Issue of 390,000,040 shares at a price of LKR18.00 to be listed on the Main Board

INITIAL PUBLIC OFFERING

Analyst: Minoli Mallawaarachchi: minoli@asiacapital.lk

PEOPLE’S LEASING CO. LTD

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PEOPLE’S LEASING CO. LTD

People’s Leasing Company limited (PLC) was incorporated in 1995 and

registered as a Specialized Leasing Company (SLC) under section 34 of the

Finance Leasing Act No.56 of 2000.

The principal business activity of the PLC is the provision of finance leasing,

operating leasing, HP facilities, asset financing, and term loans.

The company has registered a Compound annual growth rate (CAGR) of 28%

in overall interest income, over a period of 5 years, compared with a CAGR

growth of 38% in interest earning assets.

The interest expenses for a period of 5 years have grown at CAGR of 38%,

and according to the latest available data for 1QFY11/12 the YoY growth had

been 67%.

Net profits had accounts for a CAGR growth of 37% over a period of 5 years.

Simultaneously, as per the year ended FY11/10, the YoY growth in net profit

was an impressive 126%.

Taking into consideration of aforesaid conditions we forecast a net profit of

LKR3.9bn for FY11/12 achieving a growth of 50% YoY and yet a 4% decline in

FY12/13 (due to reversal of LKR1.6bn provisions being included in FY11/12

profits) delivering a net profit of LKR3.7 bn.

In terms of earnings to price multiple; the ordinary share is attractively

valued at 9.3x (based on normalized profits adjusted for the LKR1.6 bn

reversal of reserves) and 7.8x on FY11/12E and FY12/13E earnings

respectively (based on the issue price of LKR18.0)

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The issue

The issuance of Three Hundred and Ninety Million and Forty (390,000,040)

new Ordinary Voting shares at the issue price of LKR18.00, to raise a total

capital of LKR7,020,000,720 (LKR7 bn). Subsequent to the issue, company will

be listed on the Main Board of the CSE.

The objectives of the issue

The primary objective of the issue is to obtain a

listing for the Ordinary Voting shares of the company

on the CSE to comply with the regulatory

requirements of the Monetary Board of CBSL as

communicated by the Department of supervision of Non- Bank Financial

institutions.

It is expected that the company will

meet the minimum public holdings

requirement of the CSE on the

completion of the issue.

The proceeds from the IPO, after meeting expenses to the issue, would be

utilized to grant more leasing, HP and loan facilities to the customers. Apart

from the above, the increase in stated capital of the company subsequent to

the issue would improve its debt to equity position and would enable the

company to leverage on its balance sheet and raise the requisite debt

financing in a comfortable manner.

Following is the allocation of shares to identified categories, and the issue

price of LKR18.00 is applicable to all categories.

Key milestones of PLCL

©

Incorporation-1995

IPO-2011

2008/2008- formed two subsidiaries; People's

Leasing Property Development Limited and People's

Leasing Fleet Management Limited

2009/10, the Company acquired 84.50%

stake of Seylan Merchant Leasing PLC

The People's Insurance Limited was incorporated

as a fully owned subsidiary of PLC

By 30th June 2011, the company

capitalized a sum of LKR4.1bn (28mn

shares)

Share split of 1:15

after the bonus issue

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Company Overview

People’s Leasing Company limited (PLCL) was incorporated in 1995 and

registered as a Specialized Leasing Company (SLC) under section 34 of the

Finance Leasing Act No.56 of 2000.

Company was formed by Peoples Bank; a leading state owned Licensed

Commercial bank (LCB) in Sri Lanka. The majority of the share holding of the

parent- Peoples Bank (92.27%) is held by the state whilst a stake of 7.73% is

held by co- operative societies. The asset base of the Peoples Bank amounts

to approximately LKR619 bn as at end of June 2011, whilst the bank

continued to maintain its position as the second largest LCB in Sri Lanka.

The principal business activity of the PLCL is the provision of finance leasing,

operating leasing, HP facilities, asset financing, and term loans. The company

offers an array of leasing facilities and loans to cater to the needs of different

customer segments, including mortgage loans, vehicle loans, and short term

loans for working capital. PLCL also operates as a margin provider under a

license received from the SEC.

