CAL Recommends SELL on LLUB

Chevron's 1H2013 profits grew +12% YoY to LKR1.3bn amidst revenue declining 5% YoY to LKR5.6mn. Higher GP margins (38% in 1H2013 vs. 36% in 1H2012) resulting from lower base oil prices (-15% YoY) and a +65% YoY growth in finance income contributed to the growth in profitability. Volumes continue to remain subdued due to lower consumer spending, higher extended oil drain intervals for newer vehicles and lower thermal power generation. For 2013E, CAL maintains its profit forecast at LKR2.5bn (+9% YoY) as estimates remain in-line with actuals. However, CAL downgrades LLUB to a SELL based on continued decline in sales volumes and marginal profit growth. The recent unwarranted share price movement has led LLUB to trade at a 49% premium to CAL's fair value of LKR212. SELL

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CAL has given similar recommendation on JKH when it touch Rs.225/- and said there will be a selling pressure once it hit Rs.248/-, but it went up to Rs.299/- and still hovering above Rs.260/-.

I believe LLUB also have more steam. In a positive market it may touch the previous high again.

When analyzing we should consider the liquidity factor also. JKH and LUB are relatively illiquid now. Foreign holding in these companies are at all time high levels and demand is growing. Retail exposure is minimum. So, naturally buyers have to pay a premium.

This is my view and open for discussion.

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