John Keells Holdings PLC Equity ResearchIt has market leadership in key growth segments, tourism (largest hotel operator in the country) and consumer food (market leader in beverage

LOLC SEC ValuationShare PriceUpside/(Downside)Risk Level(refer page 29 for recommendation)

Warrants ValuationW0022

LOLC SEC Valuation LKR 16.70

Warrant Price LKR 20.00

W0023

LOLC SEC Valuation LKR 22.20

Warrant Price LKR 37.10

Share DetailsBloomberg Ticker JKH SL

CSE Sector Diversified

GICS Sector Industrials

Market Cap (LKR Mn) 194,610

Issued Quantity (Mn) 997

30-day avg T/O (LKR Mn) 82.52

Beta (6 months) 1.25

Investment FundementalsLKR Bn FY 14 FY 15 FY 16 (F) FY 17 (F)

Revenue 89.26 91.58 97.29 105.22

Net Profit 11.72 14.35 15.93 18.26

S/H's Equity 122.89 137.80 162.07 172.98

Total Assets 202.47 218.09 271.22 318.48

ROA(%) 5.79 6.58 5.87 5.73

ROE(%) 9.54 10.41 9.83 10.56

Price MultiplesPE (X) 14.11

PBV (X) 1.41

Price to Sales (X) 2.16

Divdend Yield (%) 1.80

Price Behavior

Per Share Details as at 29.05.2015 (LKR)Earnings per share (trailing 12m) 13.82Net Asset Value per share 138.15Sales per share (trailing 12m) 90.38Dividend Per Share (trailing 12m) 3.50

Business Nature

Top Shareholder Details as at 31.03.2015

Mr. S E Captain 11.10%Broga Hill Investments Limited 10.40%Paints & General Industries Limited 6.70%

Source:CSE, Bloomberg, LOSEC Research

01 June 15

Analyst (s): Gayan Rajakaruna|+94 117 880837|[email protected] , Hiruni Perera|+94 117 880809|[email protected]

Recommendation Guidance, Important Disclosures and Analyst Certification: Page 29

Valuation

Strategic Player Leveraging on Sri Lanka's Growth Story

Sri Lanka is poised for robust economic expansion from the revival of the economy after the

end of civil conflict in 2009 and ensued progression made by the country with more stable

macro economic fundamentals. Country's GDP has grown by 7.5% in real terms since 2009

and is expected to continue similar growth momentum. JKH has been able to establish strong

presence in key growth segments of the economy with market leadership in most of its

businesses.

JKH historically has been able to make strategic entries into growth sectors. The latest entry

is into mixed development projects via its flagship investment “Waterfront Integrated Resort

Development Project (IR)” which is expected to drive the next growth phase of the group. We

estimate the project to account for 26% of the valuation of the group and coupled with

existing portfolio of businesses JKH presents a unique opportunity for an investor to get

exposure to Sri Lankan economy.

We assume a cost of equity of 12.34% taking the nature of investor composition in to account.

We believe JKH will continue to be a key player in the Sri Lankan economy. We have valued

the company using the SOTP approach. Our valuation model values the share price at LKR

262.24 and accordingly counter is trading at a discount to our valuation. We give BUY

recommendation for JKH.

Salient Sections of the Report

JKH, a unique proposition (pg.2)|Waterfront, the next big thing (pg.4)|CF&R, a key growth

sector (pg.6)|Leisure the growth star (pg.7)|Transportation, a steady cash cow (pg.9)|Real

Estate at a growth stage (pg.10)|Financial sector, an underpenetrated growth segment

(pg.12)|IT, plantation(pg.14)|Financial snapshot of JKH performance (pg.15)| Valuation

(pg.16)| Sensitivity (pg.18)|Earning risk comment (pg.18)|Appendices (pg.19)

JKH is a diversified business operating in Sri Lanka. Its

businesses include food and beverage, transportation,

leisure, property development, banking, insurance and other

financial services, IT and tea and rubber plantations.

John Keells Holdings PLC

Initiation Coverage

BUY

Equity Research

LKR 262.24

34.41%

Investment Considerations

Well established portfolio of businesses to drive the financials in medium term: JKH

current operation includes well diversified portfolio of businesses with strong foothold on

their respective sectors. It has market leadership in key growth segments, tourism (largest

hotel operator in the country) and consumer food (market leader in beverage and ice cream).

The transportation sector serves as the cash cow for the group with its container handling

and bunkering businesses. JKH's presence in financial services through insurance and

banking further strengthens its business portfolio. Accordingly we forecast JKH to show 13%

CAGR in bottom line for next two years.

Strong Corporate Governance gives flexibility in strategy as well as funding: JKH does

not have single entity or group entity controlling shareholder and the Board of directors

consist of majority independent directors. Thereby the Board has the flexibility to drive the

company's strategy to optimize stakeholder expectations including minority shareholders.

JKH has 100% free float which consists of majority foreign shareholders gives the group

flexibility to raise equity capital with fair degree of ease.

Strong Balance Sheet provides aggressive funding options: The group is fairly low geared

and hence can conveniently leverage up to take up the investment opportunities without

putting significant burden to the balance sheet.

Water Front Project to drive the next growth phase of the Group: USD 820 million

project will drive the next growth phase of JKH. We has estimated a value of LKR 68.5 billion

(USD 515 million) for the project on our future projections and hence the group's overall

value will be significantly depend on the project's feasibility in the future.

Medium

LKR 195.10

175195215235255275295

06/05/14 09/05/14 12/05/14 03/05/15

LK

R

JKH Share Price ASI movement (adjusted to JKH base price)

Initiation Coverage: John Keells Holdings PLC | 01 June 15

JKH, a unique proposition among diversified conglomerates in the country

Sound Corporate governance to drive the strategic thinking

Graph 2: Transformation of JKH through strategic acquisitions/developments

Source: Annual reports & LOSEC Research

Strong asset base and flexibility of raising funds

Graph 3: Total Asset value comparison (LKR Mn)

Source: Annual reports

Graph 4: Composition of PPE Graph 5: Total Lands and Buildings (LKR Bn)


Source: JKH annual report Source: JKH annual report

2 | LOLC Securities Limited

Graph 1: Composition

of EDs and NEDs

This sound corporate governance structure has historically helped the group to aggressively make strategic decisions

to maximize group value without being held back on conflicted interests. We believe it has been a key strategic

advantage JKH is enjoying compared to country's other large corporates which are mainly controlled by single

parties. Thereby JKH has become the largest blue chip it is now, and is placed well to continue to look into strategic

opportunities, with latest being the waterfront mixed development project.

JKH has a track record of strong asset base relative to peer conglomerates in Sri Lanka. JKH also owns the largest

private land bank in Colombo which is of 287.94 acres of freehold land and 144.48 acres of leasehold land which

includes real estate within and out of Colombo. Real Estate contribution to our valuation is 19%.

Strong assets base

relative to peers

Significant proportion

of PPE consist of lands

and Buildings owned

by JKH

Except for Chairman, Deputy Chairman and Finance Director, the board of JKH is consisting of Non-Executive

Independent directors. Accordingly there is no shareholder nominee within the board giving the group flexibility to

drive the strategy to optimize the shareholder wealth as a whole with minimal single party influence. The company

has 98% public free float in its shareholding structure with 2% of the issued shares owned by executive directors.

The company also has ESOP plans which helps to further align employee interest with shareholder wealth generation.

202,474

159,388

81,35561,145 49,126

34,379

JKH CARS HAYL SPEN CTHR HHL

55%21%

24%land and buildings

Buildings onleasehold lands

Other

23.5620.85

24.04

38.8236.15

1015202530354045

2010 2011 2012 2013 2014

30%

70%

Executive directors

Non Executive Directors


Balanced Shareholding Structure to generate equity raising opportunities

Source: Annual reports & LOSEC Research

Source: Annual reports 2014, Bloomberg

Source: Annual reports, Bloomberg Source: Annual reports, Bloomberg


Source: JKH annual report

2 | LOLC Securities Limited 3 | LOLC Securities Limited

Graph 6: Cash and Cash equivalents of JKH and peers (LKR Mn)

Strong cash position

combined with less

gearing will open up

further avenues for

raising debt to venture

into new projects

Strong cash position and low gearing to allow for investments

Graph 7: Comparison of gearing ratio of JKH and peers Graph 8: Cash position and gearing of JKH

The shareholding structure has well distributed shareholder ownership with non of the single party ownership

exceeding 20% stake of the company. It has significant foreign and institutional ownership with foreign holding

accounting to 54% of the company. The company has strong potential to raise equity capital with the strategic

shareholder, which is reflected by successful right issue carried out to fund the water front project.

JKH has maintained a strong cash balance position (including cash in hand and short-term investments) over the past

few years, with cash and cash equivalents making up approximately 30% of total assets in FY14 (20% in FY15 as per

interim results). The company also has been able to generate strong free cash flow balances and gearing has

continued be in a declining trend over last 4 years whilst retaining below 30% in FY14. However due to the debt

financing of approximately USD 456Mnfor JKH’s flagship project “Waterfront Development”, gearing is likely to

increase at the latter part of the project period .However the company has remained largely a self-financed business

during previous years, in relation to its local peers. JKH’s cash position also places it at a considerable advantage

relative to other domestic conglomerates.

0

10

20

30

40

50

60

70

80

90

100

JKH SPEN CARS EXPO HAYL HEMS

2012 2013 2014

%

60,508

13,316

18,067

2,674 2,691 3,133

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

JKH SPEN CARS EXPO HAYL HEMS

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2012 2013 2014 2015 2016F 2017F

Total debt Total equity

Net Cash and Cash Equivalent Gearing

LKR Mn Increasedgearing due to waterfront


Waterfront Integrated Resort Development Project (IR): The next big thing

Source: JKH web site Source: LOSEC Estimates

Source: Annual reports 2014, Bloomberg

Table 1: Valuation breakdown

FacilityUSD (Mn) LKR (Mn)

Luxury Hotel 173 22,966

Conferencing Facility 54 7,194

Shopping Mall 56 7,424 Source: Annual reports, Bloomberg

Integrated Entertainment Facility 143 19,048

Residential Tower - 1 &2 48 6,402

Office Complex 32 4,243

Car Park 9 1,217 Total 515 68,495

Source: LOSEC Estimates


Value derived from

Waterfront is LKR 68

per share

Value

We have carried out a comprehensive analysis of IR Project based on publicly available information and management

discussions and valued separately from the JKH Group to capture multiple revenue and cost estimates applicable to

different facilities of the Project.(please refer table: valuation breakdown below) .