The company is renowned to be the market leader in the leasing and HP

industry of Sri Lanka having secured a market share of over 20%, measured in

terms of annual disbursements.

The company bears a long-term rating of ‘A (lka) stable ‘from Fitch Ratings

Lanka Limited, signifying its strong credit profile and excellent track record of

performance.

Company has an unprecedented presence throughout the country compared

with other peers engaged in similar business as of PLCL. This has been

achieved through 37 branches and 121 window offices which are located at

Peoples Bank branches throughout the country.

People’s Leasing Company Limited functioning as the holding company of the

PLC group, operates with six subsidiaries, maintaining its presence in the

spheres of leasing and HP financing, motor and general insurance, fleet

management, property development and Micro finance.

Subsidiary operations

Peoples Finance PLC (ticker; SMLL) - PLCL holds 88.51% of the company.

SMLL is a Registered finance company in Sri Lanka delivering core products

including, leasing, HP, loans. And also company has the capacity to accept

deposits from the public.

Peoples Insurance Limited- A company carrying on general insurance

business and registered with the IBSL, was incorporated on July 22, 2009 as a

public limited liability company, and is a fully owned subsidiary of PLCL.

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Peoples Leasing Fleet Management Limited- A fully owned subsidiary of

PLCL and engages in the provision of operating leases and vehicle hire

facilities and operates a service station, “PLC auto care”. Also the company

commenced the vehicle valuation unit during FY10/11, which is expected to

make a significant contribution for the PLC group with the expansion of the

operating lease business and vehicle servicing.

Peoples leasing Property Development Limited- A fully owned subsidiary of

PLCL was incorporated on August 15, 2008 as a public limited company. The

company engages in facilitating the development of office buildings and

productivity stimulating workspace required for Peoples Bank and PLC group.

Peoples Leasing Havelock Properties Limited- A fully owned subsidiary of

PLCL, mainly involved in undertaking a BOI approved project which is to

construct an office complex at Havelock Road, to house subsidiaries of PLC.

Peoples Micro Finance Limited- A fully owned subsidiary of PLC, operating

with the primary objective of providing financial services to the low income

segment of the society and capacity building of the identified segment and

micro enterprises.

Sri Lanka’s gross domestic product expanded by 8% in 2010 (2009; 3.5%) ,

the highest annual growth rate recorded for the last 30 years. This has been

achieved on the shoulder of attractive macroeconomic fundamentals after

the cessation of war prevailed over three decades.

The current inflation (as measured by the Colombo Consumer Price Index)

and interest rates which peaked in 2008 have eased to relatively low levels.

As per end 2010, Specialized Leasing Companies have contributed a 2.30% to

the asset base of the domestic financial system. Particularly, the SLC

industry‘s lending increased by a circa 32% YoY to reach a LKR105.40 bn by

the end of December 2010. Further, Industry Net Interest Margins also has

improved from 5.4% to 8.52% YoY, primarily due to lowered borrowing cost.

Leasing was originally popularized by SLC’s and Registered Finance

Companies (RFC’s) in Sri Lanka, but it has now become an equally popular

product amongst Licensed Commercial Banks and Licensed Specialized Banks.

This has been mainly due to the higher interest margin available in leasing

industry.

Industry Overview

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In terms of regulatory implications, SLC’s registered in Sri Lanka are not

permitted to mobilize deposits from the general public as a source of

funding; amendments made to the regulations in 2007 allow SLC’s to issue

debt securities to the public.

Financial performance

Interest income

The overall interest income of the PLC group is a combination of interest

earned by the company PLCL and its subsidiaries. However, more than 92%

(as at FY10/11) of the revenue is delivered by the PLCL (the company) itself.

Interest income of the PLC group is derived through varied sources such as

Leasing and Hire purchase (HP), loans and advances, interest earned from

deposits in banks and financial institutions and dealing in government

securities. Being resultant from the specialization in leasing industry, a

substantial portion of interest income is comprised of interest earned over

leasing and HP. This contribution was approximately 87% as per year ended

FY10/11.

