John Keells Holdings JKH - Rs.136.1 Yasas Wijethunga Key Highlights
[email protected] 1Q19 Results Update +94 77 053 2059 ❑ 1Q19 NP of Rs.2,361mn (-22% YoY), below our expectations, amid decline in earnings in Leisure, ‘Others’, Consumer Foods and Retail Sectors ❑ JKH’s group NP forecast revised down by -7% to Rs.15,479mn for FY19E (-9% YoY on a recurring basis) and by -6% to Rs.16,627mn for FY20E (+7% YoY), amid continued pressure on earnings expected from Leisure, Consumer Foods and Retail sectors. NP expected to rebound in FY21E to Rs.22,371mn (+35% YoY) amid the profit recognition of Cinnamon Life apartment projects. Subsequently, NP forecast 01 August 2018 at Rs.22,600mn in FY22E (+1% YoY) Sri Lanka ❑ The JKH share underperformed the broader market during last 12 and three Diversified Holdings months declining -21% and -17% respectively (vs. ASI’s decreases of -7% and -6% respectively) – the share was removed from MSCI Frontier Markets 100 Index in Jun 2018 as the company failed to meet the minimum liquidity requirement ❑ The JKH share trades at forward PER multiples of 12.2X for FY19E, 11.4X for FY20E, 8.4X for both FY21E and FY22E ❑ Based on our estimated break up Sum of The Parts (SOTP) valuation of Rs.167, the JKH share is currently trading at a 23% discount ❑ Despite the decrease in earnings, we believe that the extent of the recent share price decline seems unwarranted. Whilst, near term earnings weakness may remain due to expansion and construction related expenses in key sectors, we believe current share price provide a decent entry point to value oriented investors.