Beruflich Dokumente
Kultur Dokumente
LKR 212
LKR 245
Lubricants became a private monopoly in the mid 1990s after Ceylon Petroleum
Corporation privatized its Lubricants to Caltex, which is now part of the Chevron
Petroleum Group.
South Asia consumes an estimated 1,700 kilo tonnes of lubricants per year.
India is the leading lubricant-consuming country in the subcontinent by far,
accounting for an estimated 75% of the volume consumed, followed by Pakistan
and Sri Lanka
At Present the Public Utilities Commission of Sri Lanka (PUSL) is acting as the
shadow regulator for the lubricant sector by way of advising and assisting the
ministry of Petroleum Industries on policy and regulatory matters.
As at the end of year 2011, there were fourteen entities authorized to import,
export, sell, supply and distribute lubricants.
The local lube market is currently estimated at about LKR 6 Billion in terms of
Revenue.
The two authorised parties to blend and produce lubricants in Sri Lanka are
LLUB and Lanka IOC PLC.
During the year 2011, around 64% (33,440 KL) of the lubricant requirement was
produced (Blended) locally.
Around 87% of the blending was carried out at the lube blending plant of
LLUB while the balance 13% was produced by the lube blending plant belonging
to IOC. Local blending is mainly carried out in order to gain the advantage from
the prevailing import tariff differential between raw materials and finished
lubricants.
LKR. Mn
Recommendation:
Company
Chevron Ceylon Limited
Indian Oil Corporation Limited
8.40
8.40
6.90
4.50
3.00
BP France S.A.
2.00
1.70
0.90
0.20
3.00
1.10
0.0
0
100
Source: PUSL
Percentage
(%)
70%
Automotive
Industrial
16%
Marine
6%
4%
18,775
58,554
Greases
14,035
54,369
Other
4%
Source: PUSL
Source: PUSL
Rs. 000
Market
share %
56.90
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
LLUB
Lanka Indian
Ceylon
Exxon Mobil
Oil
Petroleum Asia Pacific
Corporation Corporation
Pte. Ltd
Limited
2009
2010
Laugfs
Holdings
Limited
2011
Company Overview
LLUB
Financials
Bloomberg Code
LLUB.SL
CSE Code
LLUB.N0000
Share Price
Rs. 212
Market
Capitalization
Rs. 2544 Mn
Rs.233
Rs. 35
52wk range
Rs.160.00 - 231.00
Chairman
Farrukh Saeed
CEO/ MD
Kishu Gomes
Beta Values /
ASI
Beta Values/
MPI
0.43
0.28
49% 51%
Public Holding
LLUB.N0000 Movement
350,000
250
300,000
200
250,000
150
150,000
100
Rs.
200,000
100,000
50
50,000
-
Volume
Closing Price**
Source: CSE
A fall in volume
of 1,935 KL for
LLUB, while
Total Market
volume
increased by
4,184 KL in 2011
60000
56.90%
73.00%
Volume (KL)
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
LLUB.Cm
Share Volume
LLUB recorded a LKR 2 Billion Profit after tax (PAT) in 2011 compared to 2010 in
which it earned a PAT of LKR1.5 Billion. Its a 33% PAT growth, with revenue growing
at 17%.
LLUB has further recorded a growth rate of 19.2% on its PAT, and a top line growth of
10.2% for 1-3Q 2011-2012. However, LLUB recorded a fall in top line by 2.8% QoQ for
Q3 2012. And fall in bottom line by 13.5% QoQ for Q3 2012. As highlighted by CEO
Mr. Kishu Gomes, this fall in both top line and bottom line is attributable to macro
economic conditions faced by Sri Lanka such as an increase in duty on vehicle imports
to minimise currency drain out of the country.
Export Market
LLUB exports 5% of its lubricants mainly to Maldives and Bangladesh. LLUB has seen
a fall in growth in its Bangladesh sales whereas it has experienced the opposite in
Maldives. LLUB entered Maldives in 2003 and has been identified as a key player in
the lubricant market industry as one of the major exporters and currently enjoys a
10% market share with expectation of a 5% growth in the near future. It has also
announced its commitment to the Damas Company in Maldives by signing an
agreement spanning 5 years to distribute Chevrons product range.
With this new agreement Caltex will further penetrate into the Maldivian lubricant
market by focusing on marine transportation and power generation, going one step
further from supplying lubricants to the transport and fisheries sector.
Sri Lankan economy recorded a steady export growth of 4% in the past 10 to 12
years but saw a decrease of 2% last year when compared to exports ,despite the
prevailed general economic conditions, to Maldives which has grown from10 % to
12% in its lubricant exports.
