The company is a dominant home appliances manufacturer in Sri Lanka including refrigerators, washing machines, air conditioners and with newly introduced solar electricity systems. Also it has the franchise rights for some of the world renowned brand names such as LG.
The company's revenue is highly correlated to consumer spending power and the condition of the economy in the year of operation hence we could see a volatile revenue pattern for the last five years. However company has managed to maintain its PAT margin around 3% to 4% for the last few years. For the nine months ended 31st December company has recorded a pat margin above 4% with a PAT of Rs109mn helped by 49% revenue growth YoY. Q3 2015/16 performance are such that the company is in a great position to record its highest revenue and NPAT during their past ten year period.
Opportunities & Challenges
The budget 2016 has proposed to reduce imported taxes on home appliances with an aim to make Sri Lanka a shopping paradise similar to Singapore and this initiative will impact positively to the company in terms of higher revenue and better margins. However the company require a consistent exchange rate to keep from falling their margins while consumer spending on home appliances will be the key in achieving growth in volumes.
Given the robust performance of the company during the 9months ended 31st December 2015, we could expect a NPAT of over Rs140mn for the year 2015/16 which translate into a forward PE multiple of 4.2x with a PBV ratio of 0.7x at a market price of Rs114. If the stock to trade at a 50% discount to sector together with high demand due to very much illiquid nature of the stock the stock could be valued over Rs240 in near term.
It is recommended strongly to start accumulate this stock considering its value and the discount prices available in the market.