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N D B Securities (Pvt) Ltd, 5th Floor, # 40, NDB Building, Nawam Mawatha, Colombo 02.

Tel: +94 11 2131053 Fax: +94 11 2314180

Target Price LKR 26.00 Recommendation BUY Analysts Suvimal De Costa Vaishalie Shakespeare Date 28.04.2014
Share Data Market Price (Voting) as at 28.04.2014 52 Week Range - Voting Shares in Issue Average Daily Volume (52 Weeks) Estimated Free Float
Main Shareholders as at 31.12.2013 Shing Kwan Investment Company Limited. Unity Builders Limited Employees Provident Fund Shing Kwan Investment (Singapore) Pte Ltd Peoples Bank

Overseas Realty (Ceylon) PLC (OSEA)


Earnings update
WTC, optimally occupied The average occupancy stood at 98% in FY13 up from around 90% in FY12. The demand for quality office space remains robust amidst improving economic climate and the lack of commercial space similar to WTC. This is evident as the occupancy improved in the midst of a 19% price revision during the year. In addition, the revision helped to elevate the gross profit margin to 73% from 68% seen in FY12. Although there are projects in the pipeline which plans to develop grade A commercial space, these are not expected to materialize over the next 3 to 4 years. Therefore, we expect WTC to sustain its robust performance in the medium term. We estimate the revenue to grow at a CAGR of 15% over the next five years. Momentum gathers for residential property With 86% of the apartments being sold in phase two of the Havelock City (Source: company data), we believe company will be able to sell the remaining apartments during FY14H1. In addition, company has been able to pre sell 50 apartments of phase three since the promotions started in November FY13. The piling of phase three is expected to begin at the end of FY14. Considering the fall in interest rates and improved economic climate, we believe the demand for residential apartments to further improve through medium to long term. Reiterate buy - We upgraded the stock from hold to buy in January 2014 on the back of improved valuations due to the fall in discount rate/required rate of return (due to the fall in treasury yields). Since then, the counters price has gained 3.06% compared to the 0.25% gain in the ASPI. Considering the upside, we reiterate our recommendation.

Land and Property Sector

LKR 20.20 LKR 13.90-21.00 843,484,359 160,798 46%


No. of Shares 453,366,580 220,156,488 42,446,107 21,573,450 20,722,353 % 53.75 26.10 5.03 2.56 2.46

Price Performance
LKR, Volume, 000

35 30 25 20 15 10 Apr-12 Aug-12 Dec-12 Volume Apr-13 Price Aug-13 Dec-13 Adjusted ASPI

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Apr-14

Figures in LKR Mn Turnover Profit Attributable to Equity Holders EPS (LKR) Forward P/E (X) * DPS (LKR) Dividend Yeild (%) BV (LKR) PBV (X) ROE (%) Total Debt/Equity (%)

FY12(A) 1,954 906 1.07 13.13 0.30 2.13 26.04 0.54 4.12 10.53

FY13(A) 4,857 1,493 1.77 10.46 1.45 7.84 28.66 0.65 6.47 8.41

FY14(E) 5,865 1,791 2.12 9.89 1.20 5.94 29.59 0.71 7.29 11.96

FY15(E) 5,803 2,118 2.51 8.36 1.30 6.44 30.80 0.68 8.32 11.49

FY16(E) 9,220 2,783 3.30 6.36 2.00 9.90 32.10 0.65 10.49 11.02

FY17E) 11,966 3,456 4.10 5.13 3.00 14.85 33.19 0.63 12.55 7.98

FY18(E) 5,663 2,473 2.93 7.16 6.00 29.70 30.13 0.70 9.26 2.89

*Forward P/E and PBV for the forecast period has been calculated using the current share price. P/Es for FY12 and FY13 have been calculated using year end share price.

Research Team Waruna Singappuli, Suvimal De Costa, Akila Devendra, Vaishalie Shakespeare

Increased supply could keep margins in check for Havelock City Despite the 475% jump in apartment sales in FY13, the gross profit margin witnessed a decline amidst the 565% increase in cost of sales. We believe the cut down in prices to improve sales coupled with increased construction costs had a duel effect on margins. Accordingly, gross profit margin was recorded at 17.4% in FY13 compared to other similar projects with margins over 30%. The significant increase in revenue in FY13 was due to recognizing phase two apartment sales from FY12 which did not meet the minimum completion percentage. Although we expect margins to pick up gradually, we estimate margins to remain subdued over the next five years compared to similar projects. This is considering the competition and the resultant pressure exerted on prices. The number of upcoming apartment projects and also the ones in the pipeline which are expected to complete before the Havelock City project remain high. Therefore, we estimate margins to hover between 24% - 32% over the next five years.

