Challenging 3Q for SUN due to NMRA impact, 9M EPS down 12.6% YoY

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By 2017-02-15

9MFY17 Highlights

• Consolidated revenue of LKR14.1billion, an increase of 10.1% YoY;
• PAT amounted to LKR1.3 billion, up 27.7% YoY, due to strong Agri performance
• Healthcare revenue up 10.5% YoY to LKR 5.8 billion revenue
• Strong growth in FMCG, revenue up 19.5% YoY to LKR 3.0 billion
• Agri revenue grew 2.7% YoY to LKR 4.7 billion
3QFY17 Highlights
• Consolidated revenue of LKR 4.42 billion, an increase of 3.2% YoY;
• PAT amounted to LKR 402.6 million, up 3.2% YoY, with strong profitability in agri business
• Healthcare growth affected by...

...NMRA regulation to post LKR1.78 billion revenue down 3.1% YoY
• Agri revenue grew 4.9% on the back of 30% increase in Palm Oil volumes
• FMCG revenue up 18.2% YoY to LKR 1.1 billion
• However, EPS down 92.3% YoY due to NMRA impact
Sunshine Holdings PLC (CSE: SUN) reported consolidated revenues of LKR 14.1 billion for the nine months ended 31December 2016 (9MFY17), up 10.1% YoY. PAT grew 27.7%YoY to stand at LKR 1.3 billion for 9MFY17, however PATMI declined -12.6% YoY mainly due to a reduction in the Healthcare segment profits caused by the implementation of NMRA price controls.

Healthcare continued to be the largest contributor to group revenue accounting for 41%. Agri was the second largest with 34% followed by FMCG at 21% of the revenue.
For 9MFY17, PAT amounted to LKR 1,338 million up 27.7% YoY, with Profit After Tax & Minority Interest (PATMI) coming down-12.6% YoY to LKR 446 million due to loss in the Healthcare business on account of price control, with a one-time stock loss of LKR 123 million. As, a result Agri was the largest contributor to PATMI in 9MFY17 with LKR 245 million, which represents 55% of total PATMI.

Net Asset Value per share increased to LKR 45.04 as at end 9MFY17, as compared with LKR 42.78 at the beginning of the year.

Business segments
Healthcare revenue for 9MFY17 grew 10.5% YoY, led primarily by growth in the retail segment accounting for 41% of group turnover for the period. EBIT margin for 9MFY17 contracted by 430 bps to 3.3%, mainly on account of price control imposed under the NMRA regulation leading to a one-time stock correction loss of LKR 123 million.
The Pharma sub-segment which represents 66.6% of Healthcare revenue grew at only 6% YoY, due to the impact of reduced prices. The company's Pharma segment is the second largest player in the country, holding 12% share of country's total market share. Growth in other sub-sectors was comprised of: Surgical (+19% YoY), Retail (+34% YoY), Diagnostics (+6% YoY), Wellness (+16% YoY).

PAT for Healthcare amounted to LKR 91 million in 9MFY17, down -66% YoY, and representing a margin of 1.6% in 9MFY17.
The FMCG sector reported revenues of LKR 3.0 billion in 9MFY17, up 19.5% YoY, on the back of both volume and price growth, accounting for 21% of group revenue for the period in review. The domestic branded tea business within the group's FMCG segment sold 2.88 million kilos of branded tea, improving 8% YoY, driven by Sunshine Group's largest brand 'Watawala Tea', and their converter brand 'Ran Kahata'.

PAT from the FMCG segment saw a contraction of 27.5% YoY, to stand at LKR 249 million in 9MFY17, with a margin of 8.3%, compared to 13.6% in the same period last year. Low tea prices in the same period last period led to the high margins in 9MFY16. 3Q performance saw rising tea prices affect margins. Business expansion investments pertaining to scaling up of the 'Zesta Connoisseur' brand across Shangri-La properties worldwide continued at a steady pace supporting positive improvements to the group's operating margins.

The Agribusiness sector represented by Watawala Plantations PLC (WATA) saw revenue growth of 2.7% YoY to LKR4.7 billion, despite a 8% YoY contraction in tea revenue. Palm Oil sub sector reported an increase of 47% YoY for 9MFY17. Tea production was affected by bad weather, even as the company continues to focus on its strategy of growing quality teas to curtail losses. Palm Oil volumes were 15% higher than the same period last year. The company managed to obtain a higher price for its CPO during 9MFY17, which positively contributed to both top line and bottom line of the Agri sector.

PAT for 9MFY17 amounted to LKR 1,014 million, against LKR 439 million in the same period last year. Growth in profits was mainly attributed to a reduction in losses in the Tea sub-sector, and a parallel increase in profits from the Palm Oil sub sector. The Tea sub-sector recorded a net loss before tax of LKR 27 million for 9MFY17 compared to a net loss of LKR 172 million in the same period last year.

Meanwhile, the Palm Oil segment, which made LKR 1,057 million PBT for 9MFY17 against LKR 575 million last year, continued to be the largest contributor to WATA profits and managed to cover the losses in Tea.

Packaging revenues amounted to LKR 251 million, down 4.2% YoY in 9MFY17, against LKR 262 million in the same period last year. PAT amounted to LKR 2.9 million in 9MFY17 lower than LKR 13 million recorded in 9MFY16.
Revenue for the Renewable Energy division amounted to LKR 68 million in 9MFY17, down 35% YoY from LKR 104 million during the same period last year as a result of the change in weather patterns. The mini-hydro plant, which is in its third year of operations, made loss of LKR 10.16 million for 9MFY17, compared to a profit of LKR 41.8 million in the same period last year.




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