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JKSB Quarterly Highlights_Teejay Lanka PLC (TJL)_3QFY17

Note:

Despite operating with similar capacities, TJL was able to record a positive YoY growth in quarterly revenue by accepting additional orders which were met by outsourcing some of the required material from third parties. The timeline delays related to this forced TJL to airfreight some of the material which had a negative impact on TJL's contribution margins. Furthermore,TJL's GP margin was also affected by the competitive sales pricing, changes in product mix and an increase in yarn prices.

In addition to this, a temporary countrywide stock outage in coal resulted in the escalation of energy costs as TJL was unable to fully utilise the energy savings stemming from the coal power plant in Sri Lanka during the quarter. As a result of these factors, TJL saw its GP margin decline from 17.5% in 3Q FY16 to 13.1% in 3Q FY17.

Although, TJL was able to achieve a drop (-4.0% YoY) in administrative expenses, the contraction of the GP margins forced TJL's EBIT margins to contract from 12.4% to 8.8%. Moreover, TJL incurred a net finance cost of Rs.5 Mn and consequently, TJL's pre-tax margin declined from 12.5% to 8.7%.

On the other hand, TJL saw its tax holiday end in the month of September 2016 which caused its income tax to increase steeply from Rs. 22 Mn in 3Q FY16 to Rs.79 Mn in 3Q FY17 (+252.2% YoY). As a result, TJL's net margins contracted from 12.1% to 7.5% and TJL's quarterly earnings declined by 29.6% YoY to Rs. 473 Mn during 3Q FY17.

We currently project TJL's full-year earnings to reach Rs. 2.05 bn in FY17E which translates to a FY17E P/E Ratio of 13.2x at the current trading price of Rs.38.90.