NDB Securities (Pvt) Ltd Overseas Realty (Ceylon) PLC 28th April 2014

Financials
Income Statement Figures in LKR Mn Rental Incomes Sales of Apartments Other Services Total Turnover Direct Operating Expenses Cost of Sales of Apartments Gross Profit Adminstration Expenses Marketing Expenses Finance Cost Fiance Income Profit Before Tax Income Tax Expenses Profit After Tax for the Period Profit Attributable to Equity Holders Minority Interest Balance Sheet Figures in LKR Mn Non Current Assets Investment Property Property, Plant & Equipment Intangible Assets Current Assets Inventories Trade and Receivable/ Related Parties Other Current Financial Assets Cash and Cash Equivalent Total Asset Equity and Liabilities Stated Capital Revenue and Retained Earnings Equity Attributable to Equity Holders Minority Interest Total Equity Non-Current Liabilities Borrowings Retirement Benefit Liability Current Liability Trade and Other Payables Short Term Borrowings Income Tax Payable Total Equity Liabilities

FY13(A) 1,590 3,190 77 4,857 (424) (2,635) 1,798 (208) (60) (57) 223 1,696 0 1,697 1,493 204

FY14(E) 1,825 3,943 97 5,865 (487) (2,995) 2,383 (232) (115) (62) 232 2,205 (65) 2,140 1,791 349

FY15(E) 2,052 3,630 121 5,803 (547) (2,482) 2,774 (260) (114) (69) 354 2,684 (99) 2,585 2,118 467

FY16(E) 2,360 6,709 151 9,220 (708) (4,587) 3,925 (292) (272) (69) 413 3,705 (116) 3,589 2,783 806

FY17E) 2,742 9,035 189 11,966 (877) (6,118) 4,970 (327) (353) (64) 457 4,684 (128) 4,556 3,456 1,100

FY18(E) 3,153 2,273 236 5,663 (1,104) (1,535) 3,024 (366) (163) (47) 435 2,884 (122) 2,762 2,473 290

FY13(A) 20,389 703 18 21,153 5,350 1,475 1,236 1,680 9,741 30,894

FY14(E) 20,389 712 13 21,157 4,785 2,669 1,236 2,490 11,179 32,337

FY15(E) 20,389 722 9 21,164 3,888 2,562 3,236 3,139 12,826 33,989

FY16(E) 20,389 735 8 21,175 3,344 2,636 4,236 3,148 13,365 34,540

FY17E) 20,389 750 8 21,190 1,780 2,653 5,436 3,803 13,671 34,861

FY18(E) 20,389 767 8 21,207 800 1,414 5,436 1,147 8,797 30,004

10,186 13,991 24,177 1,147 25,325

10,186 14,770 24,956 1,299 26,255

10,186 15,792 25,978 1,524 27,502

10,186 16,888 27,074 1,842 28,916

10,186 17,813 27,999 2,136 30,136

10,186 15,225 25,411 1,833 27,245

146 18 163 3,498 1,888 20 5,406 30,894

646 27 673 3,051 2,338 20 5,409 32,337

1,146 36 1,182 3,447 1,838 20 5,305 33,989

1,646 45 1,691 2,575 1,338 20 3,933 34,540

1,396 55 1,451 2,416 838 20 3,274 34,861

396 64 460 1,941 338 20 2,299 30,004

NDB Securities (Pvt) Ltd Overseas Realty (Ceylon) PLC 28th April 2014

Cash Flow Figures in LKR Mn Net Profit/Loss Before Tax Adjustments Depreciation Amortization Provision for the Retiring Gratuity Finance Cost Fiance Income

FY14(E) 2,205 43 4 15 62 (232) 2,097 (1,194) (447) 566 1,022 (62) (65) (6) 888 (51) 232
-

FY15(E) 2,684 45 4 16 69 (354) 2,465 107 396 896 3,865 (69) (99) (7) 3,690 (56) 354
(2,000)

FY16(E) 3,705 48 1 17 69 (413) 3,427 (74) (872) 544 3,025 (69) (116) (7) 2,833 (61) 413
(1,000)

FY17E) 4,684 52 17 64 (457) 4,360 (16) (159) 1,565 5,750 (64) (128) (8) 5,550 (66) 457
(1,200)

FY18(E) 2,884 55 18 47 (435) 2,569 1,239 (476) 980 4,312 (47) (122) (9) 4,135 (72) 435
-

(Increase)/Decrease in Receivables Increase/(Decrease) in Payables (Increase)/Decrease in Inventories

