Ceylon Cold Stores PLC (CCS:LKR ) A great quarter all around- but too much built into share price: Take profits

Earnings Review - Q1 FY 16 65, Braybrooke Place, Colombo 2, Sri Lanka research@bartleetreligare.com, +94 11 5220200 03 August 2015 Ceylon Cold Stores PLC (CCS:LKR 424.00) A great quarter all around- but too much built into share price: Take profits CCS s recurring EPS for Q1 FY 16 grew 84% YoY on the back of successful operations streamlining it had been implementing. EPS was LKR 5.78 where the top line grew by 16.4% with the CoGS increasing by only 12.6%. The reduction of finance cost by 82% was also a sweetener. Retail sector contributed ~63% to total turnover and ~27% to operating profits. Increase in same store sales driven by growth in customer count enabled the revenue growth in the sector. However, we believe the manufacturing sector which comprises of frozen confectionery and beverages would contribute the highest to operating profits in the forecast period (Q1 FY 15-73%). We upgrade our DCF based valuation to LKR 308 on the strength of the growth recorded in the retail sector. However, the share has risen significantly above its intrinsic value and we recommend SELL. All figures in LKR 'mn 2012 2013 2014 2015 2016E 2017E Revenue 20,244 22,476 23,614 27,699 31,155 33,972 Revenue growth (%) 21.7% 11.0% 5.1% 17.3% 12.5% 9.0% EBIT recurring 1,499 1,030 1,439 2,131 2,628 2,875 EBIT margin (%) 7.4% 4.6% 6.1% 7.7% 8.4% 8.5% BRS EPS As Adjusted (LKR) 11.59 6.38 11.74 15.75 20.34 22.66 BRS EPS growth (%) 453.7% -44.9% 83.9% 34.2% 29.2% 11.4% NAV per share (LKR) 76.75 96.58 105.27 112.17 121.80 133.46 DPS (LKR) 4.00 4.00 4.00 11.00 11.00 11.00 Dividend yield (%) 3.3% 2.9% 2.8% 3.7% 2.6% 2.6% P/E (x) 10.5 x 21.3 x 12.0 x 18.9 x 20.8 x 18.7 x P/BV (x) 1.6 x 1.4 x 1.3 x 2.7 x 3.5 x 3.2 x Source: Company data and BRS Research The turnaround witnessed in the retail sector continues The retail segment revenue grew 17% YoY to LKR 5bn and operating profits grew by 256% YoY to LKR 206mn in Q1 FY 16 due to same store sales growth. This was a result of a comprehensive remerchandising programme carried out by CCS, which yielded positive results in the form of impressive same store revenue growth and a reduction in electricity tariffs. The company opened four new larger format outlets during FY 2015 and closed down three loss making outlets. During the quarter one outlet was open in Dehiwala. The company plans to open 8 to 10 new outlets during FY 16 and all new outlets will follow the same larger format model with in store bakeries. Manufacturing sector contributes the highest to operating profits The manufacturing sector achieved a 15.4% YoY growth in top line to LKR 2.8bn and 52.5% growth in operating profits to LKR 558mn in Q1 FY 16. Growth in the manufacturing segment revenue and profitability was achieved through increase in volumes of both frozen confectionery and beverages and increase in average selling price. Frozen confectionery and beverage volumes grew 15%-20% during the last quarter despite stiff competition. CCS increased beverage sector prices during the previous year, which enabled to increase its average revenue per liter by 6%. Decline in the global sugar prices also contributed to the increase in operating profits. YTD global sugar prices declined ~20%. Valuation - FCF valuation indicates a 27.3% downside to Current Market Price Based on a free cash flow valuation, we have arrived at a target price of LKR 308. Further, incorporating a dividend of LKR 11.00 for FY 2016E, TP based on total return is LKR 319. Based on relative valuations the stock is trading at a forward PE of 20.8x based on FY 2016E EPS of LKR 20.34 and CMP of LKR 424.00. The sector PE stands at 23.6x as at 30th July 2015. