John Keells Stock Brokers (JKSB) is forecasting Diesel and Motor Engineering Plc (DIMO) to report earnings worth Rs. 990 million in the 2010/11 financial year. This assessment is following the release of DIMO’s second quarter earnings recently. Here are excerpts of JKSB’s earnings update on DIMO:
DIMO posted an earnings growth of 268% for the 2QFY11 amounting to Rs. 335.4m compared to last year’s corresponding quarter, on the back of net revenue growth of 105.7% YoY; (2QFY11 revenue grew by 56% over revenue for 1QFY11). A 78% YoY reduction in net finance costs have also contributed to the above earnings growth.
Key highlights
The ‘vehicle sales’ segment contributed 66.9% of DIMO’s 1H FY11 revenue (excluding intercompany sales) and 63% of operating profits. Segmental revenue soared by 269.6% YoY for the 2QFY11 from that of the last year’s 2Q and improved net profit margins from 5% in 2QFY10 to 14%, translated to a 932% YoY growth in segmental profits. Vehicle revenue growth was predominantly achieved by the success of ‘Dimo Batta’ branded small commercial vehicle segment.
Spare parts sales revenue declined marginally during 2QFY11 compared to the current year’s 1Q despite higher vehicle sales, but spare parts and services segment posted a profit of Rs.216.5m compared to a loss experienced in the 1Q FY11.Profit margins in this segment has improved from 22.2% in the last year’s 2Q to 33.3%.
Construction and material handling machinery segment’s revenue doubled during the 1H FY11 compared to the last year’s comparative period, thanks to the robust demand for construction vehicles mostly from public sector construction projects related to power generation and road construction.
Lighting and power tools segment’s cumulative revenue showed an increase of 46% over the last year’s corresponding period mainly on the back of strong demand evident for Osram CFL bulbs.
The electro mechanical and bio medical segment saw a significant decline in revenue during 1H FY11 but the segmental profit margin improved to 55.4% from 12.1% YoY resulting in a 37.6% growth in segmental profits.
Outlook
‘Vehicle sales’ and ‘construction and material handling machinery’ revenue and profitability should continue to grow due to the anticipated rise in commercial and construction vehicle demand coming from strong growth prospects in the country. This will also eventually generate higher revenue from sale of spare parts together with additional sales coming from continued dealer network expansion.
The proposed 8% increase in electricity tariffs for usage that exceeds 90 units and the projected boom in construction and industrial segments will increase the demand for energy saving equipment such as CFL bulbs, that should translate to higher revenue and profits of the ‘lighting and power tools’ segment in coming years.
Given the above, we estimate that DIMO will make Rs. 990m in earnings for FY11, which will translate to an EPS of Rs.113.8. This will correspond to a PER of 8.6x at the current market price of Rs.980 per share.
source - www.ft.lk
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