Finance Cost Paid Tax Paid Defined Benefit Plan Costs Paid Cash Flow from Operating Activities Purchase of Property, Plant and Equipments Finance Income Short term investments Cash Flow from Investing Activities Net Borrowings Dividend Payments Net payment to Minority Shareholders Cash Flow from Financing Activities Net increase/ (Decrease) in Cash & Cash Equivalents Cash & Cash Equivalents at the Beginning of the Period Cash & Cash Equivalents at the End of the Period

181 950 (1,012) (197) (260) 810 1,680 2,490

(1,702) (1,097) (242) (1,338) 650 2,490 3,139

(648) (1,687) (489) (2,176) 9 3,139 3,148

(809) (750) (2,530) (805) (4,086) 655 3,148 3,803

363 (1,500) (5,061) (593) (7,154) (2,656) 3,803 1,147

Key Ratios Growth Ratios Turnover Growth (%) Gross Profit Growth (%) Net Profit Growth (%) Profitability Ratios Net Profit Margin (%) ROE (%) Share Ratios EPS (LKR) DPS (LKR) DY (%) BV (LKR) Gearing Total Debt/ Equity (%)

FY12(A) -21.67 22.18 46.27 46.28 4.12 1.07 0.30 2.13 26.04 10.53

FY13(A) 148.55 58.88 87.64 34.94 6.47 1.77 1.45 7.84 28.66 8.41

FY14(E) 20.75 32.54 26.13 36.50 7.29 2.12 1.20 5.71 29.59 11.96

FY15(E) -1.05 16.41 21.20 44.70 8.33 2.52 1.30 6.19 30.80 13.41

FY16(E) 58.89 41.50 38.65 39.01 10.50 3.30 2.00 9.52 32.11 11.02

FY17E) 29.78 26.62 26.68 38.08 12.55 4.10 3.00 14.29 33.20 7.98

FY18(E) -52.68 -39.16 -39.36 48.79 9.26 2.93 6.00 28.57 30.13 2.89

NDB Securities (Pvt) Ltd Overseas Realty (Ceylon) PLC 28th April 2014

Appendix Company description Overseas Realty (Ceylon) PLC (OSEA) is one of the leading property sector companies listed in the Colombo Stock Exchange. OSEA owns and manages the countrys premier business premises World Trade Centre (WTC) which is located in the Echelon Square, the heart of the central business city Colombo. WTC provides world class state of the art commercial space. With two towers each consisting of 39 stories, WTC offers over 750,000 Sq.ft of office space. OSEA also initiated the countrys first mixed development project, Havelock City. Located in an 18-acre land in Colombo, Havelock City is expected to provide two Mn Sq.ft of residential and commercial space. The residential phase comprises of 1,080 luxury apartments, of which phase one consisting of 226 apartments is complete. The construction of phase two with 219 apartments is expected to be completed and phase three comprising of 304 apartments is to commence by the end of 2014. The commercial property development is yet to be announced by the company. Promoters profile Shing Kwan Group (SKG) is the principal shareholder of OSEA which has experience and expertise in developing and managing real-estate in the region including China, Indonesia and Singapore. SKG has a proven track record by carrying out several large scale development projects. Jinling Hotel in Nanjing with 800 rooms, which was considered as the tallest building in the country for several years China. Shanghai Mart, a multi-functional trade mart comprising of a mart, an exhibition centre, and an office tower China. Mandarin Garden Hotel, Nanjing, a 500-room luxurious 5-star hotel China. Landmark Towers Complex, Beijing, a mixed-use development with a hotel, apartments, two office towers, and a shopping mall China. World Trade Center I, and Wisma Metropolitan I & II, located in Jalan Sudirman, Jakarta Indonesia. World Trade Center II, within the Metropolitan Complex, Jakarta Indonesia.

NDB Securities (Pvt) Ltd Overseas Realty (Ceylon) PLC 28th April 2014

Marina Square (first mixed use building) comprising three hotels (2,000 rooms), a shopping mall and offices in Marina Centre Singapore.

