Aitken Spence Hotel Holdings PLC

LKR Aitken Spence Hotel Holdings PLC Interim Update Q3 FY 14/15 Equity Research Quarterly revenue increased by only 2% compared to corresponding previous quarter while gross margins grew slightly. Other income recovered to make profit from a loss made during the previous corresponding quarter while other operating expenses decreased by 8%. Net profit increased by 17% QOQ while the profit for the period (9m) increased by 2% YOY. Investment Considerations Third quarter profits were up by 17% supported by the topline growth and reduction in other operating income. However second quarter profits were slightly down due to an increase in operating expenses. GP margin was stagnant at 81%. However, EBITDA margins were up at 39.5%, highest third quarter figure after 29. Accordingly AHUN has managed to mitigate reduction in profits of the second quarter with the improvement in third quarter. During the year 214, number of tourist arrivals achieved the target of 1.5 Mn (+2% from last year) according to SLTDA. During the first seven months of 214, Maldivian Tourist arrivals in 214 have increased by 7.1% to 1.2 Mn. Sri Lankan resorts contributed 27% to the topline and 3% to bottom line while South Asian sector contributed 73% to the topline and 7% to the bottom-line. Sector prospects look positive for AHUN with continued increase in tourist arrivals in Sri Lanka and Maldives. The property in Negombo will be refurbished and will comprise of 15 rooms and is expected to was be completed for operations by Winter 214. However, the hotel had not made any revenue for the nine months ending 31st December 214. We expect, the entity to contribute positively from the 4th quarter. AHUN's borrowings increased to LKR 5.9Bn from LKR 2.9Bn in quarter 1 as AHUN incurred LKR 4.6 Bn worth of capital expenditure during the first nine months (Including the acquisition of hotel property at Chennai). However, AHUN made some loan repayments bringing down the gearing ratio to 48% from 76% in quarter 2. AHUN's ROE and ROA have slightly dropped during the last two quarters to 15% and 8% respectively with the slowdown of growth during 214. However, we expect two ratios to stabilize at 16% and 1% in the long run. AHUN is trading at a trailing PE is at 11.88X and PBV is at 1.76X, comparatively lower to the respective sector multiples at 52.2X and 3.6X. BUY LOLC SEC Valuation Share Price Upside/(Downside) Risk Level (refer page 7 for recommendation) Share Details Bloomberg Ticker CSE Sector GICS Sector AHUN SL Hotels and Travels Consumer Discretionary Market Cap (LKR Mn) 26,93 Issued Quantity (Mn) 336 3-day avg T/O (LKR Mn).34 Beta (6 months).88 Quarter Financial Summary LKR Bn FY 14 Q4 FY 15 Q1 FY 15 Q2 FY 15 Q3 Revenue 4.3 2.54 2.8 3.36 Net Profit 1.22.28.21.64 S/H's Equity 15.21 15.13 15.27 15.95 Total Assets 25.98 3.49 3.36 31.18 ROA 9.69 8.88 8.6 7.56 ROE 16.64 16.85 15.86 14.77 Price Multiples PE (X) 11.88 PBV (X) 1.76 Price to Sales (X) 2.13 Divdend Yield (%) 1.88 Price Behavior LKR 96. LKR 8. 2.% Low 95 9 85 8 75 7 65 6 13-Feb-14 13-May-14 13-Aug-14 13-Nov-14 13-Feb-15 AHUN Share Price ASI movement (adjusted to AHUN base price) Per Share Details as at 3.9.214 (LKR) Earnings per share (trailing 12m) 6.73 Net Asset Value per share 45.4 Sales per share (trailing 12m) 37.63 Dividend Per Share (trailing 12m) 1.5 Valuation AHUN's third quarter profits increased recovering from the slight setback witnessed during the last quarter. With the slight reduction in the expected growth rate of the revenue, our FCFE model values the counter at LKR 96., taking a cost of equity of 13%. We maintain our recommendation BUY. Shareholder Details Aitken Spence & Co-A/C No1 71% Employee Provident Fund Srilanka 9% Sri Lanka Insurance Corp 2% Shareholders below 5% 2%, LOSEC Research Analyst (s) Damith Wasantha +94 117 88837 damithwa@lolcsecurities.com 13 February 15 Recommendation Guidance, Important Disclosures and Analyst Certification: Page 7

