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VALUATION Forecast KGAL to post net earnings of LKR991.6mn in FY2012E (up 18% YoY) and reach LKR1,037.1mn in FY2013E (up 5% YoY). In terms of a price earnings multiple based valuation, we believe that the share is fairly valued at 5.3X forecast FY2012E net profits and 4.9X forecast FY2013E net profits showing attractive value potential. Based on an analysis of a historic 52 week price movement (Voting), we derived a price movement of +/-LKR 52.7 on a mean of LKR159.7 Hence, the flux is approximately +/- 33%. Furthermore, if it is assumed that the same upside price movement is seen pushing the price to LKR266.0 levels (from a current level of LKR200.0) the forward PE multiples would be 6.7X for FY2012E and 6.6X for FY2013E. Furthermore, when adjusting KGAL’s returns to its risk (deviation of the share price), Sharpe ratio of the counter is at 2.5 whilst the Plantation sector is at 2.8. KGAL’s risk adjusted return is lower because its deviation has been much higher at 44.7% as opposed to the sector’s deviation of 17% over the past one year trading period. Hence, KGAL shows a lower risk adjusted return when compared to the sector.
KGAL.N - * Price of LKR266.0 is based on incorporating an upside growth of 33%, derived via 52 week standard deviation of market price, whilst LKR272.7 is based on the maximum appreciation during Past 52 weeks.
KGAL.N - * Price of LKR266.0 is based on incorporating an upside growth of 33%, derived via 52 week standard deviation of market price, whilst LKR272.7 is based on the maximum appreciation during Past 52 weeks.
