EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_Chevron Lubricants Lanka PLC (LLUB)_2QCY17

During 2Q CY17, LLUB's quarterly revenue declined by 18.5% YoY to Rs.2,281 mn which was mainly caused by the decline in volumes that may have resulted from the widening of the price disparity between LLUB and its competitors following the price increase implemented by LLUB in April 2017. The disruption caused by the floods in Sri Lanka during the month of May could have also been a contributor to this drop in volumes.

On the other hand, higher raw material (base oil) prices and an unfavourable change in the sales mix caused LLUB's GP margin for the quarter to contract from 46.5% to 44.8%. Moreover, the increases seen in distribution expenses (+13.4% YoY) and administrative expenses (+18.0% YoY) caused EBIT margin to contract from 36.6% to 30.7%. The decline in net interest income (-Rs.41 mn) resulting from lower cash reserves also marginally affected the bottom line. As a result, LLUB's net earnings for the quarter declined by 34.4% to Rs.526 Mn.

For the cumulative period, 1H CY17, LLUB's revenue declined by 8.8% YoY while the GP margin contracted to 44.9% from 47.7% in 1H CY16 causing a decline of 14.1% YoY in gross profits. Furthermore, the significant rise in total operating expenses (+27.9% YoY) and the steep decline in net finance income (-50.8% YoY) worsened the drop seen at the GP level. Consequently, LLUB's net margin contracted from 30.2% to 25.0% causing the bottom line to decline by 24.6% YoY to Rs.1,348 mn in 1H CY17.

We currently project LLUB's full year earnings to reach Rs.2,780 Mn in CY17E which translates to a forward PE Ratio of 12.9x at the current trading price and a premium of 52% compared to the estimated forward PE Ratio of 8.5x for the manufacturing sector.