The company has registered a Compound annual growth rate (CAGR) of 28%

in overall interest income, over a period of 5 years, compared with a CAGR

growth of 38% in interest earning assets. With reference to the latest

1QFY11/12, the individual growth in overall interest income was a significant

57% YoY (2QFY09/10-2QFY10/11). Whereas the growth had been supported

by a combination of escalated credit demand posed through declining

lending rates in the economy and increase in demand for leasing facilities

resulted from the reduction in import tax rates on vehicles.

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Interest expenses

The interest expenses of the PLC group are

comprised of interest paid on borrowings and

deposits. Borrowings include funds obtained

through promissory notes, Securitizations and

other long-term loans. Similarly, PLC group as a

whole has access to public deposits through its

subsidiary Peoples Finance PLC. The interest

expenses for a period of 5 years have grown at

CAGR of 38%, and according to the latest

available data for 1QFY11/12, the YoY growth

had been 67%. This can be explained through a

CAGR growth rate of 41% in interest bearing

liabilities over a period of 5 years.

Net interest income

The net interest margin of PLC currently stands at 11.43%, significantly above

the SLC sector average of 5.83%. When compared with the overall banking

sector, leasing establishments are earning higher margins. Company’s

interest income/ average earnings assets was 20% as at end FY10/11, down

from 25% in FY09/10, but was par with sector

ratios. The decline in the ratio was due to

lower interest rates prevailing in the

economy compared with very high rates

especially in year 2008-2009. However going

forward the margins are expected to narrow

somewhat in the future due to intense

competition from Licensed commercial banks

and other Registered finance companies.

Net interest spread

As per the year ended FY11/1 the Company

has realized a net interest spread of 9%, as oppose to a rate of 8% recorded

year before. A higher spread has been achieved due to the nature of the

assets and liabilities of PLCL. Where the borrowings are more short term with

maturities extended from 0-12 months. Therefore ,in the prevailing low

interest rate economy, the borrowings get adjusted more frequently and

faster than more longer term assets (loans) operating with fixed interest

rates getting adjusted, ultimately leading to higher spreads.

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Operating income

Net interest income gives a contribution of circa 82% to the operating

income whilst the rest being income generated through sale of vehicles

(gains on imported Ashok Leyland and TATA busses), fee and commission

income, net income from Islamic finance and other operating income which

includes dividends, bad debt recoveries, income on operating leases etc...

Historically the Non interest income as a percentage of operating income has

stood at 20% on average.

Operating expenses

Operating expenses (excluding provisions for loan losses)

have taken a CAGR growth of 29% over a period of 5

years, falling in line with the growth in the overall

business volume. Also the company has maintained a

relatively low level of cost to income ratios over the

years, where currently it hovers around 29% as per year

ended FY10/11, significantly below the SLC industry.

However, With reference to the latest available data as at end of 1QFY11/12,

the operating expenses have increased by a 48% YoY, resulting in a cost to

income ratio of 32%, mainly on the account of accelerated expenditure on

employee benefits.

Provision for credit losses

Company is maintaining adequate levels of provisions in order to cover

unanticipated losses which can arise from the lending portfolio. Provision for

credit losses charged from the P&L during FY10/11 decreased by above LKR

400 mn (compared with a previous allocation of LKR539 mn) to LKR52 mn

reflecting improving delinquencies and collections and fewer bankruptcies as

a result of improving economic conditions and lower average loans. Further,

during 1QFY11/12, the company has reversed a portion of LKR1.6 bn from its

general provisioning in the light of improving quality of its lending portfolio.

This reversal has also resulted in boosting the profitability of the company.

Effective tax rate

The effective tax rate has come down to 38% as per year ended FY10/11

from a previous rate of 51%. Similarly, it has further come down to 35%

based on the latest 1QFY11/12 performance. The lower rate was due to the

reduction in tax rates. Particularly, VAT on financial services came down

from 20% to 12% and income tax rate from 35% to 28%.

Net profit (Profit attributable to equity holders)

Net profits had taken a CAGR growth of 37% over a period of 5 years.

Simultaneously, as per the year ended FY11/10, the YoY growth in net profit

was an impressive 126%. This has been achieved through a significant growth

8 | P a g e

of 45% in net interest income, 48% growth in operating income and a lower

growth of 4% in total operating expenses.

And the other positives are the decline in tax rates. Based on the latest

available quarterly results, the net profit growth is 494% YoY, where the

growth includes a one-off reversal of LKR1.6 bn in general provisioning

during the quarter.

