LLUB attractive medium term investment

Chevron Lubricants Lanka (LLUB) reported 3Q08 EPS of LKR 4.90. Net profit was LKR 294Mn which was down 9 per cent y/y. LLUB has a four-year revenue CAGR of 23.94 per cent and an EPS CAGR of 18.57 per cent.

Despite raising the product prices by 20 per cent in June, LLUB revenue rose by a mere 15%. The apparent contraction in volume would be due to a combination of abrasion of market share and reduction of overall market volume.

Crude oil hit an all time high of US$147 in July. Despite the sharp decline of Crude oil since, the lubricant base oil prices haven't registered a decline as yet. This was responsible for the COS to rise 27 per cent against the 15.3 per cent revenue rise. While the gross profit contracted by 11.5 per cent net profit fell by 9.5 per cent.

LLUB has earned higher margins than their competitors on their locally blended lubricants. Presently trades at a PER of 4.7x against a 2008E PER of 4.9x and a 2009E of 6.0x. Fluid market position, attractive trading multiples, high dividend yield and the strong management makes LLUB an attractive medium term investment.