Initial Public Offering – Expolanka Holdings Ltd May - 2011

Expolanka Holdings Ltd - IPO

Expolanka Holdings Ltd (EHL) is the holding company of Expolanka group,
Recommendation – Mid to
incorporated in year 2003, currently consolidated its presence in the business areas
Long Term
of Transportation, International Trading, Manufacturing and Strategic
Buy / Subscribe @ LKR 14.00
Investments, planning its IPO to attract LKR 2.4 Bn with objectives of enhancing
IPO at a Glance working capital by LKR 1,000Mn, reducing long term debt outstanding by LKR
The Offer 172 Mn Shares 908 Mn, and utilizing LKR 500 Mn to expand the existing warehouse capacity of
Issue Price LKR 14/- transportation & logistic sectors.
Funds to be raised LKR 2,408 Mn
CSE Listing Main Board
Investment Rationale
Issue Type Offer for Subscription
A Strong Balance Sheet, accounting LKR 13.4 Bn total assets climbed up by 29%
Issue Opening Date 12th May 2011
Issue Closing Date 02nd June 2011 from year 2009 with a sound equity buffer of 60% to total capital structure, which
Post IPO Mkt.Cap LKR 27.3 Bn will be further, strengthen through infusing IPO proceeds of LKR 2.4 billion.
Financial Advsior to the Heavy Fixed Capital/Working Capital Investments in Highly Growing Sectors
John Keells Capital
Issue
such as transportation & logistics through equity capital while reducing long term
Joint Managers to the John Keells Capital &
Issue CT Capital (Pvt) Ltd debt, which enable the company to result in an increased amount of free cash flow
to equity investors, prompting the intrinsic value of the share to be boosted with
Registrar to the issue SSP Corporate Services
increased dividend paying ability.
Sound Business Track Record in Transportation & Logistic sector with a strong

DIV Sector Outperforms the Market freighting network spanning 38 cities in 11 countries which expects to be
expanded rapidly with the growing phase of international trading.
450
400
High Institutional Investor Confidence, proved through successful completion of
350
a private placement executed in September 2010, subscribed by reputed
300
250 companies such as John Keells Holdings, Timex Garments, Softlogic Holdings,
200
150
Falcon Trading etc.
100 High Investor Attractiveness on Diversified Sector in Colombo Stock Exchange
50
0 (CSE), recording an annual average gain of 53% for last five years, outperforming
2‐May‐06 2‐May‐08 2‐May‐10
both ASPI & MPI accounts 47% & 27% respectively.
DIVERSIFIED ASI MPI

Source: Asha Phillip Research

Asha Phillip Securities Ltd – Equity Research Division 1
 Initial Public Offering – Expolanka Holdings Ltd May - 2011

Company Profile
Share Allotment
Expolanka is the Sri Lanka’s largest logistics company incorporated in 1978, has
Category No of Shares % now diversified into other profitable business areas of import/exports,
Employees 25.8 Mn 15% manufacturing & strategic investments. Further, company has consolidated their
Retail Investors 68.8 Mn 40% presence in Asia, Middle East & African regions and has become one of the key
Unit Trust Investors 17.2 Mn 10% players in transportation business.
Non Retail Investors 60.2 Mn 35%

Objectives of Offering Transportation & Logistics Sector

Transportation & logistics sector is the key business segment to Expolanka,
Purpose Esimated Utilization contributing 53% & 71% to the group revenue & profits respectively. Further, this
Working Capital 1000 Mn sector stands as the second best profitable sector to expolanka, recording a net
Retiring Debt 908 Mn
profit margin of 10% while maintaining a strong freighting network spanning 38
Expanding Warehouse
Capacity 500 Mn cities in 11 countries.
Expolanka is one of the largest freight forwarders in South Asia and has
established itself as a premier provider of services for the fashion industry while
Sectorial Contribution-Profits providing services in inland trucking, haulage, warehousing, customs clearance
and handling & project cargo.
4%

6%
This sector consists of following subsidiary companies.
19%

Freight Management
71%
ExpoLanka Freight (Pvt) Ltd focuses primarily on the apparel industry. The

Sectorial Contribution - Profits

company claims to be the market leader in freight forwarding and supply chain
Transportation Manufacturing & Others
management solutions.
International Trading Strategic Investment
Peri Logistics (Pvt) Limited, based in Sri Lanka focuses mainly on the perishable
logistics management that primarily cater to the tuna, edible fish etc to a number
of international destinations.
Geographical Contribution to total
Revenue SG Logistics (Pvt) Ltd is the Sri Lankan partner for DB Schenker, one of the
largest logistic service providers in the world. The company provides services in
60% 56% Air freight, Ocean freight and Door to door delivery.
51%
50% 45% UCL Logistics (Pvt) Ltd is a Sri Lankan based company with its network reaching
39%
40%
to Asia, Africa and the Middle East. The company focuses on multi industry
30%
business focusing on all aspects of the international import and export freight
20%
logistics processes while handling industries that ExpoLanka freight does not
10% 6%
4% focus on.
0%