However, based on a normalized net profit of LKR670.7 mn for 1QFY11/12 as

opposed to a net profit of LKR291.0 mn in 1QFY10/11, the growth in net

profit is a substantial 130%, a growth stemmed through a growth of above

57% in interest income, 30% growth in other income, while expenses side

growing by relatively slow pace.

Asset quality

The asset base of the company is largely

dominated by loan and lease rental receivable. As

per the year ended FY10/11 the contribution of

loans and lease rentals to the overall asset base

was 87% whilst cash and deposits accounting for

a 5%. However, during 1QFY11/12, it has shown a

tilt towards more liquidity, by increasing the cash

and short term funds by 205% within a period of

3 months, particularly; the increase was led by

cash at bank and reverse repos.

Therefore, due to the higher weight of loans and

lease rentals over the asset base of the company,

addressing the asset quality of the loan portfolio

are vital.

The quality of the loan portfolio of the company

is deemed healthy due to the company’s

stringent credit standards which has resulted in a

lower than industry NPL ratios. As per the

FY10/11 the gross NPL ratio has stood at 1.20%,

which is relatively below the SLC sector average

of 5.8%. The non performing loans of the company has reached to an

LKR852.8 mn by the end of 1QFY11/12 whilst the overall loan book achieving

a LKR65.4 bn. Total available provisions in order to guard any losses have

come down during 1QFY11/12 to a total of LKR889.8 mn from a previous

level of LKR2, 277.7mn as at end of financial year FY10/11, inclusive of both

specific and general provisions. This was majorly due to the reversal took

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place in 1QFY12/11 from the general provision by LKR1.6bn. However,

bringing down the provisions have resulted in depleting the provisioning

cover to 1.04 for 1QFY11/12 from a previously high of 3.35, but still the

provisioning is adequate to cover the total outstanding non performing

loans.

PLC’s loan portfolio grew by a massive 95% during financial year ended

FY10/11 in comparison to the previous year FY09/10. And also with respect

to the latest available data for 1QFY11/12, the loan book has grown by an

18% within a time span of 3 months reaching a total loan book value of

LKR65.4bn (including loans and advances and lease rentals receivable). The

growth had been immensely supported by the loan facilities granted under

leasing and HP and this can be explained through the sudden boom in

importation of vehicles consequent to the removal of VAT on leased vehicles

and drop in import taxes.

Apart from the above, one of the convincing factor in the PLC loan portfolio

is that the 75% of leasing advances and 73% of HP advances as at 31st March

2011 have been extended to income generating vehicles, including lorries,

busses, dual purpose vehicles. This is an indication that the risk of default in

these loans is very much less compared with leasing granted for consumption

purposes.

Funding and liquidity

The funding base of the company is dominated

by borrowings which are followed by share

holder’s funds. The composition had been

somewhat constant prior to 2010 where

borrowings contribute by 50%- 60% whilst rest is

being funded through shareholders equity

(including both ordinary and preference shares). However, with the

acquisition of People’s Leasing Finance PLC formerly known as Seylan

Merchant Leasing Ltd (SMLL), the PLC group was

placed with deposits as a source of funding to

fuel the overall growth in the group lending

portfolio. This has led to the funding base of the

group to deviate from its historical trend.

Particularly, the current overall funding base of

the group is comprised of 55% borrowings, 29%

equity and 16% by deposits.

10 | P a g e

The borrowings of the company are mainly through issuance of promissory

notes, long term loans, and securitizations contributing 39%, 37% and 18%

respectively, to total borrowings as per 31st March 2011. Consequently, this

funding diversity is a strength that PLC has leveraged. In addition, PLC

complemented its funding with extensive securitization loans (fixed rate

medium term loans secured by mortgaging lease receivables). As per 31st

March 2011, securitization accounted for above 18% in total borrowings.

Debt to equity ratio of the company is currently at 5: 1 as at end FY10/11

from a previous ratio of 3:1, indicating that company is mobilizing more

external funds to owner’s funds. However with the proceeds coming from

the IPO, the debt to income ratio would ease down back to 3:1(based on

total debt as at end 1QFY11/12). However, resorting to more borrowing with

a high debt to equity ratio would be beneficial in a declining interest rate

environment.

