Challenging 3Q for SUN due to NMRA impact, 9M EPS down 12.6% YoY


Vish Govindasamy, Group MD

Sunshine Holdings PLC (CSE: SUN) reported consolidated revenues of LKR 14.1bn for the nine months ended 31 December 2016 (9MFY17), up 10.1% YoY. PAT grew 27.7% YoY to stand at LKR 1.3bn for 9MFY17, however PATMI declined -12.6% YoY mainly due to a reduction in the Healthcare segment profits caused by the implementation of NMRA price controls.

Healthcare continued to be the largest contributor to group revenue accounting for 41%. Agri was the second largest with 34% followed by FMCG at 21% of the revenue.

For 9MFY17, PAT amounted to LKR 1,338m up 27.7% YoY, with Profit After Tax & Minority Interest (PATMI) coming down -12.6% YoY to LKR 446m due to loss in the Healthcare business on account of price control, with a one-time stock loss of LKR 123m. As, a result Agri was the largest contributor to PATMI in 9MFY17 with LKR 245m, which represents 55% of total PATMI.

Net Asset Value per share increased to LKR 45.04 as at end 9MFY17, as compared with LKR 42.78 at the beginning of the year.

Healthcare revenue for 9MFY17 grew 10.5% YoY, led primarily by growth in the retail segment accounting for 41% of Group turnover for the period. EBIT margin for 9MFY17 contracted by 430 bps to 3.3%, mainly on account of price control imposed under the NMRA regulation leading to a one-time stock correction loss of LKR 123m.

The Pharma sub-segment which represents 66.6% of Healthcare revenue grew at only 6% YoY, due to the impact of reduced prices. The company’s Pharma segment is the 2nd largest player in the country, holding 12% share of country’s total market share. Growth in other sub-sectors was comprised of: Surgical (+19% YoY), Retail (+34% YoY), Diagnostics (+6% YoY), Wellness (+16% YoY).

PAT for Healthcare amounted to LKR91m in 9MFY17, down -66% YoY, and representing a margin of 1.6% in 9MFY17.

The FMCG sector reported revenues of LKR 3.0bn in 9MFY17, up 19.5% YoY, on the back of both volume and price growth, accounting for 21% of group revenue for the period in review. The domestic branded tea business within the Group’s FMCG segment sold 2.88 million kilos of branded tea, improving 8% YoY, driven by Sunshine Group’s largest brand ‘Watawala Tea’, and their converter brand ‘Ran Kahata’.

PAT from the FMCG segment saw a contraction of 27.5% YoY, to stand at LKR 249m in 9MFY17, with a margin of 8.3%, compared to 13.6% in the same period last year. Low tea prices in the same period last period led to the high margins in 9MFY16. 3Q performance saw rising tea prices affect margins. Business expansion investments pertaining to scaling up of the ‘Zesta Connoisseur’ brand across Shangri-La properties worldwide continued at a steady pace supporting positive improvements to the Group’s operating margins.

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