80

90

100

110

26-May-17 24-Nov-17 25-May-18

John Keells Holdings

JKH - Rs.157.0

CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange

Yasas Wijethunga Key HighlightsEmail : yasas@ctclsa.lkPhone : +94 77 0532059 4Q18 Results Update

4Q18 recurring net profit of Rs.5,946mn for 4Q18 (+32% YoY), above our expectations, drivenby increased earnings from the Insurance business, due to a transfer of insurance contractliabilities

JKH’s group NP forecast broadly maintained at Rs.16,676mn for FY19E (-2% YoY on a recurringbasis) and forecast a NP of Rs.17,641mn for FY20E (+6% YoY)

The JKH share underperformed the broader market during last 12 months and last three monthsdeclining -7% and -2% respectively (vs. ASI’s decrease of -3% and -1%)

The JKH share trades at forward PER multiples of 13.1x for FY19E and 12.4X for FY20E

Based on our estimated break up Sum of The Parts (SOTP) valuation of Rs.164, the JKH share iscurrently trading at a 5% discount

Whilst further significant downside is limited, amid the recent declines and share coupled with theshare trading at a slight discount we do not anticipate material share price gains with continuousmoderate earnings growth expected in the near term. However, JKH may continue to be favoredby medium to long term investors, amid its unrivalled share liquidity, being the only companywith over US$1mn average daily turnover on the CSE and potential for upside in its core sectorsover the long term

Key Trading Information

Sri Lanka

Diversified Holdings

28 May 2018

Shares in Issue (mn) 1,387.5

Market Cap (US$ mn) 1,378.7

Estimated Free Float (%) 97.5

3M Avg Daily Volume 637,724

3M Avg Daily Turnover (US$) 650,751

12M High / Low (Rs) 164.9 / 137.8

3M / 12M Price Change (%) -2.2 / -6.6

Relative Share Price Movement (%)

JKH

ASPI

JKH: Valuation Ratios

Note: Valuations are based on recurring EPS, Adj. for Capital Issues (if any); Historic Ratios are based on Y/E MPS*Includes a special dividend of Rs.3.1

Source: CT CLSA

Financials - Year to 31 March FY16 FY17 FY18 FY19E FY20E

Net Revenue (Rs mn) 93,710 106,273 121,215 141,041 154,412

Net Profit (Rs mn) 13,807 15,792 17,084 16,676 17,641

Earnings per Share (Rs) 10.2 11.5 12.3 12.0 12.7

Earnings per Share Growth (%) 0.8 13.2 7.1 -2.4 5.8

Price / Earnings Ratio (X) 12.8 12.1 13.0 13.1 12.4

Price / Earnings Growth (X) 16.0 0.9 1.8 N/A 2.1

Gross Dividend per Share (Rs) 6.1* 6.0 6.0 6.0 6.0

Gross Dividend Yield (%) 4.7 4.3 3.8 3.8 3.8

Net Book Value per Share (Rs) 114.0 128.7 144.1 150.1 156.8

Price / Book Value (X) 1.1 1.1 1.1 1.0 1.0

Return on Equity (%) 9.4 9.5 9.0 8.2 8.3

Market Price per Share (Rs) 130.4 139.0 160.0 157.0 157.0

EQUITY REPORT TITLE | DateA CT HOLDINGS GROUP AND CLSA GROUP COMPANY 2

The Business

John Keells Holdings (JKH), Sri Lanka’s largest listed company, accounting for ~9% of totalmarket capitalisation, is a leading conglomerate with a significant presence in Leisure,Transportation, Property, Financial Services, Consumer Foods and Retail (CF&R) and InformationTechnology. The group is also in the process of developing an Integrated Resort, “Cinnamon Life” atan investment of ~US$820mn, slated for completion in 2019. Given its lack of a controllingshareholder and ~98% free float, JKH is the local market’s most liquid share, contributing ~21% oftotal market turnover in 2017

Recent Financial Performance

JKH reported a recurring Net Profit (NP) of Rs.5,946mn for 4Q18 (+32% YoY), above ourexpectations, driven by the increased earnings from the Insurance business. Meanwhile, key Leisureand CF&R sectors recorded decreased earnings for the quarter. Consequently, FY18 recurring NPincreased +8% YoY to Rs.17,084mn

4Q18 reported earnings adjusted for a transfer of one - off surplus of Rs.3,382mn to shareholdersfunds in the insurance business. The surplus was previously generated due to a change in policyliability valuation and has held as part of the Restricted Regulatory Reserve. Meanwhile, the changein insurance contract liabilities of Rs.1,177mn (vs. a negative change of –Rs.1,326mn in 4Q17) hasbeen considered recurring

Earnings further adjusted for change in fair value of investment properties of Rs.896mn in 4Q18 andRs.474mn 4Q17

Sectoral Analysis

John Keells Holdings

Most liquid stock on the CSE accounting for

~21% of market turnover in 2017

Sectoral Analysis

(Rs mn)4Q17 4Q18 % YoY FY17 FY18 % YoY

Composition (%)

4Q17 4Q18

Net Revenue 29,848 33,553 12.4 106,273 121,215 14.1 100.0 100.0Transportation 3,454 4,877 41.2 11,110 17,169 54.5 11.6 14.5Leisure 8,128 8,281 1.9 25,874 25,040 -3.2 27.2 24.7Consumer Foods & Retail 11,617 13,860 19.3 45,812 53,211 16.2 38.9 41.3Financial Services 2,197 2,468 12.4 8,296 10,056 21.2 7.4 7.4Property 172 730 >+100.0 1,121 1,231 9.8 0.6 2.2Information Technology 3,397 2,456 -27.7 11,107 11,069 -0.3 11.4 7.3Others 882 880 -0.2 2,953 3,440 16.5 3.0 2.6

