Equity Analysis /
Sri Lanka

John Keells Holdings: Inching Closer To Coveted Gaming Operation at Cinnamon Life

  • We expect potential announcement on gaming operation at Cinnamon Life is imminent…

  • We believe the full economic potential of Cinnamon Life can be realised via gaming facility

  • We forecast gross gaming revenue at Cinnamon Life to reach 423mn USD by FY-28E

Asia Securities
19 August 2022
Published byAsia Securities
  • We view the Cabinet approval last month to grant licenses to gaming operators and regularize the industry in the country as a key development in facilitating a gaming facility at Cinnamon Life. In line with this approval, we note the gazetting of casino regulations in the country is likely to happen soon.

  • We maintain that the full economic potential of the Cinnamon Life project will only be unlocked through the proposed operation of a gaming facility at the resort.

  • We expect a potential gaming facility will add a minimum of LKR 30 40 to the JKH share price with the Cinnamon Life as a standalone project generating NOPAT of LKR 25.4bn by FY 26E.

  • Separately, although some investor concerns were raised about the potential share dilution through the recent issuance of convertible debentures to a subsidiary of Fairfax, we view the outcome of the dollar based capital infusion positively, as it secures the company’s long term financial health and future foreign currency obligations, in turn protecting the wider interests of all stakeholders of the business.

  • JKH’s business fundamentals remain intact and resilient despite macro uncertainty in the country;

    1) Retail and consumer businesses remain resilient despite the impact on consumer disposable incomes, with margins set to improve with global commodity prices moderating.

    2) Tourism business continues to benefit from robust travel demand to Maldives, and with a Sri Lankan tourism recovery factored in for the second half, the company is well positioned.

    3) WCT port project with Adani is on track for completion during the stipulated timeframe with the first phase of the project expected to begin operations by mid to end 2024.

  • The stock is down 15.7% YTD and is currently trading at 6.2x our FY23E EPS estimate. Our target price for JKH of LKR 225/share, implies the share trades at 11.0x our FY23E EPS estimate. Including a FY23E dividend of LKR 2.50/share, we expect a total return of 79.8%.