Sri Lanka Equities

John Keells Stock Brokers (Pvt) Ltd.

A JKSB Research Publication

QUARTERLY HIGHLIGHTS
February 2014

Lourdeena Kudaliyanage lourdeena@jkstock.keells.com

Access Engineering PLC (AEL)

Rs. 22.60
AEL 3QFY14 NBVPS (Rs.) Issued Capital (Shares 'mn) Voting Market Capitalisation Rs. 'mn Forecast earnings to equity FY14E Rs. 'mn FY 14E EPS Rs. PER (x) 14.07 1,000 22,600 2,873 2.87 7.87

AEL 3Q PROFIT
Revenue (Rs. Mn) Gross Profit (Rs. Mn) PBT (Rs. Mn) Earnings to equity (Rs. Mn) EPS (Rs.)

5%

This quarter Previous Change (%) This 9 mths Previous Change (%)

3Q FY2014 3Q FY2013 Apr-Dec 13 Apr-Dec 12

4,740 3,808 24 11,997 9,865 22

1,306 1,011 29 2,917 2,140 36

1,053 916 15 2,475 1,893 31

875 836 5 2,091 1,652 27

0.88 0.84 5 2.09 1.65 27

AEL reported a 5% YoY increase in 3QFY14 earnings supported mainly by robust topline growth (+24% YoY ) and gross margin expansion of 1.0ppt YoY, which offset a sharp drop in both net finance income and other income (-50% YoY and -56% YoY respectively). As per management, gross margin expansion during the quarter was due largely to increased revenue recognition from completed projects/ projects nearing completion (margins typically improve in the decommissioning stage of the project lifecycle due to lower overheads). The drop in net finance income in 3QFY14 was due largely to utilization of a portion of short term deposits and cash to fund working capital requirements, while the reduction in other income was the result of lower forex gains vs. 3QFY13. The company also reported its first full quarter of income contribution (Rs. 6.0mn) from its associate stake in ZPMC Lanka Company (Pvt) Ltd, which carries out maintenance and repair of port handling equipment for Colombo International Container Terminals. Cumulative earnings for the nine month period amounted to Rs. 2.1bn (+27% YoY ), with profits from the companys core construction business up 38% YoY (revenues up 22% YoY), while profit from the sale of construction related materials dipped by 7% YoY. At a subsidiary level, Access Realties reported profit growth of 16% YoY in 9MFY14, while Sathosa Motors reported an 86% YoY increase in profits off a 24% YoY increase in revenues and margin expansion, helped by strong permit sales of Land Rovers during the period. AEL reported a robust order book of US$216mn as at end May 2013, with a further pipeline of >US$200mn. Subsequently, the company has converted projects amounting to ~Rs. 15bn (US$ 115mn) from its pipeline into confirmed orders, most of which focus on the relatively higher margin roads/flyovers sector. Capex for 9MFY14 amounted to Rs. 392.4mn, broadly in-line with management guidance and significantly lower vs. 9MFY13 capex of Rs. 1.0bn. As stated in our previous reports, we see no forseeable need for a substantial increase in capex over the medium term given the companys significant capex spend over FY12-FY13. As such, we anticipate a gradual expansion in AELs dividend payout over the medium term. The company increased its dividend per share to Rs. 0.50 in FY13 and should, in our view, match this figure in FY14 or increase its payout to Rs. 0.75 per share. We believe AEL should comfortably achieve our earnings forecast of Rs. 2.9bn for full year FY14E, which translates to an EPS of Rs. 2.87 (+20.8% YoY ), given that 3Q and 4Q are typically the strongest quarters for the company in terms of revenue recognition. At its current price of Rs. 22.60, the stock trades at a FY14E P/E multiple of 7.9x at a 38% discount to the market.
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