Profit After Tax 5,145 7,013 36.3 17,633 18,941 7.4 100.0 100.0Transportation 816 386 -52.7 2,979 3,084 3.5 14.5 3.4Leisure 2,127 1,878 -11.7 5,008 3,471 -30.7 37.9 16.6Consumer Foods & Retail 829 652 -21.3 3,804 2,871 -24.5 16.4 6.0Financial Services 458 3,036 >+100.0 2,042 5,187 >+100.0 8.1 56.8Property 64 317 >+100.0 333 438 31.6 6.1 8.2Information Technology 184 155 -15.7 468 360 -23.1 3.3 1.4Others 668 588 -12.0 2,999 3,529 17.7 13.7 7.5

4Q18 NP +32% YoY amid change in insurance

liabilities

Source: Company Interims

Significant increase in Financial Services

earnings

Note: Valuations and ratios on a recurring basis; Adjusted for capital issues (if any)NP adjusted for non recurring gains/losses amounting to Rs.4,020mn in 4Q18, Rs.93mn in 2Q18, –Rs.176mn in 1Q18, Rs.474mn in 4Q17 andRs.10mn in 3Q17

Source: Company Interims

Key Figures & Ratios 4Q17 4Q18 % YoY FY17 FY18 % YoY

Net Revenue (Rs mn) 29,848 33,553 12.4 106,273 121,215 14.1

Gross Profit (Rs mn) 8,425 8,567 1.7 31,115 29,283 -5.9

Net Finance Income (Rs mn) 2,618 2,552 -2.5 9,597 10,747 12.0

Profit Before Tax (Rs mn) 7,408 12,767 72.3 22,888 27,634 20.7

Reported Net Profit (Rs mn) 4,986 9,966 99.9 16,275 21,021 29.2

Recurring Net Profit (Rs mn) 4,512 5,946 31.8 15,792 17,084 8.2

Earnings per Share (Rs) 3.3 4.3 31.8 11.5 12.3 7.1

Net Cash Position (Rs mn) 61,528 45,547 -26.0 61,528 45,547 -26.0

Net Cash Per Share (Rs) 44.3 32.8 -26.0 44.3 32.8 -26.0

Capex (Rs mn) 1,019 11,415 >+100.0 4,332 18,922 >+100.0

PAT adjusted for non recurring items as followsProperty Sector: Change in fair value of investment properties of Rs.613mn in 4Q18, Rs.281mn in 4Q17 and Rs.10mn gain in 3Q17Leisure Sector: Accelerated depreciation of -Rs.33mn in 2Q18 and -Rs.203mn in 1Q18, gain on sale of PPE of Rs.108mn in 2Q18CF&R : Change in fair value of investment properties of Rs.22mn in 4Q18, Rs.92mn in 4Q17Financial Services: One off change in insurance contract liabilities of Rs.3,382mn in 4Q18Others Sector: Gain on sale of PPE of Rs.29mn in 2Q18, change in fair value of investment properties of Rs.262mn in 4Q18, Rs.101mn in 4Q17

EQUITY REPORT TITLE | DateCT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 3

Transportation Sector

4Q18 PAT of Rs.386mn (-53% YoY and lowest reported figure in last six years, 3% ofgroup PAT); below our expectations, amid decline in earnings in 42% owned associate,South Asia Gateway Terminal (SAGT); FY18 PAT +4% YoY to Rs.3,084mn

SAGT earnings were particularly impacted by a write off of some bad debts and deferred taxadjustments as per the new Inland Revenue Act. Excluding these items, SAGT core earningsgrew YoY in 4Q18 as per management, with volumes growing +14% YoY (vs. +16% YoY growthin the Colombo port)

o SAGT’s market share is estimated to have remained broadly unchanged at ~30% in 4Q18

o Meanwhile, the Colombo International Container Terminal (CICT), which commencedoperations in Aug 2013, is estimated to be running at utilisation levels of over 80%, whilstutilisation levels at overall port is expected to be over 75%. CICT captured market sharefrom existing operators in the initial years and the current utilisation levels suggest that allthe operators are benefiting from the increased traffic at Colombo port

According to JKH interims, fully owned oil bunkering subsidiary Lanka Marine Services (LMS)witnessed an increase in market share and profitability amid growth in volumes. LMScommissioned “MT Mahaweli” in 2Q18 and “MT Athenia” in 4Q18, a double hulled bunker bargein Sri Lanka, further enhancing LMS’s overall storage capacity. Meanwhile, revenue growth islikely to have been also supported by increased oil prices – crude oil prices increased +14% QoQand +22% YoY in 4Q18

Sectoral PAT forecasts broadly maintained at Rs.3,848mn for FY19E (+25% YoY, 21%of total PAT) and forecast at Rs.3,977mn for FY20E (+3% YoY, 20% of total PAT),expected to be driven by the anticipated continued growth in port activity

FY19E YoY growth is off a relatively low base, as FY18 earnings were impacted from the one offadjustments in 4Q18. Overall, sector earnings growth is expected to be moderate amid theoverall capacity constraints, especially at the SAGT facility. Whilst SAGT management isexpected to increase overall capacity levels through increasing efficiency levels, physicalexpansion would be limited with constraints on area

In Sep 2016, JKH expressed interest in the Colombo port East Container Terminal inpartnership with APM Terminals of Maersk Group and Container Corporation of IndiaLtd (Concor), which is under the Government of India. However press articles in early 2017indicated that the Government of Sri Lanka (GoSL) brought in fresh conditions which disqualifiedall parties. It was further mentioned that the GoSL is planning to operate the terminal on itsown. There have however been no official disclosures since calling for EOIs on the developmentand the proceedings of the bidding

o JKH was also in the process of evaluating oil bunkering opportunities within the Port ofHambantota. This is however expected to be on hold with the GoSL transferring theownership of the port to China Merchants Ports Holding Company on 29 July 2017.Accordingly, China Merchant would start the port developments in Hambantota and it mayact as a competitor to the Colombo port in the medium term

