Rupee depreciation and Interest rate rise to gradually slowdown consumer demand; Market returns may struggle over the Medium Term…
We expect consumer demand to remain high though on a marginal decelerating trend during 1H2016 amidst higher disposable income among consumers. The rupee depreciation and rising interest rate environment may affect the economy predominantly during the 2H2016 while the effect will be partially felt during the latter part of 2Q2016 as well. Amidst significant forex losses wiping out the high growth rates produced via consumer demand, we would like to downgrade our Earnings forecast to Dec 2015E /Mar 2016E at 9%-11%YoY from the previous 11%-13%. With the slowdown in economic conditions we continue to maintain our earnings forecast for Dec 2016E / Mar 2017E at 4%-5%YoY.
In terms of market returns we expect a volatile period during the short term due to strong earnings and rise in interest rates. However, with earnings expected to slow down over the medium term 1 year period and continued rise in interest rates, we expect market returns to be negative.
Our previous forecasts on earnings
Our "Results Update June 2015 Report" forecast for future earnings was as follows:
Consumer Demand to continue until rupee depreciation and interest rate hike; Market returns may continue its positive trend: The significantly high consumption demand taking place is adversely affecting the balance of payments resulting through heavy imports. We expect credit growth and consumption demand to continue up until a heavy rupee depreciation and an interest rate hike which is gradually taking place. In addition to the Banking and Finance, Food & Beverage, Manufacturing and Trading sectors which are positively benefited by the credit growth and consumption demand, we expect the currency depreciation to positively benefit hotels, plantation and selected manufacturing sector exporters. Amidst the developments we maintain our market earnings forecast for Dec 2015E / Mar 2016E at 11%-13%YoY. The positive market returns are likely to continue with settling of the political and policy uncertainty. We expect a slowdown in economic conditions beyond June 2016 resultant to likely rise in interest rates affecting companies across the board. As a result we expect Market earnings to slowdown for the earnings period Dec 2016E / Mar 2017E resulting in an earnings forecast of 4%-5%YoY.
Our "Results Update March 2015 Report" forecast for future earnings was as follows:
Consumer Demand to drive Dec 2015E / Mar 2016E earnings growth; Market returns may improve once uncertainty settles: Low interest rate regime, higher disposable income and stable exchange rate are likely to drive market earnings for Dec 2015E / Mar 2016E positively affecting Banking and Finance, F & B, Manufacturing and Trading sectors while indirectly affecting Diversified sector as well. We continue to maintain market earnings forecast for Dec 2015E / Mar 2016E at 11%-13% YoY. We believe market returns are likely to stay low amidst the current uncertainty in the political front. We expect Market returns to be strong once the prevailing uncertainty settles down. However, we expect a slowdown in economic conditions beyond June 2016 due to possible rise in interest rates affecting companies across the board. As a result we expect Market earnings to slowdown for the earnings period Dec 2016E / Mar 2017E resulting in an earnings forecast of 4%-5% YoY.
Our "Results Update December 2014 Report" forecast for future earnings was as follows:
Earnings Forecast for Dec 2015E / Mar 2016E remain at 11%-13%; Market returns to grow once uncertainty settles: We upgrade our earnings forecast for Dec 2014 / Mar 2015E to 10%-12% from the previous 6% -7% amidst earnings continuing to remain above our expectations predominantly led by heavy trading income in the banking sector and consumer led earnings growth coming in earlier than we anticipated. We continue to remain bullish on consumer led earnings growth which is likely to drive market earnings in Dec 2015E / Mar 2016E to reach our forecast of 11%-13%. Market returns suffered during the current 2 quarters with Dec Quarter recording +0.6% return and Mar Quarter up-to-date recording c.-2.3% amidst the prevailing political uncertainty. Despite healthy earnings growth in most companies, gap between market returns index and market earnings index has been widening; thereby we are bullish on market returns during the 2H2015 when the policy direction becomes clearer and the political uncertainty settles down.
Our "Results Update September 2014 Report" forecast for future earnings was as follows:
Earnings recovery on track; Market returns may show strong growth: With company earnings registering in line with our expectations, we continue to maintain our forecast for Dec 2014E / Mar 2015E earnings growth at 6%-7% YoY while retaining our forecast for earnings growth for Dec 2015E / Mar 2016E at 11%-13%. In line with previous expectations market return slowed down during the last 2 months with the market return registering a growth of 0% while the YTD return remained at 23%. Amidst the growth in Market Earnings being in line with expectations and slow Market Returns in the last few months, we expect Market Return to remain strong during the next few quarters once the political uncertainty eases off.
Forex losses and Commodity Price decline outweighs Consumption boom Sep Quarter -6% YoY: September quarter earnings showed a slowdown to -6% YoY to LKR 47.6Bn and 2%QoQ marginal improvement on the back of continuously under performing Power & Energy, Oil Palms and Plantations sectors. Positive contribution derived from growing consumption led Banking, Finance & Insurance, Beverage, Food &Tobacco and Manufacturing sectors have assisted earnings to maintain at supportable level.
We expect consumer demand to remain high though on a marginal decelerating trend during 1H2016 amidst higher disposable income among consumers. The rupee depreciation and rising interest rate environment may affect the economy predominantly during the 2H2016 while the effect will be partially felt during the latter part of 2Q2016 as well. Amidst significant forex losses wiping out the high growth rates produced via consumer demand, we would like to downgrade our Earnings forecast to Dec 2015E /Mar 2016E at 9%-11%YoY from the previous 11%-13%. With the slowdown in economic conditions we continue to maintain our earnings forecast for Dec 2016E / Mar 2017E at 4%-5%YoY.
