Sunshine Holdings Initiation Report Summary

80
90
100
110
120
29-Jul-15 24-Nov-15 30-Mar-16 29-Jul-16
ASI
Sunshine Holdings
SUN – Rs.50.5
1CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange
Key Highlights
Initiation Report
 Sunshine Holdings, is a conglomerate with presence in Healthcare, Plantations, FMCG, Renewable
Energy and Packaging. SUN is the second largest private player in the pharmaceutical industry
holding ~14% market share in Sri Lanka’s pharmaceutical imports and distribution
 SUN’s NP forecast at Rs.628mn for FY17E (+7% YoY) and Rs.753mn for FY18E (+20% YoY),
driven by the healthcare and FMCG sectors. Further, plantation sector is anticipated to recover,
with the new strategies adopted in the tea segment and increased bottom-line contribution from
the palm oil segment
 SUN’s share declined -4% YoY (vs. ASI -13% YoY). The share outperformed the broader market
in the past five years rising at a CAGR of +5% (vs. ASI -2%), reaching an all-time high of
Rs.63.4 in November 2014
 SUN share is trading at PER multiples of 10.9x FY17E and 9.1x FY18E (vs. diversified sector
trailing 12 month TTM per of 14.9x), whilst offering an ROE of ~10%-11% in the medium term.
We believe, a partial discount is warranted given SUN’s relatively high exposure to the volatile
plantation sector, limited effective holding in growing FMCG sector and relative illiquidity. SUN is
currently trading at a 16% discount to its SOTP value though we believe share seems to lack a
near term catalyst to narrow this gap
 Share may find favour among medium to long term investors given SUN is well positioned to
leverage on the expected growth in the local pharmaceutical industry amid anticipated rise in the
disposable income, ageing population and rise in Non Commutable Diseases. Further, we
anticipate an increased contribution from the FMCG sector to bottom line given the rising
demand for branded tea in the domestic market
Shares in Issue (mn) 135.0
Market Cap (US$ mn) 47.0
Estimated Free Float (%) 32.0
3M Avg Daily Volume 11,282
3M Avg Daily Turnover (US$) 3,956
12M High / Low (Rs) 62.0 / 46.2
3M / 12M Price Change (%) 0.6 / -3.8
Relative Share Price Movement (%)
SUN: Valuation Ratios
Note: Valuations are based on recurring EPS, Adj. for Capital Issues (if any); Historic Ratios are based on Y/E MPS
Source: SUN and CT CLSA
Kavindu Ranasinghe
Email : kavindu@ctclsa.lk
Phone : +94 76 9108973
Sri Lanka
Diversified
29 July 2016
Key Trading Information
CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange
Y/E 31 March FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Revenue (Rs mn) 10,859 13,068 14,697 16,327 17,422 18,862 20,949
Recurring Net Profit (Rs mn) 448 612 599 546 587 628 753
Earnings Per Share (Rs) 3.4 4.6 4.5 4.1 4.3 4.6 5.6
Earnings Per Share Growth (%) -10.3 36.4 -2.1 -8.8 6.4 7.0 19.9
Price/Earnings Ratio (X) 6.0 5.8 6.6 11.8 12.0 10.9 9.1
Price/Earnings Growth (%) N/A 0.2 N/A N/A 1.9 1.5 0.5
Gross Dividend Per Share (Rs) 0.3 0.5 1.0 1.0 1.1 1.1 1.4
Gross DIvidend Yield (%) 1.5 1.9 3.2 2.0 2.0 2.3 2.8
Net Book Value Per Share (Rs) 23.6 28.0 36.2 39.6 42.8 46.4 50.8
Price/Book Value (X) 0.8 0.9 0.8 1.2 1.2 1.1 1.0
Return on Equity (%) 14.2 16.3 12.3 10.3 10.1 10.0 11.0
Market Price Per Share (Rs) 20.0 26.6 29.4 48.0 52.0 50.5 50.5
SUN

EQUITY REPORT TITLE | DateEQUITY REPORT TITLE | DateA CT HOLDINGS GROUP AND CLSA GROUP COMPANY 2
Sunshine Holdings
The Business
 Sunshine Holdings (SUN) is a conglomerate with presence in Healthcare, Plantations, FMCG,
Renewable Energy and Packaging. SUN is largely a family owned business with the “Sathasivam”
family owning majority of shares (~32% as at 31 March 2016)
 Incorporated in 1967 as Lanka Medical, the company was later renamed as Sunshine Holdings in
2002. SUN was listed on the Colombo Stock Exchange (CSE) in 1983 and currently has a market
capitalisation of Rs.6.8bn (~US$47mn)
 SUN has been a key player in the private healthcare sector since 1967, catering to
pharmaceutical (distribution), surgical, diagnostics and wellness segments. SUN has a leading
presence in the pharmaceutical industry, holding a ~14% market share in Sri Lanka’s
pharmaceutical imports and distribution. Further, SUN owns a pharmacy brand, Healthguard
Pharmacy, which offers a range of pharmaceuticals, wellness and beauty products in 24 outlets
located across the Western province
 SUN’s plantation sector exposure is via Watawala Plantation (WATA), with an effective
holding of ~25% (through Estate Management Services (Pvt) Ltd). WATA engages in the
cultivation, manufacture and sale of Tea, Rubber and Palm Oil and has a total land extent of
12,440 hectares, of which 36% is Tea, 24% is Oil Palm and 6% is in Rubber
 SUN’s FMCG segment is represented by Watawala Tea Ceylon Ltd (WTCL) with an effective
holding of ~33%, where the portfolio consists of Tea and Bottled Water. WTCL the largest
branded tea company with reputed brands such as ‘Zesta’, ‘Watawala Tea’ and ‘Ran Kahata’,
accounting for ~36% of the total market
 SUN has presence in the Power and Energy sector through Sunshine Energy Ltd, currently
operating a hydro power plant of 1.62MW capacity of power, connected to the national grid
 The group’s packaging business is operated by Sunshine Packaging Ltd (SPL), which specializes
in the manufacture and printing of metal packaging such as tea caddies and confectionary boxes
SUN Group Structure
Source: FY16 Annual Report
SUN – FY16 Net Profit
Composition (%)
Source: Annual Report
50%
22%
20%
5% 3%
Healthcare
FMCG
Plantation
Energy
Packaging
Sunshine Holdings (SUN)
Sunshine
Healthcare (100%)
Healthguard
Pharmacy Ltd
(100%)
Estate Management
Services Ltd (33%)
Watawala Plantations (76%)
Watawala
Dairy Ltd
(50%)
Watawala Tea
Australia (Pty)
Ltd (25%)
Watawala Tea
Ceylon Ltd
(34%)
Sunshine
Energy
Ltd (61%)
Sunshine
Packaging
Lanka Ltd
(60%)

EQUITY REPORT TITLE | DateEQUITY REPORT TITLE | DateCT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 3
Share Price Performance
Sunshine Holdings
Year Key Event
1967 Lanka Medical was formed as a retail pharmacy
1983 Listed on the Colombo Stock Exchange (CSE)
1992
Formed Estate Management Services (Pvt) Ltd (EMSPL), partnering with TATA Global
Beverages
1997
Invested in WATA through EMSPL
Entered into the branded tea business with the “Zesta” brand
2002
Launched “Watawala Kahata” tea brand
Adopted the name 'Sunshine Holdings' as the holding company for its subsidiaries
Diversified into travel & leisure by acquiring Sunshine Travels & Tours
2004
Established Healthguard Pharmacy, value-added healthcare, wellness & beauty outlets in
Colombo
2005
Diversified into printing and packaging solutions for beverages and confectionery
industry, via acquisition of Sunshine Packaging Ltd
2008
Aureos Capital acquired 25% stake in SUN
Developed the first palm oil refinery by a plantation company in Sri Lanka
2010
Announced a 1:10 stock split
Established Sunshine Energy Ltd
2011
Entered into the wellness segment by launching Surelife wellness brands
Launched 1st own wellness brand: Pedia Plus
Commissioned the group’s first renewable energy plant at Lower Waltrim
2012 Launched three additional wellness brands: Mama Plus, Enlive Plus and Diabeta Plus
2013
Aureos Fund exited. Re-launch of Enlive Senior 50+, Mama Plus and Diabeta Plus
wellness brands. Launched Ring Condoms
2014 Partnered with Wilmar International to strengthen plantation business
2016
Entered into a joint venture with Singapore-based asset manager Duxton Asset
Management to set up a US$11.5mn dairy operation
Timeline of Major Events
Relative Share Price Movement (%) 2011-2016YTD
20
40
60
80
100
120
140
03-Jan-11 22-May-12 01-Oct-13 19-Feb-15 05-Jul-16
ASI
SUN
Source: CT CLSA

