JKH hoping to see recovery across all segments aided by pickup in economy

Targeted opening of Cinnamon Life Hotel and Mall expected to bode well for JKH Leisure business

By Sanath Nanayakkare

John Keells PLC is expected to recover from some of of its downbeat numbers with the overall pickup in the economy, according to a Review issued by First Capital Research, based on information in the public domain.

While saying that, FC Research added that JKH 4QFY23 earnings declined by 69.7%YoY to LKR 3.3Bn, affected by the higher base in 4QFY22 due to recognition of LKR 18.6Bn (LKR 9.5Bn in 4QFY23) in exchange gains.

It also said that recurring EBITDA, excluding Cinnamon Life for 4QFY23, also declined by 20.5%YoY to LKR 11.6Bn caused by decline in profitability in Transportation (-39.0%YoY), Consumer Foods -65.5%YoY), Retail (-8.7%YoY) and Property (-91.3%YoY) segments.

The Review further said: “However, on the flip-side Leisure and Financial Services businesses continued to perform well during 4QFY23 on the back of strong tourist arrivals and high interest rates, respectively.

“Going forward, we expect a recovery across all segments of the company (excluding Property) aided by the overall pick up in the economy.

“Furthermore, Group’s Leisure business is expected to benefit from increased arrivals to Maldives and Sri Lanka (expected to reach 2.5Mn arrivals in 2025E), downward revision of electricity tariffs (revised down by 26.3%) and re-introduction of the minimum room rates for Colombo hotels (ARR for 5-star category revised up to USD 130.0/night from USD 60/night).

“Moreover, the targeted opening of the Cinnamon Life Hotel and Mall in 1QFY25E is also expected to bode well for the JKH Leisure business in the coming years.

“Furthermore, notable growth in profits is expected from Consumer and Retail segments as disposable incomes and favorable global commodity prices are expected to aid margin improvement in the coming quarters.

“Therefore, taking into consideration the bright outlook for JKH together with the improved investor sentiment upon the completion of DDR, we believe the current PER multiple of 8.3x FY25E earnings is deeply undervalued for JKH, thus we believe the share should reiterate and trade at its 5-yr average PER multiple of 14.0x.

“Moreover, assigning an equal weightage as PER (value of stocks), we have valued JKH on a SOTP method (sum of the parts valuation method) and arrived at a target price of LKR 210.0 for FY25E, the Review said.