Meanwhile, National Budget 2018 proposed to lift restrictions on the foreign ownership onshipping and freight forwarding agencies. Whist the proposal is yet to be implemented,enactment of the same would increase competition for local players

John Keells Holdings

Source: CBSL, SAGTOthers include Jaya Container Terminal (JCT) and CICT volumes

SAGT earnings impacted by bad debt and

deferred tax provisions

China Merchant may act as a competitor to

Colombo port

Transportation Sector : PAT (Rs mn)Colombo Port Volumes (TEUs mn) & SAGT Mkt Share (%)

Improved results at LMS

300

600

900

1,200

4Q16 2Q17 4Q17 2Q18 4Q18

20

30

40

50

0.0

2.0

4.0

6.0

8.0

FY13 FY14 FY15 FY16 FY17 FY18

Others

SAGT

SAGT Market Share - RHS

EQUITY REPORT TITLE | DateA CT HOLDINGS GROUP AND CLSA GROUP COMPANY 4

Leisure Sector

4Q18 PAT of Rs.1,878mn (-12% YoY; 17% of group PAT), below our expectations, due todecline in both city and resort hotel segments. City hotels were impacted by increasedcompetitive pressure whilst Resorts segment earnings are anticipated to have been impacted by lackof contribution from the 133 room Bentota Beach by Cinnamon (BBH); FY18 recurring PAT -31%YoY to Rs.3,471mn

City hotels : Comprise five star city hotels Cinnamon Grand (CG : 501 rooms) and CinnamonLakeside (CL : 346 room Trans Asia Hotels - TRAN) through 79% owned, listed subsidiary, AsianHotels & Properties (AHPL). AHPL reported a 4Q18 recurring NP of Rs.338mn (-41% YoY)

o Segment results were impacted by lower occupancy levels amid an increase in roominventory in Colombo - 219 room 5-star Movenpick hotel was opened in Jan 2017 and 500room Shangri La was opened in Nov 2017

• As per JKH, segmental occupancy levels decreased to 67% (vs. 77% in 4Q17),whilst ARRs have increased to US$124 in 4Q18 (vs. US$122 in 4Q17). Whilsttourist arrivals were somewhat impacted by the state of emergency declared in Sri Lankaduring Mar 2018, overall tourist arrivals to Sri Lanka increased +17% YoY to 707,924individuals in 4Q18. This was however off a low base, where 4Q17 was impacted by thepart closure of Bandaranayake International Airport

• Resort hotels : Exposure through 80% owned listed subsidiary, John Keells Hotels (KHL), whichowns hotel properties in Sri Lanka (863 rooms excluding BBH) and Maldives (340 rooms).Resorts segment was likely impacted by the closure of hotels, coupled with political uncertaintythat prevailed within Maldives. KHL is yet to report 4Q18 earnings

o Sri Lanka resorts : As per JKH, 4Q18 occupancy levels remained broadly unchangedat 90% whilst ARRs decreased to US$112 (vs. US$116 in 4Q17), with competitivepressure anticipated to have stiffened further in the resort space. Quarterly earnings lackedcontribution from 133 room BBH, which was closed for reconstruction in May 2017.According to KHL, construction cost would amount to ~Rs.4.8bn and construction would lastfor two years

o Maldives resorts : JKH management indicated that Maldivian occupancy levelsdecreased to 92% in 4Q18 (vs. 95% in 4Q17), whilst ARRs increased to US$385(vs. US$365 in 4Q17) – Tourist arrivals to Maldives increased +15% YoY to 391,533during the quarter, despite the political uncertainty and travel advisories

• The Sri Lankan Hotel and Destination Management businesses are assumed to have beenimpacted by increased competitive pressures

Sectoral PAT forecasts revised down by -13% to Rs.4,080mn for FY19E (+18% YoY offa low base, 22% of total PAT) amid the City hotel segment in particular facing increasedchallenges from the growing competition. Meanwhile, YoY growth is to be driven by the expectedpickup in the Resorts segment. Meanwhile, FY20E PAT forecast at Rs.4,649mn (+14%YoY, 26% of total PAT), also comprising contribution from BBH, which is expected to be partoperational during the year

o City hotels are expected to witness further increased competition in the medium term fromfurther additions of five star and mid tier properties in the next few years. Indirectcompetition is also seen from increasing apartment properties within city limits. Moreover,the GoSL has invited for requests for Proposals for Grand Hyatt and Hilton properties inColombo.

o As per the new Inland Revenue Act, tourism sector tax rate is expected to increase to 14%(from current 12% concessionary rate) w.e.f 01 Apr 2018 and is expected to slightly impactsector profitability in FY19E – this has already been factored into our forecasts

Leisure Sector PAT (Rs mn)

Sri Lanka : Tourist Arrivals (persons 000’s)

John Keells Holdings

Maldives : Tourist Arrivals (persons 000’s)

Source: Maldives Tourist Authority

Source: Sri Lanka Tourism Development Authority (SLTDA)

Source: CT CLSA

HotelsNo. of

RoomsOpening Timeline

Sheraton 306 1H2018

Park Inn byRadisson

199 2H2019

Cinnamon Life – JKH

800 2020

ITCColombo

305 2021

Grand Hyatt

475 N/A

Upcoming 5-star class Hotels in Colombo

70

90

110

130

150

Jan Mar May Jul Sep Nov

2015 20162017 2018

80

130

180

230

280

Jan Mar May Jul Sep Nov

2015 20162017 2018

250

750

1,250

1,750

2,250

1Q 2Q 3Q 4Q

FY16 FY17 FY18

EQUITY REPORT TITLE | DateCT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 5

