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JKSB: Quarterly Highlights: Teejay Lanka PLC (TJL): 4QFY19

TJL concluded another successful quarter posting healthy growth in revenues of 35% YoY alongside higher revenues for FY19 (+29% YoY). Growth in revenue was mainly driven by capacity expansions together with a 14.7% growth in USD revenues during the quarter while achieving stronger growth from PVH, Lidl & CK brands. GP margins for the quarter witnessed an improvement of 80 basis points owing to stabilization of yarn prices during the period. However, utility costs together with increasing dye prices due to tighter environmental regulations resulted in a marginal reduction in GP margins from 11.81% to 11.60% during the year. At an operating level administration expenses increased due to the recognition of one-off costs during FY19. Net finance costs increased by 217% YoY due to an exchange rate loss alongside significantly larger tax expense for the quarter resulting from a recognition of a deferred tax asset in the corresponding quarter YoY. Capacity expansions reflected a growth in PPE by 12% YoY together with higher receivables (+13% YoY) due to strong topline growth during the period.

 We currently project TJL’s full year FY20E earnings to reach Rs. 2,244 mn driven mainly through volume growth supported by continuous capacity expansions. TJL is currently undergoing the development of the second set of orders for UNIQLO which is expected to drive growth in FY20E. The ongoing projects focusing on sales and operations planning together with wastage reduction and efficient energy planning will enhance profitability for the company. We expect a depreciation of the LKR by 10%-12% during FY20E further strengthening topline during the year. At the current price of Rs.30.80, TJL trades at an FY20E P/E of 9.6x which is at a premium to the manufacturing sector in our coverage universe.