TJL traded heavily today

piras · 1 TJL traded heavily today Tue Sep 29, 2015 3:11 pm

piras

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We can something in coming days

Udara Rangana · 2 Re: TJL traded heavily today Wed Sep 30, 2015 5:17 am

Udara Rangana

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Outlook upgraded plus a possible safe haven from Rupee exposure: BUY
TJL’s bottom line for Q1 FY 16 grew 25.6% YoY to LKR 206mn resulting in an EPS of LKR 0.31 (BRS estimate – LKR 0.33). The net profit included one month consolidation of Quenby Lanka Prints (QLP). EBIT margin improved to 6.8% (Q1 FY 15 – 4.6%) despite a 41% YoY increase in admin expenses. Due to the capacity expansion and relatively stable cotton prices, the GP margin rose to 11.7% compared to 8.2% a year earlier. TJL achieved a 3.1% YoY growth in top line supported by demand for value added products along with the consolidation. TJL is also in the process of finalizing the Ocean India acquisition which would be reflected partly in Q2 FY 16E. Given the expansion and the protection the investment offers from a shaky LKR outlook, we have upgraded our view and target price to LKR 34.65 (+9% to CMP) increasing the target debt to 30%. The total return (including DPS of LKR 1.40) is at LKR 36 (+13.4% to CMP). We upgrade to BUY.
TJL traded heavily today Image003-2

Top line growth driven by value added products
TJL recorded a top line growth of 3.1% in Q1 FY 16 to LKR 2.76bn aided by the QLP acquisition and growth in value added products. The 10% -12% capacity expansion during FY 2014 end, enabled TJL to cater to the increase in demand from top clients. Further, as mentioned previously, the consolidation of Ocean India in September ’15 would add another 50% capacity, benefitting the group in the medium to long term. We forecast net revenue growth of 30.8% YoY to LKR 17.89bn and 14.7% YoY to LKR 20.52bn in FY 2016E and FY 2017E respectively.

Dividend payout to improve despite acquisition capex
We have maintained dividend payout forecasts at ~68% during FY 2016E – FY 2018E, given the top management assurance of the same. During the quarter, TJL has borrowed LKR 1.4bn on short term to optimize cash flow management, increasing its cash balance to LKR 3.46bn. Hence, we believe the expected cash outflow in lieu of Ocean India acquisition (USD 7.5mn) would not hurt TJL’s dividend payout in the forecast period.

13.4% upside on total return, plus the shielding from a shaky outlook on the Rupee
We have upgraded our DCF based target price to LKR 34.65 and total return to LKR 36 as we have increased the target debt to 30%. As TJL is on a growth phase, we expect the company to take advantage of cheaper borrowings. On relative valuations, TJL is trading at a forward PER of 15.2x (FY 2016E – EPS LKR 2.09). We also believe TJL offers investors an attractive safe haven from a possible near term Rupee depreciation.
Read the full report by – BRS Equity Research