Consumer Food and Retail (CF&R) Sector

4Q18 recurring PAT declined -21% YoY to Rs.652mn (6% of group PAT), broadly in linewith our expectations. Decline in earnings likely due to the weak performance in 81%owned, Ceylon Cold Stores (CCS); FY18 PAT -25% YoY to Rs.2,871mn

Whilst CCS is yet to release quarterly results, earnings expected to have been impacted bycontinued weak performance in both Manufacturing and Retail segments

o Manufacturing segment : Earnings came under pressure subsequent to the introduction of atax on carbonated soft drinks based on the sugar content via the National Budget in Nov2017. As a result, average prices of carbonated beverages increased +40% impactingvolumes. Meanwhile, zero sugar products, which did not witness price changes wereaggressively marketed by competitor Coca-Cola, further dampening sales volumes. CCS onlyhad EGB Lite as a zero sugar offering initially, and introduced zero sugar variants under “gosugar free” during May 2018. CCS has previously used natural sweetener stevia to reduce thesugar content in its overall portfolio. The segment was also impacted by the slowdown inconsumer demand, amid macro tightening measures, overall rise in cost of living and erraticweather conditions. In Apr 2018, CCS entered the dairy market, introducing flavored milk in190ml Rs.50 tetra packs (with vanilla, chocolate and strawberry flavors)

o Retail segment : Likely impacted by the erosion in margins despite the rise in revenue,amid higher costs incurred as part of the outlet expansion, rebranding exercise andcontrolled prices for several essential items. In 4Q18, eight new supermarkets were opened,bringing the total number of supermarkets to 80 as at 31 Mar 2018 (23 new outlets wereadded in FY18, whilst seven were closed)

90% owned Keells Food Products (KFP) is also yet to report 4Q18 earnings – expected tohave recovered off a low base

Total capex for the sector increased to Rs.1,687mn in 4Q18 (+87% YoY), largely expected to befor the construction of the new ice cream plant and retail expansion

Sectoral PAT forecasts revised up by +4% to Rs.3,493mn for FY19E (+22% YoY on arecurring basis and off a low base, 17% of total PAT) and forecast at Rs.4,095mn forFY20E (+17% YoY, 18% of total PAT) largely due to the higher contribution expected fromthe new ice cream plant and growth anticipated from the newly opened retail outlets

o CCS is seemingly increasing its presence in consumer foods and soft drinks in the mediumterm. The new ice cream production facility (built at a cost of ~Rs.4.2bn) is expected tocontribute to earnings from 1Q19E and CCS is expected to aggressively look at improvingnetwork and distribution. Meanwhile, planned ~Rs.2.5bn bottling line is currently on holdwith recent impact on volumes freeing up capacity. CCS may also look to add to the totalproduct portfolio, continuing from the addition of flavored milk. Whilst the sugar taximplemented is expected to impact overall volumes in the near term, this would partly beoffset by the introduction of sugar free beverages. We also anticipate a rebound in localconsumer sentiment in FY19E, amid the improving local macro conditions

o JKH mentioned that retail expansion process is ongoing and according to management 40more outlets would be added through FY19E, which may impact near term margins. We haveconservatively forecasted net additions of 25 outlets for FY19E and 20 for FY20E. Meanwhile,main competitor Cargills (Ceylon) (CARG) is also expected to be expanding its network(currently at ~351), which would increase competition. The new retail distribution center at acost of Rs.3.2bn, which would consolidate the distribution of both dry and fresh produce isexpected to be under construction

o Whilst short term challenges remain, the sector is anticipated to benefit in the medium tolonger term from the overall rise in disposable income levels coupled with the prevailing lowpenetration of both consumer food items and modern retail trade

o Despite long term growth potential, contribution from KFP to the overall sector is expected tobe limited

John Keells Holdings

*Excluding fair value adjustments

CF&R - Recurring PAT (Rs mn)*

Ongoing retail expansion

Manufacturer Beverage Sugar content Tax Price Increase

g per 100ml 500ml 2L 500ml 2LCCS Elephant Ginger Beer 10.2 Rs.25.5 Rs.100.0 Rs.15.0 Rs.120.0

Necto 9.6 Rs.24.0 Rs.96.0 Rs.25.0 Rs.120.0Cream Soda 8.6 Rs.21.5 Rs.86.0 Rs.25.0 Rs.120.0

Coca-Cola – Sri Lanka Ltd Coca Cola 10.6 Rs.21.2* Rs.106.0 Rs.30.0* Rs.90.0Sprite 10.2 Rs.20.4* Rs.102.0 Rs.30.0* Rs.90.0

Ole Springs Bottlers (Pvt) Ltd Pepsi 11.0 Rs.27.5 Rs.110.0 Rs.25.0 Rs.140.0

Sugar Content (grams per 100ml), Tax and Price Increase of Select Carbonated Beverages

Source: CT CLSA

Sugar tax impacted sales volumes

200

400

600

800

1,000

1,200

1Q 2Q 3Q 4Q

FY16 FY17 FY18

New ice cream plant to contribute from 1Q19E

*400ml

EQUITY REPORT TITLE | DateA CT HOLDINGS GROUP AND CLSA GROUP COMPANY 6

CINS – Ceylinco Insurance, SLIC - Sri Lanka InsuranceCorporation, AIA – subsidiary of AIA Group Limited, JINS –Janashakthi Insurance

Financial Services Sector

4Q18 recurring PAT of Rs.3,036mn (vs. Rs.458mn in 4Q17; 57% of group PAT), above ourexpectations amid change in insurance liabilities of 96% owned Union Assurance (UAL); FY18 PATof Rs.5,187mn (vs. Rs.2,042mn in FY17)

Quarterly results adjusted transfer of one-off surplus amounting to Rs.3,382mn. Meanwhile, thehigher earnings for the Insurance business was due to the transfer of Rs.3.6bn from the LifeInsurance Fund to Shareholders Funds (vs. Rs.1.1bn transferred during 4Q17). Change incontract liabilities at similar levels are however not expected going forward