We have used DCF method in driving the value of the Project. Accordingly we computed the NPV of each facility

separately and estimated the total valuation of the project at LKR 68.5 billion (USD 515 million). We have taken Cost

of Equity at 12.34% which is 5% premium to 3 year Sri Lankan Govt Treasury Bond Yield. The Cost of Debt was

estimated as 6.2% (including currency cost).

Diagram 1: Artist impression of resort Graph 9: Estimated NPV distribution

Valuation

Casino issue: Since the current government disapproved the casino facility to be in place under this integrated

development which had already been approved under the previous regime, we are of the view that JKH will proceed

with the Project excluding the casino facility in this integrated development program.

IR project to increase

JKH value by 35%

IR Project is the largest private sector investment to date in Sri Lanka with an estimated cost of USD 820 Mn. Given

the magnitude and the importance of this strategic investment to the Group, the estimated project cost accounts for

over 50% of the total asset value of JKH’s balance sheet FY15.

The project will generate diverse revenue streams from luxury hotel, two residential towers, office complex and high

end retail mall along with an Integrated Entertainment Facility enabling the landscape of Colombo to be transformed

to a fast-phased modern metropolitan in the South Asian Region. The project is now in progress with required

government approvals with a plan to complete it by the end of 2018. (Please refer appendix: pg.23 for more about

IR)

34%

10%11%

28%

9%6%

2%

Luxury hotel

Conferencing facility

Shopping mall

IntegratedEntertainmentFacilityTower 1 and 2

Office complex

Car park


Waterfront Integrated Resort Development Project (IR): The next big thing (cont.…)

Table 2: Assumptions of Waterfront project valuation

Source: LOSEC Estimates


Car park Built up area - 310,000 sq.ft

(2450 slot) 56 -Daily revenue=USD 20/day

No. of parking slots to be rented=1000

*Remaining 1450 to be allocated for hotel

-Estimated size of standard car

park slot = 7.9ft * 16ft

Estimated Built up area -

1.56Mn sq.ft

(source: LOSEC estimates)

Integrated

Entertainme

nt facility

Built up area - 400,000 sq.ft

Rentable area - 307,000

sq.ft (207,000 sq.ft

+100,000 sq.ft)

*100,000 sq.ft rentable area

to be added from vacant

Casino facility (source:

LOSEC estimates)

Shopping

mall

150285 3%

*low growth

due to

absence of

casino

Average visitors per year - 100,000

Average revenue per visit - USD 30

Estimated operating margin - 30%

Year 1 - 50% occupancy



Estimated

Investment -

USD Mn

5%

* in par with

estimated

YoY rent

price

increase

This is a large office complex

with Grade A office space. The

JKH is on the view that JKH will

be able to sell at least 95% of

the rentable space by FY 21.

Office

Complex

Rent price - USD 5 per sq.ft per month

(inflation adjusted peer avarage rent rate)

Year 1 - 30% sales of rentable space

Year 2 - 85% "

Year 3 - 98% "

5%

* in par with

increase in

local office

space rates

As per management discussions,

both towers will fall in to

premium residential category

which will be equivalent to

existing JKH residencies

"Monarch" and "Emperor".

Target market will be rich and

upper middle class segment.

The management is very

optimistic on apartment unit

sales with plans to sell off all

431 units by end of FY20.

Tower 1: built up area -

366,000 sq.ft (231 units)

Tower 2: built up area -

258,000 sq.ft (200 units)

Residential

Tower 1

Residential

Tower 2

150 1%

*in par with

increase in

YoY

management

fee

Tower 1 -

Average price per sq.ft - USD 375

FY 15 - 30%, FY16 - 30% and FY 17 - 40%

pre sales of total number of units

Tower 2 -

Average Price per sq.ft - USD 386

(estimated based on 3% premium added

tp Tower 1 rate)

FY17 - 30%, FY18 - 30% and FY 19 - 40%

pre sales of total number of units

*Both towers be fully occupied and

operational by FY20(source: LOSEC

estimates)

Tower 1 - 67

Tower 2 - 47

10073Built up area - 400,000 sq.ft

Rentable area - 254,000sq.ft

Rent price - USD 5 per sq.ft per month

(inflatation adjusted rate of Crescat

Boulevard)


Year 2 & 3 - 95% 95% occupancy

*Crescat Boulevard currently operates at

95% occupancy

We assume that Integrated

Entertainment Facility

(excluding Casino) will have a

significant contribution to the

overall project valuation. We

believe that this will be in par

with entertainment facilities of

mixed development projects in

the region.

This will be established across

the project premises capitalizing

part of area which was already

allocated for Casino and

remaining space after allocating

for other facilities.

Estimated Built up area

Average Room Rate - USD 180,

(inflatation adjusted rate of Cinnamon

Grand Executive room)

F&B and Banquet revenue = Cinnamon

Grand revenue composition

Occupancy rate - 75% and 5% YoY

growth

Luxury hotel 800,000 sq.ft

(800 guest hotel rooms)

146 150

10%

* LOSEC

estimates

Conferencing

facility

73 100

Construction

Cost Estimates

-USD/sq.ft

Revenue Estimates Other assumptions/ explanationsExpected

terminal

400,000 sq.ft (2500 pax)

*size equivivalant to

proposed shopping mall

(source: LOSEC estimates)

73 125 2 events/day * 2500 pax

1 pax - USD 100 revenue

Year 1 - 60% capacity

Year 2 & 3 - 95% capacity utilisation

The estimated built up area will

include 400,000 sq.ft of common

area and 800 luxury suits of the

size of 500 sq.ft average each.

This is a high end shopping mall

which will largely attract

tourists for their shopping

needs.

This will be the largest

conferencing facility in Colombo

which will include ball room

facilities, conferencing

halls/rooms in different

capacity, meeting rooms and car

park facility. The management

expects very high yield on this

conferencing facility.

7%

*in par with

tourist

arrival

growth

Facility


CF & R, a key growth sector of the Group

Graph 10: CF& R revenue vs group revenue Graph 11: GDP per capita and CF&R seg. revenue

Source: Bloomberg, LOSEC estimates

Higher consumer demand for consumer food volumes

Graph 12: Per capita consumption of ice cream (Lr) Graph 13: Per capita consumption of soft drinks(Lr)

Source: Web articles Source: Web articles

Emerging growth in the retail sector

Graph 14: Modern retail penetration Graph 15: Retail sector revenue of Keells

Source: Web Articles Source: Company Annual reports,LOSEC Research estimates


Sector Valuation

CF & R growth was

forecasted backed by

high expectations on

per capita GDP

Largest contributor to

the top line of the

group

Source: Central Bank forecasts, Bloomberg data, LOSEC Research

estimates

Consumer segment remains as the largest contributor to the total group revenue while this percentage was hovering

around 28% for the last three years .As the consumer spending behavior through per capita GDP growth has clear

implications for the CF & R industry, ( we see a strong correlation of 0.97 between two variables) we expect with the

projected increase in the GDP per capita, CF& R segment revenue to increase by CAGR of 13.01% during FY15-17F.

Better consumer sentiment and spending patterns witnessed during the fourth quarter of the 14/15 financial year

will continue while SL is expected to post an increase in the consumer demand driven by the low interest rate

environment, single digit inflation and increased disposable income. On the other hand currently JKH is the market

leader in the ice cream, beverages and processed meat markets accounting for approximately 56%, 40%, and 80% of

local market share respectively. With per Capita Consumption of soft drinks, ice cream and meat in SL being much

lower compared to regional peer countries we see a growth potential in this segment.

We expect revenue of

consumer foods (ice

cream, carbonated soft

drinks and frozen

foods) to grow at a

CAGR of 10% during

FY15-17F

In the super market business, CCS will continuously expand the network of outlets in a similar size and format as

recently opened stores of 7000 sq.ft while currently average store size is sq,ft 3500-4000. In SL retail (modern) trade

penetration is only 16% where as our regional peer countries' penetration level is above 40% indicating the growth

potential in the Keells Super segment along with the growth in the disposable income which would likely to generate

higher footfall for supermarkets.

We estimate a value of LKR 26.26 for the consumer sector. Medium term growth rate of 10.0% has been used FY18F-

FY20F considering the GDP growth rates of Sri Lanka and considering the possibility of increasing the disposable

income of SL consumers. Terminal growth rate of 7% has been used for the period beyond FY20.

Retail revenue to grow

at CAGR of 15% ,FY15-

17F due to expansion of

outlets and increase in

disposable income

Higher purchasing

power and

consumption gaps in SL

will boost the volumes

in the consumer foods

segment

20.8

10.6

2.4

1.9

1.7

1.5

1

0.8

0.4

0.1

0.1

The United States

Canada

Singapore

Malaysia

Sri Lanka

Thailand

china

Philippines

Pakistan

Indonesia

India

16%

84%

Modern vs Traditional trade in Sri Lanka

Modern Traditional

52

39

31.4

19

8.2

Philippines

Thailand

Singapore

Malaysia

Sri Lanka

70%

49% 48%43% 40%

16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Singapore Malaysia Hong Kong Taiwan Thailand Sri Lanka

16.27%

24.12%

12.13%

15.87%19.67%

10.46%

4.73%

17.09%

12.63%13.39%

0%

5%

10%

15%

20%

25%

30%

0

1000

2000

3000

4000

5000

6000

2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

GDP per capita( USD) CF & R revenue growth of JKH

USD

0%

10%

20%

30%

40%

0

10,000

20,000

30,000

2008 2009 2010 2011 2012 2013 2014 2015 2016F2017F

Retail segment revenue of keells

Retail segment revenue growth of Keells

LKR Mn

28.28% 28.41% 28.47% 32.49% 34.45% 36.12%

77,69085,408 89,256 91,582

97,289 105,225

0

20,000

40,000

60,000

80,000

100,000

120,000

2011/12 2012/13 2013/14 2014/15 2015/16F2016/17F

CF& R revenue Other revenue

Mn


Leisure the growth star

Graph 16: EBIT contribution by leisure segment

Source: JKH annual reports, LOSEC Research estimates

Graph 17: Current market share of Cinnamon City Hotels Graph 18: Occupancy rates of JKH City Hotels

Source: AHPL annual report Source: AHPL annual report, LOSEC Research Estimates

Table 3: Upcoming city hotel projects in Colombo

Grand Hyatt Sino Lanka Hotels 2015Sheraton Lanka Hotels 2015Marino Sands Damro 2017Movenpick Softlogic 2015NEXT Hotel by SilverNeedleColombo City Centre 2017Cinnamon Life JKH 2018Shangri-La Shangri-la Hotels 2017Jetwings Jetwings 2016Welcome Hotel Lanka WelcomHotel 2018Indo Lanka Hotels Crown Plaza 2019Total rooms

Source: JLL Reseach 2014

Graph 19: Room Inventory in Colombo

Source: Web Articles


Proposed positioning

Cinnamon City hotels performing well with the dominating market share

Developments

Highest contributor for

the EBIT of the group

3376

475Upper scale 306

225

No of rooms Opening year

Luxury 300Upper scale

Upper scale

Leisure segment has able to maintain its position as the highest EBIT generator for the group over the past and we

expect this to continue. We expects EBIT from the leisure segment to grow at a CAGR of 11.80% FY15-FY17F.

