenue
Pharmaceuticals
Healthcare Distribution
42%
vs Group
Healthcare
vs Group
63%
EBIT
58%
Source : HHL
Group
Healthcare
Group
Healthcare
Source : HHL
Hospitals
Hemas operates 3 multi-specialty family hospitals with full international accreditations at Wattala (Hemas Hospital, Wattala), Thalawathugoda (Hemas Hospital, Thalawathugoda) and Galle (Hemas Southern Hospital). In addition it operates 11
laboratory and channeling service branches.
Hemas Hospital - Wattala
Opened in 2008, the Wattala hospital is a 100-bed multi specialty general hospital and offers a wide array of services including emergency care, ICU, laboratory, CT, MRI, surgery and maternity. Over 150 specialist consultants visit the hospital
and records around 15,000 out-patient visits and 900 in-patient visits per month.
Hemas Southern Hospital - Galle
Opened in 2009 the hospital consists of 50 bed hospital consists of operation theatres, labor rooms, an Endoscopy unit, an
ICU, a modern diagnostic laboratory and a radiology unit.
Hemas Hospital - Thalawathugoda
Openned in 2013 Hemas hospital Thalawathugoda has a 60 bed capacity with around 200 visiting consultants.
Healthcare Distribution
Through its fully owned subsidiaries Hemas Pharmaceuticals (Pvt) Ltd, Hemas Surgical & Diagnostics (Pvt) Ltd and J L
Morison Son & Jones (Ceylon) PLC, M. S. J. Industries (Ceylon) (Pvt) Ltd Hemas healthcare distribution segment holds a
market share of 21% and records over LKR9bn turnover. This segment is referred to as Sri Lankas leading pharmaceutical
importer and distributor representing more than 25 international and regional pharmaceuticals manufacturers.
Pg | 5
8%
18%
35%
2014
20%
19%
income earners and individuals with access to medical insurance. Accordingly demand for private healthcare stems
from urban areas especially with a significant contribution
from Colombo where disposable incomes are high.
Asiri
Durdans
Nawaloka
Lanka
Hemas
Hemas
Lanka Hospitals
The Central
Asiri Surgical
Asiri Hospital
Durdans
Nawaloka
intensive, given the high costs of medical equipment, infrastructure and technology.
75
150
225
300
375
450
Bed capacity
Source: Annual Reports, NLE
1,200
900
600
38,000
36,000
34,000
32,000
300
-
30,000
2009
2011
2012
2013
2010
operators.
Pg | 6
Pharmaceuticals Industry
The pharmaceutical market in Sri Lanka is worth approximately LKR50bn. Around 70% of the market share is held by
LKRmn
140,000
. 140,000
120,000
120,000
ing accounts for cf. 15% with over 200 products in 2013.
100,000
100,000
80,000
80,000
60,000
60,000
40,000
40,000
20,000
20,000
2010
2011
2012
2013
0
2009
Source: CBSL
sector and the tendency of people to buy drugs from pharmacies due to the shortage of drugs in the public hospitals
and service quality disparities, supply of pharmaceuticals to
Population mn.
5.4
4.5
ing power.
3.6
2.7
1.8
0.9
0
1990
We believe demographic changes such as increasing ageing population, rising of chronic diseases, increasing health
awareness will drive demand for healthcare and pharmaceuticals. This is further reinforced by the increasing dispos-
1995
2000
2005
2007
Neoplasms
Mental and behavioural disorders
Diseases of the circulatory system
Diseases of the respiratory system
Injury, poisoning and other
2009
able income, overcrowding and inadequate capacity of government hospitals. Further we expect competition in the private healthcare sector to rise in the medium term with ca-
2013
2007
2001
1996
1986
1978
1963
0%
20%
0 - 14 Years
40%
60%
80%
100%
15 - 54 Years
55 Years and Over
Source: CBSL
Pg | 7
FMCG
Hemas FMCG sector includes a range of well-known and
29%
33%
FMCG vs
Group
Group
Revenue
FMCG vs
EBIT
71%
67%
Group
FMCG
Group
FMCG
Source: HHL
Contract Manufacturing
Hemas acts as a contract manufacturing partner in the development and manufacture of FMCG products for several
leading companies. This segment has lucrative prospects especially with the trend of supermarket chains promoting own
branded goods.