Board of directors Mr. Pee Tao S (Chariman) Mr. Cassim H.Z (Deputy Chairman) Mrs. Mildred Tao Ong (Dr.) Mr. Melvin Yap Boh Pin Mr. Rohini Lettitia Nanayakkara Mr. Ajit Mahendra De Silva Jayaratne Mr. Leslie Ralph de Lanerolle Mr. En Ping Ong Mr.Tissa Kumara Bandaranayake Dr. Ranee Jayamaha

NDB Securities (Pvt) Ltd Overseas Realty (Ceylon) PLC 28th April 2014

NDB Securities (Pvt) Ltd


Mrs. Prasansini Mendis Sales Head Office Mr. Gihan R. Cooray Mr. Jayantha Samarasinghe Mr. Channaka Munasinghe Mr. Aroos Faleel Mr. Auburn Senn Mr. Uditha Silva Mr. Taamara De Silva Mr. Imran Reyal Mr. Ramesh Anthony Mr. Nimal Kumara Mr. Sanjaya Prabath Mr. Akram Thadani Mr. Ishanka Fernando Mr. Harsha Sritharan Mr. Sajed Sallay Mr. Stefan De Alwis Operations gihan@ndbs.lk jayantha@ndbs.lk channaka@ndbs.lk aroosfaleel@ndbs.lk auburn@ndbs.lk uditha@ndbs.lk taamara@ndbs.lk imran@ndbs.lk ramesh@ndbs.lk kumara@ndbs.lk sanjaya@ndbs.lk akram@ndbs.lk ishanka@ndbs.lk harsha@ndbs.lk sajed@ndbs.lk stefan@ndbs.lk 011 2131010 011 2131011 011 2131014 011 2131012 011 2131013 011 2131016 011 2131018 012 2131021 011 2131023 011 2131022 011 2131024 011 2131025 011 2131054 011 2131017 011 2131019 011 2131015 Chief Executive Officer prasansini@ndbs.lk Branches CSE Mr. Sujeewa Athukorala Mrs. Shiromi De Silva Kiribathgoda Mr. Gayan Pathirana Matara Mr. Kithsiri Nishantha Mr. Srimal Gunawardana Galle Mr. T A A Aravinda Gampaha Mr. Chamesh Hettiarachchi Mr. Uddeepa Peiris Mr. Priyashantha Senevirathne Kaluthara Ranganath Wijethunge Mr. A A Jeewantha Jaffna Mr. C Padmanathan Contacts Us mail@ndbs.lk 011 2131000 Ms. Sanjika Ranjithkumar Rathnapura NDB Securities (Pvt) Ltd 5th Floor, NDB Building, 40, Nawam Mawatha, Colombo 02 Mr. Indrajith Lokuhettige Ampara Mr. Ravi De Mel ravi@ndbs.lk 063 2224245 indrajith@ndbs.lk 045 2230800 chandru@ndbs.lk sanjika@ndbs.lk 021 5671155 021 5671155 ranganath@ndbs.lk jeewantha@ndbs.lk 034 2221589 035 2221589 chamesh@ndbs.lk uddeepa@ndbs.lk priyashantha@ndbs.lk 033 2231117 033 2231117 033 2231117 aravinda@ndbs.lk 091 2225447 kithsiri@ndbs.lk srimal@ndbs.lk 041 2236757 041 2236757 gayan@ndbs.lk 011 2907515 sujeewa@ndbs.lk shiromi@ndbs.lk 011 3135495 011 2335054 011 2131005

NDB Securities (Pvt) Ltd Overseas Realty (Ceylon) PLC 28th April 2014

Disclaimer
This document is based on information obtained from sources believed to be reliable, but NDB Securities (Pvt) Ltd., (NDBS) accepts no responsibility or makes no warranties or representations, express or implied, as to whether the information provided in this document is accurate, complete or up-to-date. Furthermore, no representation or warranty is made by NDBS as to the sufficiency, relevance, importance, appropriateness, completeness or comprehensiveness of the information contained herein for any specific purpose. Prices, opinions and estimates reflect our judgment on the date of original publication and are subject to change at any time without notice. NDBS reserves the right to change their opinion at any point in time as they deem necessary. There is no guarantee that the target price for the stock will be met or that predicted business results for the company will be met. NDBS accepts no liability whatsoever for any direct or consequential loss or damage arising from any use of these reports or their contents. References to tax are based on our understanding of current law and Inland Revenue practices, which may change from time to time. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressee only and is not to be taken as substitution for the exercise of judgment by addressee. The information contained in any research report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities within Sri Lanka or any other jurisdiction. The information in any research report is not intended as financial advice. Moreover, none of the research reports is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the research reports is directed to any person in any country in which the distribution of such research report is unlawful. Past results do not guarantee future performance. NDBS cautions that any forward-looking statements in any research report implied by such words as anticipate, believe, estimate, expect, and similar expressions as they relate to a company or its management are not guarantees of future performance. The investments in undertakings, securities or other financial instruments involve risks. Any discussion of the risks contained herein should not be considered to be a disclosure of all risks or complete discussion of the risks which are mentioned. NDBS and its associates, their directors, and/or employees may have positions in, and may affect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other financial services for these companies.

NDB Securities (Pvt) Ltd Overseas Realty (Ceylon) PLC 28th April 2014

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