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Revenue to remain even, supported by stable commodity prices
BRS forecasts the NAMU top line to remain stable at LKR 2.05bn in FY 2012E and LKR 2.07bn FY 2013E. We expect tea to contribute 44% to the top line, with rubber and oil palm contributing 41% and 15% respectively. We expect rubber prices and oil palm prices to remain healthy due to global demand. We factored in a decline in tea prices considering recent fluctuations in prices.
EBIT to decline due to wage hike
Forecast recurring EBIT declines by 16.9% to LKR 399mn for FY 2012E and recovers by 15.8% to LKR 462mn in FY 2013E. NAMU earnings will take a beating from the plantation sector wage hike that occurred in June 2011, in our view. EBIT margins for the forecast years decline to 19.5% and 22.3%.
EPS Estimates – LKR 14.23 (FY 2012E) and LKR 16.85 (FY 2013E)
Resulting from the wage hike, the EPS for the coming years will decline, we believe. Further the increase in the effective tax rate in the sector also has a marginal effect on the net profit. The settlement of a major portion of long term debt in FY 2011, will ease the finance cost, and aid net profit, in our view.
Valuations - Target Price of LKR 87.17
Based on a free cash flow valuation the stock has a potential value of LKR 87.17 based on a WACC of ~ 11.2% and terminal growth of 2.5% (debt to equity of 35%, beta of 0.99, risk free rate of 7.3%, equity risk premium of 5%). On a relative valuation basis, the stock has a forward PE multiple of 5.8x and 4.9x for FY 2012E (EPS - LKR 14.23), FY 2013E (EPS - LKR 16.85) on a current price of LKR 82.00. The sector PE stands at 5.9x as at 17th October 2011. The expected NAV per share is LKR 68.74 and LKR 84.59 for FY 2012E and FY 2013E respectively.