Upper scale

Developer

180

However Colombo is increasingly becoming an attractive location for City Hotel developments and many hotel

projects are expected to open in the future while this can be a challenge for Cinnamon city hotels.

70

Midscale

Luxury 550

"Cinnamon" city hotels has been able to continue to maintain its market share and leadership among the city hotels.

Currently the brand has the 51% market share (excluding the Cinnamon red) among the other city hotels while the

occupancy rates are also seen a growth over time . Cinnamon red, the latest addition to the leisure segment reported

a 85% occupancy from the start of the opening and we expects this to increase upto 90% FY15/16.

270

Upper scale 200Luxury 800

Room inventory in

Colombo lags far

behind compared to

other regional capital

cities .JKH has the

potential to capitalize

the opportunity by

strengthening the

"Cinnamon" brand

identity

Midscale

60000

31790 3011426113

9100 76004300

Bangkok Manila Kuala Lampur Jakarta Ho Chi Minh City Hanoi Colombo

Rooms

0%

20%

40%

60%

80%

100%

FY10 FY11 FY12 FY13 FY14 FY15E FY16F FY17F

Cinnamon grand Cinnamon Lakeside Cinnamon Red

49%

33%

18%

Cinnomon Grand Cinnomon Lakeside Other City Hotels

58.93% 55.19% 52.35% 44.93% 48.41% 40.91%

71839203

1043812075 13056

16575

0

5,000

10,000

15,000

20,000

2011/12 2012/13 2013/14 2014/15 2015/16F 2016/17F

Leisure segment EBIT Other segments EBIT

LKR Mn


A buoyant outlook in the SL tourism industry to generate further earnings

Graph 20: Total tourist arrivals to Sri Lanka

Source: JKH annual reports, LOSEC Research estimates

Source: Census and Statistics Dept. Central Bank annual report, LOLC research estimates

Graph 21: Tourist arrivals to SL and the region

Source: AHPL annual report, LOSEC Research Estimates

Source: World Bank and SLTDA data


Maldivian operations

Sector Valuation

Tourist arrivals to SL is

low comparatively to

our peer countries

indicating that SL has

the potential to further

develop the sector

A sector valuation of LKR 60.62 has been arrived based on a medium term growth rate of 20.00% for FY18F-FY20F

supported by the CAGR of 23.59% in historical tourists arrivals for SL from 2010 to 2014. A terminal growth rate of

6.5% has been used in our valuation considering the international tourist arrivals growth projections for South Asia

by UNWTO . We have assumed that JKH will not open up any new hotel projects in SL and in Maldives other than the

Cinnamon Life (Which has been already accounted under Waterfront).

With the overall outlook for tourism industry in Sri Lanka being positive JKH has the possibility of further increasing

the occupancy rates for SL resorts which is was at 75% as at end of 2014. We estimate that average occupancy rates

for SL resorts to be 77%,79% and 81% in FY15E, FY16F, FY17F . As per management information JKH may consider

to start up a luxury hotel in Nuwaraeliya in four to five years time and a feasibility study is being currently carried

out.

SL is to achieve 2.5 Mn

tourist arrivals by 2016

and thus SL needs an

annual 28% growth in

2015 and 2016

Maldivian operations accounts for 14.00% of the total rooms of JKH while contributing 27% to the total leisure sector

revenue. As at end 2014 Maldivian resorts had an occupancy rate of 91% which is higher than the average occupancy

rate of Maldives. With the expected growth in tourist arrivals of 13% to Maldives in 2015 as forecasted by the

Maldives government (Source: ADB) we expects average occupancy rates of Maldivian resorts to increase up to 93%

FY15/16.

Sri Lankan tourism industry coupled with the recent development in the infrastructure projects are expected to

generate higher earnings for the leisure segment of JKH. During the post war period from 2010 to 2014 SL has

achieved a CAGR of 23.59% in tourist arrivals while SL also surpassed the tourist arrivals target of 1.5 Mn set for the

year of 2014, which is a significant achievement.

7.4

2.2

5.3

0.3 0.1 0.3

26

8.8

26.7

7.6

4

1.3

0

5

10

15

20

25

30

Malaysia Indonesia Thailand Vietnam Cambodia Sri Lanka1990 2013

-2.98%1.87%

-11.72% -11.24%

2.15%

46.12%

30.79%

17.48%

26.75%

19.81%

28% 28% 28%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F

Th

ou

san

ds

Tourist arrivals Tourist arrivals growth rate

Mn


Transportation, a steady cash cow

Graph 22: CPEP to add 7.6 Mn TEUs by 2020E Graph 23: SAGT volume and market share

Source: Census and Statistics Dept. Central Bank annual report, LOLC research estimates

Source: SLPA Source: SAGT web site & CBSL

Graph 24: Bunkering price movements

Source: Bloomberg

Sector Valuation


Steady growth of bunkering business

JKH’s oil bunkering business imports oil and supplies bunker fuel

primarily to ships calling in for transshipment at the Colombo

port. The three large players (IOC, state controlled Lanka

Maritime Services and JKH) while JKH’s Lanka Marine

Services(LMS) being the industry leader with approximately

50% market share dominates the sector, amidst the stiff

competition from entry of new players and fuel price wars in the

region.

With the decline of Brent Crude Oil prices and relative increase

in bunker fuel consumption, we expect a marginal increase in

bunkering volumes in short run. Considering the Port's objective

to add 7.6 Mn TEU handling capacity by 2020, LMS could be in a

position to capitalize the growth in port activities, if JKH will

continue to invest in strengthening infrastructure and leverage

on its strong brand name.

Though there was a dip in operating income on bunkering business in FY15 due to stiff competition, we expect 5%

YoY growth for next two years due to expected growth in port activities. We assume JKH to gain SAGT's share at 90%

annual throughput capacity till FY18. We expect 4% medium term growth from the container business primarily due

to possible changes in pricing strategies. But in the long run there is a possibility for JKH to have a business expansion

opportunity and hence a 5% terminal growth has been applied for our valuation.

Bunkering volumes to

grow in par with

increase in port

capacity

Transportation sector to record a slow growth via Colombo Port Expansion

Due to the ongoing Colombo Port Expansion Project (CPEP), it is estimated that the capacity of the port to increase

from the existing around 4.1 million TEUs annually to about 11.7 million TEUs by 2020.With the expansion of South

Container Terminal under CPEP, the Colombo port will be a sought after location for Large Container Vessels (vessels

with capacity over 15,000 TEU with over 15.2m depth: source: Colombo Port Authority) in the future. With ongoing

Port expansion coupled with the Port of Colombo being located in a strategic location of the Global Sea Route, we

expect Colombo port activity to grow steadily in years ahead.

Colombo Port to add

11.7 Mn TEUs by 2020

Limited growth

prospects due to

capacity constraints

SAGT remains to be a cash cow

JKH is active in the container business recording 42% of the stake in SAGT as an associate business. The container

business mainly entails loading and unloading container vessels at the Colombo port. SAGT currently operates with a

throughput capacity of 1.7Mn TEUs on a yearly basis which accounts for 85% of the full capacity. Transportation

sector remained to be a “Cash Cow” to the Group mainly through SAGT earnings which had exclusively contributed

near 20% to the Group bottom line in the past.

We expect SAGT to stabilize at 90% capacity in years ahead, amidst the competition stemming from Colombo South

Container Terminal. We expect that JKH’s container business will generate stable returns in FY 16 – 18 at 90% TEU

handling capacity. However, the management has raised concerns over SAGT’s capacity constraints and Government’s

control on bunkering services. If Govt allows, the management has to plan to operate in upcoming terminals in

Colombo Port and/or Hambantota Port.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2004 2008 2012 2014 2020 E

To

tal

TE

Us

(Mn

)

SC

T

CP

EP

Co

mp

leti

on

44%45%

42%39%

36%35%

33% 33%35%

25%

30%

35%

40%

45%

50%

0

200

400

600

800

1000

1200

1400

SAGT Other SAGT Market Share

TEUs

200

300

400

500

600

700

800

40

50

60

70

80

90

100

110

120

130

18

-Ju

n-1

2

18

-Au

g-1

2

18

-Oct

-12

18

-Dec

-12

18

-Feb

-13

18

-Ap

r-1

3

18

-Ju

n-1

3

18

-Au

g-1

3

18

-Oct

-13

18

-Dec

-13

18

-Feb

-14

18

-Ap

r-1

4

18

-Ju

n-1

4

18

-Au

g-1

4

18

-Oct

-14

18

-Dec

-14

18

-Feb

-15

18

-Ap

r-1

5

Brent Crude Oil (RSH)-USD/bbl

380cST Bunker Fuel Price (LSH)-USD/bbl

180cST Bunker Fuel Price (LSH)-USD/bbl

USD USD


Real Estate at a growth stage

Graph 25: Sri Lanka GDP by sectors

Source: SAGT web site & CBSL

Source: CBSL

Table 4: Proposed & operational luxury and upper mid apartments Table 5: Upcoming malls in ColomboApt Name Location Com. Yr # Units Com Yr BAU (sqft)

110 Rajagiriya 2014 188 2014 60,000 On three 20 Colombo 2 2014 475 2017 40,000 7th Sense Colombo 7 2015 65 2017 250,000 Elements Rajagiriya 2016 132 2017 160,000 Destiny Slave Island 2017 205 2017 30,000 Altair Beira Lake 2017 400 2018 250,000 Belvedere Kotahena 2018 260 2018 400,000 Waterfront Glennie St 2018 431 2018 315,000 Astoria Duplication Rd 2018 350 2018 60,000 City Center Beira Lake 2018 182 2018 150,000

Source: JLL Reseach 2014 Source: JLL Reseach 2014


JKH

Havlock City Mall

Shangri-laAltairLiberty Pz- phase II

Supply to overweigh

the demand for

residential properties

AVICSilver Needle - Abans

Positive outlook of country property developments

Sri Lanka is proactively investing in various infrastructural projects, from improving transport networks to

telecommunications and electricity generation. This has resulted steady increase in construction sector stake in Sri

Lankan Real GDP from 7.1% in 2011 to 9.7% in 2014.The construction sector demonstrates a strong correlation with

the growth momentum of the country enabling the investments in property development also to become more

attractive in the medium run. Real estate values within Colombo is also increasing at a rapid phase making sector

investments more viable with superior returns.

