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JKSB_Quarterly Highlights_Singer (Sri Lanka) PLC (SINS)_1QCY17

Singer (Sri Lanka) PLC recorded 1QCY17 sales of Rs. 12bn, up 14% YoY and recurring earnings of Rs.160mn down 53% YoY, after adjusting for the one off gain on bargain purchase of Rs.443mn seen in 1QCY16, resulting from the acquisition of Singer Industries (Ceylon) PLC and Regnis (Lanka) PLC. 1QCY17 operating profits on a recurring basis rose marginally by 2% YoY to Rs. 886mn, cushioned by topline growth amid a slight dip in gross margins. The consumer electronics and financial services segments saw pre- tax earnings declines for the quarter while the home appliances and IT products segments experienced healthy growth in pre- tax profits. The generally tougher trading environment affected SINS’s business during 1QCY17, influenced by tighter macro economic trends and repercussions of the drought. SINS managed to achieve volume growth in specific product lines in 1QCY17 despite an unconducive external environment, with smart phone volumes rising 56% YoY, television, deep freezers, and furniture growing by more than 20% YoY each and the computer segment expanding by 18% YoY. Higher interest rates, a higher VAT rate, and currency weakness contributed to cost pressure at the company, with SINS not passing through the entire impact of cost escalations to the consumer. This ultimately impacted gross margins.

SINS intends to continue business expansion by growing retail space with increased outlets while renovating existing spaces. SINS is also planning to expand industrial capacity with investments into new property, plant, and equipment. The company expects weaker overall trading conditions in CY17 to be followed by a recovery at the end of the year. SINS trades at a CY17E P/E of 10.6x on a share price of Rs.48.00. The company declared and paid out a dividend of Rs.8.80 per share prior to the 3 for 1 share subdivision implemented in April 2017.