EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_Chevron Lubricants Lanka PLC_(LLUB)_3QCY16

LLUB's 3Q earnings increased by 19.9% YoY mainly due to margin expansion

Despite the marginal revenue growth of 7.6% YoY, the expansion of the GP margin from 45.9% to 48.9% resulted in a healthy gross profit growth of 14.5% YoY. Furthermore, the reductions in distribution expenses (-5.2% YoY) and administrative expenses (-10.9% YoY) augmented the improvements seen at the GP level causing EBIT margins to expand from 36.4% to 40.6% which resulted in a sound EBIT growth of 20.2% YoY. Although net finance income declined by 21.9% YoY, the improved performance at the EBIT level was translated to the bottom line with the aid of a slight reduction in the effective tax rate from 26.7% to 25.8%. As a result, the net margin expanded from 27.8% to 31.0% and earnings for the quarter increased by 19.9% YoY.

We project full-year earnings to reach Rs.3.6 bn in CY16E (PE Ratio = 11.2x)

With the market volumes nearing saturation levels in Sri Lanka, LLUB's future earnings growth will depend heavily on increasing the proportion of premium products in the local sales mix and achieving strong revenue growth in LLUB's export markets such as Bangladesh and Maldives. Considering these factors, we project LLUB's full year earnings to reach Rs.3.6 bn in CY16E which would translate to a CY16E PE ratio of 11.2x at the current trading price of Rs.168.00. Comparing to our estimates of the FY17E PE ratios of the market (10.7x) and the manufacturing sector (8.5x), LLUB currently trades at a premium of 5% and 32% respectively.