Monday 28 November 2016

Colombo Stock Exchange Market Review – 28th Nov 2016


Colombo bourse turned red in week’s opening day as bearish investor sentiments continued to dominate the market direction. Benchmark index lost 13.25 index points or 0.21% to end the session at 6,238.87 while blue-chip constituent S&P SL20 index shed 16.68 index points (-0.48%) to end the day at 3,459.86. 

Index fell with banks where shares of National Development Bank (closed at LKR 151.30, -2.8%), Commercial Bank (closed at LKR 139.40, -1.0%), Hatton National Bank (closed at LKR 221.00, -0.9%) and DFCC Bank (closed at LKR 117.10, -0.9%) closed lower. 

Lanka Orix Leasing (closed at LKR 79.50, +3.9%) and Lion Brewery (closed at LKR 468.50, +3.9%) stood on the opposite side. 

Daily market turnover was LKR 386mn supported by negotiated deals in high caps. Off-the-floor dealings were recorded in DFCC Bank (1.35mn shares at LKR 117.70) and Central Finance (0.2mn shares at LKR 100.00). Aggregate value of crossings accounted for 47% of the turnover. 

Accordingly, DFCC Bank top the turnover list with LKR 184mn followed by Hemas Holdings (LKR 34mn), Central Finance (LKR 26mn) and John Keells Holdings (LKR 18mn) respectively. 

Market breadth was negative where out of 189 stocks traded, 45 advanced, 85 slipped while 59 remained unchanged. High investor activity was witnessed in DFCC Bank, John Keells Holdings and Access Engineering. 

Foreign investors were net sellers with a net foreign outflow of LKR 137mn. Foreign participation was 30%. Net foreign outflows were mainly seen in DFCC Bank (LKR 176mn), Hatton National Bank (LKR 5mn), Tokyo Cement (LKR 1mn) while net foreign inflow was mainly seen in Hemas Holdings (LKR 32mn).
Source: LSL

Sri Lanka shares hit near 8-mth low ahead of cenbank rate decision

Reuters: Sri Lankan shares fell on Monday to a near eight-month low, ahead of central bank policy rate announcement as investors kept to the sidelines amid concerns over budget tax proposals including revisions in corporate and withholding taxes.

Analysts said investors were awaiting the central bank's decision on interest rates on Tuesday. They expect the apex bank to leave rates unchanged for a fourth straight month.

The Colombo stock index ended 0.21 percent down at 6,238.87, its lowest close since April 7. The bourse lost 1.17 percent last week, marking its third straight weekly fall.

"Market is very sluggish as there is no positive direction for it to move up. Everybody is waiting, looking for a direction (in interest rates)," said Reshan Kurukulasuriya, chief operating officer, Richard Pieris Securities (Pvt) Ltd.

Analysts said the increase in various taxes and fees would reduce disposable income and challenge consumption-led growth.

The government aims to boost its 2017 tax revenue by 27 percent to 1.82 trillion rupees year-on-year and meet a commitment given to the International Monetary Fund in return for a $1.5 billion loan in May.

Turnover was 386.3 million rupees ($2.60 million), well below this year's daily average of 693.7 million rupees.

Foreign investors sold a net 137.2 million rupees worth of shares on Monday, extending the year-to-date net foreign selling to 1.39 billion rupees.

Shares of biggest listed lender Commercial Bank of Ceylon Plc fell 1 percent and Ceylon Cold Store Plc lost 7.35 percent, while National Development Bank Plc closed 2.76 percent lower.

($1 = 148.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)

MBSL posts Rs 257.3 mn nett profit for third quarter

The Merchant Bank of Sri Lanka & Finance PLC (MBSL) recorded an exceptional third quarter financial performance in 2016 with robust growth in revenues and profitability, following its unparalleled three-way merger of 2015.

MBSL finalized one of the most complex amalgamation processes witnessed in the country to date, in 2015, by merging with two of its subsidiaries, MCSL Financial Services and MBSL Savings Bank, to integrate three separate companies into a single consolidated financial services entity.

Commenting on the third quarter results, MBSL Chairman Dr Sujeewa Lokuhewa said the company’s growth strategy has been aligned with national development objectives. “We have aligned ourselves with the economic strategies of the government, which will be the guiding framework for the bank from 2016 onwards,”he said.

