Overseas Realty (Ceylon) PLC [OSEA.

N0000]
1Q2014 EARNINGS NOTE BUY
YEAR END DEC (LKR mn)

1Q2013

2013

1Q2014

2014E

Revenue

906

4,857

1,710

5,760

Net Profit

515

2,640

716

2,770

EPS (LKR)

0.61

2.89

0.85

3.28

11

(1)

39

13

EPS (Net of Fair Value Gain)

0.33

1.79

0.55

2.26

EPS Growth (Net FV Gain %)

590

67

67

26

DPS

1.45*

0.37

Dividend Yield (%)

1.5

1.8

PER (x)

11.2

8.9

EPS Growth (%)

Current Price (LKR)

20.2
Target Price (LKR)

25.4
Recommendation

BUY
Date
29-APR-14

Market Capitalization (LKR):17bn

Market Capitalization (USD): 130mn

NAV/Share (LKR)

28.6

28.7

29.5

32.0

Discount to NAV (%)

(29)

(30)

(31)

(37)

OSEA 1Q2014 EPS is up 39% YoY to LKR 0.85. CAL is maintaining

2014E EPS at LKR 3.28 (+13% YoY). Profit growth stems primarily from
revenue recognized on the sale of apartments (percentage completion
method), while rental income grew c.20% YoY due to avg. rental
revision to LKR 260psf at the WTC towers. The WTC towers remain
Colombos A-grade commercial space and enjoy c.90% occupancies.
In 2014E, CAL expects revenue from sale of apartments to reach LKR
3.9bn (+22% YoY) and rental income to reach LKR 1.8bn (+12% YoY).
Our target price of LKR 25.4 (+26%) is based solely on WTC-only
reversionary rentals. BUY

6mos avg. Daily T/O (USD): 21k

Free Float: 16.6%
6mos Price H/L (LKR): 21.7/17.6
* Includes a one-time dividend of LKR
1. For 2014E, CAL maintains a c.10%
dividend p/o, in-line with management
guidance

1Q2014 EPS net-FV +64% YoY EPS net-FV of LKR 0.55 was driven primarily by
apartment sales. GP margins on apartment sales improved to 12% from 9% in 1Q2013.
For 2014E, CAL expects GP margins to improve to c.40% from 37% in 2013 as GP
margins improve on apartment sales (to c.16% from 11% in 2013). CAL expects EPS
net-FV to grow by 26% to LKR 2.26.
207 units in Phase II sold and recognized by end 2014 CAL expects a vacancy rate of
c.5% at the Phase II development of 218 units by end-2014E. We have not accounted
for any revenue from Phase III sales till 2015E and forecast 132 units sold by end2015E. CAL anticipates the commercial development to commence in 2016E, which
would uplift rental income once complete.
CALs LKR 25.4 target price is based on WTC reversionary rentals only At current
prices, OSEA is trading at a 37% discount to 2014E NAV. CALs target price is LKR 25.4
(+26%), based on rental revisions at OSEAs WTC towers only (a full reversion to NAV
may provide +58%). BUY

CAL Research
Level 5, Millennium House,
No.46/58, Nawam Mawatha,
Colombo 2
Tel: +94 11 231 7786
Email: purasisi@cal.lk

Purasisi Jinadasa

REFER p.4 FOR DISCLAIMER

Appendix 1 Income Statement

LKR thsd
Rental Income
Sale of Apartments
Other Services
Total Revenue
Direct Operating Expenses
Cost of Sales of Apartments
Gross Profit
Fair Value Gain on Investment Property
Administration Expenses
Marketing & Promotional Expenses
Finance Costs
Finance Income
Profit Before Tax
Income Tax Expense
Profit After Tax for the Year
Minority Interest
Profit
EPS
EPS (net-FV)
PER (x)
NAV/Share (LKR)
Discount to NAV

2011

2012

1Q2013

2013

1Q2014

2014E

2015E

2016E

850,425
1,587,516
56,627
2,494,567
(337,755)
(1,230,613)
926,200
2,122,860
(196,287)
(73,946)
(171,907)
159,456
2,766,374
(25,257)
2,741,117
(60,018)
2,681,099

1,339,257
554,441
60,421
1,954,119
(425,936)
(396,546)
1,131,636
1,563,310
(200,256)
(60,413)
(173,120)
257,754
2,518,911
(51,275)
2,467,636
2,467,636

343,616
546,548
15,575
905,739
(105,923)
(465,562)
334,254
232,463
(44,713)
(10,337)
(28,346)
70,028
553,349
(10,257)
543,092
(28,356)
514,736

1,589,573
3,190,047
77,404
4,857,024
(423,853)
(2,635,185)
1,797,986
929,852
(207,562)
(59,994)
(42,558)
223,177
2,640,901
406
2,641,307
(204,399)
2,436,908

