Power Sector –Sri Lanka

3.0
• Energy sector counters may not just stay
HPWR* afloat but should also make decent profits in
2.5 the wake of Covid 19 due to financials been
VPEL* backed by steady and uninterrupted
2.0
cashflows.

• High returns generated too are often

PBV (X)

VLL
1.5 LVEF* distributed through hefty dividends while tariff
PAP *
rates of few companies have also been
1.0 renegotiated at the benefit of the companies.
HPFL LPL

• Government’s aggressive push towards

0.5
renewable energy should further drive up
earnings of the sector in the coming years.
0.0
7.0 9.0 11.0 13.0 15.0 17.0 19.0
PE (X)
• Despite the relatively low risk, power sector
still trades at a 27% discount to the market
PE, which makes the sector more attractive
Bubble size represents ROE compared to the rest.
LVEF- Lanka Energy Fund, LPL- Laugfs Power , PAP- Pan Asia Power , HPWR- Resus Energy , VPEL- Vallibel
Power , VLL- Vidulanka , HPFL- Lotus Hydro Power

04th November 2020 Page | 1

 LVL Energy Fund PLC - LVEF N 0000 (LKR 9.40)
Market Cap ( LKR Bn) 5.47
LVL Energy Fund Limited (LEF), subsidiary of Lanka Ventures PLC, is the only power counter listed in CSE with
Market Cap ( USD Mn) 29.70
a diversified portfolio. LVL accounts to seven mini hydro plants (capacity of 19.4MW, excluding Nepal operations
which is expected commence in 2021E with a capacity of 10MW), two wind plants (capacity of 15.3MW) and
Issued Quantity (Mn) 582.28
three thermal power plants in Bangladesh (capacity of 218MW). We believe the additional revenue generated
Current Trading Range 9.30-9.70
from the upcoming solar power plant which is expected to add 1MW by 4Q’21E and 5MW by 1Q’22E and
52 week High/Low 10.40/4.20
together with 10MW Nepal Hydro project (expected to commence in June 2021E) to aid notably to LVL’s bottom
YTD High/Low 10.10/4.20 line. Increasing demand for power in Bangladesh which helped LVEL’s bottom line over the years will continue to
Valuation bring steady and uninterrupted cashflows from the thermal operations.
Market PE (x) 14.9
Market PBV (x) 0.9
LVL has also been a promising dividend player declaring >50% of its profits over the years. LVEL’s EPS
meanwhile should increase to LKR 1.71 by 22E , trading at just forward PER of 5.5x. Therefore assuming an
LVEF PE (x) 11.0
implied PE of 7.5x ( cf. LVEL’s 5YR average PE of 9.0x) LVEF should trade at LKR12.84, 37% upside to current
LVEF PBV (x) 1.2
market price and derive a total return of 46% considering the dividend yield of 9% at a minimum payout of 50%.
Bloomberg Ticker LVEF SL EQUITY
GICS industry Group Utilities YE March FY17 FY18 FY19 FY20 FY21 FY22
Intrinsic Value 12.84 Net Profit (LKR mn) 464.9 439.4 559.6 443.9 800.1 1,089.8
Rating BUY YoY growth (%) -5.5% 27.4% -20.7% 80.2% 36.2%
EPS (LKR) 0.95 0.81 0.89 0.70 1.26 1.71

Top 5 shareholders as at 30th June 2020

DPS (LKR) 0.55 0.40 0.31 0.35 0.63 0.86
Lanka Ventures PLC 57.00 Operating Margin 55.5% 63.0% 65.1% 58.3% 61.6% 62.4%
Mr. M. A. Wijetunge 11.66 Dividend payout 57.7% 49.3% 34.8% 50.2% 50.2% 50.2%
Sri Lanka Insurance Corporation Limited-
Dividend Yeild 5.9% 4.3% 3.3% 3.7% 6.7% 9.1%
General Fund 8.59
Phoenix Ventures (Private) Limited 4.12 PER (x) 9.9 11.6 10.6 13.5 7.5 5.5
Equity Investments Lanka Limited 2.55 PBV (x) 1.9 1.6 1.4 1.2 1.1 1.0

