Sri Lanka shares close at 11-month high, foreign inflows boost

May 12 (Reuters) - Sri Lankan stocks rose on Monday to an 11-month closing high, led by oil palms and financials, while market sentiment was boosted by a lower interest rate regime and foreign inflows.

Stockbrokers said many investors have been compelled to return to the stock market due to multi-year low interest rates, which has made fixed income assets less attractive.

The main stock index rose 0.29 percent, or 18.29 points, to 6,303.16, its highest close since June 11. The gains were led by Bukit Darah Plc, which rose 4.76 percent to 680 rupees.

Foreign investors, on a buying streak for the last six sessions, were net buyers of 121.2 million rupees of stocks on Monday. They have been net sellers of 403.4 million rupees so far this year.

The day's turnover was 866.5 million rupees, below this year's daily average of 1.04 billion rupees.

Analysts, however, said lower credit growth has raised questions around growth and earnings amid lower consumer spending.

Despite a multi-year low interest rate regime, the private sector credit grew just 4.4 percent in February from a year earlier, the slowest expansion since May 2010. That compared with a growth of 5.2 percent in January and 13.3 percent in February 2013. 

($1 = 130.4000 Sri Lanka Rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Prateek Chatterjee)

Commercial Bank of Ceylon profits up 2-pct in March quarter

May 12, 2014 (LBO) - Sri Lanka's Commercial Bank of Ceylon said profits rose 2 percent in the March 2014 quarter to 2,301 million rupees from a year earlier, with helped by higher net interest income and trading gains.

The group reported earnings of 2.71 rupees per share, in interim accounts filed with the Colombo Stock Exchange.

In the March 2014 quarter interest income rose 5.2 percent to 15.2 billion rupees, interest expenses fell in absolute terms by 2.2 percent to 8.67 billion rupees allowing net interest income to grow 17 percent to 6.5 billion rupees.

Fees and commission income rose 15 percent to 1.0 billion rupees.

Loans shrank 0.24 percent to 417 billion rupees by end March from December 2012.

Loan term loans grew to 107 billion rupees from 102 billion rupees but short term loans fell to 16 billion rupees from 21 billion, while personal loans, housing and leases edged marginally lower.

Pawning or gold-backed advances were down to 4.9 billion rupees from 6.9 billion rupees.

Loan loss provisions rose 123 percent to 1.1 billion rupees with a specific provision of 940 million rupees.

At stand alone bank level the gross non performing loan ratio (net of interest in suspense) rose to 4.4 percent to 3.8 billion rupees.

Sri Lanka is recovering from a balance of payments crisis triggered by a credit bubble involving loan-financed energy subsidies and prolonged low interest rates.

During the bubble, credit expands, and loan to deposit ratios fall with the central bank buying Treasuries from banks to print money, fire credit and imports to unsustainable levels, worsening loan to deposit ratios of banks.

After the bubble breaks, deposits grow, loans shrink and investments grow, allowing loan to deposit ratios to improve. Bad loans are also purged from the system and in the overall economy companies de-leverage and become stronger for the next phase of growth.

At Commercial Bank Other financial assets held for trading rose 138 percent to 7.1 billion rupees from 4.1 billion rupees. Financial investments available rose 10 percent to 148 billion rupees.

Deposits grew 4.6 percent to 472 billion rupees.

Group gross assets grew 6.8 percent to 648 billion rupees. Net assets grew edged 0.3 percent lower to 61.2 billion rupees.

At stand alone bank level, net assets were down 0.4 percent to 60.6 billion rupees.

Sri Lanka's Sampath Bank March net up 21-pct

May 12, 2014 (LBO) - Profits at Sri Lanka's Sampath Bank rose 21 percent from a year earlier to 1,2 billion rupees in the March 2014 quarter helped by loan loss reversal and other income while net interest income fell.

The group reported earnings of 7.50 rupees per share for the quarter.

Group interest income fell 4.9 percent to 9.5 billion rupees from a year earlier and interest expenses fell at a slower 3.0 percent to 6.5 billion rupees making net interest income fall at a faster 8.7 percent to 3.0 billion rupees.