Director Name Designation
Executive /
Non Executive
Description / Related Directorships
S.A Munir Chairman
Independent
Non-Executive
Appointed as Chairman in 2015. Carries 40 years of experience at
managerial and director levels in Abbot, a US based, worldwide
healthcare company
V. Govindasamy Managing Director Executive
Serving on the board since 2000. Mr. Govindasamy pioneered the
group’s diversification into key sectors such as renewable energy and
FMCG
G. Sathasivam Director Non-Executive
Serving on the board for more than 15 years. Carries over 48 years of
experience in the pharmaceutical sector and a leader in driving SHLL’s
growth
A. Hollingsworth Director Non-Executive
Serving on the board since 2006 and was the founder and Managing
Director of Mann Made Enterprises Ltd, a supplier of corporate, trust
and tax services
T. Senthilverl Director Non-Executive
Appointed to the board in 2014 and is the director of various listed
and non-listed companies. Dr. Senthiverl had a 22.9% stake in SUN as
at 31 Mar 2016
Asite D.B Talwatte Director Non-Executive
Appointed to the board in May 2016 and currently serves as the
Chairman of Management Systems (Private) Ltd
Roshani Kobbekaduwa Director Non-Executive
Appointed to the board in May 2016. Ms. Roshani has over 20 years
experience in advising on a number of aspects of
corporate/commercial law
B. A. Hulangamuwa Director Executive
Serving on the board for more than 12 years. Director of WATA and
Secretaries and Financial Services (Pvt) Ltd
S. G. Sathasivam Director Executive
Appointed to the board in 2006. Mr. Sathasivam is the Managing
Director of SHLL and a director of Sunshine Packaging Ltd
N. B. Weerasekera Director
Independent
Non-Executive
Serving on the board since 2008. Mr. Weerasekera is the Managing
Director responsible for Sri Lanka and Bangladesh of the Abraaj
Group, a leading investment group in growth markets
S. Piyaratna Director
Independent
Non-Executive
Appointed to the board in 2006. Mr. Piyaratna was a director of
Nations Trust Bank (NTB) and was the former deputy CEO of HSBC Sri
Lanka
H. D. Abeywickrama Director
Independent
Non-Executive
Appointed to the board in 2014 and has experience as an Air Chief
Marshal
SUN Director Board Composition
Source : Company Filling
SUN : Director Board Composition
Sunshine Holdings

Healthcare Sector
 The group’s healthcare business comprises Sunshine Healthcare Lanka Ltd (SHLL) and
Healthguard Pharmacy Ltd. Established in 1967, 100% owned subsidiary SHLL specializes in
providing pharmaceutical distribution, surgical, diagnostics, medical devices and wellness
products
• SUN is currently the second largest player in the private pharmaceutical industry, with a
~14% market share. The group represents ~60 principles and distributes through a
network of ~2,500 pharmacies (out of an estimated total universe of 2,800 pharmacies).
Further, the company owns its wellness brands such as Mama Plus, Enlive Plus, Pedia Plus
and Diabeta Plus. In addition, SUN is the market leader in the diagnostics sector
• Furthermore, Healthguard Pharmacy Ltd, which is a fully owned subsidiary of SHLL, is a
pharmacy brand offering a range of pharmaceuticals, wellness and beauty products in 24
outlets located across the Western province
Pharmaceutical Segment
Industry Overview
 Sri Lanka’s pharmaceutical industry is highly dependent on imported medicines, accounting for
~95% of the country’s requirements, while the rest is locally manufactured
 In 2015, Sri Lanka’s total private healthcare market had an estimated value of Rs.110bn as per
industry sources, of which the private pharmaceutical segment is estimated to have consisted
of ~31%
• During 2012-2015 the private pharmaceutical industry witnessed a slower growth, at a 3
year CAGR of +2%, likely due to rising cost of healthcare amid currency depreciation and
higher bargaining power of the pharmaceutical suppliers. However, the available research
does not include total pharmaceutical expenditure as it excludes points of sale statistics
such as pharmacy outlets in private hospitals, modern trade pharmacies and over the
counter (OTC) sales at grocery outlets
Competition
 Local pharmaceutical industry consists mainly of public and private sector, of which public
sector is estimated to have ~65% of the total pharmaceutical industry as per industry sources.
In addition, the private sector primarily concentrates on marketing branded drugs while the
public sector’s effort is to promote generic drugs at affordable prices
 Over the past few years, SUN witnessed a gradual increase in its market share from ~12% in
2012 to ~14% in 2015
 Private pharmaceutical industry is highly fragmented market with ~200 players. SUN’s main
direct private competitor is diversified conglomerate Hemas Holdings (HHL), with interest in
FMCG, Healthcare, Transportation and Leisure sectors
• HHL is the largest distributor of branded pharmaceuticals, surgical and diagnostic products
in Sri Lanka and has the largest pharmaceutical network in the country with a ~21%
market share. Further, HHL distributes its products via supermarket chains, private
hospitals, government institutions and the “Hemas Sales Centre”
Sunshine Holdings
Value of Pharmaceutical Imports
(US$ mn) and Variance YoY (%)
-10
15
40
65
150
250
350
450
2006 2008 2010 2012 2014
Pharmaceutical Imports (LHS)
Var YoY
Source: Ministry of Finance and Planning
Pharmaceutical Segment - Revenue (Rs mn) and Variance YoY (%) - SUN vs. HHL
Source: Respective Annual Reports
*Figures of pharmaceutical, diagnostic and surgical
HHL* SUN
FY14 FY15 FY16 FY14 FY15 FY16
Revenue 10,255 11,276 12,914 4,965 5,449 6,374
YoY (%) 18 10 15 3 10 17
21%
14%
8%
7%
7%
43%
HHL
SUN
Emer
Chemie
A. Baurs &
Co
City Health
Others
Market Share Composition of
Pharmaceutical Industry (%)
Source: SUN and CT CLSA
Key Pharmaceutical Principles
Represented
SUN HHL
Zydus Cadila Ranbaxy
Abbott Sevier
Glenmark Seven Seas
Siemens Abbott
Source: SUN and CT CLSAHHL : Hemas Holdings

Competition
 Further, SUN faces indirect competition from government owned, State Pharmaceutical
Corporation (SPC), who supplies drugs to both the public and the private sectors, through an
open competitive tender procedure. SPC distributes medicine via a total network of ~205 outlets
which include “Rajya Osu Sala”, franchised “Osu Sala” outlets, SPC distributors and authorized
retailers
• The value of free pharmaceuticals provided increased at a CAGR of ~+20% through 2011-
2015, thereby offering more drugs at an affordable price. Going forward, the state sector is
likely to be a growing threat to the overall pharmaceutical competitive landscape
 Further, SUN faces competition from local drug manufactures such as J.L Morisons Sons & Jones
(MORI) – 85% owned subsidiary of HHL which was acquired in 2013, Ceylon Pharmaceutical Ltd
and state owned State Pharmaceutical Manufacturing Corporation, although local manufacturing
is conducted at a relatively small scale
 Meanwhile, SUN’s retail pharmacy segment faces direct competition from in-house pharmacies in
retail super markets such as “Food City”, “Keells Super” and “Arpico Super Markets”
Local Regulatory Environment
 Cosmetics, Devices and Drugs Regulatory Authority (CDDA) appointed by the Ministry of Health
(MOH) regulates all pharmaceuticals, surgical products, diagnostic products and health
supplements. CDDA mainly oversees registration, manufacture, importation and transportation of
pharmaceuticals
• However, CDDA, seems to demonstrate irregularities in terms of time it takes to approve new
medicines, attributable to its highly bureaucratic nature, limited lab facilities, funds and
human resources. Further in recent times, several incidents of importing substandard quality
drugs were reported, owing to inefficiencies on the part of the CDDA
 The Government of Sri Lanka’s (GoSL) National Medicinal Drug Regulatory Authority Bill was
passed in early 2015 and is expected to address some of the above mentioned issues though its
specifics are yet to be established. The bill is likely to create a more equal playing field for legally
compliant members such as SUN and also focuses on encouraging more local drug production.
However, proposals of the National Medicinal Drug Regulatory Authority Bill have not yet been
clearly communicated
 In a move to promote affordable healthcare, the bill mandates all doctors and consultants
prescribe the generic name to their patients. Enforcement of the bill will likely remain a challenge
Industry Outlook
 Ageing population on the rise - Sri Lanka is in the midst of a demographic shift to an ageing
population, with the country estimated to have the fastest ageing population in South Asia as per
the World Bank. This trend is likely to give rise to an increasing demand for different medical
products such as vitamins, preventive, painkillers and therapeutic geriatric products
• The median age of the population now stands at 30 years vs. 21 years in 1981. Furthermore,
the World Bank estimates that individuals over 60 years will account for ~17% of Sri Lanka’s
population by 2021 from the current ~14%
 Increasing disposable income levels - In the medium to long term, with the local economy
expected to move into a sustainable growth trajectory, we expect disposable income levels to
increase gradually, resulting in an increased demand for branded drugs
Sunshine Holdings
Healthcare Sector
0
20
40
60
80
10
20
30
40
2010 2011 2012 2013 2014
Pharmaceuticals (LHS)
Var YoY
CDDA regulates
pharmaceutical industry
in Sri Lanka
World Bank estimates
17% of population to be
over the age of 60 by
2021
Pharmaceuticals – Value of Public
Sector pharmaceuticals (Rs bn)
and Variance YoY (%)
Source: Ministry of Finance and Planning
Population Age (%)
0 50 100
1946
1981
2001
2012
2021
2031
60 Years & Over 15-59 0-14
Mean Household Income (Rs 000)
20
30
40
50
2006/07 2009/10 2012/13
Source: Annual Health Bulleting/World Bank Source: Department of Census and Statistics

