Financial Times

Asia Securities says one-off setback capping growth

Subsequent to the LMSL fundamental rights ruling case, JKH has quantified losses under dual scenarios. An Asia Securities (Pvt) Limited report explains that given the best case scenario at an applicable tax rate of 15%, the total one-off cost (inclusive of back taxes, asset impairment, staff compensation and vacating costs) is estimated at Rs.724 million while the payment could increase to Rs.2,032 million in the worst case at a 35% tax rate. However, Asia Securities believes the most likely scenario would be that the company will incur a cost of Rs.1.6 billion during FY09 as negotiations regarding the tax rate and penalty charges are still ongoing.

The Asia Securities report stated that the Rs.1,030 million capital gain made on the disposal of Associated Motorways (AMW) would completely offset the one-off cost given a best case scenario while the net impact on the P&L account would be a positive of Rs.306 million. Given the most likely scenario, the one-off payment would be covered up to 62% while the net impact would amount to Rs.627 million.
With the opening up of the bunkering market, intense competition coupled with the higher costs of offshore bunkering is expected to pressurize the margins of LMSL while Asia Securities estimates the loss of earnings to be circa Rs.1 billion in FY09. Further, the report forecasts FY09 net profit revised down by 21% to Rs.5,545.3 million (still up 8.3% YoY) whilst projected FY10 earnings also revised down 20% to Rs.6,750.9 million (up 21.7% YoY).

Asia Securities stated that JKH is currently at one its most attractive levels and going forward, believes the company is in a strong position to recover from this non-recurring setback while the earnings outlook of the company remains healthy in the long run.

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