1-Jan-1 1-Aug-1 1-Mar-2 1-Oct-2 1-May-3 1-Dec-3 1-Jul-4 1-Feb-5 1-Sep-5 1-Apr-6 1-Nov-6 1-Jun-7 1-Jan-8 1-Aug-8 1-Mar-9 1-Oct-9 1-May-1 1-Dec-1 1-Jul-11 1-Feb-12 1-Sep-12 1-Apr-13 1-Nov-13 1-Jun-14 FY12 Q4 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 FY12 Q4 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 FY 12 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 FY 12 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY 13Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY14 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY15 Q1 FY15 Q2 FY15 Q3 LKR Mn Interim Update: Aitken Spence Hotel Holdings PLC 13 February 15 Graph 1: Quarterly Revenue and Profit Graph 2: Quarterly EBITDA margin 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 6% 5% 4% 3% 2% 1% % Graph 3: ROA and ROE Graph 4: Gearing Ratio 2% 15% 1% 5% % 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % ROE ROA Graph 5: Tourist Arrivals 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Yarn prices continued to rise from mid 212 and confronted a dip during late 214 amidst oil price crash. Graph 6: Regional revenue breakdown 1,, 8,, 6,, 4,, 2,, 28 29 21 211 212 213 214 9m Sri Lankan South Asian 2 LOLC Securities Limited

Valuation We have taken into account a cost of equity of 13% and a free cash flow terminal growth of 5%. We expect oil prices to remain low in next year as well. We have conservatively taken a mid-term growth of 1%. Our FCFE model values the counter at LKR 96.. At the current share price, AHUN is trading at forward PE of 6.19X and a forward PBV of 1.53X. AHUN's trailing PE is attractive comapred to domestic hotel sector's and global peer companies' multiples while high ROE is also high comapred to peers. Table 1: Valuation Sensitivity Matrix Terminal Growth Rate Share price in LKR Cost of Equity 11% 12% 13% 14% 15% 3% 19.6 95.5 81. 75. 67.4 4% 122.4 15. 87.7 8.7 72. 5% 139.4 117.2 96. 87.7 77.4 6% 163.3 133.9 16.5 96.4 84.1 7% 199. 156.7 12.4 17.5 92.4, LOSEC Research Table 2: Peer Comparison Name Market Cap (USD Mn) PE (x) PBV (X) Dividend ROE % Yield % Aitken Spence Hotel Holdings (Sri Lanka) 22 11.48 1.69 1.88 15.75 John Keells Hotels Plc (Sri Lanka) 181 12.89 1.28 1.52 1.35 Serendib Hotels Plc (Sri Lanka) 25 14.32 1.84 n.a 14.9 Amaya Leisure Plc (Sri Lanka) 28 14.22 1.33 5.78 9.48 Keck Seng Investments (Hong Kong) 312 7.3.75 2.53 11.12 Huatian Hotel Group Co Ltd-A (China) 816 n.a 3.12.24-2.64, LOSEC Research 3 LOLC Securities Limited

Volume Rs Interim Update: Aitken Spence Hotel Holdings PLC 13 February 15 Table 3: Return comparison Graph 7: Share Price Movement 4,, 3,, % AHUN ASI Index S&P SL 2 Index JKHL 3 months -1.11-1.98 -.68-7.3 6 months -5.33 5.43 7.74 6.45 YTD 1.91.45.65-2.94 1 year 11.73 2.52 23.75 29.92 Volume Price SMAVG (5) SMAVG (1) 9 8 2,, 1,, - 7 6 5 1 RSI (14) 75 5 25 Graph 8: PE Chart 25 2 15 1 5 PE ratio Highest Average Lowest Graph 1: Price per Sales 3 2.5 2 1.5 1.5 Price to Sales ratio Highest Average Lowest Graph 12: CSE PE Chart 16 15 14 13 12 11 1 9 8 ASI PE ratio Highest Average Lowest Graph 9: PBV Chart 3 2.5 2 1.5 1.5 PBV ratio Highest Average Lowest Graph 11: Dividend Yield 2.5 2 1.5 1.5 TJL dividend yield Highest Average Lowest Graph 13: CSE PBV Chart 2.2 2 1.8 1.6 1.4 1.2 1 ASI PBV ratio Highest Average Lowest 4 LOLC Securities Limited

