EUR 6.84 For Business Accounts Only

JKSB IPO Views_Jetwing Symphony Limited (JSL)_IPO

Jetwing Symphony Limited ( JSL) is a leisure operator positioned as the growth vehicle of Jetwing Group, one of Sri Lanka’ largest players in the tourism industry. JSL has 4 hotels currently in operation with one more slated to open in the next few months. JSL also has a couple of projects that are under various stages of development. JSL has over of 300 operational rooms with upcoming projects expected to further add 37 rooms. The company has planned the IPO with the objective of injecting approximately Rs.350mn of IPO funds into its proposed Jetwing Kandy Gallery and Jetwing Surf property which is nearing completion. JSL also intends to utilize Rs.350mn of IPO proceeds to settle debt in selected company properties. JSL’s properties will benefit from Jetwing’s strong brand recognition and tour agency network in attracting guests. JSL however faces strong competition from a growing number of star class properties in the island together with pressure from informal tourist establishments which have grown into a large segment. We expect JSL to significantly grow revenue in the FY18E to FY20E forecast period driven mainly by increased occupancies in its two largest business contributors : the Jetwing Colombo Seven and Jetwing Yala properties. We expect JSL’s turnover growth to be in double digits in the forecast period but see a YoY slowdown in the rate of growth, owing to increased competition the hotels will face into the future and lower excess capacity on each property. The company has high cost debt which will in our view, cost in excess of Rs.280mn in finance costs every year for the next 3 years. While retaining operating profitability, the company will be negatively affected at the net profit level due to financing costs and potentially higher revenue growth rates that could have been realised absent competitive pressures in the industry. Therefore JSL in our view will not breakeven in our forecast period.