HAYLEYS FABRIC PLC CSE: MGT.N0000 Bloomberg: MGT SL EQUITY | | CONSUMER DURABLES AND APPAREL

INITIATING WITH A BUY

Riding the TREND!!!!

CORPORATE UPDATE | 07 AUG 2019

Fair Value [FY20E]: LKR 20.0 [47%] FIRST CAPITAL RESEARCH Total Return with DPS 47% [AER 82%] Hiruni Perera +94 11 263 9864 [email protected] Disclosure

Minimum Return for BUY: Buy Below [AER of 16.83% without DPS]: LKR 18.10 MGT categorized as ‘Grade B’ counter (Refer slide 44 for Recommendation criteria of Grade A, B & C Stocks)

Disclosure on Shareholding: First Capital Group does not hold shares in MGT. First Capital Group has not traded in the shares in the three trading days prior to this document and will not trade in the shares for three trading days following the issue of this document.

First Capital Research Aug 2019 2 Content Briefing

1.0 Summary and Key Data…………………………………………………………………………………………………………………………………………………… 4 2.0 Investment Thesis…………………………………………………………………………………………………………………………………………………………… 7 2.1 Shifted focus towards synthetic products to drive the topline growth………………………………………………………………… 9 2.2 Stable cotton and polyester prices to further expand margins……………………………………………………………………………. 17 2.3 Capacity expansion in knitting and dying facility to enhance the market share…………………………………………………… 21 2.4 Current Profitability to be set off against the tax losses and ESC…………………………………………………………………………. 24 3.0 Valuation………………………………………………………………………………………………………………………………………………………………………… 26 4.0 Company Profile …………………………………………………………………………………………………………………………………………………………….. 31 5.0 Appendices 5.1 Financial Statements…………………………………………………………………………………………………………………………………………….35 5.2 Management Credentials……………………………………………………………………………………………………………………………………..38 5.3 Analysis of top 20 shareholders…………………………………………………………………………………………………………………………… 41 5.4 Recommendation Criteria…………………………………………………………………………………………………………………………………… 43 Disclaimer……………………………………………………………………………………………………………………………………………………………………………..45

First Capital Research Aug 2019 3 1.0 Summary and Key Data

First Capital Research Aug 2019 4 Investment Summary

MGT, one of the main fabric manufacturers in Sri Lanka, has built a competitive advantage in 21.0 apparel exports. MGT’s 1QFY20 earnings posted an increase of +1311%YoY the highest growth 19.0 ever led by increase in the topline stemmed from the order realized from “Inno” and other 17.0 6.4 synthetic products. We expect the strong order book in FY20E and the stable cotton and 15.0 polyester yarn prices along with the relief from tax expenses, due to the tax losses carried 13.0 11.0 forward and ability to recover the ESC to provide a potential earnings growth CAGR of 26% for 9.0 13.6 13.6 FY20E-22E. MGT’s fair value is estimated at LKR 20.0 for FY20E providing an annualized total 7.0 return of 82%. INITIATING WITH A BUY 5.0 Current FY20E

P/E 31 March FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E Current Price Expected Capital Gain Dividends upto 31.03.2020 Estimates (LKR 'Mn) Revenue 8,635 8,495 8,333 8,965 11,983 13,780 15,848 18,225 Gross Profit 903 1,071 974 944 1,429 1,860 2,219 2,734 Fair Value [FY20E]: LKR 20.0 [47%] EBIT 224 375 202 144 470 698 865 1,066 Total Return with DPS 47% [AER 82%] Net Profit 90 262 74 -106 181 542 704 861 Adjusted EPS 0.4 1.3 0.4 -0.5 0.9 2.6 3.4 4.1 YoY Growth (%) 149% 191% -72% -244% 272% 199% 30% 22% Valuations PER (x) 31.4x 10.8x 38.4x N/A 15.6x 5.2x 4.0x 3.3x PBV (x) 1.4x 1.1x 1.0x 1.1x 0.9x 0.8x 0.6x 0.5x DY (%) ------

