Quarterly results comparison was skewed due to the acquisition of Atlas in January 2018 with HHL posting strong revenue growth (+46.8% YoY) and earnings (+50.4% YoY) for 3QFY19 amid sluggish conditions in the consumer segment. Atlas drove quarterly earnings posting robust growth in revenue (+13% YTD) and profitability (+13% YTD) for the quarter ended. The sharp depreciation of the rupee during the period alongside a slowdown in the consumer and logistics segments resulted in a compression in gross margins from 36.68% to 32.19% (YoY). The sale of the Galle hospital resulted in an increase in cash reserves (+11.93% QoQ). The steep increase in trade receivables (+70.48% YoY) resulted in significantly higher working capital requirements with Atlas facing its peak season during the quarter ended. The increase in working capital resulted in higher short-term borrowing (+367.51% YoY) translating to steeply higher finance costs (+141.5% YoY) for the quarter.
We currently project HHL’s full year FY19E earnings to reach Rs. 3,356mn amid subdued industry conditions expected in the FMCG segment while the pharmaceutical sector will continue to witness pressures from a depreciating rupee and price controls in 4QFY19E. At the current price of Rs. 81.00, HHL trades at an FY19E P/E of 13.9x which is at a premium to the diversified sector in our coverage universe.
•JKSB is one of 15 founding members of the Colombo Stock Exchange with roots in share trading dating back to 1896, and is a subsidiary of John Keells Holdings PLC (JKH), the largest listed entity on the Colombo Stock Exchange with a market capitalization of US$ 1.3bn.
•JKSB’s core client base is Foreign Institutional Investors, Local Institutions and HNWI’s
•JKSB has a co-branded Research tie up with CIMB and a Research Referral agreement with Credit Suisse, along with trade execution relationships with several other global and regional securities firms.
•JKSB’s trade execution partners include Credit Suisse, CIMB, Merrill Lynch, Exotix, Daiwa, Convergex, Deutsche Asia Securities and Morgan Stanley
•JKSB is a research contributor to Bloomberg on ‘KEEL’
•The JKSB Research Universe covers 72 stocks across 15 sectors, with most Research efforts focused on approximately 45 of the more liquid counters.
•The JKSB Universe constitutes 67% of total market cap and approximately 80% of turnover at the CSE.
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