Reuters Code
50000
40000
30000
20000
10000
2009
2010
2011
2009
2010
LLUB Prodcution
Exxon Mobil Asia Pacific
2011
LIOC Production
Source: PUSL
Total
Top line Growth
Revenue
LLUB has 3 main revenue generating sources: Automotive, Industrial
and Exports which contribute approximately 62%, 33%, and 5 %
respectively to the total group revenue .
The automotive sector -The transport and communication sector of Sri
Automotive
Exports
Industrials
62%
Lanka grew by 11% in 2011 in comparison to 11.9% growth in 2010.
5%
33%
Considerable growth was posted by transport sector accounting to
1.3%. The Growth of the transport sub sector could be directly
attributable to the increase in new motor registration by 46.3% in 2011. As automotive sector is LLUBs largest revenue
generating segment Sri Lankas Transport sector growth directly affects LLUBs main stream of revenue.
6000000
A 157% increase
of new vehicle
registatrions
from 2009 to
16,000.00
14,000.00
5000000
3000000
2000000
vehicles in 2009
Forecasted
10,000.00
Fall in import
duty in 2010
increased SL
vehicle
population
(+17% in 2010
8,000.00
Revenue Rs. Mn
Vehicle Units
12,000.00
4000000
6,000.00
4,000.00
2,000.00
0.00
LLUB Sales
0.2
14000
0.15
0.1
8000
Percetange
10000
0.05
6000
4000
0
2000
0
-0.05
Industrial
Export
Automative
Revenue growth %
0.635
0.119
0.625
0.118
MVR
0.630
BDT
Revenue Rs.Mn
12000
0.620
0.615
0.117
BDT
MVR
Source: Forex report & KICL Research
100.00
8,000
80.00
6,000
60.00
4,000
40.00
2,000
20.00
0.00
Cost of Sales
6000
Stable GP margin at 33.33%
5000
35.00%
30.00%
LKR Million
40.00%
25.00%
3000
20.00%
15.00%
2000
Percentage
120.00
FORECASTED
US $ Per Barrell
10.00%
1000
5.00%
0.00%
However according to KICL forecast we believe that Crude oil prices will be stable around US $ 90 levels from 2013 to
2015, which will stabilise LLUBs gross profit margins at 33.33% during the period from 2013 to 2015. Since any changes
in crude oil prices that affect LLUB cost of sales will be partially passed on as price increases to its customers.
LLUB recorded a Gross profit of LKR 3,475 Mn in 2011 an increase of 14% compared to LKR 3,045 Mn recorded in
2010.However gross profit margin has fallen from 32.15% in 2010 to 31.48% in 2011,an approximate fall of 4.14% fall in
gross profit margin when compared with 2009. This is mainly due to the rise in crude oil prices from US $ 61.95 in 2009
to US $ 94.89 in 2011.
6000
0.3
0.25
5000
19.98%
0.2
15.44%
0.15
4000
LKR MN
5.90% 0.1
4.31%
3000
-3.60%
-8.58%
2000
1000
6.02%
5.86%
0.05
0
-0.05
-0.1
-0.15
2007
2008
2009
2010
Operating Profit(EBIT)
Distribution and Administration Cost Growth YoY %
Gross Profit
EBIT Margins
Overall EBIT grew by 24.68% YoY to LKR 2,725 Mn in 2011. KICL forecast an EBIT of LKR 3,830 Mn in 2015. KICL further
foresee an EBIT margin of 26.27% in 2015.Positive Volume growth
33%
35%
coupled with price increases are expected to drive EBIT margins.
LLUBs healthy cash position paid off with a finance income of LKR
52.5Mn in 2007 to a high of LKR 99 Mn in 2009 and thereby a
sudden fall to LKR 43 Mn in 2011, attributable to a fall in interest
income from LKR 79 Mn in 2010 to LKR 35 Mn in 2011.
The company achieved a net profit of LKR 2,001 Mn in 2011, which
was the highest net profit recorded during LLUBs presence in the SL
lubricant market. This is partially attributable to the reduction in the
corporate tax from 35% in 2010 to 28% in 2011.
30%
26%
25%
20%
20%
12%
15%
10%
5%
0%
2007
2015 (E)
LLUB net profit margins increased from 12.46 % in 2007 to 18.13% in 2011. We foresee net profit margins of LLUB to be
stable around the level of 19% for the year 2012 and going into 2015.
Fall in Dividend payment and rise in Retention rate due
to the movement of the Lubricant Blending Plant.
70.00
60.00
100%
50.00
80%
40.00
Rs.
Rs. Mn
120%
60%
30.00
40%
20.00
20%
10.00
0%
0.00
1
Retention ration
Dividend payout
EPS
2007
(LKR ' Mn)
2008
2009
2010
DPS
2011 2012(E)
2013(E)
2014(E)
2015(E)
Turnover
Rs.