Major Brands
Brand
Baby Cheramy
Clogard
Kumarika
Velvet
Description
The companys flagship brand with over 50 years of trusted excellence continues to be market
leader and has been the preferred choice of Sri Lankan mothers.
Re-launched successfully and has recorded significant growth, despite heavy competition and
low over all market growth.
Maintains position as the market leader in the branded hair oil segment in Sri Lanka which
has seen significant demand from the Bangladesh market as well.
The brand was re-launched as an improved product with dual ingredients to make its proposition more appealing to the consumers, supported by new attractive packaging.
The companys washing powder continues to provide strong value to the consumers. Diva
Diva
was re-launched with improved perfume, enhanced washing functionalities and attractive
packaging.
Under this new brand name the company launched two variants of Eau De Toilette Spray
PRO
tapping into the premium male fragrances category. Pro hair gel is a well-known for its unique
features.
Gold
The Cheramy Touch range
Paris, Goya and Capri
Male fragrance and grooming product range; re-launched to cater to evolving consumer
needs.
This brand has been launched to exploit opportunities in the growing adult Skin Care category.
Female fragrance product range catering to different market segments.
Pg | 8
22%
Personal care
Household care
Food and Beverages
OTC products
13%
63%
The personal care industry growth exceeded food & beverage and household care driven mainly by price increases,
while the growth of household care was below the inflation
Source: HHL
rate during the past 3 years. The food and beverages segment experienced a noticeable decline with the increase in
substitutes and changes in lifestyle.
The emerging lifestyle and personal care products, that appeal to younger consumers demonstrates the highest potential growth. In a trend perspective, the lucrative target of marketers have been the consumers born in the 1980s and
1990s; the reality TV show era since they represent a significant 3.5mn of the population and are becoming increasingly
more influential. In addition to being a group with growing
spending power, Millennials tend to be more optimistic than
0.00%
-2.00%
FMCG-All
Food &
Beverages
All Island (R)
Source: HHL
Further, package size is a primary consideration in the industry. Retailers and companies have been offering products in
medium-sized packs to provide a price-conscious option
when consumers did not have the economic bandwidth to
250,000
200,000
150,000
100,000
50,000
2012 2013 2014 2015 2016 2017 2018 2019
Source: IMF
Pg | 9
Leisure Sector
The Serendib Leisure Group of Hotels and Diethelm Travels-
5%
13%
Kalutara, Club Hotel Dolphin and Hotel Sigiriya and is located on the south and west coast and within the heart of the
Leisure vs
EBIT
87%
95%
Leisure structure
vs Group
Revenue
Leisure
Group
Group
Leisure
Group
Leisure
Source: HHL
jor shareholder of Hotel Sigiriya PLC (Hotel Sigiriya in Dambulla) and also holds a stake in Dolphin Hotels PLC (Club
Hotel Dolphin and Miami Cottages in Waikkal). It also has a
19.9% stake in Jada Resort & Spa (Pvt.) Ltd. (associate)
which owns Avani Kalutara Resort in Kalutara Serendib Hotels fully owned subsidiary Serendib Leisure Management
Ltd. manages all of the above properties. Serendib Leisure is
in partnership with Minor International A Thailand based
hotel group which owns the Avani and Anantara brands.
Hotel Sigiriya
Hotel Sigiriya has 79 rooms 1 restaurant and was last renovated in 2013. It records an average occupancy of 70% in
600
500
400
300
200
100
0
Avani Bentota
Revenue
Dolphin hotels
Gross Profit
Hotel Sigiriya
Net Profit
Source: HHL
2013.
Club Hotel Dolphin
Is located in Waikkal, Negombo and is positioned as an all inclusive club hotel that offers a range of sporting and recreational activities and also allows for time out and relaxation. It is equipped with 151 rooms which include 99 deluxe rooms
and 50 beach villas. In addition it as 2 restaurants and 5 bars. The hotel was renovated in 2013 with new additions such as
a night club and a karoke bar. The hotel achieved an average occupancy of 84% in 2013.
