Sunshine Holdings PAT declined by 39-pct in 1Q with subdued Agri results

Diversified Sri Lankan conglomerate Sunshine Holdings PLC (CSE: SUN) reported top line growth of 8.0% YoY to stand at Rs.5.6 billion during the first quarter of the current financial year (1QFY19).

The top line increase was mainly by strong performances in consumer and healthcare sectors, and despite a slight degrowth within the agribusiness sector.

Profit after tax (PAT) for the period in review declined by 38.8% to Rs. 343 million and profit margins has also reduced to 6.2% compared to last year’s (1QFY18) 10.9%, mainly due to lower profitability in the agribusiness sector and holding company’s higher finance cost. Profit after Tax and Minority Interest (PATMI) declined 21.6% YoY to Rs. 192 million with the agribusiness sector, making the largest contribution to PATMI, accounting for 50% of the total.

The group’s healthcare sector emerged as the largest contributor to Sunshine’s top-line performance, accounting for 40% of total revenue, where agribusiness contributed 33% and consumer 25% of the total revenue.

Recently, Sunshine announced a private placement to raise Rs. 775 million with SBI Ven Holdings (Pte) Limited, the overseas private equity firm of Japan’s financial giant SBI Holdings Inc. Through this private placement, Sunshine Holdings looks to reduce its net debt and net finance cost.

Group’s Healthcare sector posted revenue growth of 15.6% YoY on the back of volume increase in the pharma sub sector and foot fall growth in retail, represented by its rapidly-growing Healthguard Pharmacy chain, growing 13.5% YoY. Among notable developments within

The pharma sub-segment which represents 67% of healthcare revenue grew 15.6% YoY in 1QFY19, due to higher sales volumes. Medical devices sub-sector grew by 16.2% YoY and the Group expects the growth of the sub sector to be driven by the recent partnership with 3M Global Channel Services which appointed Sunshine Healthcare as the master distributor for its products in Sri Lanka.

“In Healthcare, we expect strong growth momentum in volumes to continue into 2QF19. The healthcare industry is expecting another phase of price control by the regulator during 2QFY19. Although this was announced by the Minister of Health on 1 August 2018, no guidelines have been issued by the regulator on the same,” Govindasamy commented.

The Consumer sector reported revenues of Rs 1.4 billion in 1QFY19, up 22.2% YoY, on the back of both volume and price growth, and accounted for 25% of group revenue for the period. The domestic branded tea business within Consumer sold 1.0m kg of branded tea, up 8.3% YoY, driven by Sri Lanka’s number one tea brand ‘Watawala Tea’, and their budget brand ‘Ran Kahata’. PAT from the Consumer segment grew by 77% YoY, during 1QFY19, mainly driven by the higher sales volumes coupled with margin expansion due to reduced tea prices during the quarter.

The Group’s Agribusiness sector, led by Watawala Plantations PLC and Hatton Plantations PLC, saw a revenue decline of 7.2% YoY to Rs. 1.8 billion due to unfavorable weather conditions. Palm oil volume contracted by 16.9% YoY for 1QFY19 due to a decrease in yield and reflected a YoY revenue drop of 11.5%, despite an increase in net sale average (NSA). Tea volumes contracted by 14.3% YoY, resulting in a revenue drop of 9.8% YoY.

Particularly in the context of Sunshine’s performance over the last quarter, Vish Govindasamy expressed strong confidence over the outlook of the group over the coming year. While acknowledging the continuing impact of LKR’s depreciation against the USD, which continues to impact the margins of the Healthcare industry, he noted that the potential for further growth, supported by increased volumes to offset the reduced prices and greater attention to its growing surgical, medical devices and retail sub sectors.

He also noted that Group’s consumer business would continue to invest behind its brands to scale the domestic businesses, while expecting strong margins for 2Q with weak tea prices at the auction during the 1Q. In the Agribusiness, he expects to see moderate growth in volumes for the Palm Oil segment while prices remain at current levels. In the tea segment, he expects profitability to be challenged due to low crop on the back of adverse weather in the Hatton and Lidula region.

On the dairy sub sector, the total milking cows has reached 896 and the total herd to 1,374. Overall operation is steadily growing to the target of 1,000 milking cows. Nevertheless, the interim cost of feeding the whole herd will have a negative impact on Agri profitability. In the Renewable Energy segment, construction of the third plant is underway and is expected to be commissioned in the end of August 2018.

(Media Release)