Table 4: Forecast Financial Statements Figures in LKR Mn FY 12/13 FY 13/14 FY 14/15 (9M) FY 14/15 (E) FY 15/16 (F) FY 16/17 (F) Income Statement Revenue 11,567 12,532 8,74 13,78 15,679 17,865 Cost of Revenue -2,273-2,398-1,833-2,618-2,979-3,394 Gross Profit 9,294 1,134 6,871 11,162 12,7 14,47 Operating Expenses -6,126-6,56-4,689-7,453-8,397-9,448 Operating Income 3,149 3,966 2,182 4,14 4,777 5,544 Net Non-Operating Gains (Losses) 52 112-27 18 718 775 Pretax Income 3,21 4,78 2,149 4,387 5,719 6,665 Income Tax Expense -465-561 -371-64 -787-917 Income Before XO Items 1,782 2,341 1,135 2,421 3,156 3,678 Net Profit att. to shareholders 1,782 2,326 1,135 2,421 3,156 3,678 Balance Sheet Cash & Near Cash Items 1,241 1,43 877 1,143 1,343 1,544 Accounts & Notes Receivable 968 1,363 1,624 1,285 1,462 1,666 Inventories 223 219 32 241 274 312 Total Current Assets 6,229 9,232 9,815 1,22 11,598 14,14 Total Long-Term Assets 16,13 16,745 21,366 21,269 22,241 22,689 Total Assets 22,36 25,977 31,181 31,29 33,839 36,793 Accounts Payable 372 271 397 352 4 456 Other Short-Term Liabilities 1,114 1,91 2,167 1,41 1,41 1,41 Total Current Liabilities 3,436 3,574 4,939 4,76 4,24 4,418 Total Long-Term Liabilities 3,95 3,235 5,924 5,941 5,958 5,976 Total Liabilities 6,53 6,89 6,263 1,17 1,198 1,394 Share Capital 3,555 3,555 3,555 3,555 3,555 3,555 Retained Earnings & Other Equity 9,26 11,659 12,395 13,764 16,132 18,89 Total Equity 15,829 19,168 19,98 21,273 23,641 26,399 Total Liabilities & Equity 22,36 25,977 31,181 31,29 33,839 36,793 Cash Flow Statement Net Income 1,782 2,341 1,135 2,778 3,156 3,678 Depreciation & Amortization 733 769 592 977 1,28 1,51 Changes in Non-Cash Capital 162-31 -455 136-162 -186 Cash From Operations 3,81 4,31 2,29 3,891 4,22 4,543 Capital Expenditures -1,355-895 -4,62-5,5-2, -1,5 Increase in Investments -5 - Cash From Investing Activities -1,331-3,656-4,474-5,573-2,81-1,589 Dividends Paid -25-351 -519-672 -789-92 Change in Long Term Borrowings 82 85 4,718 16 17 18 Cash from Financing Activities -39-67 2,119 2,454-656 -78 Net Changes in Cash 2,89-233 -634 772 1,285 2,175, LOSEC Research 5 LOLC Securities Limited

Table 5: Forecast Ratios FY 12/13 FY 13/14 FY 14/15 (9M) FY 14/15 (E) FY 15/16 (F) FY 16/17 (F) Profitability Ratios GP Margin (%) 8% 81% 79% 81% 81% 81% NP Margin (%) 15% 19% 13% 18% 2% 21% ROE (%) 14% 15% 15% 14% 16% 16% ROA (%) 8% 9% 8% 8% 9% 1% Earnings per share (LKR) 5.3 6.92 3.37 7.2 9.39 1.94 Dividend per Share (LKR).74 1.4 2. 2. 2.35 2.73 Credit Ratios Debt/Equity Ratio (%) 31% 26% 48% 4% 36% 31% Interest Coverage (X) 12.77 2.63 12.33 14.68 13.31 15.45 Total Assets/Equity (X) 1.75 1.71 1.47 1.81 1.72 1.64 Net Debt/EBIT (X) 1.24 1.1 1.7 1.69 1.47 1.26 Liquidity Ratios Current Ratio (X) 1.81 2.58 1.99 2.46 2.74 3.19 Quick Ratio (X) 1.75 2.52 1.92 2.4 2.67 3.12 Asset Turnover Ratio (X).52.48.28.44.46.49 Net Asset Value per share (LKR) 37.95 45.24 46.94 51.5 58.54 66.74 Growth Ratios Revenue Growth YOY% 26% 8% 2% 1% 14% 14% Earnings growth YOY% 28% 31% 1% 4% 3% 17% Total Assets YOY% 13% 16% 3% 2% 8% 9% Total Debt YOY% -9% -16% -15% 37% -12% -13% Investment Ratios PE Ratio (X) 14.81 1.34 11.88 11.11 8.52 7.31 Price to Book Value (X) 2.7 1.59 1.76 1.55 1.37 1.2 Dividend Yield (%).95% 1.45% 1.88% 2.5% 2.93% 3.42%, LOSEC Research 6 LOLC Securities Limited

Recommendation Guidance BUY expected return > 1% in excess of benchmark return SELL expected return less than benchmark return HOLD expected return between % and 1% in excess of benchmark return Investment Horizon: 3 years 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 5% monthly Medium: Maximum price volatility to be up or down between 25% - 5% 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 email 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

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