To support government economic development plans we are developing new products and services and implementing IT solutions for product and service delivery to reach into the far corners of the country, to cater to rural markets and in particular rural SMEs,” Dr. Lokuhewa said.

MBSL demonstrated an outstanding 1,539% cumulative bottom line growth year-on-year by the end of the third quarter 2016, with a profit after tax (PAT) of Rs 257.3 million, against Rs 15.7 million recorded in 2015. The PAT for the quarter had surged ahead of 2015, to reach Rs 122.3 million, compared to Rs 59.2 million in 2015.

This sustained robust performance by the Company resulted in reversing the negative bottom line of the Group for the third quarter of 2015, moving the MBSL Group out of the red and into profitability. The bottom line of the MBSL Group gained by 696% to reach a PAT of Rs 186.2 million, by end September 2016, from a loss of Rs 31.2 million in 2015. This cumulative growth in profitability was mainly due to the 296% growth in PAT in the third quarter of 2016, to Rs 108.6 million, compared to the Rs 27.4 million achieved in 2015.

Gains in profitability have been accompanied by improvements across most aspects of the financial dashboard with MBSL increasingly consolidating its post-merger market position.

“With the merger we have improved our operational efficiencies and we are currently focusing on providing a better experience for our customers. Overall, the merger has contributed towards growing the market and scope of business, and we are looking into further growth opportunities in new market segments,” MBSL CEO T. Mutugala said.
www.dailynews.lk

Vallibel Finance profits grow to Rs. 581 mn in first half

Vallibel Finance saw its half-yearly pre-tax profit for 2016 climbing to Rs. 581 mn, recording a growth of 58.1% percent over the same period the previous financial year, on the back of strong performances in core financial operations and its increasingly popular product portfolio.

Vallibel Finance consolidated its standing as a leading light in the competitive financial sphere and its half yearly report card affirms the company’s ability to sustain its ascendency, year after year.

Vallibel Finance, nurtured its loan book well, disbursing Rs. 8.5 bn during the first half of 2016, providing impetus for growth for people across the country. The total loan book of the company now stands at Rs. 21.73 bn

Deposits complimented the lending portfolio, growing exponentially by over Rs. 3.55 bn or 27.1% percent by the end of the financial period under review over the previous year with total deposits amassing to Rs. 16.7 bn, firmly entrenching public confidence in the company.

Net interest income grew by 19.2% percent to reach Rs. 936 mn with the total income growing by 43% reaching Rs. 2.27 bn as against the previous figure of Rs. 1.58 bn. Vallibel Finance took adequate measures to keep its Non-performing Loans in check with the figure 3.49% (Gross), 0.55% (Net) indicating an encouraging result considering the volatile market conditions prevalent in the finance sector.

Total assets continued its upward curve growing by 34.7% percent to Rs. 25.64 bn over the previous year’s figure.

Vallibel Finance Managing Director Jayantha Rangamuwa attributes his company’s track record to a far-sighted vision and prudent financial stewardship that ensures winning hearts and minds of people throughout the country through innovative financial tools while at the same time ensuring professionalism and accountability.

The increasing popularity of Vallibel Finance and the respect it commands in the market are evident in its performance which is clearly indicative of the increasing stature of the company.

Vallibel Finance derives its direction and inspiration from corporate leader Dhammika Perera.
www.dailynews.lk

Top brewer says regime change failed to offer sanity in policy making

The rashness demonstrated by the new regime in making tax policies has not only made the business of brewing tougher than ever but also pushed the people towards hard liquor, which is arguably more detrimental to health.

According to the country’s top brewer, Lion Brewery Ceylon PLC (LION), the alcohol industry has now been made liable for not just the higher excise duty, which was raised back in October 2014, but also for the higher value-added tax (VAT), which came into effect from November 1, 2016, making the total tax increase on beer up to 70 percent compared to the 25 percent increase in taxes on spirits.


“The beer industry – to a degree greater than the others in the alcohol sector – has been at the receiving end of this type of ad hoc and incomprehensible policymaking for many years.

With the advent of this government, we hoped things would change and that a more rational approach would prevail.