First Capital Research Aug 2019 5 Key Data

KEY DATA Price Performance (%) 1 mth 3 mths 12mths CSE Ticker MGT.N MGT 56% 58% 43% ASPI 7% 9% -4% Bloomberg Ticker MGT SL Share Price (LKR) 13.6 155.0 52w High (LKR) 13.6 145.0

52w Low (LKR) 7.6 135.0

Avg. Daily Volume (Shares) 267,512 125.0

Avg. Daily Turnover (LKR) 2,932,020 115.0

Issued Share Capital (Shares 'Mn) 208 105.0 95.0 Market Cap (LKR 'Mn) 2,825 85.0 Market Cap (USD 'Mn) 16 75.0 *1 USD = LKR 176

ASPI MGT Source: CSE

First Capital Research Aug 2019 6 2.0 Investment Thesis

First Capital Research Aug 2019 7 Investment Thesis

2.1 Shifted focus towards synthetic products to drive the topline growth

2.2 Stable cotton and polyester prices to further expand margins

2.3 Capacity expansion in knitting and dying facility to enhance the market share

2.4 Profitability to be set off against the tax losses and ESC

First Capital Research Aug 2019 8 2.1 Shifted focus towards synthetic products to drive the topline growth

First Capital Research Aug 2019 9 Booming Global Synthetic Fabric Market

The global synthetic market is expected to reach USD 90,000Mn in In line with the global trend, contribution from synthetic fabrics revenue to MGT’s revenue increased over the years

100,000 90,000 90,000 100% 80,000 90% 25% 80% 34% 70,000 62,688 42% 70% 60,000 60% 50,000 50% 40,000 40% 74% 65% 30,000 30% 57% 20,000 20%

10,000 10% 0% 0 FY17 FY18 FY19 2017 2026 Cotton and Cotton blends Polyester & polyester blends Other Source: Bloomberg Source: MGT Annual Report FY19 The latest study conducted by Transparency Market Research reveals that the global market for synthetic fiber is set to exhibit a growth of 4.1% CAGR as its physical properties such as lightweight, high durability and elasticity makes it an apt material for the textile industry. Some of the leading global clothing brands like Nike, Victoria’s Secret and Decathlon are strategically moving towards Sri Lanka for synthetic apparel production, as Sri Lanka has come up with a wide range of synthetic raw material options over the last couple of years. As indicated in the revenue mix, in line with this global trend, MGT accelerated its focus towards polyester and polyester blended fabrics which currently accounts for 42% of the total revenue relative to 34% in FY18. First Capital Research Aug 2019 10 Global Athletic apparel to garner over USD 350.0Bn in sales by 2020

Sportswear sales is estimated to witness a higher growth Morgan Stanley projects global active wear sales to climb over relative to other categories USD 350.0Bn stealing market share from nonathletic apparel

400.0 Other accessories 3

Jewelary and 350.0 2.5 watches

300.0 Handbags and 5.5 luggage

250.0

Sportswear 7 USD Bn

200.0 Footwear 3.5

150.0

Apparel 5 100.0 0 1 2 3 4 5 6 7 8

Sales growth expectations 2019 %

Source: The State of fashion 2019 by the McKinsey & Company Source: Morgan Stanley

First Capital Research Aug 2019 11 Athleisure: The emerging trend which is becoming the new normal

Asia Could Be Biggest Contributor to Athletic-Wear Sales Nike, the global titan in athletic wear (a Tier 1 client of MGT) Growth continued to dominate as the world’s most valuable apparel brand 20 35,000 20% 18 16% 17% 18 30,000 15% 14 2.2 16 1.5 2 10% 1.1 1.8 25,000 14 0 6% 5% 20,000 12 5.7 6.1 7.2 5.2 6.5 7 0%

10 USD USD Bn USD USD Mn 15,000 -5% 8 10,000 3.1 4.1 4.5 -10% 6 4.4 4.4 4.6 5,000 4 -15% 5.5 4.9 -16% 4.3 3.6 3.7 3.8 2 0 -20% 2015 2016 2017 2018 2019 2020 Nike Zara Adidas H&M North America Europe Asia Latin America 2018 2019 Annual Growth in Brand Value Source: The State of fashion 2019 by the McKinsey & Company Source: Brand Finance Apparel 50 2019