Fee and commission income rose 23 percent to 806 million rupees and other operating income rose 72 percent to 432 million rupees.

Loan loss 740 million rupees in general provisions were reversed with 296 million rupees in fresh provisions being made, resulting in net reversals of 542 million rupees, helping the bottom line. Last year 292 million in provisions were made.

Loans to customers fell to 256 billion rupees in March 2014 from 265 billion rupees in December. The bank cut its exposure to pawning or gold-backed loans to 44.8 billion rupees from 53.8 billion rupees during the quarter.

Deposits rose 3.8 percent to 311 billion rupees. Debt and other borrowed funds fell to 28 billion rupees from 44.7 billion rupees.

Gross assets fell 1 percent to 387 billion rupees and net assets fell 4 percent to 32.9 billion rupees.

At stand alone bank level, gross non performing loans fell to 2.38 percent from 2.68 percent and capital adequacy fell to 9.89 percent from 10.08 percent.

Sri Lanka stocks close up 0.3-pct

May 12, 2014 (LBO) - Sri Lanka's stocks closed higher for the fourth consecutive day with diversified and hotel stocks gaining, brokers said.

The Colombo benchmark All Share Price Index closed 18.29 points higher at 6,303.16 up 0.29 percent. The S&P SL20 closed 23.65 points higher at 3,480.91, up 0.68 percent.

Turnover was 866.48 million rupees, down from 7.14 billion rupees last Friday with 100 stocks close positive against 90 negative.

Chevron Lubricants Lanka closed 4.80 rupees higher at 276.50 rupees with two off market transactions of 96.60 million rupees contributing 14 percent of the daily turnover.

Sierra Cables closed 30 cents higher at 2.10 rupees and Softlogic Holdings closed 40 cents higher at 13.00 rupees, trading heavily on the market.

Foreign investors bought 377.87 million rupees worth shares while selling 256.65 million rupees worth shares.

Bukit Darah closed 30.90 rupees higher at 680.00 rupees and Asian Hotels and Properties closed 3.50 rupees higher at 73.50 rupees, contributing most to the index gain for the second straight day.

Dialog Axiata closed 10 cents higher at 9.50 rupees and Sri Lanka Telecom closed 40 cents higher at 47.50 rupees.

Trans Asia Hotels closed 5.10 rupees higher at 94.90 rupees and John Keells Hotels closed 30 cents lower at 14.20 rupees.

Ceylon Tobacco Company closed 10.00 rupees lower at 1,080.00 rupees and Nestle Lanka closed 24.90 rupees lower at 1,950.10 rupees.

Hemas Holdings closed 60 cents lower at 42.40 rupees and John Keells Holdings closed 20 cents higher at 235.00 rupees.

JKH’s W0022 warrants closed flat at 64.00 rupees and its W0023 warrants also closed flat at 70.00 rupees.

Ceylinco Insurance closed 41.70 rupees lower at 1,308.30 rupees and CT Holdings closed flat at 140.00 rupees.

CLSA buys into Sri Lanka's CT Smith Holdings eyeing frontier investors

May 12, 2014 (LBO) - Hong Kong based CLSA investment group has bought a 25 percent stake in Colombo based CT Smith Holdings Ltd in a bid to better sell Sri Lanka to frontier market investors, officials said.

Donald Skinner, Global Chief Operating Officer of CLSA (Credit Lyonnais Securities Asia) said a long standing relationship between the two firms has been deepened with the purchase of an equity stake.

The joint venture will focus on investors from the US that want to get into frontier markets, as well as their clients from the UK and Hong Kong, he said.

CLSA's clients were already investing in Pakistan, Bangladesh and Vietnam, but Sri Lanka was an easier market to enter, Skinner said.

CT Smith has brought about 40 percent of the foreign investment into the stock market in 2013, officials said.

Marianne Page, consultant to CT Smith who has a long track record of bringing foreign investments to Sri Lanka said investors were increasingly interested in consumer goods sector in Sri Lanka in addition to areas like banking that was a main area.

CSLA will distribute CT Smith's Sri Lanka economic and equity research.

