Aitken Spence Hotel Holdings PLC

Transcription

1 LKR Aitken Spence Hotel Holdings PLC Interim Update Q2 FY 15/16 Equity Research Second quarter net revenue remained stagnant compared to corresponding year previous quarter while profit from operations declined by 7.3% YOY due to decline in other operating income for the quarter under review which includes non recurring insurance income received for damaged water villas of Adaaran HudhuRan Fushi. Net Profit for 2QFY16 was LKR 210 Mn largely unchanged compared with the corresponding period. Investment Considerations -Due to the stagnant growth in the revenue, net profits for the 2Q recorded a slight decline to LKR 210 Mn while 6M earnings also posted a decline of 18.2%. Poor performance in the Maldivian hotels sector caused the decline in the earnings of AHUN. Since the earnings under review relates to the off season, we expect an improvement in earnings for remaining two quarters (peak tourism season) of the year owing to the expected expansions and with the overall positive outlook of tourism in SL. -For the 1HFY16, SL resorts contributed 25% to the top line and 33% to bottom line while South Asian sector contributed 75% to the top line and 67% to the bottom-line. Therefore AHUN has a significant exposure to the overseas operations which is mainly dominated by Maldives. AHUN as the single largest foreign owner in Maldives in terms of the capacity owns 630 rooms which is expected to further increase by 57% by 2018 with the addition of new 360 rooms on the newly acquired islands in Maldives (The impact of the new investment in Maldives has not been incorporated into our valuation as the commencement of construction is in the preliminary stage). Despite the short term political uncertainties, we expect sector prospects in Maldives to be positive in the next year with the government's initiatives to promote tourism industry (Maldives has the goal of increasing tourist arrivals to 1.5 Mn by 2016). Due to the high dependency on the overseas operations, depreciation of LKR against the USD is expected to have a net positive impact on the counter. -Due to the growth in the informal sector in SL, there could be a competition among the hotel operators resulting a threat to the large players.however we believe that AHUN will be in a better position to maintain the market share due to the continuous investment in the capacity during the next three years. Further AHUN has high ROE's compared to other peers reflecting the AHUN's strong position in the hotel sector. Proposal made in the budget 2016 requiring all hotels to be registered under the TDA by 1 June 2016, may also increase the cost of informal sector hotels, resulting in higher prices for them benefitting larger players including AHUN. -AHUN is currently expanding its portfolio of resorts. The expansion of Turya Katutura increased the room capacity by 90 rooms to 200 and opened on 1st November Further Heritance Negombo with room capacity of 143 is scheduled to be opened during the early After reassessing the existing investments AHUN discontinued the existing management contracts in India and acquired a 143 roomed hotel in Chennai and rebranded as "Turya"while it started the operations in end of October We expect these projects to contribute to the group profit FY15/16. Construction of 'RIU Resort Ahungalla' which is a JV with Spanish hotel developer RIU, is also expected to commence operations in November Above mentioned expansion projects of AHUN including the expansion in Maldives are expected to increase the current room capacity of 2141 to total of 3145 by 46% by BUY LOLC SEC Valuation 12M Tgt Price(exc.div) Share Price Upside/(Downside) Risk Level (refer page 07 for recommendation) Share Details Bloomberg Ticker CSE Sector GICS Sector AHUN SL Hotels and Travels Consumer Discretionary Market Cap (LKR Mn) 22,666 Issued Quantity (Mn) day avg T/O (LKR Mn) 1.06 Beta (6 months) 0.99 Quarter Financial Summary LKR Bn FY 15 Q3 FY 15 Q4 FY 16 Q1 FY 16 Q2 Revenue Net Profit S/H's Equity Total Assets ROA ROE Price Multiples PE (X) PBV (X) 1.35 Price to Sales (X) 1.73 Divdend Yield (%) 0.00 Price Behavior Dec Mar Jun Sep-15 AHUN Share Price ASI movement (adjusted to AHUN base price) Per Share Details as at (LKR) LKR LKR LKR % Low -AHUN is liable to pay LKR 137 Mn for the group as the super gain tax and not liable to pay taxes on subsidiaries outside SL which belong to the other tax regimes. Further AHUN will be liable to pay 15% on income tax compared with the previous tax rate of 12% according to the revision made in the budget We have incorporated the impact of both taxes into our valuation. Further increase of VAT charge by 1.5% and NBT by 2% can lead to a reduction in earnings of AHUN. However positive measures proposed on tourism development such as removal of tourism development levy and measures taken to improve the MICE tourism may have a positive impact on AHUN. Earnings per share (trailing 12m) 6.38 Net Asset Value per share Sales per share (trailing 12m) Dividend Per Share (trailing 12m) 1.50 Shareholder Details Aitken Spence & Co-A/C No1 71% Employee Provident Fund Srilanka 9% Valuation Sri Lanka Insurance Corp 2% AHUN's 2Q profits FY15/16 declined slightly despite the continuous growth in tourist arrivals to SL. However given the fact that room inventory of AHUN to be increased, our FCFE model values the Shareholders below 5% 20%, LOSEC Research counter at LKR , taking a cost of equity of 13.18%. Further AHUN's share has been under performing during the recent past while the counter currently trading at PE of and PBV of 1.35 which is below than the respective sector PE of and PBV of Analyst (s) Hiruni Perera Therefore on the expectations that AHUN will be able to capitalize the growing number of tourist arrivals inline with the ongoing capacity expansion and also given the fact that counter is trading at a discount, we maintain our recommendation "BUY". 07 December 15 Recommendation Guidance, Important Disclosures and Analyst Certification: Page hirunipe@lolcsecurities.com