UAL also benefited from the growth in gross written premiums during the quarter, furtherboosting its bottom-line

o UAL continues to hold a 22% stake in Fairfirst Insurance, of which UAL sold a 78% stake toFairfax Asia on Jan 2015

o The life insurance business is expected to be somewhat affected by the changes in taxation asper the new Inland Revenue Act w.e.f 01 Apr 2018. According to the Act, transfer of surplusfrom policyholders funds will now be taxed, which was previously tax exempt – rates andimplementation are yet to be clarified

Meanwhile, 30% owned banking associate Nations Trust Bank (NTB) recorded stronger earningsamid growth in the loan book – NTB 1Q2018/4Q18 NP +30% YoY to Rs.939mn

o Private credit growth remained strong during the quarter; +15% YoY in Mar 2017

o During Feb 2018, NTB announced the completion of its Rs.3.2bn Rights Issue, in order toboost its Tier I Capital to comply with Basel III requirements – 40mn convertible non-votingshares in the ratio of 04 convertible non-voting shares for every 23 ordinary voting sharesheld at an issue price of Rs.80.0 per share. JKH subscribed to 18mn shares at an investmentof Rs.1.4bn

o It was also mentioned that the Director of Bank Supervision of the CBSL on 12 October 2017informed NTB that the Monetary Board of the CBSL has permitted JKH and Central Finance(CFIN – other promoter with 20% stake) to retain their current shareholdings in the Bank till31 Dec 2020 and to reduce the stakes to 15% afterwards. The Monetary Board has alsodirected NTB to limit voting rights of JKH and CFIN to 10% each w.e.f 31 Mar 2018

Sectoral PAT forecasts broadly maintained at Rs.2,917mn for FY19E (-44% YoY off ahigh base, 15% of total PAT), due to life fund transfers normalising from the levels witnessedin FY18. Meanwhile, FY20E PAT forecast at Rs.3,247mn for FY19E (+11% YoY, 16% oftotal PAT), driven by both NTB and UAL

o NTB is expected to increase its presence in SMEs to counter the slowdown in loan growth.NTB’s leasing business is also expected to improve from current levels with reduced prices ofsmall vehicle variants as per National Budget 2018

o UAL’s life segment is expected to be a beneficiary of potential increase in local insurancepenetration in the longer term although there may be a slowdown in the near term in industryprofitability with the potential increase in taxes. Sri Lanka’s total industry GWP as a % ofGDP was 1.2% in 2016, which is relatively low compared to regional peers.Meanwhile, short term benefits are expected to be minimal with lack of awareness ofinsurance, especially in rural areas as per the Insurance Board of Sri Lanka (IBSL). Furtheropportunities are expected to arise in the life insurance space in the medium to long term withpossible consolidation in the insurance industry. Meanwhile, contribution from the stockbrokering arm, John Keells Stock Brokers (JKSB) would continue to be relatively immaterial tosector bottom line

John Keells Holdings

Insurance industry is underpenetrated in Sri

Lanka

CBSL directed JKH to reduce shareholding in

NTB

Source: IBSL

Life Insurance Industry Market Share (%) Financial Services Sector Reported PAT (Rs mn)

NTB expected benefit from reduced vehicle

prices

17%

29%

20%

14%

20%

16%

24%

19%

13%

29%

AIA

Ceylinco

SLIC

UAL

Other

2012

2016

0

500

1,000

1,500

2,000

1Q 2Q 3Q 4Q

FY16 FY17 FY18

Rs.6,418mn

Transfer of higher surplus during the

quarter

EQUITY REPORT TITLE | DateCT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 7

Property Sector

4Q18 recurring PAT of Rs.317mn (vs. Rs.64mn in 4Q17; 8% of group PAT), above ourexpectations. Quarterly income consisting of one-off recognition of lease revenue atRajawella Holdings; FY18 PAT +32% YoY to Rs.438mn

Shopping mall in Colombo, Crescat Boulevard, is anticipated to have contributed positively withsteady rental income. Crescat currently operates at ~100% occupancy. Property sector earningsalso include rental income from the K-Zone malls, franchise outlets in key suburbs, Moratuwaand Ja-Ela, both of which are expected to be enjoying ~80% occupancy levels

JKH in late 2017 initiated 891-apartment 50% joint venture residential development project,“Tri-Zen”, in Union Place, Colombo at an investment of Rs.1.8bn, and pre sales havecommenced. Construction will commence in 2H19E and would be completed in FY22/23E

Sectoral PAT forecasts revised up to Rs.658mn for FY19E (+50% YoY) and forecast atRs.974mn for FY20E (+48% YoY), driven by revenue recognition from “Tri-Zen”

Further Vauxhall Land Developments (Pvt) Ltd, a subsidiary of JKH, purchased land worthRs.4.4bn in Colombo 2 during 3Q18. This was consolidated with an existing land plot of 3.6acres, and 3.7 acres of land owned by Finlays Colombo Ltd through a joint venture agreementsigned in March 2018, bringing total land area to 9.4 acres. The group would likely look tofurther develop property development projects utilising the land

Information Technology Sector

4Q18 PAT of Rs.155mn (-16% YoY; 1% of group PAT), above our expectations. declinelargely due to 4Q17 results including earnings from John Keells BPO Solutions India (Pvt) Ltd, whichwas divested in Sep 2017; FY18 PAT -23% YoY to Rs.360mn

The sector consists of IT Services, Office Automation and IT enabled Services

Sector earnings were further affected by lower consumer discretionary spending affecting theOffice Automation business

Sectoral PAT forecasts revised up to Rs.481mn (vs. Rs.334mn previously) for FY19E(+33% YoY) and forecast at Rs.518mn for FY19E (+8% YoY)