Construction sector to

record a positive

correlation with Real

GDP

Waterfront properties will drive the segment earnings

JKH’s property segment currently accounts for a relatively small percentage of revenue, ranging from 3.4% to 4.63%

over FY08-FY14.However, it accounts for a volatile and outsized contribution to profitability. The revenue streams of

property segment is derived primarily from apartment sales and property rentals of Crescat and two K-Zone

shopping malls located in Colombo and the suburb. With almost 100% sales of OnThree20 and 100% unit

reservations on 7th Sense residential property by FY2014/15, the revenue flow of this segment for next 3 years will

mainly limit to pre-sales of proposed residential towers (Tower 1 and 2) under Waterfront Development project.

The company receives 20 – 30% of revenue at the time of sales of upcoming tower 1 & 2 as the first installment, with

the balance being payable by the customer under another two installments based on the proportion of project

completion. Due to property management fee which is in average LKR 25,000 - 30,000 per unit per month, we believe

that the property segment will earn a marginal net income which is about 40% of the management fees (LOSEC

estimates) from existing apartment complexes.

Witnessing a

significant demand for

luxury apartments

Supply to overweigh the demand amidst low interest rates

We expect the demand of apartments to be in an upward momentum provided that the CBSL will continue to

maintain low interest rate environment in the future. However, a large number of high-end residential real estate

development projects in Colombo are currently in progress with plans for completing them with in next 4 years. This

could lead to oversupply and, demand could come under pressure.

South City Pr

JKH

Destiny Mall

Tata Residential

Mall name

JKHKrrish Square

JKH

ITC Hotel

DeveloperApurva Natvar Parikh

Fairway Holdings

Keppel CT Developments

Silver Needle Abans

16% 7.1%8.1% 8.7%

9.7%

2%

3%

4%

5%

6%

7%

8%

9%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2011 2012 2013 2014

LK

R B

n

Services Industry (except construction) Agriculture Construction Real GDP Rate


Property segment (cont…)

Graph 26: Square metre prices, premier city centre, US$. (Premium location apartments)

Source: JLL Reseach 2014, LOSEC Estimates

Graph 27: Rental charges in retail cities of regional countries


Graph 28: Office space rental charges in regional countries

Source: JLL Reseach 2014


Sector Valuation


Tapping Colombo office market with high expectations

Currently, the Colombo office market is witnessing a steady demand for small to mid-size ‘Grade A’office space from

Banking, Financial Services & Insurance (BFSI) and IT/ITES sector companies. It is further estimated that Sri Lanka

would require at least 15 million sqft of office space by 2022 in order to achieve government’s ambitious target of

creating another 200,000 jobs in IT/ITES sector by 2022. The total ‘Grade A’ office space generated from the on-going

development projects will account for only 0.6Mn sqft by 2016. Thus we believe that proposed office complex under

Waterfront Development project enjoy a high occupancy rate which is about 85% - 98% from FY20 onwards.

We assume all residential apartments except “7th Sense” have been fully sold and accounted by FY15. We assume that

all units of 7th Sense have been reserved and 40% of sales receipts have been recognized in company books by FY15.

The remaining 60% receivables of 7th Sense will be evenly distributed to FY16 and FY17 with completion time to be

registering as end of 2017. we expect property segment revenue (except Waterfront Development) to decline by

60% over next 3 years. Crescat and K-Zone malls will continue to generate stable returns registering average 95%

occupancy levels.

Invest in retail market

to capitalize tourism

boom and increase in

spending

JKH to capture retail market in Colombo

Sri Lanka being a prime business destination and gateway for tourists, the retail market in Colombo is growing

rapidly. The increasing disposable income and the rising living standards of Sri Lankans are changing their spending

patterns and preferences towards better quality branded goods and services. JKH is already in the run to tap the

market through their existing high end shopping malls and proposed 400,000 sqft giant international quality

shopping mall under their flagship mixed development Waterfront Project.

Waterfront office

complex to cater

growing demand of

office space

2734

4036

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000

MalaysiaSri Lanka - Colombo

IndonesiaCambodia

PhilippinesThailand

WaterfrontChina

TaiwanJapanIndia

SingaporeHong Kong

3.50

5.00

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Colombo Crescat BoulevardManila Makati CBD

Colombo Waterfront-ColomboChennai CBD II shopping centre

Jakarta Shopping CentreThailand Central Retail District

Mumbai Linking Road, Western SuburbanVietnam Shopping Centre

Delhi Khan MarketKL Suria KLCC

Singapore Orchard Road

USD/sq.ft per month

2.50

5.00

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00

India - ChennaiPhillipines - Manila

Sri Lanka - ColomboThailand - Bangkok

Malaysis - KLVietnam - Ho Chi Minh City

WaterfrontIndonesia - Jakarta

India - MumbaiSingapore

India - Delhi

USD/sq.ft per month

USD/sq.m


Financial sector, an underpenetrated growth segment in the country

Underpenetrated life insurance market and rapid credit growth to bolster segment earnings


Graph 29: Life insurance growth and market share Graph 30: Life insurance penetration in Sri Lanka

Source: Insurance Board, CBSL Source: Insurance Board,UAL Annual Report, CBSL


Graph 31: Life Business penetration in Asia


Source: Resigma N03/2014


Sri Lanka remains heavily under-penetrated by insurance with the total premium/GDP ratio falling further to just

1.05% in 2014 with 0.46% penetration for life. When compared with average life business penetration in emerging

Asian countries which is 1.85%, Sri Lanka has resulted very low penetration of 0.48%. Considering this low

penetration coupled with overall GDP and last 6 years real per capita income growth of 40%, we believe that UAL

could obtain a net premium annual growth of 8% in years ahead. However the demand for life insurance may

somewhat diminish due to Govt’s provision of free health-care. But increased per capita income of the country will

have a strong growth phase for life insurance industry.

Underpenetrated life

insurance segment

JKH’s financial services sector mainly consists with insurance (UAL), banking and leasing (NTB) and stock brokering

(JKBS) businesses. With estimated earning in FY14/15, the sector has posted 6% revenue CAGR and 26% PAT CAGR

over last four years.

Union Assurance Limited (UAL)

UAL is a mid-tier insurance underwriter operating largely in life insurance segment. JKH being the parent company

holds 88.25% of UAL as at 31st Dec 2014 after making 78% divestment of its general insurance business to Fairfax

Asia Limited for a total consideration of LKR 3.66 Bn while gaining a capital gain of LKR 1.22 Bn. UAL net earned

premium increased YoY by 5.4% between FY14-15 while net earned premium of life segment has gained 7.3% YoY

growth over FY14. UAL total earnings are likely to decline in 4QFY15 and following years due to sale of UAL non-life

segment. However, the management of JKH is in the process of deciding the best use of the cash proceeds received

from the sale, but the decision is not finalized yet.

Underpenetrated life

insurance segment

0%

10%

20%

30%

40%

0

20,000

40,000

60,000

80,000

100,000

120,000

2009 2010 2011 2012 2013 2014General Insurance (Rs. millions)Life Insurance (Rs. millions)Growth Rate in Premium - Life (%)

LKRMn

0%1%2%3%4%5%6%7%8%9%

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2009 2010 2011 2012 2013 2014

Per capita income - USD

GDP Growth Rate %*

Penetration % (Premium of life Insurance as a % of GDP)

USD

68.3

35.2

0.16 0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

05

1015202530354045505560657075

Emerging Asia Middle East and Central Asia Sri Lanka

Premiums per capita (USD) Premiums in % of GDP -2013

USD%


Financial sector (cont…)

Graph 32: NTB has grown significantly over the years Graph 33: NTB has superior profitability

Source: Annual Reports Source: Annual Reports

Source: Insurance Board,UAL Annual Report, CBSL

Sri Lanka's loan penetration remains significantly low in the region.

Source: Resigma N03/2014


Sector Valuation

We have used Residual Income Valuation and Market Multiple Valuation approaches in deriving the valuation for

UAL. We have applied an estimated peer average P/BV of 2.18 to UAL's net book value of LKR 7.4 billion after

adjusting the sales proceed of 78% stake of its non-life segment. Accordingly we estimate the total valuation for UAL

at LKR 16.2 billion. Under Residual Income Valuation, we expect 16% YoY operating income decline in FY15/16

compared with previous year due to the divestment of non-life segment. However, we estimate UML to register 8%

YoY operating income growth there onwards till FY20 which will be mainly driven by expected increase in per capita

income and capturing more market share by implementing effective marketing campaigns for life insurance business.

We have used Residual Income Valuation in deriving the valuation of JKH's share of NTB. Accordingly we estimate the

valuation of JKH's share of NTB at LKR 7.1 billion by applying 18% YoY net income growth till FY17 and 7% and 5%

medium term and terminal growth respectively. We assume that JKH's stake at NTB will remain at 29.9% level for our

valuation.