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of this report. BRS Research Head of Research - Nikita Tissera Consultant - Thilini Yatawara Trading Snapshot Market cap (LKR mn) 40,280 Market cap (USD mn) 300 Outstanding equity shares (mn) 95 Public Holding (%) - June '15 18.50% 52-week High/Low (LKR) 424.00/201.60 YTD ASPI return (%) 0.5% YTD Stock return (%) 60.0% 400.00 340.00 280.00 220.00 160.00 100.00 Valuation Summary CMP (LKR) 424.00 Intrinsic value (LKR) 308.43 DPS (LKR) 11.00 Target price based on total return (LKR) 319.43 Valuation method LKR 21.00 16.00 11.00 6.00 1.00 CCS EPS 2012 2013 2014 2015 2016E 2017E ASPI Vs. Share Price Movement CCS ASPI Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Page 1 DCF Valuation Total return % -24.7% Rating 8000 6000 4000 2000 0 ASPI Sell

Company Information Note 65, Braybrooke Place, Colombo 2, Sri Lanka research@bartleetreligare.com, +94 11 5260200 03 August 2015 Ceylon Cold Stores PLC Company profile Ceylon Cold Stores PLC (CCS) is a 81% owned subsidiary of listed conglomerate John Keells Holdings PLC and engages in the manufacture and marketing of beverages and frozen confectionery in Sri Lanka and internationally. CCS is the market leader in both the carbonated soft drinks and frozen confectionery categories. 20,244 LKR mn 21,000 15,000 9,000 3,000 Revenue LKR 'mn % Growth (2012-17E) 11% 5% Revenue Breakdown 2010 2011 2012 2013 2014 2015 Manufacture 17% 12% 2012 2013 2014 2015 2016E 2017E 2017E Retail Source: CCS Annual Reports and BRS Research 9% Recurring EBIT Growth LKR 'mn (2012-17E) 1,499-31% 40% 48% 16% 5% 33,972 2,875 2012 2013 2014 2015 2016E 2017E 2017E Year Ending 31 March 2012 2013 2014 2015 2016E 2017E Summary Information BRS EPS (LKR) adjusted for dilution 11.59 6.38 11.74 15.75 20.34 22.66 BRS EPS growth (%) 453.7% -44.9% 83.9% 34.2% 29.2% 11.4% P/E (x) 10.5 x 21.3 x 12.0 x 18.9 x 20.8 x 18.7 x Reported EPS (LKR) 23.73 20.16 12.81 18.58 na na P/E on reported EPS (x) 5.1 x 6.7 x 11.0 x 16.0 x na na NAV per share LKR adjusted 76.75 96.58 105.27 112.17 121.80 133.46 P/BV (x) 1.6 x 1.4 x 1.3 x 2.7 x 3.5 x 3.2 x DPS LKR 4.00 4.00 4.00 11.00 11.00 11.00 Dividend yield (%) 3.3% 2.9% 2.8% 3.7% 2.6% 2.6% FCFF (LKR mn) 710 723 841 1,996 1,936 2,035 FCFE (LKR mn) 352 608 489 1,795 1,843 2,020 CFPS LKR 6.56 0.11 (0.81) 10.68 3.59 3.82 P/CFPS (x) 18.6 x nm nm 27.9 x 118.1 x 111.0 x Mkt price (Voting) 121.90 135.90 140.70 298.20 424.00 424.00 Weighted average shares (mn) 95 95 95 95 95 95 Average mkt cap (LKR mn) 11,581 12,911 13,367 28,329 40,280 40,280 Enterprise value (LKR mn) 12,688 13,994 14,435 28,789 40,610 40,263 EV/Sales 0.6 x 0.6 x 0.6 x 1.0 x 1.3 x 1.2 x EV/EBITDA 6.3 x 8.4 x 6.9 x 10.2 x 11.8 x 10.7 x Income Statement (LKR mn) Revenue 20,244 22,476 23,614 27,699 31,155 33,972 Gross profit 3,051 2,925 2,817 3,670 4,454 4,926 EBITDA recurring 2,028 1,656 2,104 2,825 3,454 3,752 Depreciation and amortisation (529) (626) (665) (693) (826) (876) EBIT recurring 1,499 1,030 1,439 2,131 2,628 2,875 