2 1-Jan-12 1-Mar-12 1-May-12 1-Jul-12 1-Sep-12 1-Nov-12 1-Jan-13 1-Mar-13 1-May-13 1-Jul-13 1-Sep-13 1-Nov-13 1-Jan-14 1-Mar-14 1-May-14 1-Jul-14 1-Sep-14 1-Nov-14 1-Jan-15 1-Mar-15 1-May-15 1-Jul-15 1-Sep-15 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY16 Q1 FY16 Q2 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY16 Q1 FY16 Q2 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY16 Q1 FY16 Q2 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY16 Q1 FY16 Q2 LKR Mn Interim Update: Aitken Spence Hotel Holdings PLC 07 December 15 Graph 01: Quarterly Revenue and Profit Graph 02: Quarterly EBITDA margin 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, % 50% 40% 30% 20% 10% 0% EBITDA margins of AHUN vary due to cyclical variations specific to the hotel industry. Revenue Net Profit Graph 03: ROA and ROE Graph 04: Gearing Ratio 20% 15% 10% 5% 0% 50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Gearing ratio increased rapidly during the Q2 FY15 due to the debt taken for funding the ongoing expansions. ROE ROA Graph 05: Tourist Arrivals Graph 06: Regional revenue breakdown Continuous growth was seen in tourists arrivals to Sri Lanka since the end of civil conflict in Yarn prices continued to rise from mid 2012 and confronted a dip during late 2014 amidst oil price crash. 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 South Asian sector of AHUN which includes Maldives, India and Oman operations continued to be the main contributor to the group revenue Sri Lankan South Asian (6M) 2 LOLC Securities Limited

3 Valuation We have taken into account a cost of equity of 13.18% and a free cash flow terminal growth of 5% inline with the projected average annual growth in tourist arrivals ( ) for South Asia according to UNWTO. Mid term growth of 6.8% has been assumed inline with the projected growth in tourist arrivals ( ) for South Asia. Our FCFE model values the counter at LKR At the current share price, AHUN is trading at PE of 10.57X and a PBV of 1.35X compared with the respective sector PE of 17.09X and PBV of 1.42X. AHUN's trailing PE is attractive compared to domestic hotel sectors while ROE is also high compared to peers. Table 01: Valuation Sensitivity Matrix Terminal Growth Rate Share price in LKR Cost of Equity 11% 12% 13% 14% 15% 3% % % % % , LOSEC Research Table 02: Peer Comparison Name Market Cap (USD Mn) PE (x) PBV (X) Dividend ROE % Yield % Aitken Spence Hotel Holdings (Sri Lanka) John Keells Hotels Plc (Sri Lanka) Serendib Hotels Plc (Sri Lanka) Amaya Leisure Plc (Sri Lanka) Mahindra Holidays & Resorts (India) Huatian Hotel Group Co Ltd-A (China) 1492 n.a 4.32 n.a -4.32, LOSEC Research 3 LOLC Securities Limited

