All round growth in FY 2011 at JKH beats brokers forecasts

Comprehensive growth in all key sectors for John Keells Holdings (JKH) in financial year 2011 has enabled premier blue chip’s financial performance to beat forecasts by most analysts.

In the financial year ended on 31 March, 2011, JKH reported its best ever results with consolidated pre-tax profit up by 63% to Rs. 10.6 billion and post-tax figure by a similar percentage to Rs. 9.06 billion. Net profit attributable to equity holders rose by 59% to Rs. 8.24 billion. Group revenue rose by 26% to Rs. 60.5 billion.

JKH’s FY 2011 performance had outsmarted forecasts made by several stock brokers (see table) though all of them did upgrade the blue chip’s earnings. In terms of net profit attributable to equity holders only TKS Securities came closer to JKH’s eventual performance though the broking firm predicted a slightly higher bottom line.

According to corporate analysts the most significant achievement in JKH’s performance in FY2011 was the fact that all sectors had a clean sheet of growth. This wasn’t the case in FY 2010 when property sector saw its pre-tax profit decline to Rs. 378 million over FY2009’s figure of Rs. 535.4 million whilst profit from “others” (sectors) too dipped to Rs. 1.6 billion from Rs. 2.6 billion in FY2009.

In contrast in FY 2011 all sectors delivered strong growth both top line as well as pre-tax profit basis. (see table).

Transport sector produced a pre-tax profit of Rs. 2.92 billion up by 23% in FY2010 whilst leisure thanks to the post-war rebound made the biggest value growth with pre-tax profits up 146% to Rs. 2.5 billion. Financial services sector pre-tax profits grew by 53% to Rs. 1.3 billion, property saw its figure up by 119% to Rs. 831 million and consumer foods and retail up by 100% to Rs. 579 million whilst IT sector produced Rs. 114.4 million up 741% from a lower base of Rs. 13.6 million in FY 2010.

Leisure sector performance is noteworthy as it was sans the full strength of the portfolio of hotel rooms of the JKH as several resorts had been closed for renovation. In that context most analysts opine that JKH Leisure sector could produce greater value when the entire stock of rooms including those upgraded is fully operational for business in a financial year.

The rebound of leisure business is also interesting in the context that it has significantly narrowed the gap between JKH’s biggest sector – transportation in terms of earnings. In 2010 the difference on pre-tax profit between transport and leisure was Rs. 1.3 billion whilst in FY 2011 it was only Rs. 437 million.

 If the leisure sector rebound persists which is most likely with higher yield, analysts expect earnings from it in FY12 to surpass the transport sector. This had already happened in the fourth quarter more pronouncedly with Leisure sector profit amounting to Rs. 1.5 billion as opposed to Rs. 960 million from transportation sector. The latter sector used to account for 65% of JKH Group earnings a few years ago but has come down to below 27% on pre-tax profit basis in FY11.

Revenue wise consumer foods and retail is the biggest with a share of Rs. 18.35 billion whilst leisure came second with Rs. 13.8 billion and transport sector producing Rs. 13.4 billion.

Analysts opined that JKH’s Consumer Foods and Retail business though had grown is yet to fully bloom given its potential. In the fourth quarter its profitability marginally dipped to Rs. 116 million from Rs. 120 million in the corresponding quarter of 2009/10 financial year.

Tax relief as well as booming demand is expected to boost financial sector profits whilst property as well as IT sectors too are forecast to improve in FY2012 according to company analysts.