Avani Kalutara
Located in the southwest coast Avani Kalutara is equipped with 105 rooms and was last renovated in 2012.
Avani Bentota Resort & Spa
It is a beachfront accommodation with 75 rooms, 2 restaurants and 2 bars. It was last renovated in 2011. The hotel
achieved an average occupancy of 68% and posted revenue of LKR429mn.
Pg | 10
20%
15
15%
10
10%
5%
0%
2011
Growth
500
400
300
200
100
dustry.
Westurn Eastern
Europe
Europe
North
Asia
Australia
Other
America
2012
2012
Source: UNWTO
Maldives
Thailand
Cambodia
20
Indonesia
25%
Malaysia
25
Vietnam
Srilanka
Arrivals mn
30
Millions
2013
Source: SLTDA
80%
60%
40%
20%
0%
Club Hotel Dolphin Avani Bentota avg. Hotel Sigiriya avg.
avg. occupancy
occupancy
occupancy
Pg | 11
Transportation Sector
The groups transportation sectors business portfolio in-
5%
18%
EBIT.
Transportation
Aviation Services
vs Group EBIT
Revenue
Aviation services include air line representation and outbound travel. It represents Emirates, Malaysia, Maldivian
82%
95%
Transportation
vs Group
Group
Group
Transportation
Transportation
Source: HHL
1,500
-60
2012
2013
Growth YoY
Other
-40
Malaysian
500
-20
1,000
Singapore
20
2,000
Air Arabia
Associates
2,500
Cathay Pacific
40
3,000
Jet Airways
60
3,500
Fly Dubai
tions. It also operates coach tours and is the local agent for
80
4,000
Qatar
Mihin
Emirates
SriLankan
Source: AASL
'000
250
200
7,000
150
6,500
100
6,000
50
2013
5,500
2012
0
2011
velopment.
2010
'000
7,500
Thousands
Pg | 12
Maritime
The sector acts as a shipping agent, provides maritime services and is involved in strategic investments. Far Shipping
Lanka (FSL) acts as the exclusive shipping agent for Far Shipping Lines (FSL) Singapore, a leading feeder service to the
Indian subcontinent. In addition it provides shipping agency services including crew changes, import and export (Sea/Air)
shipments of ship spares, CTM (Cash To Master), ship repairing (ashore and anchorage), periodic and annual inspection
and certification of life saving equipment on board amongst other services to vessels calling at ports at Colombo, Galle,
Hambantota and Trincomalee. Furthermore the group has a strategic investment in Mercantile Shipping PLC.
Globally the maritime industry is yet being impacted by sluggish growth in trade volumes due to the economic situation in
the west and the prevalent over-capacity situation in the industry. However Sri Lankan container handling throughput
exhibits satisfactory development (2.8% in 2013) and we expect this to continue with the expected gradual recovery in the
western economy, governments pursue towards making the country a maritime hub and Hemas maritime sector being
positioned with strong partnerships such as with Far Shipping Singapore.
Logistics
Thousands
Mn.
Mn.
68
66
64
62
60
58
2010
2012
2013
consortium of buyers recently. The power segment of Hemas contributed 20% of the group revenue in FY2014. However the contribution to EBIT fell to 3% in FY2014 cf. 13% in
2011
Thousands
Source: CBSL
Other
Group
Revenue
95%
Group
Others
Other vs
Group EBIT
2014
Other vs
2013
-3%
Source: HHL
Pg | 13
Financial Analysis
Revenue
Group revenue increased 25.8% yoy in FY2014 to LKR32.8b cf. LKR26.1b in FY2013 crossing the LKR30b mark for the
first time. The acquisition of J. L. Morison Son and Jones (Ceylon) PLC (JLM) during FY2014 contributed significantly to
revenue growth with LKR2.7b.
Highest contributor to group revenue is the healthcare sector (36.7%) which increased 34.4% yoy to LKR12.1b in
FY2014. The growth was mainly attributable to the acquisition of JLM and new revenue from the hospital in Thalawathugoda.
FMCG and Power sectors followed with 29.1% and 19.7% in FY2014 respectively.
The leisure sector revenue declined 4.9% yoy in FY2014 due to 2 hotel properties being closed for refurbishment.