Nation Trust Bank (NTB)

JKH owns 29.9% stake of NTBas at 31st December 2015 accounting the bank as an associate of JKH businesses. NTB

has been one of the fastest growing mid-size LCB in Sri Lanka and it is also one of most profitable banks in the

country. NTB’s high profitability is mainly driven by strong presence in credit card business with American Express

franchise and high yielding advances such as leasing products. NTB mainly operates in retail and SME sectors and

increasingly looking forward to diversifying into corporate loans.

Despite strong profitability and rapid growth NTB has maintained sound asset quality with diversified portfolio of

advances and sound NPL levels.

NTB is a fast growing

bank with high

profitability

We expect NTB to continue with the growth momentum supported with branch expansion and fast credit growth. JKH

carries NTB in its book at LKR 1.56 billion. NTB will continue to generate superior return on assets for JKH and will

add a significant value to John Keells Group.

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Total Assets Customer Deposits

LKRMn

0

1

2

3

4

5

6

7

0

5

10

15

20

25

COMB NTB NDB SEYB HNB SAMP UBC PABC

ROE NIM

%%


IT, Plantation and Other segments

IT Sector Valuation

Source: Annual Reports

Graph 34: Tea price movement

Source: Department of Census & Statistics and Forbes & Walkers


We expect plantation sector to post a 11% revenue decline and 20% operating income decline over FY 16 and 17 due

to factors discussed above. However, we anticipate plantation segment to record a slow medium term growth of 4%

as a result of growing demand from the Middle East and North African countries, together with regaining the demand

of Ukraine. However, the tea production is likely to be affected in the short to medium term due to unpredictable

weather patterns.

Plantation and other Sector Valuation

Other businesses

JKH’s other businesses mainly comprise with John Keells Holdings, John KeellsCapital (investment banking arm of the

Group) and Strategic Group Information Technology (SGIT) which supports the Group’s IT requirements for internal

and external clients.

Plantation sector

JKH’s plantation sector mainly includes operations of tea factories, tea and rubber broking and pre-auction produce

warehousing. Tea Small Holder Factories PLC (TSML), a subsidiary of JKH with the holding of 37.62% as of FY14 is

amongst the top manufacturers of orthodox low grown teas and is also recognized as a top quality producer of CTC

teas in Sri Lanka. With the positive trend of global tea production, TSML showed a production volume increase while

recording 12% and 16% revenue and EBIT YoY growth in FY14.TSML purchases low green tea from small tea

plantation holders to operate its 8 tea factories. With the down turn of global tea prices and increase in cost of

production coupled with wage increases of plantation sector workers, we expect plantation sector margins to decline

by 5% in FY16 and17.

JKOA business to grow

with increase in

consumer spending

Sector may become

vulnerable to

unfavorable weather

conditions

We have used Residual Income valuation approach to value the IT sector and valued the sector at LKR 2.4 billion.

Sector revenue and operating income is largely driven by office automation business and we expect 11% YoY

operating income growth (excluding associate share) till FY 17 considering the rapid change in consumer patterns

together with the popularity of social media flatforms in recent times. We assume medium growth of the sector

primarily to be driven by the GDP growth of 7%.

JKH’s Information Technology (IT) sector accounts for 8% of group revenue (inclusive of share of associate company

revenue) and 2% of group EBIT as of FY14. John Keells Office Automation (JKOA), a leading distributor of branded office

automation products stands out as the main contributor in the segment recording 77% contribution to the segmental

EBIT. JKH’s BPO business, InfoMate (pvt) ltd. with 282% YoY growth in operating profits has continued its positive

growth trajectory driven by the increased demand from emerging regions in Asia and Europe. John Keells Computer

Services (JKCS) saw a marginal decline of 0.4% YoY in FY13/14.

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

50

100

150

200

250

300

350

400

2009 2010 2011 2012 2013

Total cost per kg of made tea - US cents/kg Avg. export tea price - US cents/kg

YoY Growth of total cost per kg of made tea YoY Growth of avg. export tea price per kg

UScents/kg


Financial snapshot of JKH performance

Source: Bloomberg Source: Bloomberg

Source: Bloomberg Source: Bloomberg

Source: Department of Census & Statistics and Forbes & Walkers

Source: Annual reports Source: Annual reports


Graph 35: Quarterly Revenue and Profit Graph 36: Quarterly EBITDA margin

Graph 37: ROA and ROE Graph 38: Gearing

Graph 39: Segmental Revenue Breakdown Graph 40: Segmental Operating Margins

-

5,000

10,000

15,000

20,000

25,000

30,000

2015-Q1 2015-Q2 2015-Q3 2015-Q4

LK

R M

n

Revenue Profit

- 2 4 6 8

10 12 14 16 18 20 22 24 26 28 30

2015-Q1 2015-Q2 2015-Q3 2015-Q4

%

EBITDA Margin

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2010 2011 2012 2013 2014 2015

%

ROA ROE

10

15

20

25

30

35

2010 2011 2012 2013 2014 2015

%

Gearing: Total Debt/Equity

0

5,000

10,000

15,000

20,000

25,000

30,000

2009 2010 2011 2012 2013 2014

LK

R M

n

Consumer Foods & Retail Leisure Transportation

Financial Services Information Technology Property

Others

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

2012 2013 2014

Consumer Foods & Retail Leisure

Transportation Financial Services

Information Technology Property


Valuation

Table 6: Valuation Sensitivity Matrix

6.34% 6.84% 7.34% 7.84% 8.34%3% 440 334 387 336 3054% 387 336 305 281 2625% 305 281 262 246 2336% 262 246 233 221 2117% 233 221 211 202 194


Table 7: Contribution by segment to JKH's value per share

LKR per share Contribution Mix Leisure 60,464 60.62 23%CF&R 26,204 26.27 10%Transportation 22,074 22.13 8%Property 15,284 15.32 6%Financial 23,980 24.04 9%IT 3,230 3.24 1%Other 3,959 3.97 2%Cash 37,893 37.99 14%Waterfront 68,495 68.67 26%Total NPV 261,582 262.24

Source:LOSEC Estimates

Table 8: Peer ComparisonName PE (x) PBV (X) Dividend ROE %

John Keells Holdings Plc (Sri Lanka) 1441 13.50 1.41 1.80 11.01Aitken Spence Plc (Sri Lanka) 301 11.33 1.16 2.00 10.64Hemas Holdings Plc (Sri Lanka) 341 17.95 2.81 1.37 15.01Hayleys Plc (Sri Lanka) 197 10.31 0.91 1.69 9.77Beijing Enterprises Hldgs (Hong Kong) 11258 17.98 1.53 1.32 8.69Yakult Honsha Co Ltd (Japan) 9707 45.13 3.48 n.a 8.35




Underlining parameters:

Market Cap (USD Mn)

Equity Value (LKR Mn)

Table 9: Valuation of JKH warrants in 2015 and 2016 (using Black Scholes Pricing Model)

- Exercise price of the options: W022 - LKR 185, W023 - LKR 195

- No. of periods to exercise in years: W0228 - 0.46 Yrs, W0236 - 1.47 Yrs

- Compounded risk free interest rate: 7.34%

- Standard Deviation (annualised): 10%

Expiration Date 12-Nov-15 12-Nov-16

Warrant023

16.70 22.20LOSEC Valuation - LKR

Current Trading Price - LKR

Share price in LKRRisk Free Rate

20.00 37.10

Warrant022

We have taken into account a cost of equity of 12.34.% assuming a risk free rate of 7.34% and a risk premium of 5%.

A risk premium of 5% have been taken due to the majority of shareholders of JKH being foreign shareholders which

bears a lower opportunity cost of capital than local shareholders. We have taken different medium term growth rates

and terminal growth rates for different sectors considering each sectors' growth potential. Our SOTP model values

the counter at LKR 262.24. At the current share price, JKH is trading at forward PE of 14.11X and a forward PBV of

1.41X.

We have taken SPEN as a local peer for the comparison.

Ris

k

Pre

miu

m


Impact of share subdivision

Source:LOSEC Estimates



JKH has announced a subdivision of ordinary shares (7 existing shares to be divided to 8) and will be in effect upon

shareholder approval. The impact would be valuation per share coming down to LKR 229.46(-LKR32.78), remaining as

BUY.

Supergain tax

As per interim budget proposal on 29 January 2015, where the aggregate profits of subsidiaries and the holding

company, within a group of Companies, exceed Rs.2Bn for the Year of assessment 2013/14, each company of such group

is liable to pay a levy known as Super Gains Tax which is 25% of the taxable income of such company for the Year of

assessment 2013/14. However, the Bill is yet to be enacted. If the bill became enacted, JKH has made a taxable profit in

excess of such amount for the said financial year of assessment and will become liable to pay the additional tax in the

future. For FY 2013/14 JKH has made consolidated taxable profit of LKR 9073 million and will be liable to pay for a new

tax of LKR 2268 million. The impact would be valuation per share coming down to LKR 259.97(-LKR 2.27), remaining as

a BUY.


Summarized Sentivity of Assumptions

Graph 41: Tourist arrival growth sensitivity: Strong Graph 42: Country's GDP growth sensitivity for CF&R: Medium

Source: LOSEC Research Source: LOSEC Research

Graph 43: Selling price sensitivity of residential apartments: Medium Graph 44: Retail space rental price sensitivity: Medium

Source: LOSEC Research Source: LOSEC Research


Earning Risk Comment

JKH is the largest diversified conglomerate in the country and it is heavily exposed Sri Lankan economy with very

limited overseas operations. Therefore any broader economic slowdown of the country can significantly affect the

future earnings of the company. However with the more stable macroeconomic fundamentals of the country, it is

unlikely that a major event will take place in short to medium term which will lead to create an economic crisis in the

country thereby dampening JKH performance. We expect Sri Lanka’s GDP level to fluctuate at 6% - 8% in the medium

run enabling JKH to operate smoothly.

The Waterfront Development Project is a critical project for JKH’s future outlook which accounts for over 50% of total

balance sheet asset value of JKH. Since it is an integrated development, the project will expose to various business

risks stemming from property and real estate, leisure and entertainment sectors. The greenfield project will have

significant impact on future value generation of the company and any risk pertaining to the project will have

significant impact on valuations of JKH as well.