04th November 2020 Page | 2

 Vallibel Power Erathna PLC - VPEL N 0000 (LKR 8.30)
Market Cap ( LKR Bn) 6.20
Vallibel Power, subsidiary of Vallibel Power Ltd operates three hydro power plants with a total output of 22 MW.
The largest –Erathna Mini Hydro Power plant in Kuruwita- has a capacity of10MW while Denawaka and
Market Cap ( USD Mn) 33.64
Kiriwaneliya collectilvely has a capacity of 12MW. Erathna plant’s tariffs were meanwhile renegotiated ( Eratna
Issued Quantity (Mn) 747.1
plant PPA ended in July 2019) to a plant factor-based tariff method ( from avoided cost method). The
Current Trading Range 8.00-8.40 renegotiated tariff for Erathna for the dry season increased by 13.5% to LKR 19.96 (previous 17.58) while the wet
52 week High/Low 8.50/4.80 season increased by 13.4% to LKR 17.80 (previous - LKR 15.70) , which in our view should see a marginal
YTD High/Low 8.30/5.10 improvement in tariff for 2020.
Valuation
Market PE (x) 14.9 We are positive on the rainfall to all three plants particularly given their strategic placement in catchment areas
Market PBV (x) 0.9
(rainfall too improved ahead of the Southwest Monsoon). Moreover VPEL is also actively looking at opportunities
in solar and wind projects which should also help VPEL in medium term. VPEL meanwhile trades 2YR forward PE
VPEL PE (x) 10.6
of 6x, and assuming an implied PE of 7.5x, counter should trade at LKR 9.7, 17% upside to the current market
VPEL PBV (x) 2.2
price. Assuming a payout of >80%, the counter should meanwhile generate a yield of 12.6% , bringing up the total
Bloomberg Ticker VPEL SL EQUITY return ~30%.
GICS industry Group Utilities
YE March FY17 FY18 FY19 FY20 FY21 FY22
Intrinsic Value 9.7
Net Profit (LKR mn) 494.0 718.6 836.2 648.2 804.6 967.9
Rating BUY
YoY growth (%) 45.5% 16.4% -22.5% 24.1% 20.3%
EPS (LKR) 0.66 0.96 1.12 0.87 1.08 1.30
Top 5 shareholders as at 30th June 2020 DPS (LKR) 0.80 0.70 0.70 0.70 0.87 1.04
Vallibel Power Limited 40.07
Operating Margin 70.4% 76.2% 80.9% 76.3% 71.1% 72.4%
Mr K D D Perera 19.38
Seylan Bank Plc/Senthilverl Holdings
Dividend payout 121.2% 72.9% 62.5% 80.5% 80.5% 80.5%
(Pvt) Ltd 10.66 Dividend Yeild 9.6% 8.4% 8.4% 8.4% 10.4% 12.6%
Sampath Bank Plc / Dr T Senthilverl 6.74 PER (x) 12.6 8.6 7.4 9.5 7.7 6.4
Mr K D H Perera 2.5
PBV (x) 3.0 2.8 2.4 2.1 2.0 1.9