At group level revenue increased at a CAGR of 23.5% with the highest contribution to growth from the transportation
segment.
We expect group revenue to decline 10.0% yoy to LKR29.5b in FY2015E with the divestment of Hemas Power PLC
(which contributed to 19.7% of total revenue in FY2014).
Consequently the revenue share from the healthcare segment should increase to 44.1% in FY2015E from 36.7% in
FY2014 with 8.0% growth yoy.
However, we expect group revenue to increase at a CAGR of 13.9% from FY2015E-17E with the highest contribution to
growth arising from the leisure segment.
We expect leisure segment revenue to grow at a CAGR of 21.5% from FY2014-17E with the new 154 room luxury hotel
to be opened in FY2016E. Further, with recent refurbishment carried out in two hotel properties, Club Hotel Dolphin
and Hotel Sigiriya, we expect average occupancy to improve to 80% by FY2017E from current 75%.
100%
50,000
80%
40,000
60%
30,000
40%
20,000
20%
10,000
0%
0
FY2013
Healthcare
Other
Source: HHL, NLE
FY2014
FY2015E
FMCG
Leisure
FY2016E
FY2017E
Transportation
Power
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
FY2012 FY2013 FY2014 FY2015EFY2016EFY2017E
Pg | 14
Profitability
20.0%
15.0%
10.0%
5.0%
0.0%
FY2012
to be renewed.
ROCE
ROA
12%
10%
4,000
8%
3,000
6%
2,000
4%
1,000
2%
0%
FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E
FY2013
4,000
3,500
respectively cf. 14.6% and 6.8% in FY2013 mainly attributable to increased profitability and increased efficiency of assets. With reduced profitability in FY2015E,
we expect ROE and ROA to decline to 14.8% and 6.5%
in FY2015E and improve thereafter.
12%
10%
3,000
8%
2,500
2,000
6%
1,500
4%
1,000
2%
500
0
0%
FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E
NP Margin (RHS)
Pg | 15
Financial Position
Figure 29: Debt Composition
120%
50.00
100%
40.00
80%
30.00
60%
20.00
40%
10.00
20%
0%
FY2012
FY2013
0.00
FY2012
FY2013
Group Property, Plant and Equipment increased 20.2% yoy in FY2014 mainly attributable to the acquisition of JLM.
Net Assets of the group stood at LKR27.75 at the end of FY2014 and LKR28.05 at the end of Q1FY2015.
The gearing ratio stood at 22.9% (excluding overdraft) at the end of FY2014, cf. 16.7% in FY2013 with net additions
amounting to LKR2b during the year.
With the aim of restructuring the balance sheet the company issued 5 year LKR1b debentures at 11.3% (effective
rate). The proceeds will be utilized to pay off existing debt allowing the company to have both fixed and floating rate
borrowings.
The repayment of debt will result in reduced gearing which we expect to lower to 17.0% in FY2015E and improve further in the subsequent years.
20,000
2.00
1.50
15%
10%
10,000
0
FY2012 FY2013 FY2014 FY2015EFY2016EFY2017E
1.00
5%
0.50
0%
0.00
FY2012
Current Ratio
FY2013
Liquidity Ratio
Pg | 16
Financial Snapshot
LKR 000
FY2012
FY2013
FY2014
FY2015E
FY2016E
FY2017E
21,532,503
26,098,362