Athleisure describes the trend for wearing workout wear all day. With the increasing trend in the younger generation aiming to be more fit and healthy, and people opting to wear more comfortable and casual clothes for working out, giant athletic brands have started to become more athleisure wear brands, with a new market emerging where active clothing can swiftly be turned into casual and leisurewear clothing. Over the last decade, athletic wear has gained so much popularity that it has carved out a place of its own in the apparel industry, leading to the term “athleisure” (athletics + leisure).

First Capital Research Aug 2019 12 Expansion into premium priced Synthetic fabrics to enhance topline

MGT’s Athleisure (made from synthetic) surpassed Synthetic generates a relatively higher NP margin compared to cotton Babywear manufactured from cotton 14%

12% 20% 12% 25% 18%

32% 10%

8%

22% 6% 15% 5% 2018 4% 28% 40% 2019 2%

0% Babywear Athleisure Lingerie (Intimates) Others Synthetic Cotton

Source: MGT Annual Report FY19 Source: MGT Annual Report FY19

First Capital Research Aug 2019 13 “Inno”: MGT coming into its own

Growing Order Pipeline for MGT “Inno” generated a higher margin compared to other products (FY19)

3000 14,000 Revenue GP Margins 35%

2500 2500 12,000 30% 30% 2250 2250 2250 2250 2100 2000 10,000 25%

8,000 20%

MT 1500

6,000 15% Margin GP

1000 Revenue (LKR Mn) 11% 4,000 10%

500 2,000 5%

0 0 0% 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 Inno Other Products

Source: MGT Annual Report FY19 Source: MGT Annual Report FY19 Company developed its own branded portfolio of synthetic fabric called “Inno” which addresses several issues with the supply chain. Improved pricing from “Inno” and other synthetic fabric products is expected to improve margins of MGT.

First Capital Research Aug 2019 14 MGT’s tier 1 clients are among major global fashion brands

MGT’s Tier 1 clients are among major global fashion brands Tier 1 clients accounted for major portion of the order book

45%

55%

Tier 1 clients Other

Source: First Capital Research Source: First Capital Research

MGT’s order book comprised of large portion of Tier 1 customers namely Nike, Victoria’s Secret’s, Intimissimi and Decathlon who provide a higher average selling price to MGT compared to Tier 2 customers. MGT is currently operating at the full capacity of 90% at 9,000MT which increased compared to 78% in FY18. MGT partially outsourced production to meet the orders of lower end products, due to insufficient factory capacity given the focus on Inno.

First Capital Research Aug 2019 15 Revenue to grow at a 15% CAGR until FY24E with growing synthetic share

Synthetic is gradually expected to account for major portion of Revenue to grow at a CAGR of 15% boosted by the synthetic the revenue segment 120% 30,000 40%

100% 35% 25,000 30%

80% 42% 50% 20,000 25% 55% 60% 70% 20% 60% 75% 15,000 15%

40% 10,000 10% Revenue (LKR Mn) 57% 5% 50% 45% 20% 40% 5,000 30% 25% 0%

0% 0 -5% FY19 FY20E FY21E FY22E FY23E FY24E FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY23E FY24E

Topline Topline Growth Cotton & cotton blends Polyester & polyester blends Other

Source: MGT Annual Report FY19 and First Capital Research Estimates Source: MGT Annual Report FY19 and First Capital Research Estimates

First Capital Research Aug 2019 16 2.2 Stable Cotton and Polyester prices to further enhance margins

First Capital Research Aug 2019 17 Cotton & polyester yarn to be a key component in cost of sales

Cost of raw materials including yarn and dyes accounts for Cotton price is currently at a 3-year low over 70% of cost of sales of MGT 85

80

75

70

65 USD USD cents perpound 73% 60

55

raw materials Labour Energy Depreciation Others

Source: MGT Annual Report FY19 Source: Bloomberg Cost of raw materials, comprising yarn and dyes accounts for over 70% of cost of sales. Cotton prices are expected to remain nearly flat in 2019 as ongoing trade war between China and the US has affected cotton prices which have taken a hit of more than 32% in the international market in the past one year. Crash in prices in the global market has also reflected in the Indian futures market recording a 16% fall in cotton prices. We expect stable cotton and polyester prices to support MGT to hold GP margins at healthy levels.