"Research is a key component of this deal," Skinner said. "CT Smith produces a very high grade of research in Sri Lanka."

Following the investment CT Smith Holdings will change its name to CT CLSA Holdings Ltd. CT Smith Stockbrokers will be renamed CT CLSA Securities.

CT Capital will go as CT CSLA Capital (Pvt) Ltd and Comtrust Asset Management (Pvt) Ltd, a unit trust manager, will operate under the same name.

Sri Lanka Treasuries yields flat

May 13, 2014 (LBO) - Sri Lanka Treasuries yields were steady at Wednesday's auction, with just the 3-month yield down 01 basis point to 6.57 percent, data from the state debt office showed.

The 6-month yield was flat at 6.76 percent and the 12-month yield was also flat at 7.02 percent.

The debt office offered 12 billion rupees in maturing debt and sold 16.2 billion rupees worth bills.

Related News:

http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20140512e.pdf

Ceylon Tobacco Company profits up despite lower Sri Lanka sales

May 12, 2014 (LBO) - Ceylon Tobacco Company Plc, a unit of British American Tobacco said profits surged 38.4 percent in the March 2014 quarter despite a 3.6 percent volume drop, helped by cost cutting.

The firm reported earnings of 10.82 rupees per share for the quarter. The stock closed at 1,090 rupees Friday, down 10 rupees.

Gross revenues with state taxes rose 7.3 percent in the March quarter from a year earlier to 21,200 million rupees, with net revenues after excise and valued added taxes rising at a faster 12 percent to 5,243 million rupees, despite the volume drop.

The firm reported a 14 percent domestic sales drop in the March 2013 quarter as inflation rose and demand dropped in the wake of a balance of payments crisis triggered by credit financed fuel subsidies.

The state raised taxes on tobacco in the wake of the crisis and there was also an industry price increase allowing net revenues to also go up. The firm said export revenues rose by 48 million rupees and volumes by 31 million.

Ceylon Tobacco said it had also slashed operating expenses. In the March quarter raw material costs were almost unchanged at 597 million rupees, up from 587 million a year earlier.

Employee costs fell to 348 million rupees from 419 million and other operating expense fell to 929 million rupees from 1,236 million rupees.

The firm made a provision of 1.39 billion rupees for income tax up, from 1.10 billion a year earlier. Excise tax rose to 13.5 billion rupees from 12.8 billion rupees and value added taxes rose to 2.3 billion rupees from 2.1 billion rupees.

Ceylon Tobacco said authorities have made 236 raids during the quarter seizing 13 million illicit cigarettes with a market value of 332 million rupees. High tobacco taxes have driven smugglers.

The firm is expecting a court ruling on a health ministry directive to place graphic warning labels on cigarette packs.

Harsha says Keheliya bluffing on casino licenses

Requests Govt. Spokesman to table license photocopies in Parliament

By David Ebert
UNP MP Dr. Harsha De Silva yesterday issued a challenge to Government Spokesman Keheliya Rambukwella, to table in Parliament “at least a photocopy” of one the five existing casino licenses the Minister had claimed earlier that local operators possess.

This was in response to Rambukwella’s statement that the Government will not oppose the setting up of a casino in Packer’s $ 400 million mixed-use resort at D.R. Wijewardena Mawatha if it is operated using an existing operating license, of which he claimed there were five being held by locals.

“I challenge MP Rambukwella to produce in Parliament at least a photocopy of one of the five licences being held, to show us who they are being held by, the dates of issue, validity periods, and the terms and conditions of those licences,” UNP MP said.

He said the recent endorsement for Packer’s casino by the Government represents an about-turn in its stand on the issue.