In terms of market returns we expect a volatile period during the short term due to strong earnings and rise in interest rates. However, with earnings expected to slow down over the medium term 1 year period and continued rise in interest rates, we expect market returns to be negative.
Our previous forecasts on earnings
Our "Results Update June 2015 Report" forecast for future earnings was as follows:
Consumer Demand to continue until rupee depreciation and interest rate hike; Market returns may continue its positive trend: The significantly high consumption demand taking place is adversely affecting the balance of payments resulting through heavy imports. We expect credit growth and consumption demand to continue up until a heavy rupee depreciation and an interest rate hike which is gradually taking place. In addition to the Banking and Finance, Food & Beverage, Manufacturing and Trading sectors which are positively benefited by the credit growth and consumption demand, we expect the currency depreciation to positively benefit hotels, plantation and selected manufacturing sector exporters. Amidst the developments we maintain our market earnings forecast for Dec 2015E / Mar 2016E at 11%-13%YoY. The positive market returns are likely to continue with settling of the political and policy uncertainty. We expect a slowdown in economic conditions beyond June 2016 resultant to likely rise in interest rates affecting companies across the board. As a result we expect Market earnings to slowdown for the earnings period Dec 2016E / Mar 2017E resulting in an earnings forecast of 4%-5%YoY.
Our "Results Update March 2015 Report" forecast for future earnings was as follows:
Consumer Demand to drive Dec 2015E / Mar 2016E earnings growth; Market returns may improve once uncertainty settles: Low interest rate regime, higher disposable income and stable exchange rate are likely to drive market earnings for Dec 2015E / Mar 2016E positively affecting Banking and Finance, F & B, Manufacturing and Trading sectors while indirectly affecting Diversified sector as well. We continue to maintain market earnings forecast for Dec 2015E / Mar 2016E at 11%-13% YoY. We believe market returns are likely to stay low amidst the current uncertainty in the political front. We expect Market returns to be strong once the prevailing uncertainty settles down. However, we expect a slowdown in economic conditions beyond June 2016 due to possible rise in interest rates affecting companies across the board. As a result we expect Market earnings to slowdown for the earnings period Dec 2016E / Mar 2017E resulting in an earnings forecast of 4%-5% YoY.
Our "Results Update December 2014 Report" forecast for future earnings was as follows:
Earnings Forecast for Dec 2015E / Mar 2016E remain at 11%-13%; Market returns to grow once uncertainty settles: We upgrade our earnings forecast for Dec 2014 / Mar 2015E to 10%-12% from the previous 6% -7% amidst earnings continuing to remain above our expectations predominantly led by heavy trading income in the banking sector and consumer led earnings growth coming in earlier than we anticipated. We continue to remain bullish on consumer led earnings growth which is likely to drive market earnings in Dec 2015E / Mar 2016E to reach our forecast of 11%-13%. Market returns suffered during the current 2 quarters with Dec Quarter recording +0.6% return and Mar Quarter up-to-date recording c.-2.3% amidst the prevailing political uncertainty. Despite healthy earnings growth in most companies, gap between market returns index and market earnings index has been widening; thereby we are bullish on market returns during the 2H2015 when the policy direction becomes clearer and the political uncertainty settles down.
Our "Results Update September 2014 Report" forecast for future earnings was as follows:
Earnings recovery on track; Market returns may show strong growth: With company earnings registering in line with our expectations, we continue to maintain our forecast for Dec 2014E / Mar 2015E earnings growth at 6%-7% YoY while retaining our forecast for earnings growth for Dec 2015E / Mar 2016E at 11%-13%. In line with previous expectations market return slowed down during the last 2 months with the market return registering a growth of 0% while the YTD return remained at 23%. Amidst the growth in Market Earnings being in line with expectations and slow Market Returns in the last few months, we expect Market Return to remain strong during the next few quarters once the political uncertainty eases off.
Forex losses and Commodity Price decline outweighs Consumption boom Sep Quarter -6% YoY: September quarter earnings showed a slowdown to -6% YoY to LKR 47.6Bn and 2%QoQ marginal improvement on the back of continuously under performing Power & Energy, Oil Palms and Plantations sectors. Positive contribution derived from growing consumption led Banking, Finance & Insurance, Beverage, Food &Tobacco and Manufacturing sectors have assisted earnings to maintain at supportable level.
Consumption drive persists: Banking, Finance & Insurance sector continued its growth momentum by achieving a profit of LKR 20.60Bn (+6% YoY) primarily led by the boost in private sector credit growth. Cost efficiencies and improved demand along with increased disposable income drove profitability in both Beverage, Food & Tobacco and Manufacturing sectors by +35% and +20% respectively.
Forex losses and Commodity Price decline: However, global palm oil price crisis reduced the earnings of the Palm Oil sector leading to a YoY decline of 1000% to a loss of LKR 900Bn. Further, negative margins along with the reduction of oil prices led Power and Energy sector to experience a loss of LKR 595Mn (-73%) mainly ascended from LIOC. Diversified sector also saw a decline in earnings by 10% to LKR 724Mn. Change in the exchange rates caused the forex losses in the Telecommunication sector resulting in earnings shredding to LKR 1.3Bn(-65%YoY).
- FC Research
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