First Capital Research Aug 2019 18 The U.S-China trade conflict takes a toll on cotton prices

China is the biggest cotton consumer World Cotton production

China India Pakistan Viet Nam Bangladesh Rest of the World India China United States Pakistan Brazil Rest of the World

30 35 30 25 25 20 20 15

15

MT(Mn) MT(Mn) 10 10

5 5

0 0

Source: OECD Source: OECD

China has been the world’s largest consumer of cotton since the 1960s. Slow progress in trade negotiations between the U.S. and China is expected to slow down the demand for cotton resulting in flat prices. The US is the world's biggest cotton exporter and China its bigger consumer. The tussle between these two big business partners has hurt the cotton market across the world, including India, which is the world's largest cotton grower.

First Capital Research Aug 2019 19 Synthetic Fibre as a substitute for cotton

Cotton prices are expected to remain stable over the forecasted Global Consumption has been met by Chemical Fibres period Cotton Wool Chemical fibres

USD/t 180 120

160 100

140 80 120 60 100 Mt (Mn) 40 80

60 20

40 0

Source: OECD Source: OECD Furthermore, international cotton prices are expected to decrease in real terms throughout the projection period, as world cotton demand remains under pressure from synthetic fibres, notably polyester. Over the past decades, global demand for textile fibre has grown strongly, but most of this demand has been met by chemical fibres. Polyester prices are expected to be dependent on oil prices, which are also assumed to be flat.

First Capital Research Aug 2019 20 2.3 Capacity expansion in knitting and dying facility to further enhance the market share

First Capital Research Aug 2019 21 Capacity expansion in knitting and dying to enhance the market share

Textile Printing Raw material Dyeing Investment of USD 6-8Mn With the investment to enhance the capacity current output of Knitting of dyeing by FY22 9,000MT is expected to increased by 150-200MT Immediate investment of per month USD 2.5Mn to enhance the capacity of knitting

Sueding Finishing Combing Shearing Brushing the fabric

First Capital Research Aug 2019 22 Capacity expansion to be funded through USD borrowings

Finance Cost and Debt (FY20E-FY22E) to slightly increase with LKR 450.Mn and LKR 1.3Bn capex is estimated for the investment pending investments in Knitting and Dyeing facilities

4,000 220 1,400

3,500 200 1,200 3,000 1,000 180 2,500 800

2,000 160 LKR Mn

LKR LKR Mn 600 1,500 140 1,000 400 120 500 200

0 100 0 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E Total Debt Finance Cost

Source: MGT Annual Report FY19 and First Capital Research Estimates Source: MGT Annual Report FY19 and First Capital Research Estimates

Investment of knitting (USD 2.5Mn) and dyeing (USD 7.0Mn) is expected to be funded through borrowings. However out of MGT’s USD 15.0Mn borrowings, 14.0Mn will be paid in FY20E resulting in a lower finance cost in FY20E. Finance cost is expected to be increased with the borrowings that will be obtained for dyeing facility in FY22E.

First Capital Research Aug 2019 23 2.4 Current Profitability to be set off against the tax losses and ESC

First Capital Research Aug 2019 24 Low taxes to provide more comfort to profitability

➢ Last two years company was seen provisioning of Economic Service Charge to taxes.

➢ With the enactment of the Inland Revenue Act No. 24 of 2017, MGT is able to claim all taxable losses to the extent of taxable income in an entity. Considering that, Economic Service Charge (ESC) paid is recoverable only during the year of payment and two subsequent years, the Management has made an assessment of ESC recoverable and accordingly, ESC paid in 2018/19 was fully charged to the Income Statement.