De Silva said several high profile government ministers, including the President, and Economic Development Minister Basil Rajapaksa, had stated previously that the Government would not allow casinos. The statement by MP Rambukwella comes hot on the heels of news that Packer will be visiting the country once again.
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Japan Sagawa’s deal with Expolanka boosts Lanka’s hub aspirations

• Acquisition of 30% stake for Rs. 6.3 b makes it the biggest transaction in Colombo stock market since Malaysian sovereign fund Khazanah’s buy of 10% JKH stake two years ago

• With commitment to buy a further 21% to make it 51%, a fresh Rs. 4.4 billion foreign investment is on the way making it a mega deal

• Japanese logistics giant keen on expanding into South Asia and globally using Expolanka’s strong international footprint; for Expolanka SG deal a catalyst to go global

• Two parties brought together in late 2012 by NWS Holdings at Tokyo Investor Forum

• First major deal after Government allowed foreign ownership on freight forwarding operations from 40% to 100% recently and converting Katunayake and Mattala as free-ports

Sri Lanka’s aspirations to become a shipping and aviation hub got a major boost on Friday with Japan’s second largest logistics firm SG Group acquiring a 30% stake in local industry leader Expolanka Holdings PLC for Rs. 6.3 billion.

Sagawa Global Logistics (SG Group) via its Singapore subsidiary SG Holdings has committed to buy a further 21% bringing the control to 51%. When it is implemented it will make a further investment of Rs. 4.4 billion at minimum or more if the mandatory offer results in an additional stake. The 30% stake amounted to 586 million shares and was done at Rs. 10.70 each with major shareholders shedding part of their stakes.  Net asset per share of Expo at group level is Rs. 5.19.

Expolanka Holdings PLC is South Asia’s leading freight forwarder and its business spans over 17 countries in Asia, Africa, USA and the Middle East.

Apart from Japanese being long term investors, what is significant in the SG-EXPO deal is it is the first since the Government recently relaxed foreign ownership restrictions on freight forwarding operations. Earlier foreign firms could only hold 40% but now they can go up to 100%.

“We saw great value in Expolanka Holdings and especially the strength and the strategic fit in the freight and logistics business. This acquisition will certainly help Sagawa to further increase and strengthen our footprint in Asia – SG Holdings Representative Director Nobuaki Kondo”

Even India had relaxed foreign ownership rules in freight forwarding several years back which enabled Expolanka’s entry and making it one of the biggest in the neighbouring giant. Furthermore, this is the biggest deal of its kind since the Government declared Katunayake and Mattala as free ports.

Sagawa and Expo were first brought together in October 2012 by NWS Holdings, also owned by a Japanese entrepreneur Takashi Igarashi when it held the second Investment Forum in Tokyo. The first one was held in November 2011. In his address at the 2012 Investment Forum in Tokyo, Expolanka Group Managing Director and CEO Hanif Yusoof said Sri Lanka is going to be what is Singapore or Djebel Ali is today.

Apparently the deal has been in the making since then with extensive due diligence being carried out confidentially by KPMG, and protracted negotiations on which way to structure it best.

Global footprint

With a cluster of companies focusing on multi-modal freight and transport solutions and a global footprint spanning four continents and 18 countries, SG Holdings currently owns 24 locally-incorporated subsidiaries in 10 countries outside Japan, including China, Vietnam, and Singapore.

The group has identified the strengthening of their overseas operation in the area of global freight forwarding as one of its core pillars. It said the acquisition of Expo was with the view of consolidating its operations in Sri Lanka and strengthening its global presence.

Last week Expo announced that its Expo Global Distribution Centre (a value-added bonded warehousing facility) executed its first shipment under the free-port regulations at the Katunayake Export Processing Zone. The exporter was Eskimo Fashion Knitwear and the buyer was Reima Oy of Finland.

“With the Sri Lankan economy moving forward in the positive direction, there is a great potential for export growth as well as global expansion in the freight and logistics industry. The partnership with SG Holdings will get us closer to our vision of being a strong freight and logistics player in the region – Expolanka Holdings PLC Group CEO/Director Hanif Yusoof”

Following the purchase, SG Holdings Representative Director Nobuaki Kondo said: “We saw great value in Expolanka Holdings and especially the strength and the strategic fit in the freight and logistics business. This acquisition will certainly help Sagawa to further increase and strengthen our footprint in Asia.”

