02nd August 2013
Asha Phillip Securities Ltd
Chevron Lubricants Lanka PLC – 2Q2013 Earnings Review
Chevron Lubricants Lanka PLC (LLUB.N) – 2Q2013 Earnings Review
Sector: Manufacturing
“Top line Volumes Down but Favorable Global Base Oil Prices led the GP Margins to rise”
Overweight @ LKR 310/-
Lubricant Sales Volumes narrowed
Revenue witnessed a drop of 5% y-o-y for 2Q2013 mainly owing to the sluggish lubricant
consumption, caused by reduced demand from thermal power plants, adverse weather conditions
affecting the agricultural & fisheries sector. Going forward, we could safely assume that the
sluggish demand for lubricants will remain for the next two quarters too, backed by slowed
automobile sector & increased hydro power generation. Moreover, we expect the company could
operate at its current market share of 57%.
Low Base Oil Prices Cushioned out the Top Line Margins
Favorable base oil prices prevailed during the 2Q2013 was the major catalyst for the growth in GP
margin from 34.63% to 37.73% y-o-y. Base oil is the single biggest cost element of lubricant
manufacturing, accounting for 75% of the cost of production. Overall cost of production seen a
sizable 10% drop within the quarter.
310.00
Issued Quantity (Mn)
120.00
Market Capitalization(LKR Mn)
37,224
52 Week
High (LKR)
375.00
Low (LKR)
172.00
Public Holding
49.00%
Foreign Holding
30.55%
250
1,800
200
1,400
1,600
1,200
2Q2013 – WTI crude oil traded below USD 98 per barrel
USD
100.00
98.00
96.00
94.00
92.00
90.00
88.00
86.00
84.00
82.00
80.00
Market Price(LKR)
150
1,000
800
100
600
Base Oil tracks the
Crude Oil Trend
400
50
200
-
-
Vol ('000)
LLUB
ASPI
Source: CSE, APSL Research
Equity Research Division
WTI
MFG
1
02nd August 2013
Chevron Lubricants Lanka PLC – 2Q2013 Earnings Review
July 2013 – Upward trend in WTI crude oil prices ($ per barrel)
Asha Phillip Securities Ltd
LKR Depreciated further against USD – June -July 2013 (USD/LKR)
LKR
LKR
134
110.00
108.00
106.00
104.00
102.00
100.00
98.00
96.00
94.00
92.00
90.00
133
132
131
130
129
128
127
Source: www.oilprice.com, APSL Research
7/29/2013
7/27/2013
7/25/2013
7/23/2013
7/21/2013
7/19/2013
7/17/2013
7/15/2013
7/13/2013
7/9/2013
7/11/2013
7/7/2013
7/5/2013
7/3/2013
7/1/2013
126
125
Source: CBSL, APSL Research
GP Margins in the ongoing quarter (3Q2013) seems bit tied with relatively high crude oil prices which result the base oil prices to go up simultaneously.
Depreciated currency will also hurt the existing GP margins.
Quarterly Results
After tax profit grew at 5.5%
Net profit witnessed a marginal 5.5% growth to LKR 562Mn from LKR 533Mn in 2Q2012. Finance
income accelerated at a steeper 40% due to its healthy cash & cash equivalents of LKR 2.8 Bn, which
is expected to be used for the construction of new blending plant soon.
Commenced work on new blending plant
Company commenced work on its new blending plant at Sapugaskanda with an investment
of USD 15 Mn (LKR 1.9 Bn). This investment includes the replacement of existing equipment
with latest technology and increased storage capacity for Base oil and other raw materials.
Sales
Cost of sales
Gross profit
GP Margins
Operating profit
Finance income
Profit before tax
Tax
After tax profit
2Q2012
2,560
(1,674)
887
35%
672
57
729
(195)
533
2Q2013
% Change
2,427
-5.2%
(1,511)
-9.7%
916
3.3%
38%
689
2.6%
80
39.4%
769
5.5%
(207)
5.7%
563
5.5%
Source: Company, APSL Research
Equity Research Division
2
02nd August 2013
Asha Phillip Securities Ltd
Chevron Lubricants Lanka PLC – 2Q2013 Earnings Review
Dividend Payout Ratio to maintain at 60%
We expect the company will maintain a 60% payout ratio for FY2013 & FY2014 and gradually
shift towards its average payout ratio of 90% thereafter.
Valuation Matrix
DCF
Value per Share
DDM
PER
PBV
328.55
254.77
80.22
-34.65%
5.98%
-17.82%
-74.12%
50%
30%
20%
0%
202.59
Current Price ( 01st August 2013)
310.00
Potential
Weights
Intrinsic Value (Weighted)
250.81
Potential
-19.1%
Source: APSL Research
Probable Valuation range would be between LKR 202- LKR 328 based on the above mentioned valuation methodologies with the assumptions of LLUB will
maintain the current 57% market share, Lubricant sales volume record a dip of 2% in FY2013E and grow at average 2% thereafter and Base oil prices will decline
nearly 4% for FY2013E y-o-y & grow at 1% y-o-y thereafter. Therefore, we have revised downward our initial revenue growth forecast (Refer to our initial
coverage report on 21st March 2013) to reflect the reality and incorporated the favorable base oil prices into our revised forecast.
Historical PER Bands
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
1H2013
Market Price
52 W eek High
97.50
118.25
233.00
193.75
183.50
205.20
375.00
52 W eek Low
76.00
81.75
93.00
141.00
152.00
160.00
202.00
10.85x
8.45x
14.97x
10.35x
18.70x
7.46x
15.49x
11.27x
11.01x
9.12x
10.91x
8.51x
19.13x
10.31x
PER (x) at Highest
PER (x) at Lowest
Currently, the counter trades
at one year forward PER of
15.8x which is more biased
towards the historically higher
PE bands.
