Newest conglomerate Expolanka debuts on Colombo Bourse today

■ At issue price of Rs. 14 enters straight in as 21st most valuable stock in CSE;

■ Foreign and local institutional buying on diversified sector last week a good omen for new entrant on the back of strong fundamentals

The enterprising and fast expanding Expolanka Holdings Ltd., will debut today on the Colombo Bourse as the country’s latest conglomerate to be listed, a development which has been roundly welcomed by those inside and outside the market.

At its issue price of Rs. 14 and 1,954,915,000 shares in issue, Expolanka’s entry to the main board of diversified sector is also in style making it the 21st most valuable stock in the CSE. Last week’s market capitalisation of Colombo Bourse was Rs. 2,461 billion, and Expolanka’s entry will bolster it by a further Rs. 27.3 billion.

Whilst all eyes today will be on Expolanka after it literally rings the bell to signify the opening at Colombo Bourse, a mere 25 cents gain in its share price alone will propel Expolanka to the league of top 20 most valuable.

Having weathered many odds Expolanka’s Rs. 2.4 billion IPO was the biggest year to date until Softlogic’s Rs. 4 billion concluded last week. During its IPO, most brokers recommended the stock as a medium to long-term buy whilst some investors adopted a “wait and see” attitude given the 133% price difference between the pre-placement and IPO price. However Expolanka issue was oversubscribed by almost 5 times silencing critics as well as doomsayers. Softlogic IPO pricing which was 303% different to its pre-placement is also believed to have been oversubscribed by 5 to 6 times.

Despite reservations by some brokers and analysts Expolanka saw heavy retail demand with around 12,000 investors (out of slightly over 13,000) figuring in the category of 10,000 shares and below. Analysts said this demand reinforces the fact that Expolanka is among blue chips to be sought after by mature retailers and medium-to-long-term focused new investors hence it should be in portfolios of institutional investors.

Expolanka is also debuting hot on the heels of the market last week concluding a busy session for the premium diversified sector stocks.

Newest conglomerate…

 The diversified holdings accounted for over 13% the week’s turnover thanks to strategic foreign as well as local institutional buying interest. Premier blue chip JKH saw 4 million of its shares trade for Rs. 1.2 billion with a high of Rs. 303 before closing at Rs. 300 whilst 1.17 million Aitken Spence shares changed hands for Rs. 171.6 million with the stock price peaking to Rs. 150 before closing 148.50. Colombo Fort Land rose to a high of Rs. 85 before closing at Rs. 79.90 with 2.6 million shares traded for Rs. 212.4 million. Hayleys and Hemas were relatively subdued though the latter was only blue chip to have finished last week with a gain in its price. Diri Savi Board Free Lanka Capital triggered strong retail and high networth speculative interest with 174.7 million shares traded for Rs. 892 million.

Analysts said that last week’s turnover of Rs. 2.7 billion for diversified holdings, over 100% increase as opposed to Rs. 1.1 billion in the previous week reaffirmed the renewed interest on blue chips as solid and safe counters for investors in a market riddled with play on penny and speculative stocks. Foreign buying and high networth investor interest in JKH as well as institutional buying into Spence kept the diversified stocks above the rest.

Expolanka Holdings is a diversified conglomerate with interests in transport, manufacturing and international trading and strategic investments in BPO and tertiary education. Expolanka started out as a family owned business in 1978 and as an exporter of fresh produce and has positioned itself today as a conglomerate with a consolidated group turnover of Rs. 29 billion as at 31 March 2011 and boasts of a presence in 38 cities across 11 countries.

Last week Expolanka Holdings Group CEO Hanif Yusoof told the Daily FT that there was encouraging interest on the company’s debut in the secondary market. This was after Yusoof among a select group of companies participated at the Sri Lanka Day at the London Stock Exchange as well as Investment Destination Sri Lanka roadshow in Dubai organised by Heraymila Securities.

“The response to the post-war Sri Lanka story as well as resultant prospects for Expolanka in logistics and transportation sector especially has been encouraging,” Yusoof told the Daily FT on the sidelines of the Dubai Road Show at the Ritz Carlton Hotel.

In a statement prior to the IPO opening Yusoof said: “These are exciting times for Expolanka. We expect the IPO to raise Rs.2.4 billion, which we intend to primarily use to enhance our working capital, expand our warehouse capacity and restructure debt. In addition, we intend to expand our global and local footprint and concentrate on enhancing our core business.”

Hanif further stressed that the group had identified various plans in moving forward and taking the company to the next level: “The group functions with a simple vision. We believe in stakeholder returns and our aim is to bring value to our stakeholders. We have set ourselves some challenging growth plans, which we hope will create value for all our stakeholders.”

“We have interests and plans in the emerging markets and also have focused interest in emerging industries in Sri Lanka as well. We seek opportunities where there is scope for growth and development,” he added.

Asia Wealth Management in its IPO recommendation said (Expolanka Holdings) share trades attractively at a PER of 14.8X FY2012E earnings and 11.8X FY2013E net profit.

CT Smith Stockbrokers said: At the IPO price of Rs.14, Expolanka trades at PER multiples of 15.1X FY12E and 11.2X FY13E, offering strong recurring EPS Growth of 42% in FY12E and 35% FY13E, whilst also providing attractive ROE’s of 28% in FY12E and 27% in FY13E. The Group also has a comparatively attractive PEG ratio of 0.4X in FY12E. Thus, with high growth expectations, strong regional presence, a recognised brand name and capable management team, we expect Expolanka to outperform the market in the medium to longer term.”

Based on published accounts as at 31 December, 2010, CT Smith also said Expolanka Group trades at favourable valuations to most Diversified Holdings sector peers with conglomerate John Keells Holdings (JKH) currently trading at a 22.8X FY12E PER offering 30% FY12E EPS Growth, whilst Aitken Spence (SPEN) trades at 22.5X FY12E offering 20% FY12E EPS Growth, and CT Holdings (CTHR) trades at 23.2X FY12E offering 79% EPS Growth. Hemas Holdings (HHL) though, trades at 13.6X FY12E PER offering EPS Growth of 35% FY12E.

source - www.ft.lk