32,833,249
29,550,370
34,311,545
38,340,415
Gross profits
6,574,778
8,023,271
10,219,439
9,160,615
10,636,579
11,885,529
EBIT
1,783,950
2,436,994
3,378,598
3,256,852
3,829,979
4,331,622
1,521,080
2,409,541
3,047,239
2,891,511
3,607,391
4,174,626
Net Profit
1,261,308
1,935,843
2,560,905
2,430,031
3,180,686
3,689,708
1,164,525
1,659,660
2,409,276
2,235,628
2,862,617
3,357,634
2.45
3.76
4.97
4.72
6.17
7.16
11,853,344
13,059,937
17,630,397
15,483,049
16,925,885
18,521,129
10,802,342
12,947,721
16,748,492
17,210,444
19,021,108
21,189,612
12,640,944
14,412,379
17,629,635
18,367,073
21,064,337
24,270,623
1,938,996
2,803,970
4,327,089
3,410,370
2,994,859
2,704,001
8,075,746
8,791,309
12,422,165
10,916,050
11,887,798
12,736,117
20.67
23.58
27.75
31.59
36.35
42.06
1,507,983
1,863,616
2,895,800
3,872,027
3,511,183
4,246,482
(1,608,823)
(1,361,483)
(4,662,937)
(387,716)
(2,401,808)
(2,683,829)
(437,744)
131,349
1,140,803
(1,603,128)
(1,077,008)
(898,932)
(538,584)
633,482
(626,334)
1,881,183
32,366
663,721
Revenue YoY
19.2%
21.2%
25.8%
(10.0%)
16.1%
11.7%
12.6%
22.0%
27.4%
(10.4%)
16.1%
11.7%
2.5%
36.6%
38.6%
(3.6%)
17.6%
13.1%
(3.1%)
58.4%
26.5%
(5.1%)
24.8%
15.7%
(6.9%)
53.5%
32.3%
(5.1%)
30.9%
16.0%
-3.8%
42.5%
45.2%
(7.2%)
28.0%
17.3%
Gross profit
30.5%
30.7%
31.1%
31.0%
31.0%
31.0%
EBITDA
11.2%
12.0%
13.0%
13.9%
14.0%
14.1%
Operating profit
8.3%
9.3%
10.3%
11.0%
11.2%
11.3%
7.1%
9.2%
9.3%
9.8%
10.5%
10.9%
Net profit
5.9%
7.4%
7.8%
8.2%
9.3%
9.6%
Inventory turnover
8.1x
8.2x
7.1x
5.8x
7.2x
7.0x
Receivable turnover
4.2x
4.0x
4.2x
3.6x
4.0x
3.9x
Payable turnover
3.2x
3.3x
3.3x
2.7x
3.1x
3.0x
11.9%
14.6%
18.2%
14.6%
16.4%
16.6%
5.6%
6.8%
8.0%
6.7%
8.3%
8.9%
ROCE
13.1%
15.3%
17.2%
14.9%
16.7%
17.0%
Dividend Payout
20.4%
14.6%
15.1%
12.7%
13.0%
11.2%
15.5%
16.7%
22.9%
16.6%
12.7%
9.8%
1.3x
1.5x
1.3x
1.6x
1.6x
1.7x
1.1x
1.2x
1.0x
1.3x
1.3x
1.4x
EPS - LKR
Statement of Financial Position
Pg | 17
Income Statement
LKR 000
FY2012
FY2013
FY2014
FY2015E
FY2016E
FY2017E
Revenue
21,532,503
26,098,362
32,833,249
29,550,370
34,311,545
38,340,415
(14,957,725)
(18,075,091)
(22,613,810)
(20,389,756)
(23,674,966)
(26,454,887)
Gross Profit
6,574,778
8,023,271
10,219,439
9,160,615
10,636,579
11,885,529
EBITDA
2,413,372
3,144,587
4,284,570
4,099,830
4,788,951
5,420,207
629,422
707,593
905,972
842,979
958,972
1,088,585
Operating Profit
1,783,950
2,436,994
3,378,598
3,256,852
3,829,979
4,331,622
Finance Cost
(465,269)
(370,103)
(657,076)
(691,058)
(548,304)
(482,713)
Finance Income
202,399
342,650
325,717
325,717
325,717
325,717
1,521,080
2,409,541
3,047,239
2,891,511
3,607,391
4,174,626
Cost of Sales
Depreciation
(259,772)
(473,698)
(486,334)
(461,480)
(426,706)
(484,918)
1,261,308
1,935,843
2,560,905
2,430,031
3,180,686
3,689,708
1,164,525
1,659,660
2,409,276
2,235,628
2,862,617
3,357,634
96,783
276,183
151,629
194,402
318,069
332,074
FY2012
FY2013
FY2014
FY2015E
FY2016E
FY2017E