One of key risk factor that could affect future earnings of JKH is its exposure to property market. Since IR project and

JKH account for the largest land bank in Colombo, the company is heavily exposed to Sri Lankan property market

movements. History tells that the property markets are prone to bubbles and therefore any unexpected real estate

bubbles or market crashes could hamper the value of the company. A number of other property development projects

are also in progress in the present context leading the supply of residential and commercial properties to surpass the

demand. This could lead JKH to underperform in achieving its sale targets in a timely manner.

JKH is also heavily exposed to leisure sector through its hotel operations as well as the IR project. But we don’t see

much risk in the sector except for cyclical impacts as the country is still some distance from becoming an

overcrowded tourist destination and will attract tourists to the country. But any social adverse incidents such as civil

unrest can have significantly impact the industry.

In summary, we don’t see much risk for the economy of Sri Lanka, despite short term political uncertainties.

Therefore with the stable outlook of the country coupled with steady growth of GDP, we are confident that JKH will

not run into significant risks in medium term.

245.57

262.24

286.15

230235240245250255260265270275280285290

4.5% 6.5% 8.5%Tourist arrival growth at current rate

-6%

+9%

LKR

258.5

262.24

269.43

252

254

256

258

260

262

264

266

268

270

272

5.00% 7.00% 9.00%Consumer sector GDP growth rate

-1%

+3%

LKR

259.22

262.24

265.27

256

258

260

262

264

266

325 375 425

Average selling price - USD per sq.ft per month

LKR

-1%

+1%

255.09

262.24

269.4

245

250

255

260

265

270

275

3 5 7

Rental price-USD per sq.ft per month

LKR

-3%

+3%


Appendices

Table 10: Return comparison

3 months -6.78 -1.13 -3.60 -3.946 months -24.21 -1.63 -2.86 -0.60YTD -23.60 -2.44 -3.51 -3.381 year -18.72 13.39 13.59 -0.99

Source:CSE, Bloomberg

Graph 45: Share Price Movement

Source: LOSEC Research

Source:CSE, Bloomberg

Source: LOSEC Research

Source:CSE, Bloomberg Source:CSE, Bloomberg




Graph 50: CSE PE Chart Graph 51: CSE PBV Chart

Graph 48: Price per Sales Graph 49: Dividend Yield

Graph 46: PE Chart Graph 47: PBV Chart

ASI IndexJKH %S&P SL 20

IndexSPEN

50

100

150

200

250

300

350

-

10,000,000

20,000,000

30,000,000

40,000,000

Rs

Vo

lum

e

Volume Price

SMAVG (50) SMAVG (100)

0255075

100

6/5/12 12/5/12 6/5/13 12/5/13 6/5/14 12/5/14

RSI (14)

0

5

10

15

20

25

6/5/12 12/5/12 6/5/13 12/5/13 6/5/14 12/5/14

PE ratio Highest Average Lowest

0

0.5

1

1.5

2

2.5

3

06/05/12 12/05/12 06/05/13 12/05/13 06/05/14 12/05/14

PBV ratio Highest Average Lowest

0

0.5

1

1.5

2

2.5

3

3.5

6/5/12 12/5/12 6/5/13 12/5/13 6/5/14 12/5/14

Price to Sales ratio Highest Average Lowest

8

10

12

14

16

18

20

22

06/05/12 12/05/12 06/05/13 12/05/13 06/05/14 12/05/14

ASI PE ratio Highest Average Lowest

1

1.2

1.4

1.6

1.8

2

2.2

6/5/12 12/5/12 6/5/13 12/5/13 6/5/14 12/5/14

ASI PBV ratio Highest Average Lowest

0

0.5

1

1.5

2

2.5

6/5/12 12/5/12 6/5/13 12/5/13 6/5/14 12/5/14

JKH dividend yield Highest Average Lowest


Table 11: Financial Summary ForecastFigures in LKR Mn (31st March) FY 12 FY 13 FY 14 FY 15 FY 16 (F) FY 17 (F)Income StatementRevenue 77,690 85,408 89,256 91,582 97,289 105,225

Cost of Revenue -59,507 -62,535 -64,652 66,191 70,825 74,403

Gross Profit 18,182 22,873 24,604 25,391 26,464 30,822

Operating Expenses -9,503 -11,993 -13,119 -12,678 -13,468 -14,566

Operating Income 7,183 9,203 10,438 12,075 13,056 16,575

Net Non-Operating Gains (Losses) 5,637 6,461 4,960 7,000 8,020 7,411

Pretax Income 12,820 15,664 15,399 19,075 21,076 23,986

Net Profit att. to shareholders 9,686 12,113 11,719 14,348 15,930 18,259

Balance Sheet Cash & Near Cash Items 4,267 3,555 5,955 4,511 6,660 6,430

Accounts & Notes Receivable 9,773 10,737 10,389 10,270 13,645 14,563

Inventories 4,350 3,999 6,966 5,589 6,341 6,803

Total Current Assets 47,746 50,018 83,188 90,493 85,992 79,028

Total Long-Term Assets 86,712 109,100 119,286 127,593 185,227 239,448

Total Assets 134,458 159,118 202,474 218,086 271,219 318,475

Accounts Payable 11,008 10,471 10,346 11,267 12,688 13,596

Other Short-Term Liabilities 13,460 15,028 24,024 23,905 31,589 37,073

Total Current Liabilities 24,468 25,499 34,369 35,172 44,278 50,669

Total Long-Term Liabilities 29,788 32,434 33,594 32,837 51,128 79,545

Total Liabilities 54,257 57,933 67,963 68,009 95,405 130,214

Share Capital 25,111 26,480 49,749 50,703 58,842 67,421

Retained Earnings & Other Equity 55,090 74,705 84,761 99,374 116,972 120,842

Total Equity 80,201 101,185 134,510 150,077 175,814 188,263

Total Liabilities & Equity 134,458 159,118 202,474 218,086 271,219 318,475

FY 12 FY 13 FY 14 FY 15 FY 16 (F) FY 17 (F)Cashflow Statement

Net Income 9,687 12,113 11,719 14,348 15,930 18,259

Depreciation & Amortization 2,635 3,177 3,533 3,715 3,325 3,403

Changes in Non-Cash Capital 4,155 (723) (6,889) (1,169) (9,583) (13,027)

Cash From Operations 16,476 14,568 8,363 20,855 9,672 8,634

Capital Expenditures (5,341) (5,025) (3,605) (2,734) (35,093) (29,864)

Increase/Decrease in Investments (3,662) (11,174) (16,357) 1,479 (1,971) (5,153)

Cash From Investing Activities (9,003) (16,199) (19,962) (1,255) (37,064) (35,017)

Dividends Paid (2,314) (2,982) (3,267) (4,269) (4,056) (4,649)

Change in Short-Term Borrowings 777 845 7,898 2,871 7,536 8,325

Change in long term borrowings 1,747 221 (1,571) (4,390) 17,923 13,898

Change in Capital Stocks 486 1,362 23,041 951 8,139 8,579

Change in other finance activities (201) (765) (722) - - -

Cash from Financing Activities 496 (1,320) 25,378 (4,838) 29,542 26,153

Net Changes in Cash 7,970 (2,950) 13,779 14,762 2,150 (231)

Opening Cash Balance 2,113 4,267 3,555 5,955 4,511 6,660

Closing Cash Balance 4,267 3,555 5,955 4,511 6,660 6,430



Figures in LKR Mn


Table 12: Forecast Ratios FY 12 FY 13 FY 14 FY 15 FY 16 (F) FY 17 (F)

Profitability Ratios

GP Margin (%) 23% 27% 28% 28% 27% 29%

NP Margin (%) 12% 14% 13% 16% 16% 17%

ROE (%) 14% 13% 10% 10% 10% 11%

ROA (%) 7% 8% 6% 7% 6% 6%

Earnings per share (LKR) 11.19 13.37 12.66 14.44 15.19 16.60

Dividend per Share (LKR) 2.91 3.40 3.50 3.50 3.87 4.23

Credit Ratios

Debt/Equity Ratio (%) 37% 32% 25% 22% 29% 42%

Interest Coverage (X) 5 9 9 18 19 25

Total Assets/Equity (X) 1.7 1.6 1.5 1.5 1.5 1.7

Net Debt/EBIT (X) -1.6 -1.3 -4.1 -5.3 -2.6 0.1

Liquidity Ratios

Current Ratio (X) 2.0 2.0 2.4 2.6 1.9 1.6

Quick Ratio (X) 1.8 1.8 2.2 2.4 1.8 1.4

Asset Turnover Ratio (X) 0.6 0.5 0.4 0.4 0.4 0.3

Net Asset Value per share (LKR) 80.4 101.4 134.8 150.5 176.3 188.7

Growth Ratios

Revenue Growth YOY% 10% 5% 3% 6% 8%

Earnings growth YOY% 25% -3% 22% 11% 15%

Total Assets YOY% 18% 27% 8% 24% 17%

Total Debt YOY% 7% 17% 0% 40% 36%

Investment Ratios

PE Ratio (X) 17.88 17.95 18.02 13.81 17.26 15.80

Price to Book Value (X) 2.44 2.36 1.83 1.44 1.49 1.39

Dividend Yield (%) 1.16 1.45 1.47 1.49 1.47 1.61





Company overview

Strengths

- Brand name of JKH - Qualified and experience Board of Directors- Majority of shareholders being Foreigners- Strong Corporate governance structure- Largest private sector land bank - Low gearing ratio

Weaknesses

- Declining performance in some segments, ex:Plantations - Heavy reliance on Sri Lankan economy

Opportunities

- Increase in disposable income of consumers Source:CSE, Bloomberg, LOSEC Research - Anticipated growth in GDP of Sri Lanka

- Anticipated growth in tourist arrivals to Sri Lanka

Threats - Competitive threats arising from similar conglomerates.- Possibility of political uncertainty within the Country- Uncertainty with relation to key economic variables such as interest rates, exchange rates etc.- Adverse impacts that might stem from global economic events


SWOT analysis

John Keells Holdings is the largest publicly traded company on the Colombo Stock Exchange (CSE) with a market capitalization of LKR

206bn(USD 1.54bn) as of 5 May 2014. The currently operates in seven business segments: consumer food and retail (CF&R), leisure,

transportation, property development, financial services, information technology and plantation and few other small businesses. CF&R, leisure

and transportation segments largely contribute to the company’s top line and bottom line, together accounting 71% of revenue and 56% of

EBIT in FY14. JKH has been recognized amongst the investor community for its relatively high level of transparency and strong corporate

governance.


