Expolanka Holdings PLC, Sri Lanka's largest listed company by market capitalisation with operations in global logistics and freight forwarding, has announced its decision to delist from the Colombo Stock Exchange (CSE) while offering its exit price of Rs.185 per share.
The offered exit price represents a substantial 23% premium over the current share price, offering shareholders an attractive opportunity to capitalize on the premium valuation.
This price is significantly above the last 12-month average traded price, providing investors with an advantageous exit point. At this exit price, the group trades at a high 2.8x Price-to-Book Value (PBV), indicating a compelling proposition compared to industry benchmarks and peer averages locally.
This move comes amidst industry challenges, concerns about financial performance and the pursuit of expansion initiatives.
Despite Expolanka’s position as a cornerstone of Sri Lanka's freight forwarding industry, recent financial performance indicators have raised concerns about the company. Four consecutive quarters of losses have resulted in a decline in Net Asset Value Per Share (NAVPS) from Rs. 82 to Rs. 66, with anticipated negative earnings in the next two quarters expected to reduce NAVPS further in the next six months.
One of the primary hurdles Expolanka faces is the decreased yield per kilogram compared to the levels seen during the Covid-19 harvest cycle. This decline can be attributed to the resumption of passenger flights, which has led to the restoration of belly capacity primarily allocated for cargo transport.
Belly capacity refers to the space available in the belly of passenger aircraft for transporting cargo alongside passengers' luggage. During the Covid-19 pandemic, with a reduction in passenger flights, there was a shortage of cargo capacity to meet the demand for cargo space.
However, with the gradual return of passenger flights, the belly capacity used for cargo transport has returned, leading to lower yields per kilogram with cargo space shortage easing off.
This shift in the aviation landscape has impacted the group's revenue streams, particularly considering the reduced charter flights which were heavily used during the Covid-19 pandemic due to supply-side constraints which previously uplifted inventory at a higher margin.
Moreover, the company's fixed overhead costs have surged, surpassing reported revenues during the quarter ended on 31 December 2023. With a significant portion of business conducted outside Sri Lanka and the recent appreciation of the Sri Lankan Rupee (LKR) against the US Dollar (USD), concerns regarding potential revenue reduction in LKR terms have emerged, alongside currency translation risks.
The recent disruptions in the ocean shipping industry caused by Houthi rebels in the Red Sea have contributed to higher freight rates, which may partially help Expolanka to make slightly better gains on the yield. However, these escalations are viewed as temporary, and long-term freight rates and yield are expected to revert to normalcy.
The company's expansion initiatives, projected to materialize over the next 2-3 years, present both opportunities and uncertainties. While these initiatives hold the potential for improvement in earnings, the extended timeline poses risks for investors, particularly in light of anticipated dividend payment uncertainties due to projected losses this year. Uncertainties surrounding market multiples and dividend payments necessitate strategic reevaluation, leading to the decision to delist from the CSE.
With the decision to delist, the company is upholding its commitment to its founding principles while carefully navigating its business through challenges.
Expolanka Holdings PLC is a diversified conglomerate with interests in logistics, leisure, and ventures with a global presence in 20 countries and over 50 cities. As of March 2024, Expolanka Holdings PLC is the largest company by market capitalization on the Colombo Stock Exchange.