Healthcare Sector
Industry Outlook
 Changing lifestyles - Changing life styles have led to rise in Non-Communicable Diseases
(NCDs) such as diabetes, cardiovascular diseases, high blood pressure and cholesterol, which is
likely to give rise to higher demand for pharmaceuticals
 Increased outreach by healthcare providers - There is likely to be an increased demand for
diagnostic and surgical products, given the increase of testing centers across the country and the
opening of new branches, collection centers island wide by leading private hospitals and
laboratories
Financial Performance
 Sector NP declined at a 4 year CAGR of -2% FY12-FY16 with significant volatility over the period,
largely resulting from cost side factors
 Healthcare sector EBIT margin deteriorated to 7.2% by FY16 (vs. 11.8% in FY12) owing to
supply-side pressure, increasing brand building expenses, staff costs and currency depreciation
• Further, the regulated ~15% margin ceiling on pharmaceutical products limits SUN’s ability to
pass on higher costs
 Healthcare sector revenue grew at a 4 year CAGR of +11% over FY12-FY16 led by the
pharmaceutical sub segment owing to addition of new pharmaceuticals, increasing disposable
income, ageing population, changing lifestyles and rise in NCDs etc. Further, SUN’s strong
distribution network (covering ~2,500 pharmacies out of a total universe of ~2800) too
contributed to the topline growth over the years
 Revenue in the pharmaceutical segment grew at a 2 year CAGR of ~+13% over FY14-FY16
while retail sector and diagnostic sector revenue grew at a CAGR of ~+20% and ~+17%
respectively during the same period (as per the latest data available)
 Healthcare sector net profit was Rs.327mn for FY16 (+11% YoY) mainly driven by the volume led
revenue growth in the pharmaceutical sub segment
• Pharmaceutical segment revenue increased by +17% YoY to Rs.6,374mn (vs. Industry
growth of ~ +6% YoY) in FY16
Sector Outlook
 Healthcare sector net profit forecast at Rs.361mn for FY17E (+10% YoY) largely driven
by the double digit revenue growth. Further, FY18E net profit forecast at Rs.415mn (+15%
YoY) led by continuous revenue growth
 We forecast EBIT margin to decline to 6.8% FY17E (vs. 7.2% in FY16) amid currency
depreciation, promotional and supply side pressure due to competition
• Meanwhile, we expect EBIT margins to fall moderately to 6.7% in F18E, with modest currency
depreciation and expected continuation of supply side pressure and promotional expenses
 Revenue forecast at Rs.8,171mn for FY17E (+14% YoY) and Rs.9,431mn for FY18E
(+15% YoY) largely driven by the pharmaceutical sub segment, anticipating a growth of
+13% YoY for FY17E and +14% YoY for FY18E led by volumes
• Further, we expect increased contribution from retail segment with a growth of +18% YoY
and +20% YoY respectively for FY17E and FY18E, led by branch expansion and rise in
demand for wellness and beauty categories
• Moreover, a revenue growth of +18% YoY for FY17E and +21% YoY for FY18E is anticipated
in the diagnostic segment amid increasing number of testing centers across the country,
with the opening of branches and collection centers by leading private hospitals and
laboratories
Sunshine Holdings
Rise in NCDs likely to
increase demand for
pharmaceuticals
Healthcare Sector: Revenue
Composition (%)
FY16
Source: Annual Report and CT CLSA
Healthcare Sector: Revenue &
NP Variance (%)
-20
-10
0
10
20
4
8
12
16
20
FY12 FY14 FY16 FY18E
Revenue Var YoY (LHS)
NP Var YoY
*Pharmaceutical includes diagnostic and surgical
87%
10%
3%
86%
11%
3%
*Pharmeceutical
Retail
Healthguard
Other
FY14

Healthcare Sector
Plantation Sector
 SUN’s exposure in the plantation sector is via a 25% effective holding in listed Watawala
Plantation (WATA) held through Estate Management Services (Pvt) Ltd (EMSPL). WATA’s main
contributor to NP in FY16 was palm oil (Rs.682mn) and export segment (Rs.65mn) while tea and
rubber made a loss of -Rs.315mn and -Rs.48mn respectively
• WATA has been the single largest tea producer in the country in the last few years with the
highest exposure to Western High Grown tea (~50%), followed by Western Medium Grown
tea (~47%) and Low Grown tea (~3%)
• Currently, WATA is also the single largest palm oil producer in Sri Lanka accounting
for ~53% of total palm oil production in the country with cultivation mainly located in
the southern province. Further, WATA owns one of the two palm oil mills in the country,
currently processing over 19,000 tonnes fresh fruit bunches (FFB) annually
 EMSPL, which holds 76% in WATA, is a joint venture between SUN, TATA Global Beverages Ltd
(India) and Pyramid Wilmar Plantation (Pvt) Ltd (part of Wilmar International)
• During FY14, WATA entered into a new partnership with Pyramid Wilmar Plantation (Pvt) Ltd
subsequent to selling 5.6mn shares of EMSPL for a total consideration of Rs.910mn.
Consequently SUN’s stake in EMSPL reduced from 51% to 33%
• Wilmar is one of Asia's largest palm oil producers with exposure to oil seed crushing, sugar
milling & refining along with a distribution network of over 50 countries. The alliance is
expected to provide WATA with Wilmar International’s expertise in palm oil cultivation and
marketing
• TATA Global Beverages Ltd is one of the largest branded tea companies in the world with a
brand presence in over 40 countries and interests in tea, coffee and water. TATA holds 32%
of EMSPL
Sunshine Holdings
Healthcare Sector: EBIT(Rs mn) & EBIT Margin (%)
Healthcare Sector: NP (Rs mn) & Contribution
to Group (%)
6
8
10
12
400
500
600
700
EBIT (LHS) EBIT Margin
52
56
60
64
250
350
450
FY13 FY14 FY15 FY16 FY17E FY18E
Net Profit (LHS) % of Group NP
WATA Land Cultivation (%)
Tea
36%
Palm Oil
24%Rubber
6%
Other
34%
EMSPL is a JV between 3
parties
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
5 YR
CAGR
%
Revenue (Rs mn) 4,705 5,296 5,511 6,076 7,161 8,171 9,431 14.4
YoY% 9 12.6 4.1 10.2 17.9 14.1 15.4 N/A
EBIT (Rs mn) 557 557 510 444 514 554 630 5.4
Net Profit (Rs mn) 431 360 358 294 327 361 415 3.8
YoY% 26.0 -16.6 -0.6 -17.8 11.4 10.1 15.1 N/A
EBIT Margin (%) 11.8 10.5 9.3 7.3 7.2 6.8 6.7 N/A
Healthcare Sector: Key Financial Indicators

0
50
100
150
200
250
2010 2011 2012 2013 2014 2015
Bulk Tea Value Added Tea
Plantation Sector
Tea Segment
Industry and Exports
 Sri Lanka is the second largest tea supplier to the world market exporting 317,885 Metric
tonnes in 2014, followed by China, India and Vietnam. Sri Lanka exports more than 90% of the
locally produced tea to international markets
 Sri Lanka’s tea exports earnings consisted ~1.6% of GDP 2015 (vs. 2.4% in 2010) and 13% of
total exports in 2015
• Sri Lanka has been witnessing a decline in tea export earnings (-18% YoY to US$1,341mn in
2015), largely due to the drop in oil prices which impacted most of the premier importing
destinations of Sri Lankan tea (i.e. Russia, Turkey and the Middle East)
Tea Plantation Divisions
 By 2014, Sri Lanka had ~204,000 hectares (Ha) under tea cultivation of which 73,445Ha
(36%) were owned by 22 Regional Plantation Companies (RPCs)
Sunshine Holdings
Source: FY16 Annual Report
Joint Venture Partners of EMSPL
Sri Lankan tea exports
have been facing a
challenging environment
Major Sri Lanka Tea Export Destinations 2015 (%)
Source: Sri Lanka Export Development Board
Tea Export Value (Rs bn)
Source: Forbes & Walker
59%
36%
5%
Tea
Smallholders
RPCs
Government
Institutions
National Tea Production
Composition 2014 (%)
Source: Ministry of Plantation Industries
WATA
EMSPL (76%)
Sunshine Holdings
(33%)
Tata Global
Beverages
(32%)
Pyramid Wilmar Plantations
(35%)
Russia
12%
Turkey
10%
Iran
10%
Iraq
8%
U.A.E
7%
Other
53%