Waterfront Integrated Development Project

Land value 7,860 60Rights Nov-13 23,098 176 Warrant - W0022 Nov-15 8,139 62 Warrant - W0023 Nov-16 8,579 65 Debt 59,744 456Total 107,420 820


Project fundingExercise

date LKR Mn USD Mn

The investment vehicle and its shareholders

Waterfront Properties Private Limited(WPL), the Project Company, a subsidiary of JKH, has been incorporated to

undertake the development of the project. Land owned and occupied by subsidiaries of JKH; Ceylon Cold Stores (CCS),

John Keells PLS (JKL), John KeellsProperties (JKP) andWPL in Colombo 02 will be utilized for the project while CCS,

JKL, JKP will receive shares in the project company in consideration for the land transferred to the project company.

JKH, together with its subsidiaries CCS, JKL, and JKP will be majority shareholders in the Project Company while JKH

will own approximately 79.24%, with CCS, JKL and JKP owing 14.15%, 5.03% and 1.57% respectively. JKH will have

effective control of 96.70% over the project. The project investment of USD 820 Mnis funded through a mix of debt

and equity (ratio - 60:40).

Overview of the project

The Project is an integrated resort consisting of multiple businesses including luxury hotels, conferencing center,

entertainment facilities, international standard shopping mall, luxury condominiums, serviced apartments and office

spaces similar to the integrated resort developments seen in the South East Asian region. It is a tourism related

Project targeted towards the creation of a large and unique development, which will aesthetically and functionally

add to transforming the landscape of Colombo, potentially making it one of the most sought after destinations in

South Asia and will further complement the businesses of the main industry groups of the John Keells Group.

The project is for the development, construction, equipping, commissioning, owning, managing, operating, selling,

leasing, and renting a luxury multi/mixed use “iconic” integrated resort and to carry on all related business activities

associated therewith including but not limited to the managing, leasing/renting, selling and operating the aforesaid

luxury hotel, conferencing center, entertainment facilities, international standard shopping mall, luxury

condominiums, serviced apartments and office space.

The project will cater to multiple emerging demand drivers including the growing mobility and spending power of

outbound South Asian regional travelers, the increase in global connectivity to Sri Lanka and the accompanying

growth in Sri Lanka’s tourism sector and the growing demand for entertainment and retail from the Middle East,

India and East Asia.

Tax concessions

The project comes under the Board of Investments (BoI) of Sri Lanka as a strategic development project. Thus the

project is exempt from:

• The imposition of income tax on the Project Company on the profit and income generated from the business

activities of the Integrated Resort for a period of 10 years. After expiration of this tax exemption period, the profit and

income of the Project Company shall be charged at the rate of the lower of 6% or 50% of the prevailing tax rate for

the hotel industry, for a period of 15 years immediately succeeding the last date of the Tax Exemption period.

• Income tax on dividends distributed to the shareholders out of the exempted profit during the said Tax Exemption

period and 1 year thereafter.

• Withholding Tax(WHT), on interest paid on foreign loans and debt obtained for capital expenditure and on technical

fees.

• Value Added Tax (VAT) on the importation of the project related goods and services and the local purchases of

project related goods and services, PAYE tax for foreign employees, Custom Duty and Airport Development Levy on

the project related items and Construction Industry Guarantee Fund Levy.

Project funding mechanism

Planned equity infusion is approximately USD304Mn.The estimated balance of USD 456Mn to be raised via 7 year US

Dollar dominated syndicated loan at Project Company.


Business Segments

ConsumerLKR Mn 2013/14 2012/13 Chg% 2011/12 Retail segment

Revenue 25,414 24,042 6% 21,969 EBIT 1,480 2,479 -40% 2,822 PAT 1,005 1,987 -49% 2,370 Total Assets 12,171 17,305 -30% 12,670 Total Equity 5,977 10,804 -45% 7,868 Total Debt 1,699 1,704 0% 1,167

Contribution to JKH group

Revenue 22,548 20,593 9.49% 17,415EBIT 5,912 5,706 3.61% 4,442PAT 4,824 4,746 1.64% 3,707Total Assets 52,662 49,795 5.76% 41,275Total Equity 41,570 37,606 10.54% 28,642Total Debt 6,697 7,435 -9.93% 8,077

Contribution to the JKH group

LKR Mn 2013/14 2012/13 Chg% 2011/12 Ports and Shipping

Revenue 21,796 25,113 -13% 23,651 EBIT 2,774 3,680 -25% 3,329 PAT 2,510 3,388 -26% 3,120 Total Assets 19,367 19,233 1% 20,179 Total Equity 14,669 15,139 -3% 15,149 Total Debt 2,250 1,953 15% 1,491

Contribution to JKH group


Table 13: Details of business segments

Operation of a private container

terminal in the Port of Colombo on a

BOT basis under South Asia Gateway

Terminals (SAGT)

Retail segment comprises of

"Keells super chain of modern

retail outlets which are

operated by JayKay Marketing

Services (JMSL) which is a 100%

owned subsidiary of CCS.

Cinnamon Lakeside

Colombo

LKR Mn

Consumer foods

KFP produces a range of processed

meat items under the brand name of

"Keells","Krest" and " Elephant

House"

Businesses

within the

sector

CCS and KFP are the subsidiaries

operate under this segment.

CCS produces a portfolio of

carbonated soft drinks, ice creams

and related confectionary products

under the “Elephant House” brand

and an energy drink under the “Wild

Elephant brand.

Sri Lankan Resorts and

Maldivian Resorts2012/13 Chg% 2011/12

Bunkering services under Lanka

Marine Services (LMS);

Logistics services which include

operations of DHL Express in Sri

Lanka;

Third party logistics and freight

forwarding solutions under the

John Keells Logistics brand; and

JV with Norbert Dentressangle

Overseas (NDO)

The Nexus network operates the

Nexus loyalty

programme in collaboration

with Nations

Trust Bank.

Representation of airlines as

general sales agents

through Mack Air in Sri Lanka

and through its subsidiary in

Maldives; On-line operations by

Jet Airways; Travel agency

business through Mackinnons

American Express Travels;

A domestic air taxi service

Cinnamon Air through Saffron

Associate stake in Maersk Lanka

Businesses

within the

sector

Leisure

Businesses

within the

sector

During the year ending 2005,

KHL was created as a holding

company for all group resorts

which owns and operates

resort hotels in Sri Lanka and

Maldives. Holding of JKH in

John Keells Hotels PLC is

80.32%.

Destination Mgt.

Destination

managemement

business

comprises of

Walkers Tours

and Travels (

Ceylon) which

was acquired in

1973 and Whittall

Boustead

(Travel) Limited.

Cinnamon Red

AHPL owns and

operates cinnamon

Grand in Colombo

while it also acts as

the holding

company (43.41%)

of Trans Asia Hotels

PLC which operates

Cinnamon Lakeside.

Cinnamon Red is an

associate business

which JKH owna

27.8%.Tranportation

Transportation

2013/14

Cinnamon Grand

Colombo

City Hotels

28%

14%

EBITRevenue

25%

Revenue

43%

EBIT

19%

Revenue

26%

EBIT


LKR Mn 2013/14 2012/13 Chg% 2011/12Revenue 4,138 3,170 31% 3,790 EBIT 1,364 1,264 8% 1,016 PAT 1,291 1,190 8% 932 Total Assets 32,460 12,690 156% 10,354 Total Equity 19,423 10,472 85% 8,961 Total Debt 10,767 2,142 403% 990

LKR Mn 2013/14 2012/13 Chg% 2011/12Revenue 12,568 11,108 13% 9,874 EBIT 1,995 1,776 12% 1,934 PAT 1,636 1,399 17% 1,171 Total Assets 35,586 31,507 13% 26,921 Total Equity 9,248 8,157 13% 6,857 Total Debt 175 147 19% 328 Contribution to the JKH group

LKR Mn 2013/14 2012/13 Chg% 2011/12Revenue 7,502 6,797 10% 6,723 EBIT 394 380 4% 183 PAT 245 231 6% 66 Total Assets 3,445 3,717 -7% 3,368 Total Equity 2,104 2,166 -3% 1,901 Total Debt 468 434 8% 560


LKR Mn 2013/14 2012/13 Chg% 2011/12Revenue 4,037 3,629 11% 2,684 EBIT 2,734 1,463 87% 509 PAT 1,500 540 178% (388) Total Assets 46,783 24,870 88% 19,691 Total Equity 41,519 16,842 147% 10,823 Total Debt 4,199 6,302 -33% 7,440



Property Development

Businesses

within the

sector

Financial Services

John Keells Computer

Services (JKCS) offeres

software products and

services to a wide range of

clients in Sri Lanka and

overseas

Sole distributor for Toshiba

copiers. National distributor

for

Samsung mobile phones,

Asus, and Toshiba

notebooks and other office

automation products such

as Samsung printers, RISO

duplication solutions

Insurance Banking and Leasing Stock Brokering

Commenced work of the premium

residential development project, “7th

Sense” at Gregory’s Road

The superstructure of the “OnThree20”

residential project was completed

Maintained over 90 per cent

occupancy

across the sites

John Keells Capital, a division of JKH,

is the

private equity arm of the Group

Tea Smallholder Factories PLC (TSF PLC) –

operates 8 tea factories and is a leading

manufacturer of low grown teas in the

country, specially the CTC variety

Property Real Estate

Development and sale of residential and

commercial properties

Renting of commercial office spaces

and the management of the Group's

real estate within the city

Businesses

within the

sector

Provider of shared

service solutions in the

finance, accounting and

payroll verticals to the

Group and external

clients

under InfoMate

Other Including Plantation Services Plantation Services Other

Businesses

within

the sector

John Keells PLC (JK PLC) – leading tea and

rubber broker

JKH and other businesses

Union Assurance (UA) offers

comprehensive insurance

solutions in the life and non-

life insurance segments

Nations Trust Bank (NTB)

offers complete banking

solutions

through its network of

branches for corporate,

retail and SME clients and is

the franchise holder for

American Express credit

cards in Sri Lanka. Nations

Leasing is the leasing arm of

NTB

John Keells Stock

Brokers (JKSB) is one

of the leading stock

broking companies in

Sri Lanka and has a

number of trading tie

ups with leading

foreign securities

houses

Information Technology IT Services Office Automation IT Enabled Services

Businesses

within

the sector

Business Process

Outsourcing (BPO)

operations, primarily

in the voice vertical

through JK BPO,

operating approx.

