SC Securities terms Expolanka exit offer at Rs. 185 “favourable”

Leading stock broker SC Securities is recommending the Expolanka Holdings Plc exit offer at Rs. 185 per share as “favourable.”

“The Exit Offer of LKR 185 per share for EXPO provides a sizable premium to our fair value estimate of LKR 160,” SC Securities said in a research note. 

On March 1st 2024, EXPO made an  announcement that its Board of Directors had resolved to de-list the ordinary voting  shares of the company from the Colombo Stock Exchange (CSE). 

The proposal to  de-list was based on a request from EXPO’s principal shareholder, SG Holdings  Global Pte Ltd (major shareholder). Accordingly, the major shareholder has  proposed a voluntary exit offer of LKR 185.0 per share to the minority  shareholders.

“Our projections for EXPO were based on management feedback and future  expectations on freight rates. Close to 98% of EXPO’s revenue is derived from the  logistics segment,” said SC Securities. “Thus the global demand and supply conditions in the Ocean  freight and Air freight industry play a key role in determining the group’s  performance. During COVID-19, the capacity constraints in the global freight market  made high volume growth possible. Thus positively impacting EXPO’s share price,” SC Securities said. 

However, it said that in FY2023 and 9M FY2024, the significant capacity expansion in the  freight industry had resulted in lowering volumes, leading to a contraction in total  revenue. Further, in the same period EBIT margins were impacted due to higher  administration expenses associated with new acquisitions and variable pay  schemes. 

“We expect robust revenue growth in the next 2 years for EXPO, even as  freight rates normalize. The exit price of LKR 185.0 provides an upside of 23% to  the last traded price. Further, the same is at a premium to our fair price of LKR  160.0 derived from our DCF valuation model. Our model was based on projected  financials. We view the LKR 185.0 exit offer favourably,” SC Securities added.