1,521,080
2,409,541
3,047,239
2,891,511
3,607,391
4,174,626
1,507,983
1,863,616
2,895,800
3,872,027
3,511,183
4,246,482
(1,608,823)
(1,361,483)
(4,662,937)
(387,716)
(2,401,808)
(2,683,829)
(437,744)
131,349
1,140,803
(1,603,128)
(1,077,008)
(898,932)
Net Increase/(Decrease)
(538,584)
633,482
(626,334)
1,881,183
32,366
663,721
1,101,008
561,533
1,194,936
570,587
2,451,770
2,484,136
561,533
1,194,936
570,587
2,451,770
2,484,136
3,147,857
Non-Controlling Interests
Pg | 18
Balance Sheet
LKR 000
FY2012
FY2013
FY2014
FY2015E
FY2016E
FY2017E
10,283,616
11,293,957
13,571,854
11,424,506
12,867,342
14,462,586
474,685
578,453
1,683,130
1,683,130
1,683,130
1,683,130
Leasehold Right
94,455
90,592
145,847
145,847
145,847
145,847
Intangible Assets
461,499
436,701
1,333,247
1,333,247
1,333,247
1,333,247
Investment in Associates
179,399
221,325
380,303
380,303
380,303
380,303
324,069
399,147
457,435
457,435
457,435
457,435
35,621
39,762
58,581
58,581
58,581
58,581
11,853,344
13,059,937
17,630,397
15,483,049
16,925,885
18,521,129
Inventories
2,004,989
2,425,137
3,932,906
3,058,463
3,551,245
3,968,233
5,854,420
7,047,695
8,523,389
7,978,600
9,264,117
10,351,912
134,306
78,590
126,716
126,716
126,716
126,716
ASSETS
Non Current Assets
Property, Plant and Equipment
Investment Properties
Tax Recoverable
Other Current Financial Assets
361,515
172,919
1,032,714
1,032,714
1,032,714
1,032,714
2,447,112
3,223,380
3,132,767
5,013,950
5,046,316
5,710,037
10,802,342
12,947,721
16,748,492
17,210,444
19,021,108
21,189,612
22,655,686
26,007,658
34,378,889
32,693,493
35,946,994
39,710,742
1,600,603
1,600,603
1,600,603
1,600,603
1,600,603
1,600,603
440,601
409,751
400,289
400,289
400,289
400,289
1,161,253
1,314,477
922,551
922,551
922,551
922,551
Retained Earnings
7,447,822
8,828,511
11,377,081
13,354,824
15,805,209
18,750,611
10,650,279
12,153,342
14,300,524
16,278,267
18,728,652
21,674,054
1,990,665
2,259,037
3,329,111
2,088,805
2,335,685
2,596,570
12,640,944
14,412,379
17,629,635
18,367,073
21,064,337
24,270,623
1,384,827
2,182,887
3,468,422
2,551,703
2,136,192
1,845,334
144,518
140,343
158,010
158,010
158,010
158,010
161,309
193,313
273,418
273,418
273,418
273,418
248,342
287,427
427,239
427,239
427,239
427,239
1,938,996
2,803,970
4,327,089
3,410,370
2,994,859
2,704,001
5,189,966
5,906,044
7,956,628
7,136,414
8,286,238
9,259,210
63,743
141,591
123,869
123,869
123,869
123,869
936,458
715,230
1,779,488
1,093,587
915,511
790,858
1,885,579
2,028,444
2,562,180
2,562,180
2,562,180
2,562,180
8,075,746
8,791,309
12,422,165
10,916,050
11,887,798
12,736,117
TOTAL LIABILITIES
10,014,742
11,595,279
16,749,254
14,326,420
14,882,657
15,440,118
22,655,686
26,007,658
34,378,889
32,693,493
35,946,994
39,710,742
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Stated Capital
Other Capital Reserves
Current Liabilities
Trade and Other Payables
Income Tax Payable
Interest Bearing Loans and Borrow.