Based on the asset liability mismatch the company has negative gaps in the

short term, largely due to other liabilities evidenced by paper and

borrowings. Therefore in the short term the liabilities get reprised before

assets get adjusted for rate changes, indicating that company can reap

benefits in the declining interest rates regime and invariably increasing

spread.

Capital adequacy

As per 30th June 2011, the PLC group is strongly capitalized with LKR10 bn of

share holder’s funds, and this accounted for a growth of 19% of its total

assets as at the same date. Consequently, the total capital adequacy ratio as

at 30th June 2011 is 14.3%, which is sufficiently above the regulatory

minimum of 10%. Consequently, the higher capital adequacy is a result of

PLCL’s lower risk of risk weighted assets which occurs through loans and

leases being pegged with income generating activities. However, the capital

adequacy ratio is further expected to improve with the new capital infusion

of LKR7 bn through the IPO.

DuPont Analysis

DuPont Analysis is a methodology by which the ROE of a company can be

broken down in to its constituent parts. ROE is a measure of how successfully

11 | P a g e

the management of a company has deployed the equity to generate a return

for its shareholders.

The ROE can be shown as a product of Earnings on assets and equity

multiplier. The ratio of assets as a percentage of equity is known as equity

multiplier. Therefore, when the company is making profits, then a high equity

multiplier will multiply earnings as a percentage of equity and will invariably

enhance the ROE. With respect to PLC, the ROE for FY10/11 is 41%, which is

being derived through Earnings on assets of 5.01% and an equity multiplier of

8.16. When compared with a ROE of 22% in FY09/10, the current ROE has

improved because of increase in both Earnings on assets and Equity

Multiplier.

Consequently, the equity multiplier has increased due to the rate of increase

in assets being overtaken the rate of increase in equity. Where, the growth in

total assets being 94% during FY10/11 whilst equity taking a growth of only

36% on the back of escalated retained earnings. The high growth in assets

being financed through the extended borrowings of the company which, the

growth in borrowings for the FY10/11 was 108%.

Accordingly, the Earnings on assets can also be further disaggregated in to

key elements, which are driving Earnings on assets. With reference to the

table, we can see an improvement of Earnings on assets in FY10/11 to 5.01%

from a previous level of 3.29%. However, the improvement has been driven

by lowered operating expenses, loan loss charges, Tax and preference

dividends over average total assets. However, it is noteworthy to mention

that during FY10/11, net interest income and noninterest income over

12 | P a g e

average total assets have decline to 10.36% and 2.21% from a previous level

of 11.82% and 2.23% respectively.

The key driver of ROA for a leading finance company is the interest income.

The net interest income as a percentage of assets can be disaggregated

further.

Net Interest Income / Average Assets = Net Interest margin*

Earnings Asset Ratio

As mentioned above, there are two possible ways to improve the Earnings on

Assets, firstly, it is by improving net interest margin, and secondly it is

through increasing the ratio of interest earning assets (Earnings Asset Ratio).

During FY10/11, the net interest margin has come down from a previously

high of 13%. This has been due to the 46% growth in net interest income

being overtaken by a growth of 63% in average interest earning assets.

Similarly, the ratio of Net Interest Income / Average Assets has also been

curtailed by a slight reduction in the earnings asset ratio.

In summing up, the ROE for FY10/11 has improved on the back of a

significant increase in equity multiplier (average total assets/ average total

equity), whilst reductions in loan loss charges, operating expenses and tax

charges over total average assets further strengthening the improvement.

Risk Management

Interest rate risk

Profitability of companies operating in the financial services industry is

significantly linked with volatility of the interest rates. And the volatility of

interest rates may affect the spread between lending and borrowing rates. A

maturity miss match may exist between the lending portfolio and

corresponding funding that could affect the interest rate spreads due to

interest rate volatility. With reference to the PLC, the lending is mainly on

fixed rates where as borrowings have a significant presence of floating rate

financing. This can lead to deterioration of spreads and profits in a rising

interest rate scenario. As mentioned in the Liquidity and funding section to

this report, PLCL’s Asset Maturity mismatch has negative gaps in the short

term, indicating that if the interest rates take an upward trend then the

borrowings would become more expensive due to liabilities are getting

readjusted to new rates prior to reprising of assets.