Sunshine Holdings
Plantation Sector
Tea Production
 Total tea production in the country rose at a 7 year CAGR of +3% over 2008-2015 to 329mnKg,
reaching an all-time high of 340mnKg in 2013. Industry yield per hectare (YPH) grew at a CAGR
of +2% over 2012-2015 (likely due to increased worker productivity and better soil management
practices). Tea production in the country, however, has been volatile largely due to erratic
weather conditions
 WATA had the largest tea market share of ~3% among the RPCs in FY15 while its total tea
production grew at a CAGR of +2% to 9.4mnKg over FY09-FY16
• Although WATA’s tea production growth and YPH have been lower vs. the total production
growth in the country over the past years, WATA stands moderately ahead of other RPCs.
Generally RPCs process larger quantities of mature tea plants which yield lower outputs, and
these companies have been making lesser investments in the tea segment
Cost of Production
 In recent times, most RPCs have been generating losses, largely due to the rise in cost of
production and weaker prices fetched at local auctions
• Production costs of tea have escalated during the past decade mainly due to the
rise in labor costs with the bi-annual wage hikes
• Total cost of production of tea grew at a CAGR of +44% over 2010-2015 to Rs.450/kg, while
the average net sales average (NSA) grew +9% during the same period to Rs.403/kg
• Labour costs consists of ~70% of total costs. Estate workers are currently paid on a
remuneration based model rather than a productivity based model and the tea industry is
highly unionized
Industry Outlook
 Sri Lankan tea industry continues to be hampered by rise in cost of production, resulting in
declining cost competitiveness in the global market - main reason being increase in wages
without a link to productivity improvement
• RPCs are currently in negotiation with trade unions on a possibility of a “productivity base” or
a “revenue sharing” wage model
 Declining yields of tea bushes, which are nearly 50 years old in most RPCs, likely to
reduce YPH going forward. Further, shortage of workers in the plantation sector could also
pose a threat to the sector
 Meanwhile, tea auction prices are anticipated to improve with expected improvement in the
Russian economy and removal of trade sanctions in Iran. Further, the GoSL plans to invest in the
Sri Lanka tea brand and promote in new and existing markets which could improve demand for
Ceylon tea
Total tea production
grew at a CAGR of +3%
over 2008-2015
WATA was the largest
tea producer among
RPCs in the last few
years
National Tea Production (mnKg) and Variance
YoY (%)
Source: Forbes & Walker
-10
0
10
20
280
300
320
340
360
2009 2011 2013 2015
Tea Production (LHS) Var YoY
Yield Per Hectare of Key listed Players Kg (‘000)
Source: Respective Company Annual Reports
0.8
1.2
1.6
2.0
2.4
FY11 FY12 FY13 FY14 FY15
WATA MASK KOTA
BALA ELPL KGAL
MASK : Maskeliya Plantations, KOTA : Kotagala Plantations,
BALA : Balangoda Plantations, ELPL : Elpitiya Plantations,
KGAL : Kegalle Plantations
National Sales Average and Cost of
Production (Rs/kg)
Source: Ministry of Plantation Industries
300
400
500
2010 2012 2014
NSA Cost of Production
Rise in cost of
production continues to
be a threat

Plantation Sector
Palm Oil Segment
Industry
 Currently, palm oil is cultivated in the Southern Province by five listed RPCs and Sri Lanka State
Plantation Corporation (7,953Ha cultivated in 2013)
 In Sri Lanka, palm oil is used primarily as an edible oil. Other alternative edible oil used locally
includes coconut oil, sunflower oil and soya bean oil etc. Currently, ~70% of the edible oil
consumption in Sri Lanka is imported
Palm Oil Production
 In FY15, five RPCs are estimated to have produced a total of ~16,626 Metric Tonnes (MT)
(+2% YoY and +11% CAGR during FY11-FY15) crude palm oil due to its higher profitability
(vs. other crops) and also as part of the crop diversification strategy
• Palm oil has been a more profitable crop to grow locally due to its higher yields and
lower labour intensive nature. Labour requirement for oil palm cultivation is much less,
with just one worker to cultivate ten hectares of the crop (vs. tea which needs two or three
workers per hectare). Further, palm oil has a potential oil yield of 3,000 to 4,000 litres/Ha
per annum. (vs. coconut ~700 litres/Ha, sunflower oil yields ~600 litres/Ha and soya-bean
oil ~460 litres/Ha)
 WATA is the largest palm oil producer in the country, estimated to have produced ~53% of the
country’s total palm oil production in FY15. During FY11-FY15 WATA, grew its crude palm oil
production at a 4 year CAGR of +15%
• Further, WATA has been reporting the highest yield per hectare (YPH) among the RPCs, at
3,294Kg/Ha (vs. ELPL 2,889 Kg/Ha, NAMU 2,809Kg/Ha)
Palm Oil prices
 World palm oil prices likely to have resembled fossil fuel prices over the years, which is a close
substitute for one of the key uses of palm oil as a bio fuel. Further, palm oil prices witnessed a
volatile trend in the past few years
 Palm oil prices in Sri Lanka have been closely in line with international prices. However, palm
oil growers in Sri Lanka are subsidized through a duty element of Rs.150/Kg on
imports crude palm oil
Sunshine Holdings
Source: Annual Reports
Key Players in Palm Oil Production
in Sri Lanka (%)
WATA
53%
AGAL
10%
NAMU
21%
ELPL
16%
AGAL : Agalawatte Plantations, NAMU :
Namunukula Plantations, ELPL : Elpitiya
Plantations
Global Palm Crude Palm Oil Prices (Ringgit/MT)
and Crude Oil Prices (USD$/BBL)
Sri Lanka: Palm Oil Production (MT’000) &
Variance YoY (%)
0
10
20
30
14
15
16
17
FY12 FY13 FY14 FY15
Palm Oil Production (LHS) Var YoY
Source: Annual ReportsSource: mpoc.org and gotech.nmt.edu
WATA is the largest
palm oil producer in the
country
0
50
100
150
0
1,000
2,000
3,000
4,000
Jul-11 Jul-13 Jul-15
Palm Oil Price (LHS) Crude Oil price

Plantation Sector
Industry Outlook
 GOSL’s goal is to increase palm oil cultivation from its current ~8,000Ha to 20,000Ha by 2020
 In 2016, GOSL further increased the taxes of imported edible oil by Rs.20/Kg to Rs.150/Kg to
protect the local industry, which is further expected to stabilise the local edible oil prices
Dairy Segment
 In March 2016, WATA entered into a joint venture agreement with M/s PADC Holdings to set up
a dairy farm in the Lonach Estate in Watawala through a 60% owned subsidiary, Watawala
Dairy Ltd. The group invested US$3mn during FY16 on the project
• M/s PADC Holdings is a 100% owned subsidiary of Duxton Asset Management Singapore
with ~US$690mn assets under management, of which US$460mn comprises agricultural
investments
• The dairy farm is expected to be operational by early 2017 and the project is anticipated to
produce 30,000 Liters a day with 1,700 cows
 Sector net profit (NP) declined at 3 year CAGR of -9% over FY13-FY16 largely due to
pressure on GP margins amidst rise in cost of production
 Sector gross profit (GP) declined at a 3 year CAGR of -7% over FY13-FY16 while GP margin
declined to 13.5% in FY16 (vs.19.3% in FY13) mainly attributable to the higher costs in the
tea segment amid wage hikes
• The latest wage negotiation in 2013 resulted in a +20% wage hike to plantation
workers
• Meanwhile, palm oil segment has been able to record GP growth of +6% over FY13-
FY16 while segment's GP margin too improved to 54.9% in FY16 (vs. 52.2% in FY13)
 SUN’s Plantation sector reported a net profit of Rs.518mn for FY16 (+33% YoY) mainly due
to the reduction in net losses in the tea segment
• Palm Oil segment net profit declined -33% YoY to Rs.682mn in FY16 largely due to drop
in global palm oil prices (-6% YoY decline in FY16 to Rs.167/kg). Profitability was also
impacted by adverse weather conditions
Sunshine Holdings
Yield Per Hectare (Kg/Ha) of palm
oil in the region
2
3
4
5
Source: Bloomberg
GP declined at a CAGR of
-7% over FY13-FY16
FY16 net profit growth
of +33% YoY in FY16
Plantation Sector: Revenue Composition (%)
65%
24%
1%
10%
Tea
Palm Oil
Rubber
Exports
Plantation Sector: NP Contribution (Rs mn)
-500
0
500
1,000
Tea Palm Oil Rubber Exports
FY14 FY15 FY16