Bank Overdrafts
Pg | 19
Du Pont Analysis
FY2012
FY2013
FY2014
9.5%
12.4%
15.5%
11.9%
14.6%
18.2%
Financial Leverage
2.14x
2.13x
2.28x
ROA
5.6%
6.8%
8.0%
1.03x
1.07x
1.09x
Asset Turnover
Profit Margin
5.4%
6.4%
7.3%
Interest Burden
0.85x
0.99x
0.90x
Tax Burden
0.83x
0.80x
0.84x
Minority
0.92x
0.86x
0.94x
Net profit margin increased to 7.3% in FY2014 from 6.4% in FY2013 as a result of EBIT margin increasing from 9.3% to
10.3%, effective taxation decreasing from 19.7% to 16.0% and the share attributable to minority declining from 14.3% to
5.9% over the same period which counteracted the effect of increasing finance expenses.
Efficiency of assets increased from 1.07x to 1.09x resulting in an increased ROA of 8.0% in FY2014 cf. 6.8% in FY2013. With
increased debt utilized to finance the purchase of assets financial leverage increased from 2.13 to 2.28 resulting in a higher
ROE of 18.2% in FY2014 cf. 14.6% in FY2013.
Pg | 20
Valuation
Primary Valuation
We have used the SOTP method as the primary valuation to arrive at a per share price of LKR78. FMCG, healthcare, leisure and transportation segments have been valued using the P/E multiples applicable to each segment. FMCG sector is
valued using a multiple of 21.1x (discounted average multiple of CARG and NEST), healthcare sector valued at 9.7x
(discounted sector P/E), leisure sector valued using a multiple of 12.4x (average of CONN, STAF and PEG), transportation
sector valued at 15.7x (discounted P/E multiple of DOCK) and the other segment is valued at the fair value of net assets to
arrive at a total equity value of LKR40b.
Sector
Valuation method
Multiple (x)
FMCG
P/E
21.7
16,921
33
Healthcare
P/E
9.7
6,255
12
Leisure
P/E
12.0
778
Transportation
P/E
15.7
6,316
12
Other
Net Assets
10,013
19
40,283
78
Secondary Valuation
The derived target price of LKR78 is further justified by our EV/EBITDA valu- LKRmn
ation which gives a per share price of LKR80 based on a EV/EBITDA multiEnterprise Value (current)
ple of 10.1x. HHL will trade at a EV/EBITDA multiple of 8.5x in FY2015E cf.
EBITDA 2015E
the peer average of 11.0x which we believe is not warranted given the
EV/EBITDA (x) 2015E
growth prospects of the company.
Target multiple (x)
34,708
4,100
8.5
10.1
34,708
fuelled by the expected growth in the healthcare segment. The strength- Market cap. Intrinsic value
41,266
ened distribution channel and variety of products offered with the acquisi- No of shares (mn)
tion of JLM should boost company revenue and profitability. The leisure Value per share (LKR)
segment should also contribute to growth of the company with the new
515
80
luxury hotel to commence operations in FY2016E. The divestment of Hemas Power PLC, even though there will be an impact to the top line, with
the elimination of losses in the power segment we expect EBIT margin to
improve to 11.0% in FY2015E and net profit margin to improve to 8.2% from
10.3% and 7.8% respectively.
HHL has been able to generate superior returns well above its peers with
ROE and ROA standing at 18.2% and 8.0% in FY2014 cf. the peer averages
of 10.3% and 5.0% respectively. Hence, we believe HHL should be assigned
with a higher multiple of 10.1x to be trading at a price target of LKR80.
