JKSB Quarterly Highlights_Softlogic Holdings PLC (SHL)_1QFY18
SHL reported flat YoY PAT (+0.3% YoY) for 1QFY18, with strong growth in operating profit (+35% YoY) being offset by a rise in net finance costs (+28% YoY) amid rising interest rates and increased tax expenses (+132% YoY) arising mainly from the healthcare segment. Earnings to equity, however, recorded a steep 57% YoY decline for the quarter, due to a weaker performance from some of the Group’s fully owned subsidiaries - with ICT segment PAT down 17% YoY and leisure segment losses widening to Rs. 227mn following the opening of Movenpick Hotel Colombo - while the 51% owned healthcare business registered strong PAT growth (+44% YoY) supported by higher revenues (+29% YoY) stemming from increased occupancy rates amid a dengue outbreak in SL.
Given a weak first quarter’s performance, we maintain our full year earnings projection of Rs. 123mn for FY18E. At its current price of Rs.12.10, SHL trades at a significant FY18E P/E of 76.5x, at a steep premium to the market and to our coverage universe P/E, and at a P/BV of 1.1x (based on June 2017 NAVPS). While we maintain a 3 year SOTP value of Rs. 29.00 per share for SHL, we believe the company would need to reduce its debt burden (particularly at holding co level) and divest non-core businesses in order to see a multiple re-rating. We maintain a 12 month ‘consider sell’ price of Rs. 15.00 for the stock based on its short term outlook.
•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.
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•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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