Competition with other institutions

PLCL and its subsidiaries operate in a highly competitive industries facing

competition from various institutions. PLCL and Peoples Finance PLC (PF)

may face competition from LCB’s, RFC’s LSB’s. These institutions may offer

13 | P a g e

products and services similar to those offered by PLCL and PF. This

competition may reduce or limit their lending, borrowing capacity and

interest spreads.

However, the unique positioning of PLC group as a total financial solutions

provider may enable PLCL and its subsidiaries to stay ahead of its

competition. Furthermore, the backing of Parent Peoples Bank, together with

the financial strength of PLCL, would equip the company’s subsidiaries with a

competitive advantage.

Liquidity Risk

Liquidity risk for a company in the financial services sector is the risk that it

will be unable to meet its obligations as they become due. This risk could

arise due to several factors including an over reliance on a particular source

of funding, changes in credit rating or market wide phenomena.

Furthermore, the lack of liquidity may pose solvency issues for PLC group.

However the company currently manages a diversified funding portfolio

consisting of equity and borrowings from banks and other financial sector

institutions, whilst Peoples Finance PLC utilize public deposits as a source of

funding. Therefore, the PLC group and its subsidiaries are not overly reliant

on any particular source of financing, thereby limiting the liquidity risk.

Credit Risk

The customers of PLCL and PM may not repay their borrowing in due course.

And the collaterals for these loans may be insufficient to recover the

outstanding amount in the event of default. In such a scenario the PLC group

would face with high nonperforming assets and this would require for high

levels of provisions which can curtail the profitability. However, company is

maintaining adequate levels of provisioning, where NPL cover ratio

exceeding 100%. And also company is adapting a more comprehensive

analysis of credit worthiness before granting the loan facilities. Therefore the

credit risk is addressed effectively.

Future Outlook

Expansion of branch network

PLCL intends to expand its existing branch network by increasing its presence

in areas which would directly benefit from the burgeoning rural economy in

Sri Lanka. Also emphasis would be placed on increasing the company’s foot

print in the North and East. This would enable the group to collect more

deposits as well as expand the loan book.

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Expansion of Margin Trading Business

PLCL commenced its margin trading operations in March 2011 after receiving

approval from the SEC. the company expects to achieve significant growth in

the future on the strong performance recorded by the CSE in the two

preceding years. This new segment of operations has been well augmented

by a customized automated ICT system developed in house.

Sourcing Requisite funds for portfolio growth

The surge in demand for lease and HP financing experienced by PLCL is

expected to continue in line with the future prospects of the industry.

Therefore, PLCL intends to aggressively pursue multiple channels of funding,

both local and foreign, in addition to its existing sources, to raise adequate

debt and equity capital to support the growth.

Peoples Insurance limited (PI)

PLCL’s position as the market leader in leasing and HP segment continue to

give PI a key advantage as it tries to further establish itself in the general

insurance sector. Furthermore, the backing of the ultimate parent Peoples

Bank also serves as a significant advantage for PI.

Peoples Micro Finance Limited (PM)

PM is expected to grow its micro financing products by utilizing the existing

rural presence enjoyed by PLCL whilst further engaging with communities of

Sri Lanka that have little or no access to financial services.

Valuation

Valuations & Recommendation

With the falling interest rates and favorable macroeconomic fundamentals

prevailing in the economy, strengthened with new capital infusion of LKR7

bn, we believe that PLC would achieve an earnings asset growth of 22% for

the FY11/12. However, due to tense competition posed through other

finance institutions including LCB’s RFC’s, LSB’s, the market share of PLC

would deplete but would remain as a key player in SLC’s sector. Therefore,

we believe the interest spreads would squeeze in medium to long term, from

a current level of 9% to a long term average of 6%-7%.

Similarly, PLC group together with its subsidiary Peoples Finance PLC would

be in a favorable position in terms of attracting funds to fuel its lending.

Peoples Finance PLC is expected to play a key role in attracting funds to the

group, while PLCL with its support from the Parent company and improved

credit ‘A (lka) stable ‘would attract more debt in terms of funding.