Plantation Sector
Sector Outlook
 Plantation sector net profit forecast at Rs.372mn for FY17E (-28% YoY) largely factoring
another wage increase during FY17E. Although we believe the wage hike to be productivity
related, there is still likely to be a notable impact to sector’s bottom-line. Accordingly, GP
margin is expected to reduce to 10.9% in FY17E (vs. 13.5% in FY16)
• We expect tea segment to record a gross loss of -Rs.288mn in FY17E (vs. a gross loss
of -Rs.23mn in FY16). As indicated by management, the wage increase is likely to post
a bottom line hit of ~Rs.250mn to the tea segment
• Meanwhile, palm oil gross profit forecast at Rs.898mn (+9% YoY) for FY17E led by the
expected topline growth. However, we expect a slight contraction of the palm oil GP
margin to 54.8% in FY17E (vs. 54.9% FY16) mainly considering the wage increase with
palm oil having one third of labor requirement vs. tea
 FY18E rebound in net profit is forecast at Rs.490mn (+32% YoY) considering sector’s
strategy to increase production of high quality tea, yielding better prices while reducing
overheads, and also further expected increase in the productivity of the palm oil segment.
Consequently, GP margin is expected to improve to 12.9% in FY18E
• We expect tea segment to record a gross loss of -Rs.271mn in FY18E (vs. gross loss of
-Rs.288mn in FY17E). Further, palm oil segment GP to increase +12% YoY to
Rs.1,005mn in FY18E while increasing GP margin to 55.1% in FY18E (vs. 54.8% in
FY17E) led by expected increase in yield owing to better technology and increasing
number of mature plants
 Management indicated that the segment is expected to convert its current ~450 hectares
of rubber to palm oil over the next few years, with ~150 hectares expected to be
converted each year. As per management, it costs ~Rs.3mn per hectare to convert a
rubber plantation to palm oil, which will be funded via internally generated cash
• Sector capex forecast at Rs.699mn for FY17E (vs. Rs.289mn in FY16 and Rs.590mn in
FY15) and Rs.729mn in FY18E (+4% YoY). Accordingly, sector depreciation forecast to
increase +9% YoY to Rs.562mn in FY17E and +10% YoY to Rs.617mn in FY18E
Sunshine Holdings
Plantation Sector: Palm Oil and Tea GP Margin (%)
-12
-6
0
6
12
52
56
60
64
Palm oil (LHS) Tea
300
350
400
450
500
Revenue Per Kg Cost Per Kg
Plantation Sector: Tea - Revenue and Cost Per
Kg (Rs)
6
10
14
18
4.0
4.8
5.6
6.4
7.2
Revenue (LHS) EBIT Margin
Plantation Sector: Revenue (Rs bn) &
EBIT Margin (%)
14
18
22
26
30
80
120
160
200
Net Profit (LHS)
% of Group NP
Plantation Sector: NP (Rs mn)
& Contribution to Group (%)
200
400
600
800
Plantation Sector: Capex (Rs mn)
5 Yr
CAGR
(%)
Revenue (Rs mn) 4,279 5,435 6,246 6,848 6,299 6,240 6,345 3.1
YoY (%) -8.2 27.0 14.9 9.6 -8.0 -0.9 1.7 N/A
EBIT (Rs mn) 766 807 678 550 669 489 627 -4.9
Net Profit (Rs mn) 565 680 497 391 518 372 490 -6.3
YoY (%) 6.2 20.3 -26.9 -21.4 32.5 -28.1 31.7 N/A
GP Margin (%) 9.5 19.3 15.1 11.7 13.5 10.9 12.9 N/A
EBIT Margin (%) 17.9 14.8 10.9 8.0 10.6 7.8 9.9 N/A
Plantation Sector: Key Financial Indicators

FMCG Sector
 SUN’s Fast Moving Consumer Goods (FMCG) sector is represented via ~33% held Watawala
Tea Ceylon Ltd (WTCL), which commenced operations in 2001. FMCG portfolio consists of
tea (~99% of total sales mix), gift tea boutiques and bottled water
 SUN is currently the largest player in the branded tea segment with a ~36% volume
market share and value market share of ~34% in FY16. SUN caters through a retail
universe of ~80,000 outlets (vs. a total universe of ~120,000 outlets). Meanwhile, sales
through modern trade accounts for less than ~20% of SUN’s tea brands
• The tea segment includes “Watawala Tea” (~66% of total sales), “Zesta” (Premium
brand;~20% of sales) and “Ran Kahata” (Economy brand:~14% of sales)
Branded Tea Industry Overview
 Sri Lanka is estimated to have a total domestic tea market of ~33mnKg, of which branded
tea accounts for ~31%
 Branded tea market is estimated to have grown at 4 year CAGR of ~+9% to 10mnKg over
FY12-FY16, largely driven by rise in disposable income and increasing trend towards quality
tea
Competition
 The retail tea market in Sri Lanka is highly competitive with about three leading players,
out of a total universe of ~234 companies selling over ~250 brands. The largest player in
the domestic branded tea market is SUN (~36% market share) followed by Unilever Sri
Lanka (~34%) and Dilmah (~1%)
• Unilever Sri Lanka is a multinational FMCG player which was incorporated in Sri Lanka
in 1938, and currently has its own local manufacturing facilities
• Lipton is Unilever’s flagship brand and is one of the highest selling tea brands in
the world, in over 110 countries. Lipton is considered to be its premium brand,
while Laojee is a black tea which targets the mass market
• Dilmah is a Sri Lankan family owned business which was founded in 1974 by Mr. Merrill
J Fernando. Currently “Dilmah” is sold under three companies, namely M.J.F. Teas Ltd,
M.J.F. Exports Ltd and listed Ceylon Tea Services (CTEA). Dilmah is mainly an export
oriented branded tea company with an outreach of over 90 destinations, marketing the
tea under the flagship brand “Dilmah”
Outlook
 In the medium to long term, we expect branded tea industry to move into a sustainable
growth trajectory, in line with rise in disposable income. Further, given the branded tea
segment is undertapped (~31% of the total tea consumption), presents opportunities for
industry players amid increase focus on better quality
 Sector NP grew at 4 year CAGR of +16% over FY12-FY16 attributable to double digit
revenue growth and low raw material costs resulting from depressed tea prices
 FMCG sector’s EBIT grew at a CAGR of +14% over FY12-FY16
• Consequently, EBIT margin improved to 13.6% in FY16, peaking at 15.9% in FY12 (vs.
12.2% in FY13), largely due to lower tea prices and higher volumes resulting in lower
fixed costs
 The sector revenue increased at 4 year CAGR of +18% over FY12-FY16 with increased
branded tea sales, owing to rising disposable income, strong distribution network and brand
equity
• SUN’s branded tea volume grew at a 3 year CAGR of +13% (as per available data) over
FY13-FY16 while average prices too estimated to have grown ~+6% over the period
Sunshine Holdings
Sri Lanka Branded Tea Industry
and SUN’s Production (MnKg)
SUN has the largest
market share in the
branded tea segment
Price of Key Tea Brands (200g)
SUN Rs.
Watawala Tea 215
Zesta BOPF 220
Ran Kahata 130
Unilever
Lipton Tea 220
Laojee Tea 205
Dilmah
Dilmah Tea 230
Source: CT CLSAPrices as at 20 July 2016
FMCG Sector: NP (Rs mn)
& Contribution to Group NP (%)
10
20
30
40
100
160
220
Net Profit (LHS)
% of Group NP
2
3
4
7
8
9
10
11
Branded Tea Industry (LHS)
SUN's Production

