CTC's 2009 net earnings grow by a staggering 49% YoY Ceylon Tobacco's (CTC) net profit has increased by a stunning 60% YoY to LKR2,020.6 mn in 4Q2009 whilst total earnings for 2009 are also up by a strong 49% YoY to LKR4,114.6 mn. Despite a marginal decline in volumes, earnings have been boosted by a high margin brand mix coupled with aggressive cost management initiatives.
Faced with slowing revenue growth CTC has focused more on its cost structure in order to improve the profitability. Thus the company has reduced its operating expenses by 52.4% YoY during 2009 resulting with the total expenses decline by 17.6% YoY despite a 47.6% increase in raw material cost and managed to grow its bottom-line by 49% YoY to LKR4,114.6 mn.
Net revenue up by a sharp 10.5% YoY to LKR12,353.9 mn in 2009. Gross revenue has increased by 9.5% YoY to LKR15,238.5 mn in 4Q2009 resulting a total of LKR58,079.5 mn for the year (up 6.1% YoY). This is mainly attributable for the improved sales mix, grabbing market share from illegal distributors and excise led price increases despite a moderate drop in volumes, which was a result of the ban on smoking in public areas coupled with change in smoking habits amongst the general public. However, the government’s continuous efforts in curbing the presence of smuggled and counterfeit cigarettes provide some optimism for volume growth in future.
Government levies accounted to 76% of gross revenue, which grew 5.3% YoY to LKR11,529.6 mn during 4Q2009. Consequently, net revenue has grown by a sharp 25.2% YoY to LKR3,708.9 mn in the quarter in concern and resulted an increase of 10.5% YoY to LKR12,353.9 mn for the year ended 31st December 2009.
Total operating costs have declined by 17.6% YoY in 2009. Operating costs have dipped 52.4%YoY to LKR2,002.8 mn during 2009 mainly on the back of aggressive cost rationalization initiatives implemented in all areas of the organization which was sufficient to weather the rising cost of tobacco leaf. During the first half of the year, company faced a shortage in the supply of tobacco leaf and had to source it at a higher cost which increased the raw material cost by 47.6% YoY.
With sales volumes on the gradual decline, the company will continue to focus on productivity enhancement and cost saving techniques as the key means of boosting earnings.
Net profit has risen by a staggering 49% YoY to LKR4,114.6 mn in 2009. Net interest income has fallen by 52% YoY to LKR73 mn in 4Q2009 owing to the falling interest rates. Nevertheless backed by the strong performance coupled with cost rationalization techniques, the company has recorded a net profit of LKR2,021 mn for 4Q2009 (up by 59.9% YoY) whilst recording a net profit of LKR4,114.6 mn for
the year 2009 (up by 49% YoY).
Forecast 2010E net profit to reach LKR4,367 mn. We are forecast 2010E net profit to grow by a conservative 6.1% to LKR4,367 mn whilst projecting 2011E net profit up by 5.3% to LKR4,600 mn on the back of the company's continued focus on improving its brand mix coupled with successful cost rationalization exercises.
Good value on 9.3X forecast 2010E net profit. The share is attractive on 9.3X forecast 2010E net profit and 8.8X projected 2011E net earnings. Further given the historical dividend payout ratio of a near 95%, we believe the share would continue to be a dividend play - Maintain BUY
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