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NO 1 VALUE GEM IN BANKING & FINANCE SECTOR SRI LANKAN EQUITY MARKET Vote_lcap16%NO 1 VALUE GEM IN BANKING & FINANCE SECTOR SRI LANKAN EQUITY MARKET Vote_rcap 16% [ 43 ]
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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » NO 1 VALUE GEM IN BANKING & FINANCE SECTOR SRI LANKAN EQUITY MARKET

NO 1 VALUE GEM IN BANKING & FINANCE SECTOR SRI LANKAN EQUITY MARKET

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ONTHEMONEY


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Lanka Orix Leasing Company (LOLC) came in to the market via a joint venture between Orix Corporation Japan and International Finance Corporation 30 years ago.LOLC is a pioneer entity in Sri Lanka.

Orix Corporation becoming the parent to LOLC is a pioneer Single Largest Leasing Company in the world with its substantial presence in 27 countries worldwide and listed in Stock Exchanges of Tokyo and New York.

LOLC is committed to pursuit a management strategy that enables the group to contribute to the betterment to all stakeholders prioritizing the Shareholders.

LOLC has over 70 customer service touch points island wide.

LOLC EARNINGS IN LAST QUARTER(Revenue)

Rs Mn

Variable-------------As at 30.06.10 -------- As at 30.09.10

Financial Services -----1,494 Mn ------------ 3,626 Mn
Plantation ------------ 193 Mn ------------- 1,359 Mn
Trading -------------- 113 Mn ------------- 372 Mn
Leisure -------------- 7 Mn --------------- ( 114) Mn
Power & Energy ------ 12 Mn -------------- 8.535 Mn
Others -------------- (716) Mn ----------- (758)Mn
Insurance ----------- (0.8)Mn ------------ (4.049) Mn
Total ----------1,150 Mn ( 1.150 Bn) ---- 4,529 Mn ( Rs 4.529 Bn)

By looking at QoQ growth of LOLC it well evident the diversified company has extreme earnings from Financial Service, Plantation, Trading in particular. The Financial Services, Plantation and Trading sectors displaying QoQ growth rate of 142%, 604%, 229%.

During recent past we have observed a mega price hike in Plantation products which will have a highly positive contribution in coming quarters towards Plantation Revenue of LOLC .(Pussallawa Plantation and Gal Oya will contribute in large numbers to the Top line in coming Quarters)

Although the Leisure sector indicates a loss it will be streamlined with the recent developments in the Tourism industry. Yield will be generated in last 2-3 quarters in 2011.

Also we can expect an increase Revenue in Power & Energy sector as well due to the need and emphasis made by the Government on Hydro Power energy.

In LOLC the future Key sectors to watch – Plantation, Leisure, Power, and Financial Services

Sectors such as Trading, Insurance and others would perform above average considering the overall picture but the Key sectors mentioned above will outperform in coming quarters delivering superior results.

Share Value

Current Trading @ ---------- Rs 135 – Rs 143
Issued Quantity ------------ 475,200,000
PAT as at 30.06.10 –-------- Rs 3,854Bn (6 months ended)
EPS ------------------------ 3,854/475.2 --------- 8.11( 6 months)
Annualized ------------------ 8.11/2*4 -----------16.22
PE as at 27.01.11 ------------- 139/16.22 --------- 8.57
Projected price @ 12 Market PE --------- 16.22*12--------- Rs 194.64

Conclusion – LOLC has a high potential over breaking the above barrier since it is calculated based on last quarter earnings. We have the opinion it would have mega rally over next couple of weeks with its financial reports are out. It is a value gem that many have not concentrated well and we believe we should buy and sell securities with a reason. LOLC is a stock that is equal to GOLD in current market sentiments in SHORT, MEDIUM, LONG TERM.

hasi84

hasi84
Moderator
Moderator

ONTHEMONEY wrote:Lanka Orix Leasing Company (LOLC) came in to the market via a joint venture between Orix Corporation Japan and International Finance Corporation 30 years ago.LOLC is a pioneer entity in Sri Lanka.

Orix Corporation becoming the parent to LOLC is a pioneer Single Largest Leasing Company in the world with its substantial presence in 27 countries worldwide and listed in Stock Exchanges of Tokyo and New York.

LOLC is committed to pursuit a management strategy that enables the group to contribute to the betterment to all stakeholders prioritizing the Shareholders.

LOLC has over 70 customer service touch points island wide.

LOLC EARNINGS IN LAST QUARTER(Revenue)

Rs Mn

Variable-------------As at 30.06.10 -------- As at 30.09.10

Financial Services -----1,494 Mn ------------ 3,626 Mn
Plantation ------------ 193 Mn ------------- 1,359 Mn
Trading -------------- 113 Mn ------------- 372 Mn
Leisure -------------- 7 Mn --------------- ( 114) Mn
Power & Energy ------ 12 Mn -------------- 8.535 Mn
Others -------------- (716) Mn ----------- (758)Mn
Insurance ----------- (0.8)Mn ------------ (4.049) Mn
Total ----------1,150 Mn ( 1.150 Bn) ---- 4,529 Mn ( Rs 4.529 Bn)

By looking at QoQ growth of LOLC it well evident the diversified company has extreme earnings from Financial Service, Plantation, Trading in particular. The Financial Services, Plantation and Trading sectors displaying QoQ growth rate of 142%, 604%, 229%.