Sector earnings remain immaterial to overall JKH group earnings and we would not rule out apossible further divestiture of sector operations in the longer term

Others Sector

4Q18 PAT of Rs.588mn (-12% YoY; 8% of group PAT), slightly below our expectations –decline due to lower finance income; FY18 PAT +18% YoY to Rs.3,529mn

Net finance income for the sector decreased to Rs.1,673mn (-11% YoY); likely due to thedecreased cash position

Sectoral PAT forecasts broadly maintained at Rs.2,995mn for FY19E (-15% YoY on arecurring basis, 16% of PAT) and forecast at Rs.2,145mn for FY20E (-28% YoY; 11%of group PAT). Interest income expected to diminish in the near term as cash will be utilised forthe Cinnamon Life project construction

o Plantation services segment is expected to improve from lows witnessed in recent years -however the contribution is still expected to be negligible

John Keells Holdings

JKH : Unused and Underutilised Land

Owning company Area

(acres)Ahungalla Holiday Resort Ahungalla

6.5

Facets (Pvt) Ltd Ahungalla

6.3

John Keells PLC Ja-Ela

3.6

John Keells PLC Kirulapone

0.1

Sentinel Reality (Pvt) Ltd Vakarai

8.4

Trinco Walk Inn Ltd Trincomalee

14.6

Wirawila Walk Inn Ltd Wirawila

25.2

Vauxhall Land Developments (Pvt) Ltd

9.4

Source: JKH

Others - PAT (Rs mn) and % of Group

0

500

1,000

1,500

0

10

20

30

40

4Q16 2Q17 4Q17 2Q18 4Q18

Others

% of Group PAT - LHS

Pricing for Tri-Zen apartments

Room type Range (sqft) Price (Rs.mn)Quoted rate

(USD/sqft)

One bed room 471-520 21-27 ~345

Two bed room 716-764 30.8-39.2 ~335

Three bed room 989-1,041 43.8-51.8 ~323

Source: Tri-ZenNote: Price excluding parking spot which cost additional Rs.2.5mn (~US$15,800)

EQUITY REPORT TITLE | DateA CT HOLDINGS GROUP AND CLSA GROUP COMPANY 8

Integrated Resort (IR) – Cinnamon Life

JKH’s luxury IR, “Cinnamon Life” Project, at an investment of ~US$820mn comprising an 800room five star+ hotel, convention center, entertainment facilities, shopping complex,apartments, luxury condominiums and office space, is proceeding with its construction. Theproject is located at the former JKH head office premises of approximately 11 acres.Construction commenced in Mar 2014 and currently JKH is expected to have incurred~40% of the total project cost with piling work already being completed and excavation andfoundation processes being initiated

The project is anticipated to be completed in 2019 and the operations would start from2020 - returns on the project are likely expected to commence from FY21

The change in the local political landscape in Jan 2015 prevented large-scale gaming facilitiesfrom being operated within integrated resorts such as Cinnamon Life. Nevertheless, the projectappears to be continuing with the same scale, though returns from same are expectedto be significantly lower

The space of 150,000 sq ft previously dedicated for casinos may be used for an alternatepurpose, such as to expand conference or retail space or to bring in other indoor entertainmentfacilities. Further, the space is expected to be built in a way that would allow conversion into anyoperation, should there be a change in stance by the GoSL. JKH would likely tap into thegrowing MICE market, primarily from India. Supply for MICE market is currently limited inSri Lanka and Cinnamon Life will be a potential beneficiary of the increase of the same.Meanwhile, other hoteliers which have entered and are expecting to enter Colombo are alsoexpected to compete for the MICE market space

As per JKH, 238 units of both residential towers have been sold (out of a total 427 units).Competition has ramped up with more high end residential complexes set to enterColombo in the next few years. JKH has a proven track record in the residential propertydevelopment space, and increased promotion of Sri Lanka by other international propertydevelopers are expected to bode relatively well for Cinnamon Life

The pre-sales for the 24-storey standalone office complex is also anticipated to be receivingpositive interest (four floors out of ten floors that are up for sale is sold – rest will be rentedout). Demand for office space is likely to be strong, amid the anticipated growth ininvestments and business environment in the next few years. Despite the new additionsof office space, demand would likely outweigh supply, presenting potential further developmentopportunities for JKH and other industry dominant players

The overall success of the IR project would be dependent on new initiatives taken by JKH toattract tourists and on the level of support from and engagement with the GoSL

Select Upcoming Residential Projects in the Colombo Area

Project Name Location DeveloperCompletion

YearTotal Units

Quoted rate

(USD/sqft)

Cinnamon Life Colombo 02 JKH 2019 427 ~360

Destiny Residency Colombo 02 Imperial Builder 2018 205 > 231

Altair Beira Lake South City Projects 2018 445 > 326

Astoria Duplication Road AVIC 2018 608 > 260

Colombo City Centre Beira Lake Silver Needle - Abans 2018 182 > 315

ITC Colombo One Galle Face ITC 2018 130 TBA

Havelock City – phase 3 Colombo 05 Mireka Capital Land 2019 304 >210

One Galle Face Galle Face Shangri La 2019 406 >400

Achilleion Colombo 04 Blue Mountain 2020 590 >350

Source: Jones Lang LaSalle Lanka, CT CLSA

John Keells Holdings

“Cinnamon Life” at an investment of

US$820mn

Project continuing with the same scale

Plans to tap into MICE market, primarily from

India

EQUITY REPORT TITLE | DateCT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 9

0

500

1,000

1,500

2,000

2,500

Tran. Leis. Prop. CF&R Fin.Serv.