8654.30
8900.30
8691.00
9,471.00
11,040.00
12265.96
13,004.09
13,765.85
14,578.06
Net Profit
Rs.
1078.30
948.00
1495.00
1501.00
2001.61
2408.49
2553.42
2703.00
2862.48
YoY
-12.08%
57.70%
0.40%
34.25%
19.52%
6.02%
5.86%
5.90%
EPS
Rs.
YoY
(X)
PEG
(X)
DPS
Dividend yield at LKR
212/=
ROE
Rs.
Rs.
PBV
(X)
8.99
7.9
12.46
12.51
16.79
20.07
21.28
22.53
23.85
-12.08%
57.70%
0.40%
34.25%
19.52%
6.02%
5.86%
5.90%
26.84
12.46
16.95
12.71
10.56
9.96
9.41
8.89
-2.22
0.22
42.23
0.38
0.52
1.66
1.61
1.51
6.25
5.25
12.00
12.25
9.00
10.04
18.09
20.27
21.47
33.92
40.38
17.67
17.31
23.56
21.13
11.72
10.46
9.87
0.00
0.44
0.68
0.67
0.63
0.55
0.54
0.54
0.54
15.28
17.93
18.39
18.65
26.32
36.36
39.55
41.80
44.19
8.05
5.83
5.36
5.07
4.80
Profitability ratios
Gross Margin
26.41%
23.53%
35.62%
32.15%
31.48%
33.33%
33.33%
33.33%
33.33%
EBIT Margins
18.55%
15.56%
25.83%
23.94%
24.81%
26.27%
26.27%
26.27%
26.27%
EBT Margins
19.16%
12.46%
16.66%
10.65%
26.97%
17.20%
24.64%
15.85%
25.20%
18.25%
27.27%
19.64%
27.27%
19.64%
27.27%
19.64%
27.27%
19.64%
Chevron Lubricants Lanka Financial Performance for the Year 2012 Quarter 1 Quarter 3.
LLUB Quarterly Financial Performance 2012
3QFY12
Revenue
Cost of Sales
Gross profit
- Distribution costs
- Administrative expenses
Other income
Operating profit
Finance income
Finance costs
Profit before Income tax
Income tax expense
Profit for the period
Total comprehensive income for the period
Basic earnings per share
2,995,884.00
-2,066,055.00
929,829.00
-129,225.00
-127,625.00
2,528.00
675,508.00
46,647.00
-230.00
721,925.00
-199,938.00
521,987.00
521,987.00
4.35
3QFY11
Change %
3,084,346.00
-2,066,357.00
1,017,989.00
-100,798.00
-97,600.00
104.00
819,695.00
15,547.00
-291.00
834,951.00
-231,509.00
603,442.00
603,442.00
5.03
1-3QFY12
-2.87
-0.01
-8.66
28.20
30.76
2,330.77
-17.59
200.04
-20.96
-13.54
-13.64
-13.50
-13.50
-13.52
1-3QFY11
8,892,260.00
-5,982,627.00
2,909,633.00
-302,706.00
-357,415.00
6,676.00
2,256,188.00
134,360.00
-17,261.00
2,373,287.00
-657,025.00
1,716,262.00
1,716,262.00
14.30
Change %
8,065,848.00
-5,500,742.00
2,565,106.00
-305,216.00
-292,858.00
12,837.00
1,979,869.00
22,595.00
-11,004.00
1,991,460.00
-552,283.00
1,439,177.00
1,439,177.00
11.99
10.25
8.76
13.43
-0.82
22.04
-47.99
13.96
494.64
56.86
19.17
18.97
19.25
19.25
19.27
Revenue Performance
Millions
10.00
9.00
8.00
7.00
6.00
5.00
4.00
-2.87% QoQ
3.00
2.00
1.00
0.00
3QFY11 3QFY12
10.25% QoQ
1-3QFY11 1-3QFY12
Even though LLUBs top line has decreased by 2.87% the cost of sales remain at almost same levels (Q32012).LLUB was
unable to reduce their heavy cost of sales due to high fixed cost and running cost in order to maintain their blending plant
situated at Kolonnawa (Which is producing 50000 MT capacity).Further LLUB has increased inventory by 20% (as at Sep
30th 2012) compared to last year. This is a clear indicator that their stocks are not moving as swiftly as during periods
when they were operating as a monopoly.
Due to high cost of sales LLUB was unable to maintain profit margins. By looking at past trends LLUB has always been
able to pass on the increase in cost of the inputs to their customers in terms of higher prices. But in 3QFY2012 LLUB
might have not been able to pass these above mentioned costs due to high competition in the Sri Lankan market which
created high amount of stagnant inventory.
