26 February 2020 BRS Quarterly Results Snapshot

BRS Quarterly Results Snapshot - 4Q FY19

Ceylon Tobacco Company PLC (CTC SL: LKR 1,119.90)

CTC SL reported 4Q EPS LKR 21.36 (-24% YoY) in line with expectations (-2.0%). Net revenue came down with Navy cut cigarettes
being subject to an excise duty hike in December.

Exhibit 01: Quarterly Earnings and Variances

Income Statement (LKR' mn) 4Q FY 19A 4Q FY 18A YoY % 4Q FY 19F Var% Comments
Gross Revenue 35,579 37,812 -5.9% 31,528 12.8% The pricier Navy cut affected volumes
Government levies (25,895) (29,141) -11.1% (23,646) 9.5%
Net revenue 9,684 8,671 11.7% 7,882 22.9%
Gross Profit 9,024 8,102 11.4% 7,389 22.1%
Recurring EBIT 6,391 7,350 -13.0% 6,410 -0.3% Lower revenue impacted all margins
Net interest income 357 375 -4.8% 394 -9.4%
Income tax expenses (2,746) (2,460) 11.6% (2,722) 0.9%
Profit after tax 4,002 5,265 -24.0% 4,083 -2.0%
EPS (LKR) 21.36 28.11 -24.0% 21.80 -2.0%

Bottom line falls 24% YoY to LKR 4bn: With the shorter variety Navy Cut brand being targeted by the Government for higher
excise tax, revenue took a substantial hit.

Top line increases 18.6% to LKR 8.9bn: Gross revenue declined 5.9% YoY to LKR 35.6bn. Overall volume dip was 19% for 4Q com-
ing from a steep 47% dip in combined first three quarters. The Navy cut brand, which was re-introduced to the market in Oct
suffered a tax hike in December. Navy cut accounted for ~12% of total volume. The price disparity continues to favour the Beedi
and illegal cigarette markets. We feel the post January higher disposable incomes would shift more smokers away from illicit
cigarettes to CTC’s flagship brands, JPGL and JPGL Navy Cut.

GP & EBIT margins drop on lower revenue: GP margins were flat at 93% but EBIT margins dropped to 66% from 85% on higher
taxation. CTC continues to maintain a lean cost structure.

Payout at 88% : The company announced third interim dividend of LKR 12.13 per share, paying out 100% for the FY 2019. The
stock is trading at a dividend yield of 8.1% on CMP (based on FY 2019 DPS of LKR 92.13). There is no withholding tax on dividends
currently.

Valuation-10.9x forward P/E: On an TTM EPS of LKR 92.13 per share, CTC is trading at PER multiples of 12.6x on CMP in compari-
son to the sector of 15.2x. BRS combined intrinsic value stood at LKR 601 per share as at our last review. Given the earnings well
in line with forecast, we maintain the original SELL rating.

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Analyst: Nikita Tissera

94 (115)220210 I nikita@bartleetreligare.com

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Summary Financials

Exhibit 02: Cumulative Period & QoQ Performance

Income Statement (LKR' mn) FY 2019 FY 2018 YoY 4Q FY19A 3Q FY19A QoQ %
Gross revenue 141,342 145,298 -2.7% 35,579 35,267 0.9%
Government levies (105,818) (112,368) -5.8% (25,895) (26,304) -1.6%
Net revenue 35,524 32,930 7.9% 9,684 8,963 8.0%
Gross profit 33,381 30,419 9.7% 9,024 8,429 7.1%
EBIT excluding non-recurring items 27,058 25,903 4.5% 6,391 7,125 -10.3%
Net interest income 1,633 1,573 3.8% 357 414 -13.8%
Profit before tax 28,691 27,476 4.4% 6,748 7,539 -10.5%
Income tax expenses (11,432) (10,472) 9.2% (2,746) (3,027) -9.3%
Profit after tax 17,259 17,004 1.5% 4,002 4,512 -11.3%

Exhibit 03: Balance Sheet Summary Exhibit 04: Key Ratios

Statement of Financial Position (LKR'mn) FY 2019 FY 2018 YoY %
Key Ratios 4Q FY 19A 4Q FY 18A
Fixed assets 3,978 3,082 29.1%
Gross profit margin (%) 93.2% 93.4%
Cash & cash equivalents 16,845 20,153 -16.4%
Inventories 2,729 2,334 16.9% EBIT margin (%) 66.0% 84.8%
Total assets 26,667 28,209 -5.5% Net profit margin (%) 41.3% 60.7%
Equity 4,623 5,359 -13.7% EPS (LKR) 21.36 28.11
Total non current liabilties 716 563 27.2%
NBV (LKR) 24.68 28.61
Trade and other payables 10,680 12,638 -15.5%
PER (x) 12.16 12.34
Total current liabilities 21,328 22,287 -4.3%
Total liabilities 22,044 22,850 -3.5%
PBV (x) 45.38 39.14
ROCE (%) 553.0% 548.6%
ROE (%) 346.3% 393.0%

Exhibit 05: Dividend Trends Exhibit 06: Evolution of domestic cigarette prices (JPGL)

FY 2019 FY 2018 FY 2017 FY 2016 +18%

Price perstick (LKR)
First interim dividend (less WHT) -LKR 19.00 18.00 15.00 15.60
Second interim dividend (less WHT) - LKR 20.00 19.00 16.00 16.70
+10%
Third interim dividend (less WHT) -LKR 21.00 19.00 17.50 16.00 +43%
Fourth interim dividend (less WHT) - LKR 20 19.00 17.50 12.50
Final dividend (less WHT) - LKR 12.13 15.77 11.80 6.00
Total 92.13 90.77 77.80 66.80
65
55
50

33 35
28 30

2012 2013 2014 2015 2016 2H 2018 1Q 2019

Source : Company Annual Report & BRS Research

* A detailed earnings review will follow.

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Price Behaviour

Exhibit 07: Price and volume movement

Source: CSE

* A detailed earnings review will follow.

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Bartleet Religare Securities (Pvt) Ltd

www.bartleetreligare.com

BRS Equity Research - research@bartleetreligare.com

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