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JKSB Quarterly Highlights_Access Engineering PLC (AEL)_3QFY17

AEL reported a healthy 16% YoY increase in Group earnings for 3QFY17, supported by robust topline growth (+25% YoY) stemming mainly from the core construction business and Sathosa Motors PLC (revenues up 61% YoY and 30% YoY respectively for the quarter). As seen in the previous two quarters, Group topline growth in 3QFY17 was partially offset by 1) increased admin expenses (mainly arising from higher selling & distribution and admin costs relating to subsidiary Sathosa Motors); and 2) sharply higher finance costs (primarily attributable to a fall in interest income from FDs coupled with interest expense stemming from the Group’s FY16 debenture issue). The expected strong pick-up in construction business revenue in the quarter stems mainly from revenue recognition on 1) the Waterfront bridge project (commenced in 2QFY17); 2) the Rajagiriya/Ganemulla/Polgahawela flyovers (commenced in 1QFY17); and 3) the town east of Colombo water supply project (nearing completion), with the flyover and water projects also contributing to an accompanying 9ppt YoY expansion in operating margin for the business.

With 9MFY17 earnings at Rs. 1.9bn (+2% YoY), AEL should reach our full year earnings forecast of Rs. 2.7bn (+11% YoY), given that 4QFY17 is typically a stronger quarter for the construction business which accounts for >50% of Group topline and >60% of Group earnings. At its current price of Rs. 24.70, AEL trades at a FY17E P/E of 9.0x, at a discount to our coverage universe P/E. We expect AEL to maintain its FY16 dividend payout of Rs. 1.00 per share in FY17, which translates to a ~4% dividend yield at current price.