FMCG Sector
 FMCG sector has been a highly cash generating business, with no leverage. Sector recorded
a net cash balance of Rs.401mn as at 31 March 2016
 SUN’s FMCG sector reported a net profit of Rs.423mn for FY16 (+8% YoY; 22% of total NP)
largely driven by higher volumes. The sector revenue grew +18% YoY to Rs.3,440mn in
FY16, amid an estimated ~+16% YoY growth in branded tea volumes
• Sector EBIT margin declined to 13.6% in FY16 (vs. 15.3% in FY15) attributable to
expenses incurred to expand the export business
Sector Outlook
 FMCG sector net profit forecast at Rs.477mn (+13% YoY) in FY17E and Rs.560mn (+17%
YoY) in FY18E, largely driven by topline growth
 Revenue forecast at Rs.3,899mn for FY17E (+13% YoY) and Rs.4,511mn for FY18E (+16%
YoY) driven by the volume growth primarily from “Watawala Tea”. Some moderation in
revenue growth is expected in FY17E owing to an anticipated slowdown in the consumption
drive, amid tight macro policies, though expected to pick in the medium term
• We expect segment branded tea volumes to increase +12% YoY in FY17E to 4.1mnKg
and +14% YoY in FY18E to 4.7mnKg
 We broadly maintain EBIT margin at 13.6% in FY17E amid anticipated modest recovery in
global tea prices, which is the main raw material in the segment. Meanwhile, we expect a
pickup in EBIT margins to 14.0% in FY18E considering higher fixed costs being absorbed by
higher volumes
Sunshine Holdings
FMCG sector is a net
cash business
Net profit to grow +13%
YoY and +17% YoY in
FY17E and FY18E
Revenue to grow via rise
in disposable income
FMCG Sector: Revenue (Rs bn) and Variance YoY (%)
13
17
21
25
1.5
2.5
3.5
4.5
5.5
Revenue (LHS) Var YoY
FMCG Sector: EBIT (Rs mn) and EBIT Margin (%)
12
13
14
15
16
200
400
600
800
FMCG Sector : Key Financial Indicators
5 Yr
CAGR
(%)
Revenue (Rs mn) 1,757 2,005 2,482 2,915 3,440 3,899 4,511 17.6
YoY (%) 14.5 14.1 23.8 17.4 18.0 13.3 15.7 N/A
EBIT (Rs mn) 279 245 349 445 469 531 630 20.7
Net Profit (Rs mn) 237 198 310 397 423 477 560 23.1
YoY (%) 1.9 -16.3 56.2 28.1 6.6 12.7 17.4 N/A
EBIT Margin (%) 15.9 12.2 14.1 15.3 13.6 13.6 14.0 N/A

Energy sector
 Sunshine Energy Ltd, 61% owned subsidiary of SUN, commissioned its first mini hydropower
plant in Lindula (Central Province of Sri Lanka) in February 2012, with a capacity of 1.62MW of
power to provide to the national grid. Sector contribution to overall group profitability is
negligible, with less than 1% of total revenue in FY16
• The company has commenced construction of two new mini hydro power projects for which
Power Purchase Agreements (PPAs) have been signed with the Ceylon Electricity Board
(CEB) during FY16. Construction of the second plant (2.8MW) is expected to be
completed by early FY17E and the third (2.6MW) by end of FY17E. Upon
completion, total capacity of SUN’s energy sector would increase to 7MW
• Energy sector reported a revenue of Rs.129mn (+7% YoY) for FY16 amid heavy inter
monsoonal rainfall and improved plant and grid stability resulting in a net profit of Rs.32mn
(+62% YoY)
• We forecast the sector to record a net profit of Rs.45mn in FY17E (+40% YoY) and Rs.65mn
for FY18E (+46% YoY) amid anticipated addition of the two mini hydro power plants. sector
earnings are however vulnerable to erratic weather patterns
Packaging Sector
 Sunshine Packaging Ltd (SPL), a 60% owned subsidiary of SUN, engages in the manufacture
and printing of metal packaging and is the market leader in categories such as tea caddies and
confectionary boxes. Sector contribution to group revenue was ~2% in FY16
• In May 2016, Hong Kong based Primeco Holdings Ltd infused US$2mn to SPL.
Consequently, SUN’s holding in SPL reduced to 60% (vs. previous 100%)
 Packaging sector reported a revenue growth of +34% YoY to Rs.362mn in FY16, with strong
contribution from printed sheets. Further, company’s efforts to venture into export of direct
value added tin packs too saw an increased contribution to topline. Consequently, sector
reported a net profit of Rs.16mn for FY16 (vs. a net loss of -Rs.24mn in FY15)
 We forecast a net profit of Rs.20mn (+25% YoY) for FY17E and Rs.28mn (+41% YoY) for
FY18E
Sunshine Holdings
Energy sector
contributes < 1% to
group topline
In 2016, Hong Kong
based Primeco Holdings
Ltd infused US$2mn
equity capital to SPL

-5
5
15
25
35
-200
200
600
1,000
FY12 FY14 FY16
Net Debt (LHS)
Net Debt to Equity
Group Financial Review
 Group revenue grew at a 5 year CAGR of +10%, driven by key healthcare sector (5
year CAGR of +11%) amid rising demand for pharmaceuticals and the FMCG
sector (5 year CAGR of +18%) attributable to improved branded tea sales.
Meanwhile, plantation sector revenue grew at a 5 year CAGR +6%
 SUN’s FY16 revenue rose to Rs.17,422mn (+7% YoY), largely led by healthcare (41% of
group revenue) and FMCG (20% of group revenue) compensating for the weak
performance in the plantation sector
 Group EBIT increased at a 5 year CAGR of +5% during FY11-FY16, on the back of
operating expenditure rising at a 5 year CAGR of +17% amid increased brand
building related expenses in the healthcare sector
 Margin pressure from the plantation sector was somewhat negated, subsequent to
adopting a strategy to greater focus on high quality tea over quantity
 SUN’s FY16 net profit increased to Rs.587mn (+21% YoY, 5 year CAGR of +3% FY11-FY16)
largely due to strong performance in the healthcare sector (50% of total NP) followed by
the FMCG sector (22% of total NP)
Net Finance cost
 SUN’s net debt position amounted to Rs.270mn as at 31 March 2016 while net debt to
equity of 5% in FY16 vs. 31% in FY12
 SUN’s total debt position has been broadly constant over the years and stood at
Rs.1,736mn as at 31 March 2016, primarily attributable to the energy and plantation
sectors. Meanwhile, FMCG sector denoted a net cash positive position
• Group leverage declined from a peak of Rs.1,844mn in FY12 with reduction in debt in
EMSPL, which is the holding company for both plantation and FMCG sectors
 SUN reported a net finance cost of Rs.68mn in FY16 (-36% YoY)
Capital Expenditure
 FY16 capex amounted to Rs.902mn, with majority attributable to the energy
sector (Rs.373mn, 41% of total capex) with the two mini hydro power plants
under construction for a total investment of Rs.1.1bn. Rise in capex was curtailed
during FY16 due to lower capex in the plantation sector (Rs.289mn in FY16 vs. Rs.590mn in
FY15), attributable to significant upgrading in the tea factories and palm oil mill in the
comparative period
 Capex peaked in FY12 at Rs.1,270mn amidst the construction of its first
1.7MW hydro plant in Lindula (Waltrim) at a total investment of ~Rs.500mn
Sunshine Holdings
SUN: EBIT (Rs bn) and EBIT Margin (%)
8
10
12
14
1.0
1.4
1.8
FY12 FY14 FY16
4
8
12
0.4
0.8
1.2
1.6
FY12 FY14 FY16
Capex (LHS)
As a % of Revenue
SUN: Net Finance Cost (Rs mn) and
Interest Cover (X)
0
10
20
30
50
130
210
FY12 FY14 FY16
Net Finance Cost (LHS)
Interest Cover
SUN: Capex (Rs bn) and Capex as a
% Revenue
SUN: Group Revenue (Rs bn) and Variance YoY (%)
0
8
16
24
10
15
20
Revenue (LHS) Var YoY
SUN: Group Sectoral Revenue Composition (%)
40%
43%
14% 2% 41%
36%
20%
1%
2% Healthcare
Plantation
FMCG
Energy
Packaging
FY11
FY16
Revenue increased at a
CAGR of +10% over
FY11-FY16
SUN: Net Debt (Rs mn) and Net
Debt to Equity (%)