Expolanka Holdings PLC Group CEO/Director Hanif Yusoof said: “With the Sri Lankan economy moving forward in a positive direction, there is a great potential for export growth as well as global expansion in the freight and logistics industry. In view of this, the partnership with SG Holdings will get us closer to our vision of being a strong freight and logistics player in the region.”

Second largest foreign inflow

The deal on Friday was the second largest foreign inflow since Malaysian sovereign fund Khazanah Nasional Berhad bought an 8.4% stake or 71 million shares in premier blue chip JKH for Rs. 13.77 billion on 16 March 2012. The transaction also erased most of the year-to-date outflow (which was Rs. 6.8 billion as of Thursday) and reduced it to Rs. 524.6 million by Friday.

The required quantities (586 million shares) for SG were made available by founder shareholders of Expo – Chairman Osman Kassim and Directors Sattar Kassim, Shafik Kassim and Farook Kassim who shed 5% each from their existing stakes of 14.5%. Group CEO Yusoof sold 7% stake from his 14.5% stake. All five collectively held a 73% stake.

The buying broker for the deal was Nawara Securities (formerly New World Securities) whilst the selling broker was Asia Securities.

The sellers on Friday have given an undertaking that they will not sell in the mandatory offer made by SG Holdings at Rs. 10.70 per share. However in the event other shareholders don’t accept the offer, the five Directors have agreed to sell down further to ensure 21% stake to SG rounding its overall stake to 51%.

Net asset per share of Expo at group level is Rs. 5.19 as at 31 December 2013 and at company level it was Rs. 3.25.

Whilst its 2013/14 Annual Report is still pending, Expo had 8,900 shareholders as at end FY13 of which 8,633 were local individuals. The bulk of these shareholders entered Expo during its IPO at Rs. 14 per share.

Those owning between 1 and 1,000 shares amounted to 3,735 and between 1,000 and 10,000 amounted to 3,884. Among major institutional shareholders as at 31 December 2013 were JKH (4.26%), a JP Morgan fund, (1.9%), Watapota Investments (1.78%) and Ceybank Unit Trust (1.4%).

Core business largest contributor

Expo Group’s core business freight and logistics contributes more than 62% of the group’s revenue and a near 82% of group’s earnings. Over the years, the company has established itself regionally as one of the premium freight provider for the apparel industry and thus, has recorded five year revenue CAGR of 36% (FY09-FY13). 

Moreover, Expo freight which has been ranked number one in Sri Lanka, Bangladesh and Pakistan, whilst securing sixth place in India symbolises the strong footing in the region.

The diversification and overseas expansion strategies augured well with the group recording revenue CAGR of 28% over the past five years (FY09-FY13) and a recurrent net profit CAGR of 36% over the same period.

In the first nine months of FY14, EXPO’s group revenue grew by 19% to Rs. 42 billion and gross profit by 8% to Rs. 6.5 billion. Pre-tax profit was up by 39% to Rs. 1.8 billion which included Rs. 927 million from other income and gains (largely from the sale of stakes in non-core business). After tax profit was up 53% to Rs. 1.46 billion whilst net profit attributable to equity holders of the parent was Rs. 1.34 billion, up by 78% over the first nine months of last financial year.

Expo remains  fundamentally strong and attractive: Softlogic Expolanka Holdings PLC is a fundamentally strong and attractive counter, according to Softlogic Stockbrokers. In a commentary post 30% stake acquisition by SG Holdings on Friday, Softlogic said Expo group is valued at 10.4x FY14E earnings and 15.5 x FY15E net profits which is at a discount to conglomerate sector four quarter trailing P/E multiple of 15.5x. Softlogic Stockbrokers expect an EPS of Rs. 0.4 to come in as capital gains in FY14E, therefore on recurrent basis EXPO is trading at 18.0x FY14E earnings). Moreover with a forecast ROE targeted at 11%, Debt to Equity at 30% and revenue inclined of c.17% in FY15E is backed by the current restructuring strategies (investment target of Rs. 2 billion) to consolidate on its core business. Expo remains a fundamentally strong asset with light counter trading on 1.9x PBV (FY14E) and 1.7xPBV (FY15E) and remains attractive with the share  having a breakup value (SOP value) of Rs. 17.9.

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