Interest expense (91) (101) (120) (61) (28) (35) Exceptionals/non-recurrings 1,142 1,309 102 29 0 - Tax expense (306) (345) (327) (621) (691) (717) Net income 1,101 606 1,115 1,496 1,933 2,152 Profit attributable to equity holders 1,101 606 1,115 1,496 1,933 2,152 Statement of financial position (LKR mn) Cash and cash equivalents 212 354 382 244 188 551 Inventories 1,816 2,102 2,065 2,383 2,422 2,836 Trade receivables 1,657 1,442 1,348 1,481 1,938 2,482 Investment property 3,766 5,041 85 94 94 94 Fixed assets 4,072 5,180 5,447 5,365 5,280 5,253 Intangible assets 165 169 162 153 150 150 Total assets 11,955 14,836 15,597 16,495 17,225 18,665 Trade payables 2,439 2,779 2,567 3,121 3,004 3,262 Interest bearing debt -short term 1,036 1,113 1,265 625 444 451 Interest bearing debt -long term 283 325 185 84 84 98 Total liabilities 4,663 5,660 5,597 5,839 5,654 5,986 Shareholders equity 7,292 9,175 10,000 10,656 11,571 12,678 Total equity 7,292 9,175 10,000 10,656 11,571 12,678 Net debt (cash) 1,107 1,084 1,069 465 340 (2) Total capital employed 8,611 10,613 11,451 11,365 12,099 13,228 Casf flow (LKR mn) Cash flow from operations 1,256 1,810 1,501 2,646 2,159 2,207 Net working capital (323) 475 (250) (181) (775) (868) Capital expenditure (994) (1,409) (1,012) (648) (743) (849) Free cash flow 262 402 488 1,997 1,416 1,358 Investing cash flows (1,000) (1,406) (964) (446) (708) (820) Dividends paid (86) (380) (380) (1,045) (1,045) (1,045) Net borrowings (267) (14) (233) (140) (65) 20 Net cash flow 623 11 (77) 1,014 341 363 Key ratios Revenue growth (%) 21.7% 11.0% 5.1% 17.3% 12.5% 9.0% Gross profit margin (%) 15.1% 13.0% 11.9% 13.3% 14.3% 14.5% EBITDA margin (%) 10.0% 7.4% 8.9% 1 11.1% 11.0% EBIT margin (%) 7.4% 4.6% 6.1% 7.7% 8.4% 8.5% ROCE % 17.4% 9.7% 12.6% 18.8% 21.7% 21.7% ROE % 15.1% 6.6% 11.2% 14.0% 16.7% 17.0% Payout ratio (%) 34.5% 62.7% 34.1% 69.8% 54.1% 48.5% Debt/equity (%) 18.1% 15.7% 14.5% 6.7% 4.6% 4.3% Gearing (%) 15.3% 13.5% 12.7% 6.2% 4.4% 4.2% Page 2

Segmental breakdown Revenue (LKR'mn) Q1 FY 16 Q1 FY 15 YoY growth Manufacturing 2,815 2,440 15.4% Retail 4,995 4,269 17.0% Segment Profit/loss after tax (LKR'mn) Manufacturing 558 366 52.5% Retail 206 58 255.9% Sensitivity of Target Price to Risk Free Rate Risk Free Rate (Five year Treasury bond rate) 308.43 7.00% 8.00% 8.22% 9.00% 9.50% 2% 323.19 293.69 287.94 269.36 258.74 Growth rate 3% 350.96 315.28 308.43 286.49 274.09 4% 387.15 342.62 334.23 307.69 292.92 Valuation assumptions Based on a free cash flow valuation we have arrived at a target price of LKR 308.43. Our valuations are based on the following assumptions: WACC 11.7% Terminal growth rate- 3% Risk free rate 8.22% Beta 0.76 (based on CCS share price vs. ASPI movement ) Equity risk premium- 5% Page 3

Top 20 Shareholders as at 30th June2015 Shareholder No of shares % 1 John Keells Holdings PLC 67,109,128 2 Whi al Boustead (Pvt) Ltd 10,165,392 3 GF Capital Global Limited 2,025,241 4 Standard Chartered Bank Mauritius 1,826,571 5 A N Sethna 789,696 6 Asha Investments Ltd 396,704 7 HSBC Interna onal Nominees Ltd - Deustche Bank 330,000 8 Employees Provident Fund 308,884 9 Life Insurance Corpora on of India 272,912 10 Sisira Investors Limited 259,132 11 Peoples Leasing & Finance PLC 258,000 12 HSBC Intl Nom Ltd-JPMCB-T.Rowe Price Ins tu onalfron er Market Equity Fund 239,068 13 M.Radhakrishnan 169,256 14 J.R.Printers (Decd) 167,936 15 Wakdock Mackenzie Ltd 150,985 16 Merrill J.Fernando & Sons (Pvt) Ltd 150,848 18 M V Theagarajah 133,548 19 Deutsche Bank AG as Trustee for JB Vantage Value Equity Funde 128,682 20 M.A.Lukmanjee 127,000 21 Mrs H M Mount 125,360 70.6% 10.7% 2.1% 1.9% 0.8% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% 0.1% 0.1% 0.1% 0.1% Source: Interim Financial Statements Page 4