2010 2009

Sri Lanka Other Sub Continent Africa

Source: Asha Phillip Research

Asha Phillip Securities Ltd – Equity Research Division 2
 Initial Public Offering – Expolanka Holdings Ltd May - 2011

Global Presence Logistics Support Services (Pvt) Ltd is a fully owned company of Expolanka
Holdings. The operations of the company is to provide services in logistics and
support services which cover; customs clearance, wharf handling,
transport/trucking, bonded cargo storage, warehousing, etc their primary role is to
support the sister companies but takes on outside customers.
Expo Consolidators (Pvt) Ltd is a business segment under Expolanka Holding,
provides services to telecommunication industry with procurement, supply,
clearing, transportation, erection and maintenance of telecommunications towers.
Expolanka International (Pvt) Ltd brings together the companies international
freight operations under one umbrella. Expolanka owns total of 11 operations in
Africa, Middle East and Asia which spread across 38cities.

Expolanka Freight has a vast global Airline GSA Segment

network spanning many countries across
Expolanka Airline Division represents 18 GSA of 13 airlines in 4 countries in
various continents.
South Asia and Middle East. The main focus is on cargo, but handles passenger
Top 10 Shareholders of Expo Pre IPO Post IPO services too
Shareholder % Stake % Stake Travel Services
Osman Kassim 15.92 14.52
Classic Travel (Pvt) Ltd is an IATA accredited travel agent specializing in
Sattar Kassim 15.92 14.52
outbound travel in Sri Lanka.
Shafik Kassim 15.92 14.52
Farook Kassim 15.92 14.52 Luxe Asia (Pvt) Ltd is a destination management company handles inbound
Hanif Yusoof 15.92 14.52 tourist to Sri Lanka. The company has strategic partnerships in India and the
John Keells Holdings PLC 4.67 4.26 Maldives.
Ceylon Investment PLC 2.33 2.13

Ali Mohamed 1.32 1.20 Classic Vacations (Pvt) Ltd was established to service the inbound travel
B Yoonus 1.32 1.20 requirements of existing corporate customers of Classic Travel.
Lanka Strategic Investments Ltd 0.93 0.85

Softlogic Holdings Ltd 0.93 0.84

KPRB De Silva 0.65 0.59 International Trading Sector
Falcon Trading (Pvt) Ltd 0.47 0.42
Expolanka is one of the largest exporters of fresh fruits & vegetables in Sri Lanka.
Timex Garments (Pvt) Ltd 0.47 0.42
The company imports and trades agricultural commodities such as dates, onions,
Others 7.32 6.68
garlic, red lentils etc. Further, Expolanka is the third largest importer of red lentils
IPO - 8.80
and fourth largest importer of sugar into Sri Lanka. On the other hand, the
company imports & markets cement under the brand Expo Cement while
exporting tea to over 34 counties.
International Trading Sector
This sector contributes 26% to the total group revenue while sharing only 6% of
Contributes 26% to the group revenue
while recording a share of only 6% to
the group profit, reflecting a thin profit margin of 2% for the 9 months ended 31st

the group profits December2010.

Asha Phillip Securities Ltd – Equity Research Division 3

 Initial Public Offering – Expolanka Holdings Ltd
Neptune Papers (Pvt) Ltd is the largest
waste paper exporter in the country,
recoding an overall market share of
approximately 19%
APIIT Lanka provides higher education
opportunities to Sri Lankan & foreign
students in the academic areas of
business, IT and law.
Hello Corp provides services for small
and medium scale companies & startup
companies for their BPO needs.
Expo could capitalize the global growth
in freight forwarding & logistic sector
through their aggressive international
presence.
Asha Phillip Securities Ltd – Equity Research Division
May - 2011
Currently, the company closely observes the efficiencies of the processes &
activities in order to increase the profit margins further, enabling the sector to
contribute positively to the overall profitability in future ahead.
Manufacturing Sector
Expolanka diversified into manufacturing sector through Neptune Papers (Pvt) Ltd,
the largest waste paper exporter for recycling purposes in Sri Lanka, coupled with
the Bio Extracts (Pvt) Ltd, one of the largest manufacturers of black seed herbal oil
in the world. Further, manufacturing sector contributes 2% to the group revenue
while recording a net profit margin of 7% for the 9 months ended 31st December
2010.
Strategic Investments
Group’s strategic investment arm invests in high growth busisness areas , and
currently holds investments in tertiary education via 43.80% stake in APIIT Lanka
(Pvt) Ltd together with the 51% stake in Hello Corp(Pvt) Ltd, first ever BOI
approved Business Process Outsourcing (BPO) company, specializes in
oursourcing services such as finance & accounting, data processing, IT technical
support, back office processing etc.
This sector records as the highest profitable sector ,registering a net profit margin
of 20% while contributing 3% to the overall group profit.
Industry Highlights
Growing transportation & logistic business
The transportation sector in Sri Lanka expanded by 11% in year 2010, while cargo
handling, ports and aviation sub sector recovered with a growth of 17.7%. Further,
the cargo handling increased by 32.8%, strongly backed by the increased
international trade activities.
Moreover, external trade in South Asian region has witnessed a remarkable growth
over last 5 years, recording a CAGR of 13.9% amidst global recessionary fears
prevailed around in 2008 to 2010.
Dubai & Vietnam are considered as the highly growing air cargo destinations in the
world while Vietnam is forecasted to be the world’s third fastest growing market
for international passengers and freight after China & the UAE.
Growing Tea and other agriculture exports market
Sri Lanka’s agricultural exports accounts 25% to the total exports, grew by 20.8%
to USD 2,041 Mn in 2010 mainly due to the high prices prevailed in the
4
 Initial Public Offering – Expolanka Holdings Ltd May - 2011