04th November 2020 Page | 3

 Pan Asia Power PLC – PAP N 0000 (LKR 4.10)
Panasian Power PLC, formed in 2002, is one of Sri Lanka’s leading renewable energy solution providers and
Market Cap ( LKR Bn) 2.05
supplier of clean energy. The company has three hydro power plants with a total 9MW capacity, Ratganga (
Market Cap ( USD Mn) 11.12
3MW), Manelwewa ( 2.4MW) and Pediyapalalla ( 3.5MW). PPA with CEB was renewed in July 2020 of 3MW
Issued Quantity (Mn) 500.00
Ratganga hydro power plant which is valid 2024. Company’s solar portfolio also performed well in the recent past,
Current Trading Range 4.00-4.30
with revenue nearly tripling. PAP also secured PPAs for 3MW of ground solar in Matara which will start
52 week High/Low 5.00/2.50
construction, with remaining 2MW of PPAs also due soon. PAP has also bided in 150MW ground solar tender
YTD High/Low 4.40/2.50
which they hope to secure a substantial component. Feasibility studies are also undergoing for 10MW hydro plant
Valuation
in Zambia.
Market PE (x) 14.9
Market PBV (x) 0.9 We are hopeful on rainfall to all plants and positive on PAP’s solar venture given the increasing demand in
VPEL PE (x) 13.9 renewable energy space in Sri Lanka. PAP currently trades at PE of 13.9x, 30% discount to PAP’s 5YR trading
VPEL PBV (x) 1.3 multiple of 19.9x. Therefore even after assuming an implied PE of 7.5x for 2YR forward EPS, the counter should
Bloomberg Ticker PAP SL EQUITY trade at LKR 5.00, 22% upside to the current market price of LKR 4.10. PAP’s dividend payout last year stood at
GICS industry Group Utilities 72%, and after assuming a 50% payout, the yield stands at 8.2% which derives a total return of 31%.
Intrinsic Value 5.0
Rating BUY YE March FY17 FY18 FY19 FY20 FY21 FY22
Net Profit (LKR mn) 21.8 139.3 332.2 144.3 258.3 335.4
YoY growth (%) 538.4% 138.5% -56.6% 79.0% 29.8%
Top 5 shareholders as at 30th June 2020
EPS (LKR) 0.04 0.28 0.66 0.29 0.52 0.67
Mr Jinadasa Panadura Liyanage Dilanka 24.07
DPS (LKR) 0.15 0.13 0.19 0.22 0.26 0.34
Emerald Sri Lanka Fund 1 Limited 20.00
Seylan Bank PLC / Senthilverl Holdings Operating Margin 53% 61% 68% 56% 62% 66%
(Pvt) Ltd 19.44
Dividend payout 343.7% 46.7% 28.6% 76.2% 50.0% 50.0%
Ayenka Holdings Private Limited 7.50
Dividend Yeild 3.7% 3.2% 4.6% 5.4% 6.3% 8.2%
Sampath Bank PLC / Dr.Thirugnanasambandar Senthilverl
4.45
PER (x) 94.0 14.7 6.2 14.2 7.9 6.1
PBV (x) 1.7 1.5 1.3 1.1 1.0 0.9