Millions
6.00
-19%
5.00
-2%
4.00
-19%
5%
3.00
-23%
2.00
17%
1.00
-
Q1 2012
Revenue
Q2 2012
Gross Profit
Q3 2012
Net Profit
200.00
190.00
180.00
Rs.
185.00
182.00
183.50
170.00
172.00
160.00
165.50
150.00
140.00
Q1
Q2
Q3
Highest Pric 2011
Unlicensed operators
Even though there are only 14 legal players in the market there are number of other sellers who sell lubricant products
without obtaining a license. This is a common issue faced by the industry as a whole. Still there is no effective regulatory
framework in order to stop these illegal operations.
Improper service by one outsourced party will have a huge impact on the whole production process which will result in a
negative impact on LLUBs performance in the long term. Smooth production processes are always expected in order to
face the strong competition. Therefore LLUB should maintain their strong and healthy relationship with outsourced
parties and also their contingent plans should be accurate and up to date in order to facilitate any emergency.
5000000
Fall in Automotive
revenue due to loss of
marketshare
8000
7000
6000
4000000
5000
Rs. Mn
6000000
Vehicle Units
4000
3000000
3000
2000000
2000
1000000
1000
0
Vehicle Population
Automotive Revenue
Source: KICL Research & ministry of Finance
Furthermore, with the economic crisis faced in developed countries KICL expect crude oil prices to dip in the world
market which will directly impact to LLUBs main raw material which is base oil. Due to high correlation with base oil and
crude oil KICL expect a positive impact on LLUB cost structure in the near future.
However, KICL dont expect any dramatic change on LLUB administrative and distribution activities in near future.
As a good dividend payer KICL does not expect any drastic change in the dividend policy in near future. Due to the
movement of the manufacturing plant KICL expect reduction in the dividend payout ratio in order to facilitate investment
requirements. KICL expect LLUB will maintain 90% levels retention ratio after 2014.
Valuation
KICL valuation is based on the Dividend Discount Model (DDM). We considered DDM model due to the high dividend
payout ratio of LLUB. KICL expect that LLUB will continue to maintain the current dividend payout ratio because it is a one
of the reasons why investors are attracted to this stock.
KICL has improved our forecast for year 2012(E), revenue to be LKR 12,265 Mn and to improve further to LKR 13,004Mn
in 2013(E). KICL has anticipated that crude oil prices will remain at the same level or even dip in the world economy
resulting in a favourable outcome for the lubricant market which will ultimately impact LLUBs bottom line.
In our valuation model we have assumed that the company will have 5% long term growth considering LLUB retention
ratio and return on equity. We have used 12.89% as cost of equity in order to discount the dividends. We have calculated
12.89% of cost of equity considering risk free rate, beta and market risk premium.
Risk free rate
Beta
Market risk premium
Based on forecasted values net profit of LKR 2408.49 Mn for FY12E amounts to a PE of 10.56 X at the current price of LKR
212.Based on 2013E and 2014E expected earning we expect a PE of 9.96X and PE 9.41 X respectively. The sector PE
stands at 10.3X.Based on sector market capitalization almost 22% of the total sector market capitalization is contributed
by LLUB which is the best contributor to the sector. This is a clear indicator that LLUBs performance has had a direct
impact to the Manufacturing sector index performance.
Based on KICL forecasted figures LLUBs stock has a target value of LKR 245/=.Based on valuation KICL have concluded
that LLUB counter is undervalued. Considering the macro economic factors as well as qualitative and quantitative
factors KICL is likely to provide Long term buy recommendation.
Annexure 01
Shareholder Information
20 Largest Shareholders as at 30th September 2012
Name of Shareholder
Number of
Shares
61,200,000
10,629,700
51.00
8.86
4,563,700
3,580,800
3,414,600
3,310,800
2,000,000
1,400,000
1,155,135
1,144,800
1,000,000
953,597
874,000
770,000
650,000
609,400
594,800
500,000
3.80
2.98
2.85
2.76
1.67
1.17
0.96
0.95
0.83
0.79
0.73
0.64
0.54
0.51
0.50
0.42
476,500
400,000
99,227,538
0.40
0.33
82.69
DISCLAIMER: This document is a research report prepared by Kenanga Investment Corp Ltd based on the information contained in the
document the report has been compiled from sources that we believe to be reliable: however we do not hold ourselves responsible for its
completeness or accuracy. All opinions and estimates included in this report constitute of our judgment to this date and are subject to change
without notice. Information contained in this document is not and should not be construed as an offer, or a solicitation of an offer, to buy or sell
any security or other financial instruments. Kenanga Investment Corporation Ltd, or its affiliates and/ or its directors, officers and employees
shall not be in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the content of
this document.