423,855
1,256,207
30,825
1,710,887
(106,224)
(1,047,052)
557,611
250,810
(56,049)
(12,160)
(23,035)
87,617
804,794
(11,316)
793,478
(76,983)
716,495

1,787,828
3,895,268
79,745
5,762,841
(464,835)
(2,998,755)
2,299,251
861,541
(374,585)
(90,480)
(12,728)
293,554
2,976,553
(60,591)
2,915,961
(145,798)
2,770,163

1,797,797
4,545,618
157,488
6,500,903
(467,427)
(3,477,306)
2,556,170
991,793
(422,559)
(102,068)
(20,339)
354,063
3,357,060
(68,337)
3,288,723
(164,436)
3,124,287

1,820,113
3,788,015
159,443
5,767,571
(723,513)
(2,864,192)
2,179,866
1,084,230
(374,892)
(90,555)
(1,916)
346,843
3,143,576
(63,991)
3,079,585
(153,979)
2,925,606

3.18
0.66

2.93
1.07

0.61
0.33

2.89
1.79

0.85
0.55

3.28
2.26

3.70
2.53

3.47
2.18

6.4
24
-17%

6.9
27
-26%

NA
NA
NA

7.0
29
-30%

NA
NA
NA

6.2
32
-37%

5.5
36
-43%

5.8
39
-48%

Source: Company Reports and CAL Estimates

Appendix 2 Balance Sheet

LKR thsd

2011

2012

2013

2014E

2015E

ASSETS
Non-Current Assets
Investment Property
PP&E
Intangible Assets
Investments in Subsidiaries
Deferred Tax Assets

17,884,033
394,912
25,709
-

19,459,463
644,130
18,405
-

20,389,315
703,210
17,734
42,475

21,191,094
838,571
17,484
-

22,182,887
997,564
23,140
-

Current Assets
Inventories
Trade and Other Receivables
Amounts due from Related Parties
Income Tax Recoverable
Short term Investments
Cash Balances
TOTAL ASSETS

3,167,476
1,517,096
24,999
315,261
1,881,603
25,211,088

4,129,474
1,839,280
13,602
1,810,826
27,915,180

5,350,422
1,449,718
25,521
1,235,743
1,673,964
30,888,102

6,742,524
1,072,662
24,999
315,261
3,352,309
33,554,904

5,980,831
689,969
24,999
1,418,363
4,106,564
35,424,318

EQUITY AND LIABILITIES

Equity Holders
Stated Capital
Revaluation Reserve
Retained Earnings
Minority Interest

10,186,085
164,664
9,266,061
963,129

10,186,085
216,071
11,564,200
942,942

10,186,085
238,875
13,752,284
1,147,341

10,186,085
238,875
15,299,265
1,293,132

10,186,085
238,875
18,110,981
1,457,560

Non-Current Liabilities
Interest Bearing Loans and Borrowings
Non-interest Bearing Loans
Post-employment Benefit Liability

245,817
23,128

2,231,813
26,559

145,805
17,666

2,539,809
11,041

95,805
7,176

Current Liabilities
Trade and Other Payables
Rental and Customer Deposits
Amounts due to Related Parties
Interest Bearing Loans and Borrowings
Non-interest Bearing Loans
Income Tax Payable
Dividends Payable

615,262
1,088,412
9,442
2,635,530
844
10,335
2,380

493,227
2,082,488
19,652
81,057
49,353
19,158
2,576

1,588,434
1,888,488
12,041
1,888,483
19,702
2,896

1,642,735
2,209,316
12,041
100,008
19,702
2,896

1,828,377
2,347,361
12,041
1,117,458
19,702
2,896

25,211,088

27,915,181

30,888,100

33,554,904

35,424,318

TOTAL EQUITY AND LIABILITIES

Source: Company Reports and CAL Estimates

DISCLAIMER

This document has been prepared and issued on the basis of publicly available information, internally developed
data and other sources, believed to be reliable. Capital Alliance Securities (Private) Limited however does not
warrant its completeness or accuracy. Opinions and estimates given constitute a judgment as of the date of the
material and are subject to change without notice. This report is not intended as an offer or solicitation for the
purchase or sale of any financial instrument. The recipient of this report must make their own independent
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Contacts
Research Team
Tel No: +94 11 231 7777 (General)
Email: teamresearch@cal.lk
Head of Research
Purasisi Jinadasa
Tel No: +94 11 231 7786
Email: purasisi@cal.lk
Udeeshan Jonas
Tel No: +94 11 231 7746
Email: udeeshan@cal.lk
Thushani de Silva
Email: thushani@cal.lk
Devin Karunaratne
Email: devin@cal.lk
Christeen Silva
Email: christeen@cal.lk
Teresh Amaratunga
Email: teresh@cal.lk