Group Financial Review
Sunshine Holdings
FY11 FY12 FY13 FY14 FY15 FY16 5 Yr
CAGR (%)
Revenue (Rs mn) 10,732 10,859 13,068 14,697 16,327 17,422 10.2
Gross Profit (Rs mn) 2,426 2,433 3,319 3,511 3,611 4,093 11.0
EBIT (Rs mn) 1,337 1,084 1,713 1,595 1,475 1,682 4.7
Net Finance Costs (Rs mn) -110 -116 -210 -145 -105 -68 -9.2
Profit Before Tax (Rs mn) 1,226 967 1,503 1,450 1,371 1,591 5.3
Reported Net Profit (Rs mn) 500 448 612 599 484 587 3.2
Recurring Net Profit (Rs mn) 500 448 612 599 546 587 3.2
Earnings per share (Rs) 3.7 3.4 4.6 4.5 4.1 4.3 3.0
GP Margin (%) 22.6 22.4 25.4 23.9 22.1 23.5 N/A
EBIT Margin (%) 12.5 10.0 13.1 10.9 9.0 9.5 N/A
Total Opex (Rs mn) -1,249 -1,548 -1,772 -2,037 -2,311 -2,569 15.5
Total Opex as a % of Revenue 11.6 14.3 13.6 13.9 14.2 14.7 N/A
Effective Tax Rate (%) 18.1 31.1 20.0 22.4 24.5 23.5 N/A
Total Debt (Rs mn) 1,046 1,844 1,404 1,799 1,443 1,736 10.7
Debt : Equity (%) 31.0 36.8 27.2 27.1 21.4 23.1 N/A
Net Debt (Rs mn) 578 973 634 361 -120 270 -14.1
Interest Cover (x) 12.1 7.3 6.2 5.3 6.8 9.5 N/A
Capex (Rs mn) 891 1,270 638 826 895 902 0.3
SUN: Key Financials
Source: FY15 recurring net profit exclude a goodwill write-off of Rs.62mn in the healthcare sector Source: Annual Report
Key Sectoral Revenue Breakdown
Key Sectoral Net Profit Breakdown
Revenue
Rs (mn) Var YoY (%) Composition %
Sector FY14 FY15 FY16 FY17E FY18E FY14 FY15 FY16 FY17E FY18E FY14 FY15 FY16 FY17E FY18E
Healthcare 5,511 6,076 7,161 8,171 9,431 4 10 18 14 15 37.5 37.2 41.1 43.3 45.0
Plantation 6,246 6,848 6,299 6,240 6,345 15 10 -8 -1 2 42.5 41.9 36.2 33.1 30.3
FMCG 2,482 2,915 3,440 3,899 4,511 24 17 18 13 16 16.9 17.9 19.7 20.7 21.5
Net Profit
Rs (mn) Var YoY (%) Composition %
Sector FY14 FY15 FY16 FY17E FY18E FY14 FY15 FY16 FY17E FY18E FY14 FY15 FY16 FY17E FY18E
Healthcare 358 294 327 361 415 -1 -18 11 10 15 59.7 53.8 55.8 57.4 55.1
Plantation 124 98 129 93 123 -27 -21 33 -28 32 20.8 17.9 22.1 14.8 16.3
FMCG 102 131 140 157 185 56 28 7 13 17 17.1 24.0 23.8 25.0 24.5

Outlook & Valuations
 SUN’s NP forecast at Rs.628mn for FY17E (+7% YoY) and Rs.753mn for FY18E (+20% YoY),
driven by the healthcare and FMCG sectors. Further, the plantation sector is anticipated to
recover, with the new strategies adopted in the tea segment and increased bottom-line
contribution from the palm oil segment
 We forecast capex to rise +30% YoY to Rs.1,166mn through FY17E-FY18E, mainly attributable
to the conversion of rubber lands (450Ha) into palm oil and remaining investments in the mini
hydro power plants
• Consequently, depreciation forecast at Rs.562mn in FY17E (+9% YoY) and Rs.617mn in
FY18E (+10% YoY)
 Group net debt position forecast at Rs.316mn for FY17E (+17% YoY) and Rs.303mn for FY18E
(-4% YoY)
• Group finance costs forecast at Rs.193mn for FY17E (+9% YoY) amid expected rise in debt
levels, with anticipated capex incurred in the plantation sector, though most of which is
projected to be funded internally. Meanwhile FY18E finance costs anticipated at Rs.183mn
(-5% YoY) with expected deleveraging
 We forecast SUN to marginally increase its dividend payout to 25% in FY17E and FY18E (vs.
24% in FY16)
 Given SUN’s relatively strong Balance Sheet, the group has the capacity to leverage on future
prospects
 Group effective tax rate (ETR) forecast at 24.0% for both FY17E and FY18E (vs. 23.5% in
FY16)
 SUN’s share declined -4% YoY (vs. ASI -13% YoY). The share also outperformed the broader
market in the past five years rising at a CAGR of +5% (vs. ASI -2%), reaching an all-time high
of Rs.63.4 in November 2014. In addition, SUN’s one year average daily turnover is low at just
US$8,651 while the average quantity traded was 22,810. SUN announced a 1 into 10
subdivision of shares to improve liquidity in 2010
 SUN share is trading at PER multiples of 10.9x FY17E and 9.1x FY18E (vs. diversified sector
trailing 12 month TTM per of 14.9x), whilst offering an ROE of ~10%-11% in the medium
term. We believe, a partial discount is warranted given SUN’s relatively high exposure to the
volatile plantation sector, limited effective holding in growing FMCG sector and relative
illiquidity. SUN is currently trading at a 16% discount to its SOTP value though we believe
share seems to lack a near term catalyst to narrow this gap
 Share may find favour among medium to long term investors given SUN is well positioned to
leverage on the expected growth in the local pharmaceutical industry amid anticipated rise in
the disposable income, ageing population and rise in Non Commutable Diseases. Further, we
anticipate an increased contribution from the FMCG sector to bottom line given the rising
demand for branded tea in the domestic market
SUN HHL DIST SPEN JKH
MPS (Rs) 50.5 89.4 240.1 73.3 140.5
Market Cap (US$ mn) 47 353 493 202 1,317
EPS Growth (%) 7.0 33.7 24.9 63.7 -0.8
PE Ratio (X) 10.9 14.4 9.1 9.0 13.9
Dividend Yield (%) 2.0 2.1 1.6 2.0 2.5
Return On Equity (%) 10.0 15.3 11.8 8.9 9.7
PBV (X) 1.1 2.1 1.0 0.8 1.3
3M Avg Daily Turnover (US$) 3,956 95,560 214,212 14,159 635,508
Sunshine Holdings
PER of 10.9x in FY17E
and 9.1x in FY18E
SUN: Revenue (Rs bn) and NP (Rs mn)
400
600
800
10
15
20
25
Revenue (LHS)
Net Profit
SUN: Trailing Twelve Month PER (X) : 2012 – 2016TYD
Source: CT CLSA
Peer Conglomerate Analysis – FY17E Relative Valuations
Source: CT CLSA
4
9
14
19
02-Jan-13 13-Mar-14 25-May-15 29-Jul-16

Sector Fair Value (Rs mn) Main Valuation Basis
Healthcare 4,191 EV with WACC 14%
FMCG 1,303 EV with WACC 19%
Plantation Sector 1,198 Ev of 25% stake in WATA
Packaging Business 728
Estimated EV adjusted for recent equity
infusion
Other Investments 617 Balance-Sheet value as at 31 Mar 2016
Power Plant 318 Discounted EV/EBIT of listed players
Group Net Debt -270
Total Value 7,752
Number of shares 135
Value Per Share 60
Sum of the parts (SOTP)
 An approximate SOTP valuation for SUN suggests that the share is currently trading
at ~16% discount to its breakup NAV of Rs.60
 Among SUN’s sectors, the highest valuation is attributed to the healthcare sector at Rs.4.2bn
(52% of total NAV). We have derived the NAV for the sector using the DCF valuation method,
assuming a WACC of 14% and a terminal growth rate of 2%. Further, beta was assumed at
1.12x in line with regional pharmaceutical companies. EBIT margin expected at 7.7% in
terminal year (vs. current 7.2%) and revenue growth is estimated to fall to 5% YoY in the
terminal year (vs. current 18% YoY)
• The sector lacks local proxies to consider other valuation methods. HHL is the only
comparable proxy, however, group financials do not disclose adequate information on the
pharmaceutical segment
 FMCG sector is valued at Rs.1.3bn with a 16% value composition, again using the DCF
valuation method, assuming a WACC of 19% and a terminal growth rate of 2%. Unlevered
beta was assumed at 1.06x, in line with regional FMCG players. EBIT margin forecast at
14.5% in terminal year (vs. current 13.6%) while the revenue growth is projected at 8% YoY
in the terminal year (vs. current 18% YoY)
• We believe, the sector could in fact command higher valuations given its strong
Balance Sheet, market leadership and significant potential in the under
penetrated branded tea market segment
• However, SUN’s current lower holding in the growing FMCG segment (~33%
effective holding) could act as a deterrent to higher valuations. Therefore, we
believe the sector value could further increase if SUN is able to acquire a higher stake in
the FMCG business
 We derived a valuation of Rs.1.2bn for the plantation sector based on the Enterprise Value
(EV) of listed WATA (SUN has 25% effective holding in WATA)
 Packaging sector was also valued based on an estimated EV of the recent equity infusion
(40% equity infusion by Primeco Holdings Ltd, amounting to US$2mn)
 The energy sector was valued using a EV/EBIT of 7.2x (discounted to listed mini hydro
players, 9.2x EV/EBIT; Panasian Power, Vallibel Power Erathna) for the existing plant.
Further, the expected new plants are valued using a conservative PBV multiple of 1.4x,
applying a discount to listed players (vs. PBV of 1.9x)
 Other investments (80% unquoted) are valued at the balance sheet value as at 31 Mar 2016
Sunshine Holdings
SUN: Sum-of-the-parts (SOTP) Valuation
Source: CT CLSA
Trading at a discount to
SOTP