15 | P a g e

Taking into consideration of aforesaid conditions we forecast a net profit of

LKR3.9bn for FY11/12 achieving a growth of 50% YoY and yet a 4% decline in

FY12/13 (due to reversal of LKR1.6bn provisions being included in FY11/12

profits) delivering a net profit of LKR3.7 bn.

In terms of earnings to price multiple; the ordinary share is attractively

valued at 9.3x (based on normalized profits adjusted for the LKR1.6 bn

reversal of reserves) and 7.8x on FY11/12E and FY12/13E earnings

respectively (based on the issue price of LKR18.0).

Further, on a Dividend discount (DDM) based valuation, we arrived at an

intrinsic value of LKR23.47 per share. Although we do not expect a significant

shift in cost of equity as the firm wishes to gradually shift towards its optimal

capital structure, the changing macro economic conditions would affect the

terminal growth rate. Hence we have assumed a cost of equity variation of

11.50%- 13.50% and a long run growth rate variation of 4%-2% resulting in a

price variation of LKR19.39 – LKR29.73.

Furthermore, based on a Residual Income Valuation Methodology we arrived

at an intrinsic value of LKR27.00.

Based on the above mentioned valuation methods, the ordinary share would

generate good value at its offer price of LKR18.0. Hence, the investor

appetite for PLC would remain strong. Therefore, strong upside could be

expected in the short to medium to long term. SUBSCRIBE.

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Sensitivity Analysis (Based on dividend

valuation methodology)

PLC would have a potential target price of

LKR23.47 within a low of LKR19.39 and a high of

LKR29.73.

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Research

Sales

Retail Sales

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described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principal or

agent. Asia Securities may make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. Asia Securities may have recently

underwritten the securities of an issuer mentioned herein. The information contained in this report is for general information purposes only. This report and its content is copyright of Asia Securities and all rights reserved. This report- in whole or in

part- may not, except with the express written permission of Asia Securities be reproduced or distributed or commercially exploited in any material form by any means whether graphic, electronic, mechanical or any means. Nor may you transmit it or

store it in any other website or other form of electronic retrieval system. Any unauthorised use of this report will result in immediate proceedings.

Institutional Sales

Branches

Service Centers

Senior Analyst

Amali Perera (94-11)5320256

amali@asiacapital.lk

Corporates

Minoli Mallwaarachchi (94-11)5320259

Nirmala Samarawickrama (94-11)5320253

Dilan Wijekoon (94-11)5320253

Thilina Ukwatta (94-11)5320253

Shan Silva (94-11)5320251

Economy

Dhanusha Pathirana (94-11)5320254

Travis Gomez (94-11)5320000

Statistician

Nuwan Pradeep (94-11)5320257

Sabri Marikar (94-11) 5320224 077 3-576868 sabri@asiacapital.lk Niroshan Wijayakoon (94-11) 5320208 0777-713645 niroshan@asiacapital.lk Niyaz Aboobucker (94-11) 5320213 0777-727352 niyaz@asiacapital.lk Anura Hedigallage (94-11) 5320211 0777 -713663 anura@asiacapital.lk Chelaka Hapugoda (94-11) 5320240 0777 -256740 chelaka@asiacapital.lk Chaminda Mahanama (94-11) 5320223 0777 -556582 mahanama@asiacapital.lk Hiran Bibile (94-11) 5320238 0777 -352032 hiran@asiacapital.lk Arshwin Amarasekara (94-11) 5320215 0773 -717220 arshwin@asiacapital.lk

Shiyam Subaulla (011)- 5320218 0773-502016 shiyam@asiacapital.lk

Gagani Jayawardhana (011)- 5320236 0714-084953 gagani@asiacapital.lk Priyantha Hingurage (011)- 5320217 0773-502015 priyantha@asiacapital.lk Neluka Rodrigo (011)- 5320214 0777-366280 neluka@asiacapital.lk Subeeth Perera (011)- 5320227 0714-042683 subeeth@asiacapital.lk

CSE Floor CSE,01-04, World Trade Centre, Colombo – 1. Thushara Adhikari (011)-5735122 0773-688202 adhikari@asiacapital.lk M G Suranjana (011)-5763539 0773-954994