➢ With the expected level of profitability, tax losses brought forward will be utilized and will be able to recover ESC in FY20E. MGT has a tax loss carried forward of nearly LKR 900.0Mn as at FY19.

First Capital Research Aug 2019 25 3.0 Valuation

First Capital Research Aug 2019 26 Valuation Summary

Expected MGT price for FY20E Fair value for MGT has been computed based on a DCF DCF based target price 20.0 and PER valuations with equal weightage given for both methods. Our target price of LKR 20.0 has been derived PER based target price 20.9 after applying a liquidity discount of 5% considering the Average Target Price 20.4 average volumes of last 5 years. Discount for the liquidity (5%) 1.0 Price, Capital gain and Dividends Target Price after Rounding off 20.0 21.0

Return 19.0

Target Price 20.0 17.0 6.4 Current Price 13.6 15.0 Capital Gain (LKR) 6.4 13.0 Dividends upto 31.03.2020 (LKR) 0.0 11.0 9.0 13.6 13.6 Capital Gain % 47% 7.0 Dividend Yield % 0% 5.0 Total Return % 47% Current FY20E Annualized Return % 82% Current Price Expected Capital Gain Dividends upto 31.03.2020

First Capital Research Aug 2019 27 DCF Based valuation estimates a target price of LKR 20.0

DCF based Valuation Key Assumptions Underlying Reason Enterprise Value 6,523 Rf Weighted average 1 Yr bill rate (-) Debt 2,610 considered for FD Ceilings (+) Cash 235 Rm Rf+8% premium Total Value of Equity 4,149 Kd MGT’s borrowing rate No. of shares 208 Growth rate Rate at which MGT’s earning is Target Price 20.0 assumed to grow after the forecasted period WACC COE Ke 23% Rf 8.8% Kd 6% Rm 16.8% D/E Assumption 41/59 Growth % 3.0% Terminal Growth (%) 3% β 1.80 WACC 15.7% Ke=Rf+β(Rm-Rf) 23.2%

First Capital Research Aug 2019 28 PER Based valuation derives a target price of LKR 20.9

PER based Valuation 70.0 FY20E Earnings (LKR 'Mn) 542 No. of Shares ('Mn) 208 60.0 2019E EPS 2.6 50.0 Expected PER 8.0x Price at 8.0x FY20E Earnings 20.9 40.0

30.0 PER Valuation method has used a conservative

Price(LKR) 20.0 price multiple of 8.0 times despite the higher multiples of Footwear and Textile industry and 10.0 Consumer Durable and Apparels sector. 0.0

-10.0

-20.0

Price 7 9 11 13 15

First Capital Research Aug 2019 29 Multiple comparison of Regional Peers

MGT trades at attractive price multiples relative to regional as well as local peers Market Cap (USD Last Price (USD) P/E ROE Dividend Mn) 12M yield Hayleys Fabric PLC (Sri Lanka) 16.21 0.08 7.09 12.76% -

Teejay Lanka PLC 150.0 0.21 11.70 13.40% 6.5%

Sichuan Langsha Holding (China) 205.19 2.11 48.05 6.15% 0.81%

Rupa & Company Ltd (India) 214.79 2.70 20.47 14.21% 1.57%

Harson trading (china) co. ltd 218.44 1.00 - -7.34% -

Guangdong Wanlima (China) 239.70 0.77 44.10 8.15% -

Ribo Fashion Group Co (China) 260.93 1.09 69.62 1.80% 1.30%

Zhejiang Giuseppe Garment (China) 269.89 0.77 15.80 11.04% 2.76%

VGRASS Fashion Co. Ltd. (China) 269.01 1.07 8.37 7.32% 2.16%

ZheJiang KangLongDa (China) 312.55 3.13 26.49 7.98% 0.91%

Annil Co Ltd (China) 312.16 2.37 23.16 11.11% 0.96%

Source: Bloomberg First Capital Research Aug 2019 30 4.0 Company Profile

First Capital Research Aug 2019 31 Company Profile

Products Cotton, Silk, Linen, Wool, ✓ Single Jersey Natural Fibers Leather, Ramie, Hemp, Jute, ✓ Interlock ✓ Pique Products ✓ Rib Acetate, Chiffon, ✓ Synthetic/Man made Organza, Nylon, Velvet, Fleece fabric Polyester, Denim, Rayon, ✓ Polar Fleece Georgette ✓ Jacquard ✓ Flat Knits