SWOT Analysis
Strengths
• Second largest private player in the pharmaceutical market with the biggest healthcare team
in the country (~350 medical marketing and sales personnel)
• Dominance in the branded tea segment with increasing market share (currently at~36%)
• Strong distribution network under the FMCG sector with access to ~80,000 retail outlets (vs. a
~120,000 total universe) across Sri Lanka, with pure focus on branded tea
• Focused and wider distribution network in FMCG sector with only emphasis on branded tea
(~80,000 retail outlets)
• Competitive advantage in the plantation sector in expertise and technology amid joint venture
partnership with Wilmar International, one of Asia’s largest palm oil producers
• Strong balance-sheet with relatively modest gearing levels at ~5% net debt to equity,
providing room to leverage for future expansion plans
Weaknesses
• High exposure to the labour intensive tea segment, burdened by rising costs, weak prices and
susceptible to erratic weather patterns
• Limited effective holding of just 33% limits group from reaping full benefits of fast growing
FMCG sector
Opportunities
• Significant growth potential in the underpenetrated branded tea market (~40%) in Sri Lanka
• Strong prospects in both healthcare and FMCG sector amid rising disposable income and Sri
Lanka moving towards an upper middle class economy
• Growing presence in preventive care and wellness products with changes in modern lifestyles
• Actively increasing exposure in higher margin palm oil segment due to its better yields and
lower labour intensive nature
Threats
• Low branding equity coupled with stiff competition in the highly fragmented retail
pharmaceutical network (~2,800 pharmacies)
• Current weak regulatory environment resulted in an uneven playing field in the
pharmaceutical industry, where the state is the largest player (though predominantly in
generics)
• Vulnerable to currency fluctuations and higher import related costs in the pharmaceuticals
amid regulated price ceilings
Sunshine Holdings

Sunshine Holdings
Forecast Summarised Financials
SUN – Income Statement Extracts (Rs mn)
FY15 FY16 % YoY FY17E % YoY FY18E % YoY
Revenue 16,327 17,422 6.7 18,862 8.3 20,949 11.1
Cost of Sales -12,716 -13,329 4.8 -14,580 9.4 -15,922 9.2
Gross Profit 3,611 4,093 13.4 4,282 4.6 5,028 17.4
Operating Income 175 159 -9.5 166 5.0 175 5.0
Operating Expenses -2,311 -2,569 11.2 -2,817 9.7 -3,248 15.3
EBIT 1,475 1,661 12.6 1,656 -0.3 1,953 19.6
Net Finance Cost -105 -68 -35.5 -75 10.5 -60 -19.4
Profit Before Tax 1,371 1,591 16.0 1,581 -0.6 1,921 21.5
Income Tax -336 -374 11.3 -377 0.8 -454 20.6
Profit After Tax 1,036 1,218 17.6 1,202 -2.1 1,460 20.6
Minority Interest 489 631 28.9 574 -9.6 707 22.5
Net Profit 484 587 21.2 628 7.0 753 19.9
Recurring Net Profit 546 587 7.5 628 7.0 753 19.9
Source : Annual Report and CT CLSA
SUN – Key Ratios (%)
Revenue Growth (%) 1.2 20.3 12.5 11.1 6.7 8.3 11.1
GP Margin (%) 22.4 25.4 23.9 22.1 23.5 22.7 24.0
EBIT Margin (%) 10.0 13.1 10.9 9.0 9.5 8.8 9.5
PAT Margin (%) 6.1 9.2 7.7 6.3 7.0 6.4 7.0
NP Margin (%) 4.1 4.7 4.1 3.3 3.4 3.3 3.6
Opex as a % of sales 14.3 13.6 13.9 14.2 14.7 14.9 15.5
Effective Tax Rate (%) 31.1 20.0 22.4 24.5 23.5 24.0 24.0
SUN – Balance Sheet Extracts (Rs mn)
Non Current Assets 6,920 7,071 7,772 8,282 9,293 10,084 10,885
Property, Plant & Equipment 3,361 3,309 3,460 3,618 3,899 4,015 4,153
Biological Assets 2,767 2,880 3,140 3,350 3,431 3,948 4,439
Current Assets 4,177 4,697 5,727 6,330 6,829 7,227 7,579
Inventories 1,847 2,122 2,443 2,635 2,892 3,192 3,478
Trade and Other Receivables 1,446 1,775 1,764 2,038 2,371 2,429 2,698
Cash & Bank Balance 870 770 1,438 1,563 1,465 1,498 1,290
Total Assets 11,097 11,768 13,500 14,613 16,122 17,311 18,465
Stated Capital 680 680 691 731 731 731 731
Retained Earnings 2,480 3,071 4,156 4,571 5,049 5,524 6,088
Total Equity 5,619 6,725 8,271 8,947 9,950 10,766 11,738
Non-Current Liabilities 2,752 2,396 2,717 2,608 2,884 3,030 3,005
Interest bearing borrowings 1,528 1,149 1,285 1,038 1,280 1,344 1,205
Current Liabilities 2,726 2,646 2,511 3,058 3,288 3,514 3,721
Trade & Other payables 1,644 1,596 1,574 1,993 2,285 2,459 2,701
Bank Overdraft 667 674 291 564 423 445 467
Interest Bearing Borrowings 315 254 514 405 456 490 426
Total Equity & Liabilities 11,097 11,768 13,500 14,613 16,122 17,311 18,465

Major Shareholder Movements
Name
No. of
Shares
%
Change
(Shares)*
Comment
Dr. T. Senthilverl 30,946,100 22.9 -738,290
Lamurep Investments Ltd 27,392,830 20.3 -
“Sathasivam”
Related Party
Deepcar Limited 25,600,000 18.9 -
Moneymore Securities Ltd 22,810,730 16.9 -
Tansinghe (Private) Ltd 16,015,390 11.9 -
“Sathasivam”
Related Party
Ceylon Property Development Ltd 3,000,000 2.2 -
National Equity Fund 1,261,540 0.9 -
New Entrant to
Top 20
Est. of Late M. Radhakrishnan (Deceased) 750,000 0.6 -
Hatton National Bank PLC A/C No 05 669,661 0.5 -
Aerbach Grauson & Co 602,286 0.5
+280,000
Nuwara Eliya Property Developers (Pvt) Ltd 575,261 0.4 -
Mr. V. Govindasamy 443,330 0.3 -
JB Vantage Value 386,793 0.3 -
Deutsche Bank AG as National Equity Fund 321,249 0.2
+59,709
Mr. W.D.P.L. Vithanage 114,703 0.1 -
Mr. I. M. Dabah 100,000 0.1 -
Gold Investment Ltd 100,000 0.1 -
New Entrant to
Top 20
Mr. M. A. Valabji 100,000 0.1 -
New Entrant to
Top 20
Mr. N. S. Perera 87,104 0.1 -
New Entrant to
Top 20
Freudenberg Shipping Agencies Ltd 79,585 0.1 -
New Entrant to
Top 20
Sub Total 131,356,562 97.2
Major Shareholder Movements as at 31 March 2016
Sunshine Holdings
*Changes since 31 March 2015
Exited from top 20 since 31 March 2015: GF Capital Global Limited : 261,540, Amana Takaful Plc : 136,100
Numerica Emerging Frontiers : 117,010, Mr.M.H.M Nazeer : 105,320, Dr. W.S.E Fernando : 100,000

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
Rosco Todd
rosco@ctclsa.lk
+94 77 262 7233
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
Shirali Rodrigo
shirali@ctclsa.lk
+94 11 255 2290
CT CLSA SECURITIES (PVT) LTD
A Member of the Colombo Stock Exchange
4-14 Majestic City, 10 Station Road, Colombo 4, Sri Lanka
General: +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, internally
developed data and other sources, believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated are accurate and the
opinions given are fair and reasonable, neither CT CLSA Securities (Pvt) Ltd. nor any director, officer or employee, shall in any way be responsible for the
contents. 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 may
have acted upon or used the information contained in this document, or the research or analysis on which it is based, before its publication. CT CLSA
Securities (Pvt) Ltd., its directors, officers or employees may also have a position or be otherwise interested in the investments referred to in this
document. 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 any
other type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individual
recipients. Before acting on any information in this publication/communication, you should consider whether it is suitable for your particular
circumstances 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 of
research reports (including but not limited to disclosure of perceived or actual conflict of interest) as may be found in more developed markets. Please
contact your investment advisor / analyst should you require further information over the relevant regulation and particular disclosure over perceived or
actual 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
Maduranga Hettiarachchi
maduranga@ctclsa.lk
+94 11 255 2290
Ryan Jansz
ryan@ctclsa.lk
+94 11 255 2290
Kavindu Ranasinghe
kavindu@ctclsa.lk
+94 11 255 2290
Consultant / Sales
Rohan Fernando
rohan@ctclsa.lk
+94 11 255 2297
+94 76 778 2101

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