IT Others

4Q17 4Q18

Group Financial Performance

JKH posted a net cash position of Rs.45.5bn as at 31 Mar 2018 (vs. Rs.47.3bn as at 31Dec 2017 and Rs.61.5bn as at 31 Mar 2017)

o Group gross finance income decreased -11% YoY Rs.1,780mn in 4Q18 – excluding interestincome from life policyholders

o Whilst major future capex will be for the Cinnamon Life Project, JKH is able to leverage itsstrong balance sheet for expansion in other key sectors as well

Total group capex increased to Rs.11,415mn (vs. Rs.1,019mn in 4Q17); Property and CF&Rsectors were the key beneficiaries accounting for 80% and 15% of spending respectively

o Further capex expected for new supermarket openings and capacity expansions under theCF&R sector, whilst the Leisure sector would incur expenses relating to reconstruction ofexisting hotel properties

John Keells Holdings

* Excluding capital gains

Net cash position at Rs.45.5bn

Major capex targeted at Property and CF&R

sectors

Recurring Quarterly EPS (Rs)

Sectoral Contribution to PAT (%) Annual Capex (Rs bn)

Gross Fin. Income & Contribution to Group PBTNet Cash (Rs bn) and Net Cash : Equity (%)

Sectoral PAT (Rs mn)

* Also includes Information Technology sectors

Source: JKH Interims

1

2

3

4

5

1Q 2Q 3Q 4Q

FY16 FY17 FY18

15%

38%7%

8%6%

17%

3%17%

6%

57%

8%9%

Transportation

Leisure

Consumer Foods &Retail Financial Services

Property

Others*

4Q17

4Q18

2

3

4

5

6

FY13 FY14 FY15 FY16 FY17 FY18

Rs.18.9bn

40

50

60

70

15

20

25

30

35

4Q16 2Q17 4Q17 2Q18 4Q18

Net Cash - RHS Net Cash : Equity

700

1,200

1,700

2,200

0

16

32

48

64

4Q16 2Q17 4Q17 2Q18 4Q18

Finance Income (Rs mn) - RHS* % of PBT

EQUITY REPORT TITLE | DateA CT HOLDINGS GROUP AND CLSA GROUP COMPANY 10

Outlook & Valuations

JKH’s group NP forecast broadly maintained at Rs.16,676mn for FY19E (-2% YoY on arecurring basis) and forecast a NP of Rs.17,641mn for FY20E (+6% YoY)

o The Leisure sector would remain the main contributor to group earnings (~22-24% of groupPAT) followed by Transportation sector (~21% of group PAT) and CF&R sector (~19-21% ofgroup PAT)

The JKH share underperformed the broader market during last 12 months and last three monthsdeclining -7% and -2% respectively (vs. ASI’s decrease of -3% and -1%)

The JKH share trades at forward PER multiples of 13.1x for FY19E and 12.4X for FY20E

Based on our estimated break up Sum of The Parts (SOTP) valuation of Rs.164, the JKH share iscurrently trading at a 5% discount

Whilst further significant downside is limited, amid the recent declines and sharecoupled with the share trading at a slight discount we do not anticipate material shareprice gains with continuous moderate earnings growth expected in the near term.However, JKH may continue to be favored by medium to long term investors, amid its unrivalledshare liquidity, being the only company with over US$1mn average daily turnover on the CSEand potential for upside in its core sectors over the long term

A potential catalyst to re-rate the share in the medium term would hinge upon newdevelopments on the Cinnamon Life Project, especially the casino aspect

John Keells Holdings

Estimated break up NAV of Rs.164

JKH: Sum-of-the-parts (SOTP) Valuation

Sector Fair Value (Rs mn) Main Valuation Basis

Transportation 33,255 12x FY19E NP

Leisure 52,404 13x FY19E NP

CF&R 49,698 MV for KFP and DCF for CCS

Property 5,969 DCF at a cost of equity of 18%*

Finance 20,706 MV for stakes in UAL and NTB

IT 2,498 6x FY19E NP

Others (excluding interest income) 180 5x FY19E NP

Unutilised Land 1,367 JKH FY17 Annual Report

Net cash position 49,592 Company net cash as at 31 Mar 2018

IR Project 12,075 DCF with cost of capital of 18%

Total Value 227,743

No of Shares (mn) 1,387

Value per share (Rs) 164

Source: CT CLSA

Source: CT CLSA

Date %

29 May 2015 +1

30 Jul 2015 +14

05 Nov 2015 +3

29 Jan 2016 -7

27 May 2016 -9

29 Jul 2016 -6

04 Nov 2016 -5

27 Jan 2017 -15

27 May 2017 0

28 July 2017 +3

02 Nov 2018 -2

02 Feb 2018 +4

28 May 2018 -5

JKH Share Price – Premium / (Discount) to SOTP

Note: Based on valuationson report release dates

EQUITY REPORT TITLE | DateCT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 11

FY18Var

% YoYFY19E

Var %

YoYFY20E

Var %

YoY

Transportation 3,084 3.5 3,848 24.8 3,977 3.3

Leisure 3,471 -30.7 4,080 17.5 4,649 14.0

Consumer Foods & Retail 2,871 40.6 3,493 21.7 4,095 17.3

Financial Services 5,187 >+100.0 2,917 -43.8 3,247 11.3

Property 438 -88.5 658 50.0 974 48.1

Information Technology 360 -23.0 481 33.4 518 7.9

Others 3,529 17.7 2,995 -15.1 2,145 -28.4

Group PAT 18,941 7.4 18,471 -2.5 19,607 6.1

Minority Interest -1,857 0.8 -1,795 -3.4 -1,965 9.5

Group Net Profit 17,084 8.2 16,676 -2.4 17,641 5.8

John Keells Holdings

Outlook & Valuations

JKH: Recurring Sectoral PAT (Rs mn)

JKH SPEN MELS HHL

MPS (Rs) 157.0 55.5 56.0 124.9Earnings per Share (Rs) 12.0 8.5 5.5 8.1EPS Growth (%) -2.4 19.4 23.0 72.7Price / Earnings Ratio (X) 13.1 6.5 10.2 15.4Price / Earnings Growth (X) -5.5 0.3 0.4 0.2Return on Equity (%) 8.2 7.9 9.5 16.5