4 Volume Rs Interim Update: Aitken Spence Hotel Holdings PLC 07 December 15 Table 03: Return comparison Graph 07: Share Price Movement 4,000,000 3,000,000 % AHUN ASI Index S&P SL 20 Index JKHL 3 months months YTD year Volume Price SMAVG (50) SMAVG (100) ,000,000 1,000, RSI (14) /7/12 5/7/13 10/7/13 3/7/14 8/7/14 1/7/15 6/7/15 11/7/15 Graph 08: PE Chart /7/12 5/7/13 10/7/13 3/7/14 8/7/14 1/7/15 6/7/15 11/7/15 Graph 09: PBV Chart PE ratio Highest Average Lowest Graph 10: Price per Sales /7/12 5/7/13 10/7/13 3/7/14 8/7/14 1/7/15 6/7/15 11/7/15 PBV ratio Highest Average Lowest Graph 11: Dividend Yield Price to Sales ratio Highest Average Lowest Graph 12: CSE PE Chart TJL dividend yield Highest Average Lowest Graph 13: CSE PBV Chart ASI PE ratio Highest Average Lowest ASI PBV ratio Highest Average Lowest 4 LOLC Securities Limited

5 Table 04: Forecast Financial Statements Figures in LKR Mn as at 31 st March FY 13/14 FY 14/15 FY 15/16 (6M) FY 15/16 (E) FY 16/17 (F) FY 17/18 (F) Income Statement Revenue 12,532 12,954 5,533 14,896 17,210 19,847 Cost of Revenue (Direct Op. Exp.) -2,398-2,521-1,146-2,681-3,098-3,374 Gross Profit 10,134 10,433 4,387 12,214 14,112 16,473 Other operating Expenses -6,560-6,992-3,548-8,242-9,731-11,112 Operating Income 3,966 3, ,122 4,546 5,543 Net Non-Operating Gains (Losses) Pretax Income 4,078 3, ,270 5,010 6,469 Income Tax Expense Profit for the year 3,517 3, ,621 4,259 5,499 Net Profit att. to shareholders 2,341 2, ,355 2,770 3,577 Balance Sheet Cash & Near Cash Items 1,043 1,614 1,142 1,714 2,014 2,314 Accounts & Notes Receivable 1,363 1, ,389 1,605 1,851 Inventories Total Current Assets 9,232 10,012 7,919 10,735 11,697 13,396 Total Long-Term Assets 16,745 22,777 24,963 22,482 22,200 22,409 Total Assets 25,977 32,788 32,882 33,217 33,897 35,805 Accounts Payable Short Term Borrowings 1,091 2,387 2,077 1, Total Current Liabilities 3,574 5,211 4,709 4,260 4,122 4,098 Total Long-Term Liabilities 3,235 5,708 5,903 5,298 4,010 3,224 Total Liabilities 6,809 10,919 10,612 9,558 8,132 7,322 Share Capital 3,555 3,555 3,555 3,555 3,555 3,555 Retained Earnings & Other Equity 11,824 13,677 13,748 15,467 17,572 20,290 Total Equity 19,168 21,869 22,270 23,659 25,764 28,483 Total Liabilities & Equity 25,977 32,788 32,882 33,217 33,897 35,805 Cash Flow Statement Net Income 2,341 2, ,355 2,770 3,577 Depreciation & Amortization Changes in Non-Cash Capital Cash From Operations 3,820 3, ,030 3,356 4,135 Capital Expenditures ,381-1, ,000 Increase in Investments Cash From Investing Activities -3,447-6, ,155 Dividends Paid Change in Long Term Borrowings 85 3, , Cash from Financing Activities ,413-1,305-2,000-2,147-1,705 Net Changes in Cash ,275, LOSEC Research 5 LOLC Securities Limited