Source: APSL Research
Equity Research Division
3
HISTORICAL FINANCIALS & PROJECTIONS
Revenue
FY2010
9,471,256,226
FY2011
11,039,945,418
FY2012
11,754,046,112
FY2013E
12,396,767,235
FY2014E
13,136,457,089
FY2015E
13,681,894,336
YoY Growth %
8.98%
16.56%
6.47%
5.47%
5.97%
4.15%
Cost of Sales
(6,426,102,922)
(7,565,448,536)
(7,949,962,149)
(8,232,333,628)
(8,461,574,308)
(8,860,583,933)
Gross Profit
YoY Growth %
Gross Profit Margin %
Other Operating Income
Distribution expenses
Administration expenses
EBIT including non recurring
Non Recurring items
EBIT excluding non recurring
YoY Growth %
EBIT Margin
Depreciation & Amortization
EBITDA - Recurring
3,045,153,304
3,474,496,882
3,804,083,963
4,164,433,607
4,674,882,781
4,821,310,403
-1.6%
14.1%
9.5%
9.5%
12.3%
3.1%
32.15%
31.47%
32.36%
33.59%
35.59%
35.24%
1,552,499
(405,517,363)
(373,759,003)
2,267,429,437
31,176,114
12,294,729
(390,500,092)
(425,356,670)
(389,940,738)
2,725,232,166
2,007,212
(473,547,778)
2,917,474,244
2,126,978
(545,457,758)
(591,140,569)
(520,664,224)
(604,277,026)
3,100,318,837
3,481,592,163
2,215,292
(606,429,192)
(508,555,515)
3,708,540,988
1,552,499
31,176,114
12,294,729
2,007,212
2,126,978
2,215,292
2,265,876,938
2,694,056,052
2,905,179,515
3,098,311,625
3,479,465,186
3,706,325,696
1.00%
18.90%
7.84%
6.65%
12.30%
6.52%
23.92%
24.40%
24.72%
24.99%
26.49%
27.09%
63,046,919
47,306,892
43,836,111
47,590,280
91,311,541
151,906,121
2,328,923,857
2,741,362,944
2,949,015,626
3,145,901,906
3,570,776,727
3,858,231,817
YoY Growth %
0.10%
17.71%
7.57%
6.68%
13.51%
8.05%
EBITDA Margin
24.59%
24.83%
25.09%
25.38%
27.18%
28.20%
Finance Expenses / Income
Pre tax Profit
YoY Growth %
Income Tax (Expense)/Reversal
Post tax Profit
YoY Growth %
Net Profit Margin %
Diluted No Shares
66,520,994
42,548,090
193,982,748
35,302,378
37,408,799
54,727,577
2,333,950,431
2,767,780,256
3,111,456,992
3,135,621,215
3,519,000,963
3,763,268,565
-0.44%
18.59%
12.42%
0.78%
12.23%
6.94%
(832,676,236)
(767,164,188)
(854,124,891)
(783,905,304)
(872,712,239)
(925,764,067)
1,501,274,195
2,000,616,068
2,257,332,101
2,351,715,911
2,646,288,724
2,837,504,498
0.43%
33.26%
12.83%
4.18%
12.53%
7.23%
15.85%
18.12%
19.20%
18.97%
20.14%
20.74%
120,000,000
120,000,000
120,000,000
120,000,000
120,000,000
12.51
16.67
18.81
19.60
22.05
23.65
2,237,529,316
3,158,145,384
4,125,817,833
5,066,504,197
6,125,019,687
6,692,520,587
18.65
26.32
-
-
ROE %
67.10%
63.35%
54.71%
46.42%
43.20%
42.40%
ROCE %
67.10%
63.35%
54.71%
46.42%
43.20%
42.40%
16.48
15.82
14.06
13.11
Earnings per Share (LKR)
Shareholders' Funds (LKR)
Net Asset Value per share(LKR)
Enterprise Value (LKR)
PER (times)
PBV (times)
EV/Sales (times)
Dividend Payout Ratio
Dividend per Share (LKR)
34.38
42.22
51.04
55.77
37,200,000,000
37,200,000,000
37,200,000,000
37,200,000,000
9.02
EV/EBITDA (times)
97.92%
53.98%
12.25
9.00
Dividend Yeild
120,000,000
7.34
6.07
5.56
12.60
11.82
10.41
9.64
3.16
3.00
2.83
2.72
60%
60%
58.48%
80%
11.00
11.76
13.23
18.92
3.55%
3.79%
4.27%
6.10%
Source : Company, APSL Research
120.00%
7.00%
100.00%
6.00%
5.00%
80.00%
4.00%
60.00%
3.00%
40.00%
2.00%
20.00%
1.00%
0.00%
0.00%
FY2010
FY2011 FY2012 FY2013E FY2014E FY2015E
Payout Ratio
Dividend Yeild
DISCLAIMER : This research is not in compliance with the regulations as per; Rule 2.2.5 of section 2 of the Colombo Stock Exchange - Stock Broker Rules since this is not a comprehensive document.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. While every effort
has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct. Asha Phillip Securities Ltd, nor any Director, Officer or
employee accept no liability whatsoever in respect of any errors or omissions. This document is a piece of economic/Financial research and is not intended to constitute investment advice, nor to solicit
dealing in securities or investments. 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.
RESEARCH DIVISION
Pasindu Perera
Manager -Research
pasindu@ashaphillip.net
+94 112429109
Lasantha Senanayake
Research Analayst
lasantha@ashaphillip.net
+94 112429137
Nishantha Warnakulasuriya
Trainee Research Analyst
Anuradha Basnayake
Trainee Research Analyst