international market throughout 2010. Tea export earnings increased by 16.1% to

USD 1.3 Bn due to increased volumes & high prices. Ceylon tea has continued to
fetch the highest prices in the major auction centers of the world in 2010 mainly
due to the fine quality of Ceylon tea and the high international demand for
orthodox tea.
Key Performance Indicators – Expolanka Group

2006/07 2007/08 2008/09 2009/10 2010/11

9 Months
Profit Margins
Gross Profit Margin 21.55% 20.40% 23.35% 19.20% 17.98%
Operating Profit Margin 3.42% 2.96% 5.50% 5.38% 8.35%
Net Profit Margin 0.96% 0.05% 2.06% 2.49% 5.61%

Efficiency
Asset Turnover Ratio 1.53 1.54 1.82 1.64 1.92
Fixed Asset Turnover Ratio 4.34 5.46 6.31 7.53 9.50

Working Capital
Current Ratio 1.22 1.23 1.21 1.37 1.51

Investor
ROE 4.62% 0.30% 13.37% 15.44% 29.40%
ROA 1.47% 0.08% 3.74% 4.09% 10.81%
EPS (Rs) 0.03 ‐0.03 0.17 0.29 0.71
NAVPS (Rs) 1.48 1.48 1.64 2.15 2.77

Source: Company /Ashaphillip Research

Key Performance Indicators – Peer Comparison

EXPOLANKA RICH SPEN HAYL

2010/11 2010/11 2010/11 2010/11
9 Months 9 Months 9 Months 9 Months
Profit Margins
Gross Profit Margin 17.98% 23.39% 46.75% 22.30%
Operating Profit Margin 8.35% 12.60% 14.53% 5.86%
Net Profit Margin 5.61% 8.36% 12.23% 2.20%
Efficiency
Asset Turnover Ratio 1.92 1.00 0.44 0.71
Fixed Asset Turnover Ratio 9.50 1.74 0.66 1.31
Working Capital
Current Ratio 1.51 0.91 1.38 1.19
Investor
ROE 29.40% 25.86% 8.55% 3.50%
ROA 10.81% 8.34% 5.39% 1.56%
EPS (Rs) 0.71 0.67 4.00 7.74
NAVPS (Rs) 2.77 2.41 50.9 210.17

Source: Asha Phillip Research

Asha Phillip Securities Ltd – Equity Research Division 5

 Initial Public Offering – Expolanka Holdings Ltd May - 2011

Valuation & Outlook

With the conservative earnings growth rate of 20%, forecasted earnings will stand
at LKR 1.7Bn – LKR 1.8Bn for FY2012 while resulting a recurring EPS of LKR
0.72/-. Hence, the counter trades at forward PER of 20x at IPO price of LKR 14/-,
recording a 20% discount to the market PER of 26x & 40% discount to the sector
PER of 34x. Hence, we recommend BUY – Mid to Long Term

Upside Potential of the Share

Sector & Market PER

14.40 20 24 26 28 32 34
FY2012 0.72 14.40 17.28 18.72 20.16 23.04 24.48
Forcasted FY2013 0.86 17.20 20.64 22.36 24.08 27.52 29.24
EPS FY2014 1.03 20.60 24.72 26.78 28.84 32.96 35.02
FY2015 1.23 24.60 29.52 31.98 34.44 39.36 41.82
FY2016 1.48 29.60 35.52 38.48 41.44 47.36 50.32
Source: Asha Phillip Research

RESEARCH

Thakshila Hulangamuwa Pasindu Perera

Vice President – Business Development Manager - Research
thakshi@ashaphillip.net pasindu@ashaphillip.net
Tel: 011 3070494 Tel: 011 2429109

Lasantha Senanayake Ranuka De Silva

Research Analyst Research Analyst
lasantha@ashaphillip.net ranuka@ashaphillip.net

This document has been prepared and issued by Asha Phillip Securities Ltd, on the basis of publicly available information,
internally developed data and other sources, believed to be reliable. Whilst all responsible care has been taken to ensure that
the facts stated are accurate and the opinions given are fair and reasonable neither Asha Phillip Securities Ltd, nor any
Director, Officer or employee, shall in any way be responsible for the contents. Asha Phillip Securities Ltd may act as a Broker
in the investments which are the subject of this document or related investments and may have acted upon or used the
information contained in this document, or the research or analysis on which it is based, before its publication. Asha Phillip
Securities Ltd., Its Directors, Officers 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.

Asha Phillip Securities Ltd – Equity Research Division 6