8.47x
18.2%
8.0%
JKH
17.62x
11.0%
6.5%
SPEN
7.43x
12.2%
6.3%
CTHR
10.45x
7.5%
2.3%
Average
11.83x
10.2%
5.0%
Pg | 21
250
200
150
100
50
0
1/4/2010
1/4/2011
1/4/2012
ASPI
1/4/2013
1/4/2014
HHL
80.00
70.00
14.2x
60.00
12.4x
50.00
10.5x
40.00
8.7x
30.00
6.9x
20.00
5.0x
10.00
-
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Pg | 22
Eff. holding
Voting
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
89%
89%
Eff. holding
Voting
100%
100%
100%
100%
83%
83%
Hospital Services
83%
83%
Hospital Services
83%
83%
Hospital Services
83%
83%
Hospital Services
100%
100%
89%
89%
89%
89%
Eff. holding
Voting
100%
100%
51%
51%
32%
51%
39%
51%
33%
51%
51%
51%
20%
20%
60%
60%
49%
49%
100%
100%
100%
100%
Event Management
89%
89%
Hotel Property
50%
50%
Hotel Property
Healthcare
Leisure
Principal activities
Principal activities
Principal activities
Pg | 23
Eff. holding
Voting
Principal activities
100%
100%
100%
100%
100%
100%
Travel Agent
100%
100%
Airline Representation
100%
100%
Airline Representation
100%
100%
Airline Representation
100%
100%
Shipping Agents
100%
100%
Shipping Agents
49%
49%
Freight Forwarders
49%
49%
Courier Services
50%
50%
100%
100%
57%
57%
57%
57%
Eff. holding
Voting
100%
100%
Corporate Secretaries
100%
100%
Property Development
100%
100%
100%
100%
Hotel Property
100%
100%
89%
89%
M. S. J. Promotional Services
89%
89%
Promotional Activities
89%
89%
89%
89%
Hotel Industry
89%
89%
89%
89%
Transport Services
Other
Principal activities
Pg | 24
Non-Executive Chairman
Mr. A N Esufally
Non-Executive Director
Mr. I A H Esufally
Non-Executive Director
Mr. M E Wickremesinghe
Mr. M A H Esufally
Executive Director
Chairman of Hemas Hospitals (Pvt) Ltd and Hemas Pharmaceuticals (Pvt) Ltd.
Mr. P K Mohapatra
Chairman Remuneration Commit- He sits on the Board of 15 publicly quoted as well as pritee
ernance Committee
Independent Director
Dr Anura Ekanayake
Independent Directo
Mr. R Gopalakrishnan
Ceylon.
Mr. Malinga Arsakularatne Executive Director/ Chief Financial
Officer
Pg | 25
Holding
17.61%
16.77%
16.65%
16.65%
5.29%
1.89%
1.22%
1.15%
1.13%
1.12%
1.00%
0.96%
0.92%
0.89%
0.86%
0.86%
0.82%
0.59%
0.58%
0.58%
3.6%
7%
Resident
Non Resident
28.2%
93%
67.7%
9%
Institutional
Individual
Controlling Interest
Public Holding
Directors Shareholding
91%
Source: HHL
Pg | 26
Contact Us
Sales team
Head Office
Ajahn Punchihewa
Director / CEO
Land:
Janaka Palapathwala
+94 114889061
E-Mail:- ajahn@nlequities.com
E-Mail:- janaka@nlequities.com
Sumathi Asokan
E-Mail:- sumathi@nlequities.com
E-Mail:- chandima@nlequities.com
Neil Jayawardana
Manager Sales
E-Mail:- neil@nlequities.com
Nimal Liyanagamage
E-Mail:- nimal@nlequities.com
H.S. Chamikara
E-Mail:- chamikara@nlequities.com
E-mail:-surendra@nlequities.com
E-Mail:- rasika@nlequities.com
E-Mail:- zareefa@nlequities.com
Udeshan Canagaraj
E-Mail:- udeshan@nlequities.com
Nathasha Peiris
E-Mail:- nathasha@nlequities.com
Shehani Deva-Adithiya
E-Mail:- shehanid@nlequities.com
Tharindu Kaduruwewa
E-Mail:- tharinduk@nlequities.com
Branches
Kurunegala
Ruwan Surendra
Kandy
Rasika Hemantha
Research Team
Zareefa Nifam
Director
The information and opinions contained in this report is arrived at based upon information obtained from sources which are believed to be reliable and in good faith. Such information has not been independently verified for its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only,
descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. Nation Lanka Equities (Pvt) Ltd may, to the extent permissible by applicable law or regulation, use the above material, research or analysis in which they are based before the materialized disseminated to their customers. Not all customers will receive
the material at the same time. Nation Lanka Equities, their respective directors, officers, representatives, employees, related persons and/or Nation Lanka Equities, may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of
any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principal or agent. Nation Lanka Equities may make markets in securities or other financial instruments described in this publication, in
securities of issuers described here in or in securities underlying or related to such securities. Nation Lanka Equities (Pvt) Ltd may
have recently underwritten the securities of an issuer mentioned herein. This document may not be reproduced, distributed, or
published for any purposes.
Pg | 27