During recent past we have observed a mega price hike in Plantation products which will have a highly positive contribution in coming quarters towards Plantation Revenue of LOLC .(Pussallawa Plantation and Gal Oya will contribute in large numbers to the Top line in coming Quarters)

Although the Leisure sector indicates a loss it will be streamlined with the recent developments in the Tourism industry. Yield will be generated in last 2-3 quarters in 2011.

Also we can expect an increase Revenue in Power & Energy sector as well due to the need and emphasis made by the Government on Hydro Power energy.

In LOLC the future Key sectors to watch – Plantation, Leisure, Power, and Financial Services

Sectors such as Trading, Insurance and others would perform above average considering the overall picture but the Key sectors mentioned above will outperform in coming quarters delivering superior results.

Share Value

Current Trading @ ---------- Rs 135 – Rs 143
Issued Quantity ------------ 475,200,000
PAT as at 30.06.10 –-------- Rs 3,854Bn (6 months ended)
EPS ------------------------ 3,854/475.2 --------- 8.11( 6 months)
Annualized ------------------ 8.11/2*4 -----------16.22
PE as at 27.01.11 ------------- 139/16.22 --------- 8.57
Projected price @ 12 Market PE --------- 16.22*12--------- Rs 194.64

Conclusion – LOLC has a high potential over breaking the above barrier since it is calculated based on last quarter earnings. We have the opinion it would have mega rally over next couple of weeks with its financial reports are out. It is a value gem that many have not concentrated well and we believe we should buy and sell securities with a reason. LOLC is a stock that is equal to GOLD in current market sentiments in SHORT, MEDIUM, LONG TERM.

Thanks for you analysis "OnTheMoney" but there are few flaws in your analysis:

1. you have ignored "minority interest" in you EPS calculation: the minority interest for the first 6 months is 1,333mn. the EPS for the first 6 months is (3,854 - 1,333)/475.2 = 5.31
2. it is also important to note that there was an one off non recurring earning coming through the mark-market valuation of 1.7bn: when calculating forward earnings non recurring income should be stripped out!

I would estimate forward earnings as follows (just a rough estimate ignoring future growth):
annualised earnings adjusted to ignore the mark-market valuation =(3854-1700)*2 = 4,308mn
% of equity to the parent = 2521/3854 = 65.4%
Annualised Earnings adjusted for minority interest = 4,308mn* 65.4% = 2,818mn
EPS = 2,818,/ 475.2 = 6.16
PE = 139/6.16 = 22.7

but please note the following short comings in the above valuation:

1. the % of equity to the parent in future quarters might be much higher (unusually high in last q due to the mark-market valuation adjustment on browns equity portfolio)

2. LOLC is an entity that is expanding rapidly so we need to account for the growth in earnings...I havent studied LOLC in detail as yet so I'm not certain on the % growth in future earnings. With the recent budgetary concessions to the finance sector, govt emphasis on developing the SME sector, and expected improvement of its leisure sector I expect LOLC to benefit a great deal and report a high growth in future earnings.

Due to the reasons highlighted above I do think even at an overstated PE of 22.7 the share is quite attractive considering its diversified nature!



Last edited by hasi84 on Sat Jan 29, 2011 4:31 pm; edited 3 times in total

BullionStock

BullionStock
Senior Equity Analytic
Senior Equity Analytic

@hasi84

What do you mean by minority interest?
Is that a cost of interset they pay out to external parties ?

hasi84

hasi84
Moderator
Moderator

BullionStock wrote:@hasi84

What do you mean by minority interest?
Is that a cost of interset they pay out to external parties ?

Minority interest (also known as Non-controlling interest) in business is an accounting concept that refers to the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is always less than 50% of outstanding shares, else the corporation would cease to be a subsidiary of the parent. Minority interest belongs to other investors and is reported on the consolidated balance sheet of the owning company to reflect the claim on assets belonging to other, non-controlling shareholders. Also, minority interest is reported on the consolidated income statement as a share of profit belonging to minority shareholders.

For example lets say entity A holds 60% of entity B's voting rights, and B made £1000 profit in a financial year. In entity A's consolidated financial statement it will include the complete £1000 (as B is a subsidiary of A), but in reality it should only include 60% of the £1000. Therefore in the financial statement there will be a minority interest adjustment of £1000*40%. Hope that helps!



Last edited by hasi84 on Sat Jan 29, 2011 4:33 pm; edited 2 times in total

ss7097

ss7097
Manager - Equity Analytics
Manager - Equity Analytics

@hasi84

I'm new to CSE and not much understanding on terms. I need to know what would be the Projected share value according to your calculation.

hasi84

hasi84
Moderator
Moderator

ss7097 wrote:@hasi84

I'm new to CSE and not much understanding on terms. I need to know what would be the Projected share value according to your calculation.

I have not analysed LOLC in detail in order to provide a projected share price...sorry!

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