JKSB Quarterly Highlights_Access Engineering PLC (AEL)_3QFY18
AEL reported a weak performance for a second consecutive quarter, with 3QFY18 Group earnings down 52% YoY on the back of steep margin contraction (gross margin -12ppt YoY to 14%; operating margin -11ppt YoY to 7%) and sharply higher net finance costs (+138% YoY) stemming from increased working capital related debt (the construction industry in SL has experienced payment delays across the sector over the last 6 months amid a slowdown in new public infrastructure projects). AEL’s core construction business reported a modest 6% revenue increase for the quarter and a 16ppt YoY contraction in operating margin attributable to 1) loss recognition on Access Projects; and 2) increased contribution from the building sector and completion of higher margin water projects. AEL’s confirmed order book amounted to ~Rs. 40bn as at end December 2017, with the addition of two new large projects including a Rs. 4bn water project in Anuradhapura.
Our full year earnings projection of Rs. 1.8bn for FY18E is based on our expectations for recurring earnings amid a weaker operating environment for the construction industry. We continue to see AEL as a Long Term Buy, given the above mentioned pipeline of projects, but we expect bottom line performance to be weaker over FY18-FY19. At its current price of Rs. 23.00, AEL trades at a FY18E P/E of 12.6x, at a premium to our coverage universe P/E for FY18E.
•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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