6 Table 05: Forecast Ratios As at 31 st March FY 13/14 FY 14/15 FY 15/16 (6M) FY 15/16 (E) FY 16/17 (F) FY 17/18 (F) Profitability Ratios GP Margin (%) 81% 81% 79% 82% 82% 83% NP Margin (%) 28% 27% 11% 24% 25% 28% ROE (%) 15% 13% 13% 12% 13% 15% ROA (%) 9% 7% 7% 7% 8% 10% Earnings per share (LKR) Dividend per Share (LKR) Credit Ratios Debt/Equity Ratio (%) 21% 36% 34% 26% 18% 12% Interest Coverage (X) Total Assets/Equity (X) Net Debt/EBIT (X) Liquidity Ratios Current Ratio (X) Quick Ratio (X) Asset Turnover Ratio (X) Net Asset Value per share (LKR) Growth Ratios Revenue Growth YOY% 8% 3% 4% 15% 16% 15% Earnings growth YOY% 31% -5% -18% 5% 18% 29% Total Assets YOY% 16% 26% 8% 1% 2% 6% Total Debt YOY% 3% 94% -10% -20% -26% -22% Investment Ratios PE Ratio (X) Price to Book Value (X) Dividend Yield (%) 2.14% 2.24% 0.00% 2.49% 2.93% 3.79% * Forecasted PE = Current share price / Forecasted EPS, LOSEC Research * Forecasted PBV = Current share price / Forecasted PBV * Forecasted Div Yield = Forecasted DPS/ Current price per share 6 LOLC Securities Limited

7 Recommendation Guidance BUY expected return > 10% in excess of benchmark return SELL expected return less than benchmark return HOLD expected return between 0% and 10% in excess of benchmark return Investment Horizon: 3 years 12 months target price (12M Tgt Price) is based on the expected capital appreciation of the share excluding dividend. Benchmark Interest Rate: Average Weighted Fixed Deposit Rate (AWFDR) published by Central Bank of Sri Lanka. Risk Level Evaluation High: Maximum price volatility to be up or down more than 50% monthly Medium: Maximum price volatility to be up or down between 25% - 50% monthly. Low: Maximum price volatility to be up or down less than 25% monthly. Risk Level is calculated taking the historical standard deviation measures. Financial Glossary EPS = Earnings per Share ROA = Return on Assets (adjusted net profit/average total assets) ROE = Return on Equity (adjusted net profit/average total equity) CAGR = Compound Annual Growth Rate ((End Value/Start Value) ^ (1/number of years) -1) GP= Gross Profit EBITDA= Earnings before interest, tax, depreciation and amortization PBT= Profit before tax PAT= Profit after tax NP= Net Profit PBV= Price to book value ratio PE= Price to earnings ratio Analyst certification: The Analyst(s) who is/are responsible for compiling or co-compiling this research and whose names appear as the analyst(s) of the research certify that the views expressed in this research accurately reflect the personal view of the analyst(s) about the subject securities and issuers and/or other subject matter as appropriate and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. No part of the compensation received by the analyst(s) was, is or will be directly or indirectly related to specific inclusion of specific recommendation or views in this research. On a general basis analyst s performance appraisal may be influenced by quality of the content and efficacy of the research. The analyst(s) who is/are responsible for compiling or co-compiling this research and whose names appear as the analyst(s) receive compensation based on overall revenues of LOLC Securities Limited and its holding company (Lanka ORIX Company PLC LOLC Group), which may include brokerage revenue from transactions involved with the securities mentioned in this research. General Disclaimer: LOLC Securities Limited is a company incorporated in Sri Lanka and licensed by the Securities and Exchange Commission of Sri Lanka to operate as a stockbroker/stock dealer in Sri Lanka. LOLC Securities Limited is a trading member of Colombo Stock Exchange. This research is based on information from sources that LOLC Securities Limited believes to be reliable. Whilst reasonable care has been taken to ensure accuracy of the information presented in the research, LOLC Securities Limited does not give a guarantee on the accuracy of the information presented in the paper nor will take the responsibility on investment decisions taken based on the information provided by the research and hence LOLC Securities Limited nor its employees accepts any liability whatsoever for any loss arising from investments decisions taken using the information provided in this paper. The reader also should note this paper does not give recommendations to any particular category of investors and investor should consult investment advisors for further clarifications regarding risks involved in investing in equity market. Investing in securities has inherent risks with no guaranteed return and price may be subjected to significant volatilities. No part of this report should be considered as a solicitation to buy or sell any security or product or to engage in or refrain from engaging in any transaction. LOLC Securities Limited or its employees may or may not hold positions in the securities discussed in the research and the information provided in the research should not be construed as a buy or sell instruction for any securities mentioned in the research, Unless otherwise specifically mentioned. This research is intended for general use for clients of LOLC Securities Limited and must not be copied in whole or in part or distributed to any third party for commercial use without permission from LOLC Securities Limited. If the reader is not the intended recipient please inform LOLC Securities Limited immediately by return to research@lolcsecurities.com. LOLC Securities Limited s other staff including sales people, traders and other professionals may provide oral or written market commentaries or trading strategies to our clients which reflect opinions which are contrary to the opinions expressed in this research which may be influenced by different circumstances. 7 LOLC Securities Limited