Unfortunately, this has not been the case and today Sri Lankans consume a significantly greater amount of hard alcohol than they did two years ago,” the company said in a note to its interim financial accounts released to the Colombo Stock Exchange recently.

This irrational tax policy by the government appears to have pushed the people to consume more spirits and toddy, while the consumption of beer has reduced by 39 percent. But the consumption of spirits has increased by 9 percent during the same period.

Alcohol consumption in a country could go up either if the population is extremely happy or they have been made extremely poor. While the former condition mostly drives the demand for formal liquor and a milder version of alcohol such as beer, the latter condition could drive the demand for illicit liquor or moonshine.

Therefore, excessive taxing of the formal alcohol industry could in fact boomerang on the government both economically and socially. But successive governments milked both the tobacco and alcohol industries whenever they found their exchequers depleted.

But analysts point out that this strategy could become futile as the demand will not remain inelastic forever.

“Whilst empirical evidence strongly indicates that there has been a very significant increase in the consumption of toddy, available records hide this fact since the quantities manufactured are not accurately disclosed by the producers,” LION said.

Toddy has now become an extremely unhealthy beverage made in the most unhygienic conditions and no longer of coconut sap but made now of a chemical concoction. The alcohol industry was exempted from VAT in October 2014 by the Rajapaksa administration to bring revenue neutrality, i.e., excise taxes were increased then to recover the loss from VAT.

However, with effect from November 1, 2016, the industry is now liable under higher excise duty and higher VAT.

The country’s belligerent finance minister pushed the VAT Amendment Bill through parliament to satisfy the International Monetary Fund (IMF), which gave a US $ 1.5 billion bailout package in June to arrest a possible balance of payment crisis.

“We hope however, that better sense will prevail sooner rather than later,” the company finally added.

Lion Brewery September in red due to flood-induced factory closure

Lion Brewery Ceylon PLC (LION) said its financial performance was badly affected by the floods in the month of May, which wrecked havoc, bringing the brewing in the facility into a complete standstill.

As a result, the company turned a net loss of Rs.477.2 million or a loss per share of Rs.5.97 during the quarter ended September 30, 2016 (2Q17), from a profit of Rs.695.4 million a year ago.

However, the company managed to continue its supplies to the market, albeit below potential capacity, through imports that came from four Carlsberg breweries in the Asian region.

“We placed our brewers in the locations that supplied us our own brands to ensure the quality and consistency consumers expect from us,” the company said in a statement. The government considered LION among “other similarly affected businesses” to import, “specified quantity”, at taxes limited to the value of the local excise duty for which the company expressed its deep appreciation.

Nevertheless, a case is pending at the courts contesting the relief granted on imported beer by the Trade and Investment Policy Department, with the concurrence of the finance minister and this case is coming up for hearing on December 15.

Despite the company trying to keep up with the demand through imports, the top line contracted by 55 percent year-on-year (YoY) to Rs.4.45 billion. For the six months ended September 30 (1H17), revenue fell 47 percent YoY to Rs.10.0 billion.

“Due to logistical reasons, the imports mentioned above were restricted to cans. Thus, our major SKU, bottles, were not available in the market – other than for relatively smaller quantities of Carlsberg and Carlsberg Special Brew – whilst the brewery was not in production. As a result, sales were hampered and our results impacted,” the company noted.

Meanwhile, for the 1H17, the company incurred a loss of Rs.954.2 million or Rs.11.93 a share, against the Rs.1.27 billion net profit earned during the same period last year. 

During this period, the company’s borrowings rose sharply by around Rs.6.5 billion to a total of Rs.11.3 billion as the company had to depend on bank borrowings until the insurance claims are finalized, which is expected to be concluded before the end of the ongoing financial year.

Based on the preliminary assessment of the damage caused to the investors and to some fixed assets due to flooding, an interim claim was submitted for which the company received an advance payment of Rs.300 million during the period.

The damaged facility however is now in commercial operation, the company said.
As of September 30, Ceylon Beverage Holdings PLC held a 52.25 percent stake, while 

Carlsberg Brewery Malaysia Berhad held a 25 percent stake.

Carson Cumberbatch PLC held another 5.13 percent stake being the third largest shareholder.
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