Financial Times

CT Smith: JKH shares may rebound

After shares of John Keells Holdings (JKH) slipped on Tuesday along with some other companies, bringing the market down, a report by CT Smith Stockbrokers (Pvt) Ltd says it expects the share price to rebound in the medium term, given expectations that JKH management will take appropriate measure to provide reassurance to investors after the LMSL Supreme Court ruling. At Tuesday's close, JKH recovered to close at Rs.85.

The CT Smith report stated that the share has traditionally traded at a higher premium but given the negative investor sentiment following the Supreme Court ruling, the company's share price has fallen 24% in the past three months, underperforming the broader All Share Price Index (ASPI) which has fallen 4 % during the same period. The report further stated that LMSL vacated the land by September 12, and as per an announcement by the company, it will continue operations using a combination of floating storage and the shared Common User Facility at the Colombo Port. LMSL has also engaged a tanker on a long term charter for procurement and storage of bunker fuel. LMSL would continue to provide bonded storage and delivery services of marine lubricants on behalf of the lubricant manufacturers represented by LMSL.

The report also mentioned that further to its July 21, the Supreme Court directed on September 8, that LMSL deposit Rs.153 million (as calculated by the Commissioner of Labour), into a separate bank account, in respect of the current employees who have made application for terminal benefits to the Commissioner. The deposit is to meet any ultimate order that will be made by the Commissioner of Labour in this regard and LMSL has made the deposit as required.

CT Smith expects LMSL to post a lower than previously estimated profit in FY09E, estimated to be Rs.200 million, given lower margins in off-shore bunkering, the additional expenditure incurred due to engaging a tanker on a long term charter and more competition with all bunkering license holders to use the Common User Facility.

The Department of Inland Revenue (IRD) has intimated an assessment of the tax liability of Rs.750 million, based on applying a normal tax rate of 35%. LMSL's view, however, is that the supply of bunkers to foreign vessels is an export and therefore income is liable for tax at 15%, and at this rate, the additional tax liability is Rs.384 million against the IRD intimation. A further Rs.137 million of income tax at 15% is due for FY08.


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