1,000 seats with

operations in India, US

and Canada

John Keells Office

Automation

(JKOA) are authorised

distributors for some of the

leading office automation

brands in the world

John Keells Warehousing – operating a

state-of-the-art warehouse for pre-auction

produce

The Strategic Group Information

Technology (SGIT) supports the

Group’s IT requirements

and also provides consulting services

and SAP implementation services to

external companies

5%

Revenue

13%

EBIT

10%

Revenue

1

EBIT

9%

Revenue

4%

EBIT

4%

Revenue

26%

EBIT


JKH Shareholding Distribution (as at 31.03.2015)

Mr S E Captain 11.10%Broga Hill Investments Limited 10.40%Paints & General Industries Limited 6.70%Melstacorp (Private) Limited 3.70%Aberdeen Global-Asian Smaller Companies Fund 3.60%Schroder International Selection Fund 3.50%Deutsche Bank AG – London 3.00%Aberdeen Global Asia Pacific Equity Fund 2.20%Aberdeen Institutional Commingled Funds, LLC 1.60%Aberdeen Global-Emerging Markets Smaller companies fund 1.50%Mr K Balendra 1.50%London- Edinburgh Dragon Trust PLC 1.30%All Country Fund 1.10%Aberdeen Asia Pacific Equity Fund 1.00%Mrs C S De Fonseka 1.00%Mrs S A J De Fonseka 1.00%Employees Trust Fund 0.90%Aberdeen Global Frontier Markets Equity Fund 0.90%CF Ruffer Total Return Fund 0.90%Employees Provident Fund 0.80%OthersTotal

Graph 52: Shareholder structure 01 Graph 53: Shareholder structure 02

Table 14: ESOP Details

Plan 6 09.12.2010

Plan 7 07.12.2011

Plan 8 01.07.2013

Total

** Adjusted for Bonus Issues/Right Issues/Sub-divisions


Shareholder Number of shares %stake

4,672,823

6,306,182

6,426,719

Outstanding

08.12.2015

06.12.2016

30.06.2018

292

172.1

265.18

213.13

End Current

Price

Date of

Grant

Share Granted Expiry Date Option Grant Price

34,504,41730,065,96121,978,15815,569,62015,342,272

996,364,422

6,298,054

6,058,329

7,273,616

26,230,780

JKH has implemented an Employee Share Option Scheme (ESOP) by granting the share options of JKH to executives of the Group

generally with more than 12 months of service. The exercise price of the share option is equal to the 30 day volume weighted

average market price of the underlying shares of the date of the grant. Details of the options granted, the grant price and

outstanding as at 31st March 2014 is illustrated below.

Employee Share Option Plan (ESOP)

23,532,684

253.16

172.49

420,780,063

15,227,172

104,084,164110,775,563

11,362,20710,470,26410,051,585

9,868,701

66,913,81136,498,341

8,540,0008,435,708

35,822,854

12,619,227

8,817,6818,636,653

54%

46%

Foreign Local

21.93%

9.09%68.98%

Individual Corporation Other


Key Management of JKH

Acres


1. Mr. Susantha Rathnayake Susantha Ratnayake was appointed as the Chairman and CEO of John Keells Holdings PLC

(JKH) in January 2006 and has served on the JKH Board since 1992/1993 and has 36 years

of management experience, all of which is within the John Keells Group. He is the Chairman

of Ceylon Tobacco Company PLC, Vice Chairman of the Employers Federation of Ceylon and

serves as a member of several clusters of the National Council of Economic Development. A

past Chairman of the Sri Lanka Tea Board, immediate past Chairman of the Ceylon

Chamber of Commerce, he serves on the Board of the national carrier Sri Lankan Airlines.

2. Mr. Ajith Gunawardene Ajit Gunewardene is the Deputy Chairman of John Keells Holdings PLC and has been a

member of the Board for over 20 years. He is the Chairman of Union Assurance PLC. He is

member of the Board of SLINTEC, a company established for the development of

nanotechnology in Sri Lanka under the auspices of the Ministry of Science and Technology.

He is also an Advisory Committee Member of COSTI, the Coordinating Secretariat for

Science Technology and Innovation under the purview of the Minister (Senior) of the

Minister (Senior) of Scientific Affairs. He has also served as the Chairman of the Colombo

Stock Exchange. Ajit has a Degree in Economics and brings over 31 years of management

experience.3. Mr. Ronnie Peiris Group Finance director of the board since 2002/2003 and he has the overall responsibility

for the Group’s Finance and accounting, Taxation, Corporate Finance, Treasury, Group

Initiatives and the Information Technology functions. He has 40 years finance and general

management experience in Sri Lanka and abroad. He is a Fellow of the Chartered Institute

of Management Accountants, UK, Association of Chartered Certified Accountants, UK, and

the Society of Certified Management Accountants, Sri Lanka and holds an MBA from the

University of Cape Town, South Africa.

267.04

7.91Cinnamon Grand

premises, Colombo 02

Lands Outside Colombo

Slave Island Complex,

Colombo 02

York Street, Colombo

No 20, St. Michael’s Rd,

Colombo 03

Union Place, Colombo 02

148, Vauxhall street,

Colombo 02100, Glennie Street,

Colombo 02

Diagram 2: Colombo Land bank of JKH Table 15: Location and size of lands

Location

0.45

0.58

0.50

0.37

3.06

130, Glennie Street,

Colombo 02Kirulapone Avenue,

Colombo 05125, Glennie Street,

Colombo 02Ferguson Road, Colombo

15

4.49

1.71

0.08

0.53

1.22

Name of the person Description


Diversified Sector in Sri Lanka

Ticker Mkt Cap Total Assets PE PBV

JKH 201,393 202,474 14.50 1.54 1.73 11.06SPEN 40,600 61,145 11.40 1.21 2.00 11.21CTHR 23,803 49,126 33.41 1.41 0.62 7.07CARS 81,501 159,388 14.97 1.75 0.24 14.20CSEC 4,034 17,366 5.05 2.16 3.05 48.92EXPO 16,421 22,164 21.54 1.57 N/A 7.29JFIN 10,500 7,034 43.44 1.80 1.00 4.31HAYL 26,243 93,358 10.17 0.90 1.71 9.77HEMS 47,407 34,379 18.78 2.89 1.33 15.01RICH 16,891 32,576 10.00 1.76 3.01 18.20SHL 11,919 65,863 31.88 1.62 1.63 5.10SUN 6,946 13,500 12.39 1.34 1.85 11.60

JKH SPEN CARS EXPO FLCH HAYL HHL RICH SHL

Tranportation/Logistic √ √ √ √ √ √

√ √ √

√ √ √ √ √

√ √ √ √ √ √ √ √

√ √ √ √ √ √ √

√ √ √ √ √

√ √ √ √ √

√

√ √ √ √

√

√

√ √

√

√

√ √ √

Trading √ √

√ √ √ √ √ √ √

Indicator Value

PE 22.40PBV 2.00Div . Yield 1.50


*Company Overview, SWOT Analysis, Business Segments, JKH Shareholding Distribution, Employee Share Option Plan (ESOP), Key Management, Land Bank, Peer

Information are taken from the extracts of websites, Annual Reports, Bloomberg and LOSEC Research materials.

Plantation/Agriculture

Table 18: Selected Diversified sector indicators

Table 17: Business Sector Comparison of Peers

Graph 54: Earnings comparison of peers

Land and Property/ Real

Power and Energy

FMCG/Retail/Beverage

IT/BPO

Palm oil

Manufacturing

Sector

Diversified business a business that is made up of a number of different, seemingly unrelated businesses. Diversified sector in Sri Lanka consist

of 19 listed companies and unlisted players such as Unsilver, Capital Maharaja Organization, Upali group of business etc. In addition to

companies that have classified under diversified sector there are other companies operate in Sri Lanka which operate under different business

segment although they have been categorized for a specific segment. CIC, LOLC, RHL, GREG, DIST and LCEY are among them. Compared to the

late 1970s of the economy when big companies slowly began diversifying connected to core operations, today it has changed completely with

new conglomerates are reaching all over irrespective whether there is expertise in the company or not and becoming ‘seemingly’ successful.

Table 16: Financial results comparison of peers

Services

Div Yield

(%)

ROE(%)

Chemicals & phama

Construction

Bank, Finance & Insurance

Hotels and Travels

Health care

Footware and texttile

Motor

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

JKH SPEN CTHR CARS CSEC EXPO JFIN HAYL HEMS RICH SHL SUN

2013 2014


Recommendation Guidance

BUY – expected return > 10% in excess of benchmark return

SELL – expected return less than benchmark return

HOLD – expected return between 0% and 10% in excess of benchmark return

Investment Horizon: 3 years

Benchmark Interest Rate: Average Weighted Fixed Deposit Rate (AWFDR) published by Central Bank of Sri Lanka.

Risk Level Evaluation

High: Maximum price volatility to be up or down more than 50% monthly

Medium: Maximum price volatility to be up or down between 25% - 50% monthly.

Low: Maximum price volatility to be up or down less than 25% monthly.

Risk Level is calculated taking the historical standard deviation measures.

Financial Glossary

EPS = Earnings per Share

ROA = Return on Assets (adjusted net profit/average total assets)

ROE = Return on Equity (adjusted net profit/average total equity)

CAGR = Compound Annual Growth Rate ((End Value/Start Value) ̂(1/number of years) -1)

GP= Gross Profit

EBITDA= Earnings before interest, tax, depreciation and amortization

PBT= Profit before tax

PAT= Profit after tax

NP= Net Profit

PBV= Price to book value ratio

PE= Price to earnings ratio

T/O = Turnover


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