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C T SMITH STOCKBROKERS (PVT) LTD

A Member of the Colombo Stock Exchange

3Q11
RESULTS FLASH

Hemas Holdings
Key Data
Market Cap (US$ mn) Shares in Issue (mn) Estimated Free Float (%) 3M Avg. Daily Turnover (US$) 12M High / Low (Rs) 12M / YTD Price Change (%) 222.8 512.0 27.9 152,024.1 53.5 / 23.6 99.2 / 8.6

HHL Rs 48.20
Summary

Diversified Holdings
23 February 2011
Thinushka Soysa

HHL reported a 3Q11 net profit of Rs.311mn (up 26% YoY), slightly below our expectations, resulting in a 1-3Q11 net profit of Rs.899mn (up 59% YoY). 3Q11 net profit was driven by strong returns from Healthcare (up 137% YoY) and Transportation (up 113% YoY) sectors. Due to lower earnings from the key FMCG sector, we have revised our forecast for FY11E down by 5.6% to Rs.1,275mn and FY12E down by 7.6% to Rs.1,716mn. The share has underperformed the market YTD, rising 9% vs. the ASPI’s 14% rise and currently trades at 19.4X and 14.4X on revised FY11E and FY12E earnings respectively, at a significant discount to its peers. We believe the promising earnings growth potential in the medium to long term via new investments in healthcare and leisure, and sustained earnings in transportation and FMCG have not been fully recognized by investors. Thus with significant probability for an upward re-rating comparative to peers, investors who wish to benefit from the impending boom in Sri Lanka’s economy are advised to accumulate the share on perceived price weakness.

Major Shareholders - 31 Dec 10
A Z Holdings Saraz Investments Bluberry Investments Am agroup Ltd Em ployees Provident Fund

%
17.7 16.9 16.8 16.8 5.2

Valuation Ratios
31 March EPS (Rs) EPS Growth (%) P/E Ratio (X) PEG Ratio (X) BVPS (Rs) ROE (%) FY11E 2.5 41.4 19.4 0.5 17.0 15.5 FY12E 3.4 34.6 14.4 0.4 19.7 18.3

NP after Pref.Div. (Rs mn) 1,274.8 1,715.6

Hemas Holdings (HHL) is a conglomerate with interests in Fast Moving Consumer Goods (FMCG), Healthcare, Transportation, Power Generation and Leisure. HHL’s 3Q11 net profit rose 26% YoY to Rs.311mn, slightly below our expectations, resulting in a 1-3Q11 net profit of Rs.899mn (up 59% YoY). 3Q11 net profit was driven by strong returns from the Healthcare (up 137% YoY) and Transportation (up 113% YoY) sectors. Revenue rose 19% YoY to Rs.4,691mn in 3Q11, driven by a rise in revenue from Healthcare (up 27% YoY) and Leisure (up 52% YoY). As a result, 1-3Q11 revenue rose 18% YoY to Rs.13,363mn. Gross profit margin though, declined 2% to 32% in 3Q11, likely dragged down by a decline in the key FMCG sector.

Relative Share Price Performance (%)
250 200 150 100 50 23-Feb-10 20-Aug-10 21-Feb-11
HHL

ASI

HHL: Summary Income Statement (Rs mn) Revenue Cost of Sales Gross Profit Dividend Income Change in Fair Value of Inv. Property Other Operating Income Operating Expenses Operating Profit Net Finance Cost Profit Before Tax Tax Profit After Tax Minority Interest Net Profit Gross Profit Margin (%) Operating Margin (%) Net Profit Margin (%) Effective Tax Rate (%) Interest Cover (X)

3Q10 3,955.7 -2,605.8 1,349.9 0.1 6.0 -25.1 -955.7 375.2 -55.4 319.7 -39.9 279.9 -32.5 247.4 34.1 9.5 6.3 12.5 6.8

3Q11 4,691.1 -3,182.9 1,508.2 0.0 -12.0 45.8 -1,121.7 420.2 -40.7 379.5 -38.1 341.4 -30.0 311.4 32.2 9.0 6.6 10.0 10.3

% YoY 18.6 22.1 11.7 N/A N/A N/A 17.4 12.0 -26.6 18.7 -4.5 22.0 -7.5 25.9 -2.0 -0.5 0.4 -2.4 52.6

1-3Q10 11,304.7 -7,575.6 3,729.1 0.1 18.0 22.8 -2,870.2 899.8 -238.5 661.3 -112.3 549.0 15.7 564.7 33.0 8.0 5.0 17.0 3.8

1-3Q11 13,362.9 -9,030.3 4,332.6 0.1 0.0 112.1 -3,198.2 1,246.5 -124.1 1,122.5 -147.8 974.7 -75.6 899.1 32.4 9.3 6.7 13.2 10.0

% YoY 18.2 19.2 16.2 0.0 N/A 392.3 11.4 38.5 -48.0 69.7 31.6 77.5 N/A 59.2 -0.6 1.4 1.7 -3.8 166.3

Please refer disclaimer at the end of the report