04th November 2020 Page | 4

 Resus Energy PLC– HPWR N 0000 (LKR 27.50)
Resus Energy ( former Hemas Power) is operating in renewable energy segments, currently operating with seven
Market Cap ( LKR Bn) 2.08 power plants, in a capacity of 14.5MW, in the regions of Kandy, Kegalle, and Nuwara Eliya. The avoided-cost-tariff
Market Cap ( USD Mn) 11.27 applicable to both Giddawa (2MW) and AgraOya (2.6MW) plants increased 13.4% to Rs.17.80 for the wet-season
Issued Quantity (Mn) 75.51 and 13.5% to Rs.19.96 for the dry-season respectively in FY20. HPWR is also planning to add another 2.0MW
Current Trading Range 25.50-27.7 with acquisition of Karapalagama project (through Sierra Power (pvt) Ltd in April’19) and obtained rights to build
52 week High/Low 27.70/8.44
12 solar power projects of 1MW each in the Ampara and Mahiyanganaya districts under the 60MW PV Power
YTD High/Low 29.80/19.00
Plants of the ‘’Soorya Bala Sangramaya-Phase Two, which should also bring steady cashflows in the next two
Valuation
years.
Market PE (x) 14.9
Market PBV (x) 0.9
HPWR therefore could also see a jump in earnings in our view both due to favourable rainfall and earnings from
HPWR PE (x) 8.9
future projects. HPWR currently trades at PER of 8.9x, 18% discount to the sector PER and a 31% discount to its
HPWR PBV (x) 2.1
3YR average PE of 13x .Therefore even , after assuming an implied PE of 10x on 2YR forward EPS, the counter
Bloomberg Ticker HPWR SL EQUITY
should trade at LKR 35.50, 29% upside to the current market price of LKR 27.50.
GICS industry Group Utilities
Intrinsic Value 35.5
Rating BUY YE March FY17 FY18 FY19 FY20 FY21 FY22
Net Profit (LKR mn) -79.1 116.2 162.8 176.3 210.0 267.8
YoY growth (%) -246.8% 40.2% 8.3% 19.1% 27.6%
Top 5 shareholders as at 30th June 2020
Trydan Partners (Pvt) Ltd 32.54
EPS (LKR) -1.05 1.54 2.16 2.33 2.78 3.55
ACL Cables PLC 32.53 DPS (LKR) 0.00 2.00 10.50 0.00 27.54 0.00
Ayenka Holdings (Pvt) Ltd 18.42 Operating Margin 33% 61% 66% 68% 71% 69%
Employees Trust Fund 2.72 Dividend payout 0.0% 130.0% 486.9% 0.0% 990.3% 0.0%
Bank of Ceylon Account No 1 1.91
Dividend Yeild 0.0% 7.3% 38.2% 0.0% 100.1% 0.0%
PER (x) na 17.9 12.8 11.8 9.9 7.8
PBV (x) 1.8 1.9 2.6 0.3 0.3 0.2

04th November 2020 Page | 5

 Power Sector Snapshot

Company Capacity (MW) Commissioned date Expiry date Company Capacity (MW) Commissioned date Expiry date
Pansia Power (PAP N 0000) Lanka Ventures PLC (LVEL N 0000)
HYDRO 8.9 HYDRO 29.4
Ratganga 3.0 Jul-04 2024 Belihuloya 2.2 May-02 2022
Manelwewa 2.4 Jun-08 2023 Assupini Ella 4.0 Nov-05 2020
Pediyapalalla 3.5 Mar-17 2037 Kadawala 6.0 Mar-08 2023
Neluwa 2.2 Jan-08 2023
Theberton 1.3 Sep-15 2035
Vallibel Power (VPEL N 0000) Campion 1.2 May-17 2037
HYDRO 21.9 Bambarapana 2.5 Feb-18 2037
Erathna Mini Hydropower - Kuruwita 10.0 2004 2024 Makari Gad ( Nepal) 10 2021 2051
Denawaka Ganaga Mini Hydro -Ratnapura 7.2 2012 2027
Kiriwaneliya -Norton Bridge 4.7 2011 2026 WIND 15.3
Pawan Danawi 10.2 Aug-12 2032
Nala Dhanavi 5.1 Jun-13 2033
Resus Energy (HPWR N 0000)
HYDRO 14.5 SOLAR 6.0
Giddawa Mini Hydro Power Project 2.0 Oct-18 2021 Maho 3.0 2021 2041
Okanda Mini Hydro Power Project 2.4 Sep-11 2030 Pallekele 2.0 2021 2041
Upper Agra Oya Mini Hydro Power Project 2.6 Feb-06 2020 Mathugama 1.0 2020 2040
Gomale Oya Mini Hydro Power Project 1.4 Aug-16 2035
Moragaha Oya Mini Hydro Power Project 1.5 Mar-17 2035 THERMAL POWER 218.4
Ranwala Oya Mini Hydro Power Project 0.7 Nov-18 2030 Rajshahi (Bangladesh) 52.2 Jan-14 2029
Upper Hulu ganga Mini Hydro Power Project 1.9 Oct-15 2035 Comilla (Bangladesh) 52.2 Jan-15 2030
Karapalagama Mini Hydro Power Project 2.0 Under construction 2032 Feni (Bangladesh) 114 Nov-19 2034

04th November 2020 Page | 6

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