Kiribathgoda Level 2-6,Udeshi City Shopping complex, No 94,Makola Rd,Kiribathgoda Danushka Boteju (011)-5634803 0716-270527 boteju@asiacapital.lk Suranga Harshana (011)-5734773 0783-452500 harshana@asiacapital.lk Kurunegala Union Assurance Building, No.6,1st Floor, Rajapilla Rd, Kurunagala. Asanka Samarakoon (037)-5628844 0773-690749 asanka@asiacapital.lk Gayan Nishsanka (037)-5642717 0777-105356 nishshanka@asiacapital.lk Bandula Lansakkara (037)-5643580 0773-925852 Matara E.H.Cooray Building, Mezzanine Floor, No:24, Anagarika Darmapala Mw, Sumeda Jayawardena (041)-5677525 0773-687027 sumeda@asiacapital.lk Matara Lalinda Liyanapathirana (041)-5677526 0778-628798 rishan@asiacapital.lk Galle Peoples Leasing Building, 2nd Floor, No.118,Matara Road, Galle Ruchira Hasantha (091)-5629998 0773-687027 ruchira@asiacapital.lk Ushan Sachith (091)-5676767 0778-628798 ushan@asiacapital.lk Negombo

Asia Asset Finance, 171/1, Station Road, Negombo. Uthpala Karunatilake (031)-5676881 0773-691685 uthpala@asiacapital.lk

Negombo

Asia Asset Finance, 171/1, Station Road, Negombo. Uthpala Karunatilake (031)-5676881 0773-691685 uthpala@asiacapital.lk

Gayan Perera (031)-5676880 0772-544044 gayan@asiacapital.lk

Kandy k3-L1,Level 01,kcc, No 5 ,Dalda Veediya, Kandy. Nilupul Hettiarachchi (081)-5628500 0773-691816 nilupul@asiacapital.lk Radhika Hettiarachchi (081)-5625577 0777-810694 radhika@asiacapital.lk Hambantota Hambanthota Chamber of Commerce, Thangalle Road, Hambantota. Gayan Sanjeewa (047)-5679240 0715-536309 sanjeewa@asiacapital.lk Anusha Muthumali (047)-5679241 0772-351716 muthu@asiacapital.lk Shermin Ranasinghe 0772-378352 shermin@asiacapital.lk Ampara 2

nd Floor, T.K.S. Building, D.S. Senanayake Street, Ampara. Ravi De Mel (063)-5679071 0772-681995 ravide@asiacapital.lk

Madushanka Rathnayaka (063)-5679070 0779-036577 shanka@asiacapital.lk Jaffna 11-8, First Floor, Stanley Road, Jaffna Gratian Nirmalan (021)-5671800 0777-567933 nirmal@asiacapital.lk S.Puviraj (021)-5671801 0775-096969 puviraj@asiacapital.lk Wennappuwa Asia Asset Finance, No.176, Negombo Road, Katuneriya. Sajith Iroshan (032)- 5673881 0773-740208 sajith@asiacapital.lk Sandun Athulathmudali (032)- 5673882 0772-533331 sranga@asiacapital.lk Moratuwa Asia Asset Finance, No.18, New De Zoysa Rd, Moratuwa. Hashan Lalantha (011)-5238662 lalantha@asiacapital.lk Charith Perera (011)-5238663 charithn@asiacapital.lk Panadura Asian Alliance Building, 293, Galle Road, Panadura Ranganath Wijetunga (038)-5670400 0715-120723 ranganath@asiacapital.lk Asanka Chaminda (038)-5670407 0713-559552 chaminda@asiacapital.lk

Research

Sales

Retail Sales

Institutional Sales

Branches

Service Centers

The report has been prepared by Asia Wealth (Private) Limited. The information and opinions contained herein has been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such information

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described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principal or

agent. Asia Securities may make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. Asia Securities may have recently

underwritten the securities of an issuer mentioned herein. The information contained in this report is for general information purposes only. This report and its content is copyright of Asia Securities and all rights reserved. This report- in whole or in

part- may not, except with the express written permission of Asia Securities be reproduced or distributed or commercially exploited in any material form by any means whether graphic, electronic, mechanical or any means. Nor may you transmit it or

store it in any other website or other form of electronic retrieval system. Any unauthorised use of this report will result in immediate proceedings.