8 LOLC Securities Limited LOLC Securities Limited, a trading member of the Colombo Stock Exchange (CSE), is engaged in facilitating stock trading transactions at Colombo Stock Exchange, providing investment research on Sri Lankan equity, providing investment planning advices with services such as portfolio construction & formulation of IPS (Investment Policy Statement) and facilitating other investment opportunities in the country including private equity. General Line: General info@ lolcsecurities.com Research research@ lolcsecurities.com Website: SALES Head Office Sriyan Gurusinghe Managing Director / CEO / sriyang@ lolcsecurities.com Manjula Kumarasinghe COO - Sales & Marketing / manjulak@lolcsecurities.com Maniesh Rodrigo Assistant General Manager- Sales / manieshr@ lolcsecurities.com Samadhi Jayasinghe Manager Institutional Sales / samadhij@ lolcsecurities.com Imesh Fernando Assistant Manager -Sales / imeshf@ lolcsecurities.com Balendiran Janegan Senior Investment Advisor / janeganb@ lolcsecurities.com Naleen Sadeesh Investment Advisor / naleensa@ lolcsecurities.com Damith Chaminda Investment Advisor / damithc@ lolcsecurities.com Dushan Rajaguru Investment Advisor / dushanr@ lolcsecurities.com Asendra Wijesiri Investment Advisor / asendraw@ lolcsecurities.com Dinuka Niwantha Investment Advisor / dinukan@ lolcsecurities.com Niraj Jayamanne Investment Advisor / nirajj@ lolcsecurities.com Rehan Ariyaratne Business Development Associate / rehana@lolcsecurities.com Kurunegala Branch Rohana Chandrasiri Assistant General Manager / rohanac@ lolcsecurities.com Anurudda Rajakaruna Investment Advisor / anuruddhar@ lolcsecurities.com Bandula Senarathne Investment Advisor / bandulase@lolcsecurities.com Nuwan Fernando Investment Advisor / nuwanfe@ lolcsecurities.com Galle Branch Bimal Malinda Branch Head / bimalm@ lolcsecurities.com Thilina Sameera Investment Advisor / thilinawa@lolcsecurities.com Ushan De Silva Investment Advisor / ushand@lolcsecurities.com Matara Branch Lalinda Liyanapathirana Investment Advisor / lalindal@ lolcsecurities.com Ahamed Aadil Investment Advisor / aadila@ lolcsecurities.com Malitha Jayawardena Investment Advisor / malithj@lolcsecurities.com RESEARCH Shehan Bartholomeuz Head of Research / shehanb@ lolcsecurities.com Gayan Rajakaruna Senior Research Analyst / gayanraj@ lolcsecurities.com Hiruni Perera Associate Research Analyst / hirunipe@ lolcsecurities.com Head Office Kurunegala Branch Galle Branch Matara Branch LOLC Securities Limited No 06, 1st Floor, No 18, 1st floor, Level 18, West Tower, Union Assurance Building, Sri Dewamitta Mawatha, E.H. Cooray Towers, World Trade Center Rajapilla Mawatha Galle No 24, Anagarika Dharmapala Mawatha, Colombo 01 Kurunegala, Sri Lanka Matara Sri Lanka Sri Lanka Tel : Sri Lanka Tel: Tel: Tel: Fax: Fax: LOLC SEC Research Reports are also available at Bloomberg LOLC <GO> 8 LOLC Securities Limited