Upward price revisions bolster Ceylon Tobacco Company earnings

CTC has marked a remarkable performance in earnings for 3Q 2022 driven by continuous upward price revisions that took place during the year following government tax adjustments, according to First Capital Research.

Accordingly, CTC recorded growth in earnings by 72.5%YoY (+95.5%QoQ) to LKR 6.6Bn. As a result of the price hikes, CTC gross revenue mounted to LKR 47.1Bn (+48.6%YoY) compared to LKR 31.7Bn recorded in 3Q2021.

Although government levies increased by 45%YoY, Net Revenue of CTC surged further higher by 60.3%YoY (+27.3%QoQ) to LKR 12.9Bn owing to the upward revision in prices which are over and above the tax hike as a cushion against hampering margins.First Capital said that CTC outperformed its earnings target although it is in line with their expectation of a recovery in the 3rd quarter.

“Hence, considering the growth potential of CTC following price escalations, rebound in tourist arrivals and recovery in disposable incomes with salary adjustments taking place next year, we upgrade our earnings target for 2022E to LKR 19.1 bn (previous – LKR 16.4 bn) and 2023E to LKR 22.7 bn (previous – LKR 19.3 bn). Accordingly, fair value for 2023E is estimated at LKR 1,200.0 (Previous – LKR 1,100.0) providing an upside of 97.0%,” First Capital said.