Hayleys Fabric PLC manufactures innovative high value fabric to global fashion brands. Company is also the first to develop its own branded range of fabric “Inno”. The company started with an investment of USD 7.0Mn 1994/95 has now spread into a company with an asset base of USD 50.0Mn. MGT is capable of providing a complete portfolio of end to end solutions from design to manufacturing of fabric made out of natural and synthetic fibers while producing 2.5Mn meters of fabric per month. MGT’s product range includes Single Jersey, Interlock, Pique, Rib, Fleece and Polar Fleece, Jacquard and Flat Knits, which are composed using pure and blend of cotton, polyester, viscose, modal yarns, in both solid colors and in printed form.

First Capital Research Aug 2019 32 Main Partners

First Capital Research Aug 2019 33 5.0 Appendices

First Capital Research Aug 2019 34 5.1 Financial Statements

First Capital Research Aug 2019 35 Financial Statements

Statement of Financial Performance (LKR Mn) FY16 FY17 FY18 FY19 FY20E FY21E FY22E P/E 31st Mar Revenue 8,495 8,333 8,965 11,983 13,780 15,848 18,225 Cost of sales (7,424) (7,359) (8,020) (10,554) 11,920 13,629 15,491 Gross Profit 1,071 974 944 1,429 1,860 2,219 2,734 Other operating income 3 5 9 11 13 13 14 Administrative expenses (578) (706) (734) (819) (965) (1,157) (1,330) Distribution expenses (88) (71) (76) (134) (193) (192) (341) Other expenses (33) (1) - (18) (18) (18) (10) Operating Income 375 202 144 470 698 865 1,066 Net financing costs (118) (140) (151) (153) (148) (153) (197) Profit/(loss) before tax 257 62 (8) 317 550 712 869 Income tax expense 5 12 (98) (135) (8) (8) (8) Profit/(loss) for the year 262 74 (106) 181 542 704 861

EPS 1.26 0.35 -0.51 0.87 2.61 3.39 4.14 Source : Company Annual Reports, First Capital Research Estimates

First Capital Research Aug 2019 36 Financial Statements

Statement of Financial Position (LKR Mn) FY16 FY17 FY18 FY19 FY20E FY21E FY22E P/E 31st Mar Non-Current Assets Property, plant and equipment 3,404 3,785 3,940 4,418 4,515 4,754 5,654 Intangible assets 73 38 24 11 11 10 9 Current Assets Inventories 1,510 1,725 1,815 2,368 2,513 2,873 3,266 Trade receivables 1,053 1,067 1,244 1,494 1,718 1,976 2,273 Other receivables 214 360 182 133 133 133 133 Cash and cash equivalents 181 226 54 51 235 435 762 Total Assets 6,435 7,201 7,259 8,475 9,125 10,181 12,097 EQUITY AND LIABILITIES Capital and Reserves Stated capital 1,968 1,968 1,968 1,968 1,968 1,968 1,968 Other Reserves 678 744 774 1,159 1,159 1,159 1,159 Retained earnings -68 -5 -59 52 594 1,298 2,158 Total Equity 2,578 2,707 2,683 3,179 3,721 4,425 5,286 Non-Current Liabilities Interest bearing loans and borrowings 297 957 518 188 522 542 698 Other Liabilities 486 522 534 766 766 766 766 Current Liabilities Trade and other payables 712 815 1,293 1,554 1,755 2,007 2,281 Interest bearing loans and borrowings 2,235 2,074 2,114 2,515 2,088 2,168 2,793 Other Liabilities 128 126 116 273 273 273 273 Source : Company Annual Reports, First Total Equity and Liabilities 6,435 7,201 7,259 8,475 9,125 10,181 12,097 Capital Research Estimates

