GLAS research report

GLAS is positioned uniquely in a growth market, being a price maker with the ability to manage demand and supply through a combination of local manufacturing and imports, enabling GLAS to meet market changes. GLAS is also well established to pursue a premium pricing strategy and flexible product mix management which allows the company to remain profitable despite challenging market dynamics. Furthermore, we believe GLAS will continue to have a steady market to feed with Sri Lanka’s specialty food & beverage segment anticipated to continue on a growth trajectory.

GLAS – Firing up for Growth: We are cautiously optimistic about GLAS’s top and bottom line prospects. Hence, we forecast a conservative 4% CAGR FY13E – 14E volume growth leading to a 19% CAGR FY13E – 14E in revenue. GLAS’s volumes are likely to moderate in the medium term with top line growth fostered by GLAS’s ability to increase prices via its premium pricing strategy.

GP margin continues to suffer with higher input costs and muted volume growth: We expect GLAS’s GP margin to fall to 27.8% in FY13E while slipping a further 30 bps to 27.5% in FY14E due to rising input costs and muted volume growth.

GLAS’s Dividend Yield to reach 10% in FY14E: We expect GLAS’s steady earnings growth to translate into an increasing DPS of LKR0.47 in FY13E and LKR0.53 in FY14E thereby taking dividend yields to 9% and 10% respectively. Going forward, we expect GLAS to sustain a similar pay-out for the next two years. A steady cash flow and low capital expenditure is anticipated to support GLAS’s dividend pay-out.

Valuations: The counter may appeal to pragmatic and patient investors as the company has a stable earnings flow and offers an attractive dividend yield. We forecast earnings to reach LKR906.3 mn (+32% YoY) in FY13E and grow a further 13% in FY14E to LKR1.0 bn. At 5.1, GLAS trades at a one-year forward PER of 5.3X FY13E earnings while trading at 4.7X on FY14E earnings.

Softlogic Research