Key Sector Contr. to Group PAT (%) 22.1 37.4 ~82.3 43.7

3M Avg Daily Turnover (US$) 650,751 86,188 230,043 125,343

Peer Conglomerate Analysis – FY18E Relative Valuations

SPEN: Aitken Spence, MELS: Melstacorp Limited, HHL: Hemas Holdings~Key Sector Contribution to Group PBT

Source: CT CLSA

JKH: Trailing Twelve Month PER (X) : 2015 – 2018YTD

Source: CT CLSA

11

15

19

23

6-Jan-2015 6-Feb-2016 6-Mar-2017 6-Apr-2018

EQUITY REPORT TITLE | DateA CT HOLDINGS GROUP AND CLSA GROUP COMPANY 12

Major Shareholder Movements

Major Shareholder Movements as at 31 March 2018

Name No. of Shares %Change

(Shares)*Comment

1. Broga Hill Investment Ltd 141,854,717 10.2 -Part of Malaysia’s Khazanah National Bhd

2. Mr S E Captain 140,676,895 10.1 21,187

3.Schroder International Selection Fund

85,596,116 6.2 -913,553

4. Paints & General Industries Ltd 83,598,751 6.0 -2,866,334Related Party of Mr. S E Captain

5. Melstacorp PLC 48,519,886 3.5 -533,620

6. HWIC Asia Fund 36,000,982 2.6 -

7.Aberdeen Global-Asian Smaller Companies

28,413,338 2.0 -

8.Aberdeen Institutional Commingled Funds

26,583,813 1.9 -890,000

9.Aberdeen Global Asia Pacific Equity Fund

26,257,908 1.9 -

10.Northen Trust Co S/A Edgbaston Asian Equity

24,812,535 1.8 1,043,222

11.Aberdeen Global - Emerging Markets Smaller

21,040,581 1.5 -2,422,900

12. Employees Trust Fund 20,359,711 1.5 -900,000 GoSL Related Party

13. Mr K Balendra 19,606,476 1.4 -

14. BBH Luxfidelity Fund-Pacific 18,911,322 1.4 -

15. Deutsche Bank AG-London 15,512,571 1.1 -

16. First State Investments ICVC 15,486,461 1.1 -

17. London- Edinburgh Dragon Trust PLC 15,447,390 1.1 -

18. Mrs S A J De Fonseka 12,935,666 0.9 -

19. Mr C S De Fonseka 12,896,423 0.9 -

20. T Rowe New Asia Fund 12,831,617 0.9 -

Sub Total 814,805,157 58.4

John Keells Holdings

*Change since 31 December 2017; Exited top 20 (Name & Number of shares): None^ Also a shareholder of associate companies NTB and Union Assurance General

Trading & Sales

Lasantha Iddamalgoda lasantha@ctclsa.lk +94 11 255 2295+94 77 778 2103

Dyan Morris dyan@ctclsa.lk+94 11 255 2320+94 77 722 4951

Manura Hemachandra manura@ctclsa.lk +94 77 261 4797

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Dhammika de Silva dhammika@ctclsa.lk+94 77 356 2699

Arusha Michael arusha@ctclsa.lk +94 77 395 6765

Nuwan Madusanka nuwan@ctclsa.lk +94 76 858 9722

Ryan Janszryan@ctclsa.lk +94 77 547 9233

CT CLSA SECURITIES (PVT) LTDA Member of the Colombo Stock Exchange

4-14 Majestic City, 10 Station Road, Colombo 4, Sri LankaGeneral: +94 11 255 2290 to 2294 Facsimile: +94 11 255 2289

Email: info@ctclsa.lk Web: www.ctclsa.lk

A CT HOLDINGS GROUP AND CLSA GROUP COMPANY

Disclaimer : This document has been prepared and issued by CT CLSA Securities (Pvt) Ltd. on the basis of publicly available information, internallydeveloped data and other sources, believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated are accurate and theopinions given are fair and reasonable, neither CT CLSA Securities (Pvt) Ltd. nor any director, officer or employee, shall in any way be responsible for thecontents. CT CLSA Securities (Pvt) Ltd. may act as a Broker in the investments which are the subject of this document or in related investments and mayhave acted upon or used the information contained in this document, or the research or analysis on which it is based, before its publication. CT CLSASecurities (Pvt) Ltd., its directors, officers or employees may also have a position or be otherwise interested in the investments referred to in thisdocument. This is not an offer to buy or sell the investments referred to in this document. It is not intended to provide professional, investment or anyother type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individualrecipients. Before acting on any information in this publication/communication, you should consider whether it is suitable for your particularcircumstances and, if appropriate, seek your own professional advice, including tax advice.

The markets in which CT CLSA Securities (Pvt) Ltd. operates may not have regulation governing conflict of interest over preparation and publication ofresearch reports (including but not limited to disclosure of perceived or actual conflict of interest) as may be found in more developed markets. Pleasecontact your investment advisor / analyst should you require further information over the relevant regulation and particular disclosure over perceived oractual conflict of interest.

Research

Sanjeewa Fernando sanjeewa@ctclsa.lk+94 77 742 7439

Chayanika Ranasinghe chayanika@ctclsa.lk +94 77 237 9731

Yasas Wijethunga yasas@ctclsa.lk+94 77 053 2059

Shahan de Silvashahan@ctclsa.lk+94 11 255 2290

Subecca Sothylingamsubecca@ctclsa.lk+94 11 255 2290

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Madhusha Sivanathanmadhusha@ctclsa.lk+94 11 255 2290

Consultant / Sales

Rohan Fernandorohan@ctclsa.lk +94 11 255 2297+94 76 778 2101