First Capital Research Aug 2019 37 5.2 Management Credentials

First Capital Research Aug 2019 38 Management Credentials

Name Directorship Credentials

A.M. Pandithage Chairman & Chief Executive • Chairman and Chief Executive of Hayleys PLC since July 2009. • Fellow of the Chartered Institute of Logistics & Transport (UK)

E. R. P. Goonetilleke Managing Director / CEO • Prior Director of Brandix X’pressions (Pvt) Ltd and appointed to the Board of CLT Apparel (India) (Pvt) Ltd in January 2011, a fully owned subsidiary of Brandix Lanka Ltd. • Managing Director/CEO of Textured Jersey Lanka (Pvt) Ltd (2003-2010). • Former Managing Director/ CEO of Linea Clothing (Pvt) Ltd a subsidiary of MAS Holdings (Pvt) Ltd. • Graduate Engineer (B.Sc. Eng.). K. D. D. Perera Non-Executive Director • He has over thirty years of experience in building formidable business and is the chairman for Valibel One PLC and Hayleys PLC group of companies. S. C. Ganegoda Non-Executive Director • Fellow Member of Institute of Chartered Accountants of Sri Lanka. • Member of Institute of Certified Management Accountants of Australia. • Holds an MBA from the Postgraduate Institute of Management, University of Sri Jayewardenepura. • Worked for Hayleys Group between 1987 and 2002, ultimately as an Executive Director. Haresh Somashantha Independent Non-Executive Director • Over 19 years of experience in audit, financial management and reporting, including strategic and corporate planning across several industries including manufacturing, leisure, banking, plantation & etc. • Member of the Institute of Chartered Accountants of Sri Lanka • Associate member of CPA Australia • B.Sc. in Mathematics.

First Capital Research Aug 2019 39 Management Credentials

Name Directorship Credentials

R. N. Somaratne Independent Non-Executive Director • Currently working in the capacity of General Manager for Royal Ceramics Group which includes Lanka Tiles PLC and Lanka Walltiles PLC. • Holds an MBA from the University of Colombo • Post Graduate Diploma in Industrial Engineering from NIBM • B.Sc. in Physical Science from the University of Peradeniya. Dr. S. J. Nawaratne Independent Non-Executive Director • Freelance management consultant. • Former Director General of Sri Lanka Samurdhi Development Department. • Holds a B.Sc. degree from the University of Sri Jayawardenepura. Post Graduate Diploma in Business Management (PIM), • MA Economics from Kagawa University, Japan • PhD in Management from prestigious Keio University, Tokyo, Japan. Ananda Jayatilleka Independent Non-Executive Director • Mr. Ananda Jayatilleka is a specialist in Rubber Technology AND Industrial Engineering • Fellow of the Institute of the Work Study and Organization and Methods (F.M.S. (UK)). • Former main Board Director of Richard Pieris & Co. Ltd. with a long service of 27 years in the group. R. Rohitha Bandara Executive Director • Joined in 2012 as Chief Financial Officer and was appointed to the Board on 15 May 2018. • Fellow of the Institute of Chartered Accountants of Sri Lanka (FCA) • Associate member of ACCA (UK). • Holds a B.Sc. Management Special Degree from the University of Sri Jayawardenepura and MBA in Finance from University of Colombo. Ms. Yogadinusha Bhaskaran Non-Executive Director • An Accounting professional currently serving as the Chief Executive Officer of PLC. • Fellow of the Chartered Institute of Management Accountants UK (FCMA) • Fellow of CPA Australia (FCPA) • An Associate Member of the Institute of Bankers, Sri Lanka.