Financial Analysis Income statement - Ceylon Cold Stores PLC Year Ending 31st March All numbers in LKR 'mn Revenue 2012 20,244 2013 22,476 2014 23,614 2015 27,699 2016E 31,155 2017E 33,972 YoY growth % 22% 11% 5% 17% 12% 9% Cost of Sales (17,193) (19,551) (20,797) (24,029) (26,701) (29,046) YoY growth % 18% 14% 6% 16% 11% 9% Gross Profit 3,051 2,925 2,817 3,670 4,454 4,926 YoY growth % 46% -4% -4% 30% 21% 11% Gross profit margin 15% 13% 12% 13% 14% 15% Other Operating Income 1,705 1,784 1,164 1,197 1,202 1,200 Total SG & A expenses (2,115) (2,370) (2,439) (2,707) (3,027) (3,251) YoY growth % 14% 12% 3% 11% 12% 7% Total Depreciation (529) (626) (665) (693) (826) (876) EBIT including non-recurring items 2,641 2,339 1,541 2,160 2,628 2,875 YoY growth % 361% -11% -34% 40% 22% 9% Non-recurring items 1,142 1,309 102 29 0 - EBIT excluding non-recurring items 1,499 1,030 1,439 2,131 2,628 2,875 YoY growth % 162% -31% 40% 48% 23% 9% EBITDA excluding non-recurring items 2,028 1,656 2,104 2,825 3,454 3,752 YoY growth % 103% -18% 27% 34% 22% 9% EBITDA margin 10% 7% 9% 10% 11% 11% EBIT margin 7% 4.6% 6.1% 7.7% 8.4% 8.5% Finance Cost (91) (101) (120) (61) (28) (35) Recurring profit before tax 1,407 952 1,443 2,117 2,623 2,870 YoY growth % 192% -32% 52% 47% 24% 9% Income Tax Expense (306) (345) (327) (621) (691) (717) Profit after taxation 1,101 606 1,115 1,496 1,933 2,152 YoY growth % 454% -45% 84% 34% 29% 11% NP Margin 5% 3% 5% 5% 6% 6% Earnings per share - BRS adjusted (Note1) 11.59 6.38 11.74 15.75 20.34 22.66 Earnings per Share - Reported (Note2) 23.73 20.16 12.81 - - - Source: Company Financial Reports and BRS Equity Research Note 1: EPS adjusted for share split, consolidations and non recurring information Note 2: Based on earnings as reported (unadjusted for non-recurring) share data adjusted for splits Page 5

Financial Analysis Statement of Financial Position -Ceylon Cold Stores PLC As at 31st March All numbers in LKR 'mn 2012 2013 2014 2015 2016E 2017E Non Current Assets Property, Plant, Equipment 4,072 5,180 5,447 5,365 5,280 5,253 Intangible Assets 165 169 162 153 150 150 Other Investments - - - - - - Investment Properties 3,766 5,041 85 94 94 94 Investment in associate - - 5,262 5,362 5,366 5,366 Deferred Tax 27 92 37 0 0 0 Other Non Current Assets 95 95 361 380 407 407 8,124 10,578 11,355 11,355 11,297 11,270 Current Assets Inventories 1,816 2,102 2,065 2,383 2,422 2,836 Trade and Other Receivables 1,657 1,442 1,348 1,481 1,938 2,482 Income Tax Receivables 123 103 111 41 - - Amounts due from relatd parties 7 26 4 7 32 177 Other current assets - 97 151 254 334 334 Short Term Loan to Related Parties - - - - - - Short Term invstents 15 134 181 730 1,013 1,013 Cash and Cash Equivalents 212 354 382 244 188 551 3,830 4,257 4,242 5,140 5,928 7,395 Total Assets 11,955 14,836 15,597 16,495 17,226 18,665 Equity and Liabilities Stated Capital 918 918 918 918 918 918 Capital Reserves 2,900 - - - - - Revenue Reserves 3,473 5,005 8,286 8,764 9,001 10,108 Other components of equity - 3,252 796 974 1,652 1,652 Shareholders funds 7,292 9,175 10,000 10,656 11,571 12,678 Non Current Liabilities Interest Bearing Loans and Borrowings 283 325 185 84 84 98 Deferred Tax Liabilities 81 318 439 566 594 594 Retirement Benefit Obligations 354 325 365 376 426 476 Other non current liabilities 213 198 143 118 118 118 Other deferred liabilities - 15 20 25 26 26 932 1,182 1,153 1,170 1,249 1,313 Current Liabilities Trade and Other Payables 2,439 2,779 2,567 3,121 3,004 3,262 Amounts due to related parties 132 114 116 126 129 106 Tax payable 125 54 35 330 393 420 Short term loan from related companies 201 - - - - - Short Term Borrowings - 93 - - - - Current portion of Long term interest Bearing borrowings 115 140 140 102 36 43 Other current liabilities - 325 461 467 435 435 Bank Overdrafts 720 973 1,126 524 408 408 3,731 4,479 4,443 4,669 4,405 4,674 Total Equities and Liabilities 11,955 14,836 15,597 16,495 17,225 18,665 Source: Company Financial Reports and BRS Equity Research Page 6

Financial Analysis Cash flow Statement - Ceylon Cold Stores PLC Year Ending 31st March All numbers in LKR 'mn Cash Flow from Operating Activities EBIT 2012 1,513 2013 1,030 2014 1,541 2015 2,160 2016E 2,628 2017E 2,875 - - - - - - Adjustments for - - - - - - Depreciation 529 626 665 693 826 876 Profit on sale of Investment - 56 - - - - Transfer from Work In Process - - - - - - Amortization of Intangible Assets 11 13 10 11 3 - Provision for Defined Benefit Obligation 56 1 58 63 72 72 Profit/loss on Sale of Property, Plant, Equipment 36 34 31 29 0 - Unrealised Foreign exchange Gain (0) 0 0 - - - Bad debts written off 0 - - - - - Returnable Containers Breakages and Disposals - - - - - - Deposits for Rreturnable Containers Write back (202) (43) (41) - - - Operating Profit before Working Capital Charges 1,943 1,719 2,086 3,021 3,541 3,824 Changes in working capital (323) 475 (250) (181) (775) (868) Cash Generated from Operations 1,620 2,194 1,836 2,840 2,766 2,956 Interest Paid (91) (101) (120) (61) (28) (35) Income Tax Paid (253) (254) (177) (101) (557) (692) Retirement Benefit Obligation Paid (19) (28) (38) (33) (22) (22) Cash Flow from Operating Activities 1,256 1,810 1,501 2,646 2,159 2,207 Cash Flow from Investing Activities Purchase of Property, Plant, Equipment (994) (1,409) (1,012) (648) (743) (849) Purchace of Intangible Assets (7) (16) (4) (1) - - Net of Staff Loans (28) - - - - - Interest Received 12 16 32 56 35 30 Proceeds from sale of Preperty, Plant & Equipment 17 3 20 5 - - Net Cash Flows from/(used in) Investing Activities (1,000) (1,406) (964) (446) (708) (820) Cash Flow from Financing Activities Dividends Paid to Equity Holders (86) (380) (380) (1,045) (1,045) (1,045) Dividends Paid to perferance Shareholders (0) (0) (0) 0 - - Proceeds/repayment of Borrowings (232) (108) (93) (140) - - Repayment of loan - Related Party (21) - - - - - Net of Long Term Borrowings received (13) 94 (140) - (65) 20 Net Deposit Received for Returnable Containers 79 - - - - - Proceeds from Issuance of Share Capital 648 - - - - - Direct cost on Issue of Shares (7) - (1) - - - Net Cash Flows from/(used in) Financing Activities 367 (394) (614) (1,185) (1,110) (1,025) Net Increase/(Decrease) in Cash & Cash Equivalents 623 11 (77) 1,014 341 363 Source: Company Financial Reports and BRS Equity Research Page 7

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