First Capital Research Aug 2019 40 5.3 Analysis of top 20 shareholders

First Capital Research Aug 2019 41 Analysis of Top 20 Shareholders

Top 20 shareholders - (% held) 1QFY20 4QFY19 QoQ 1QFY19 YoY Hayleys PLC No 3 Share Investment Account 58.96 58.96 - 58.96 - The Ceylon Guardian Investment Trust PLC. A/C No 02. 4.05 4.05 - 4.16 -11.0% The Ceylon Investment PLC. A/C No 02 3.97 3.97 - 4.08 -11.0% Employees Provident Fund 2.67 2.67 - 2.67 - Hayleys Advantis Limited 2.42 2.42 - 2.42 - Hayleys Agriculture Holdings Limited 1.67 1.67 - 1.67 - The Ceylon Chamber of Commerce A/C No 02. 1.19 1.19 - 1.21 -2.0% Mrs. V. Saraswathy 1.02 0.31 71.0% 0.00 102.0% Mr. A.M.Weerasinghe 0.89 0.89 - 0.87 2.0% PLC A/C No 4 (HNB Retirement Pension Fund) 0.73 0.73 - 0.74 -1.0% J.B.Cocoshell (Pvt) Ltd 0.56 0.39 17.0% 0.00 56.0% Hatton National Bank PLC- Astrue Alpha Fund 0.49 0.48 1.0% 0.00 49.0% Freudenberg Shipping Agencies Ltd. 0.41 0.41 - 0.41 - Mr. D.F Dalpethado & Mrs. H.F.A.K.D. Fonseka 0.37 0.34 3.0% 0.00 37.0% Bank Of Ceylon A/C NDB Wealth Growth Fund 0.37 0.37 - 0.37 - Bank Of Ceylon No.01 Account 0.37 0.37 - 0.37 - Mr. G. Dangampola & Mrs. N.P. Dangampola 0.37 0.37 - 0.37 - Mr. K.A.S.R Nissanka 0.34 0.34 - 0.34 - Merchant Bank of Sri Lanka & Finance PLC No 01 0.3 0.3 - 0.00 30.0% Mr.R.E.Rambukwella 0.28 0.00 28.0% 0.00 28.0%

First Capital Research Aug 2019 42 5.4 Recommendation Criteria

First Capital Research Aug 2019 43 Recommendation Criteria

Categorization Company Category Buy Hold Sell

Grade A S&P SL20 Companies T.Bill + 5% & Above T.Bill + 1% & Above Below T.Bill + 1%

Grade B Rest of the Companies T.Bill + 8% & Above T.Bill + 3% & Above Below T.Bill + 3%

Grade C Companies less than LKR 1Bn Market Cap T.Bill + 11% & Above T.Bill + 6% & Above Below T.Bill + 6%

Weighted Average 1-year T-bill rate during April 2019: 8.83%

Categorization Company Category Buy Hold Sell

Grade A S&P SL20 Companies 13.83% 9.83% 9.83%

Grade B Rest of the Companies 16.83% 11.83% 11.83%

Grade C Companies less than LKR 1Bn Market Cap 19.83% 14.83% 14.83%

First Capital Research Aug 2019 44 Disclaimer

This Review is prepared and issued by First Capital Holdings PLC based on information in the public domain, internally developed and other sources, believed to be correct. Although all reasonable care has been taken to ensure the contents of the review are accurate, First Capital Holdings PLC and/or its Directors, employees, are not responsible for the correctness, usefulness, reliability of same. First Capital Holdings PLC may act as a Broker in the investments which are the subject of this document or related investments and may have acted on or used the information contained in this document, or the research or analysis on which it is based, before its publication. First Capital Holdings PLC and/or its principal, their respective Directors, or Employees may also have a position or be otherwise interested in the investments referred to in this document. This is not an offer to sell or buy the investments referred to in this document. This Review may contain data which are inaccurate and unreliable. You hereby waive irrevocably any rights or remedies in law or equity you have or may have against First Capital Holdings PLC with respect to the Review and agree to indemnify and hold First Capital Holdings PLC and/or its principal, their respective directors and employees harmless to the fullest extent allowed by law regarding all matters related to your use of this Review. No part of this document may be reproduced, distributed or published in whole or in part by any means to any other person for any purpose without prior permission.

First Capital Research Aug 2019 45 Contact Us

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