‘Elpitiya Plantations Firing up the Palm oil Engine’

Elpitiya Plantations PLC (ELPL) is a listed regional plantation company engaged in Tea, Rubber and Palm oil cultivation. ELPL is expected to grow its earnings at a CAGR of c.36% FY16-FY19E, to c. LKR 500Mn in FY19E. Earnings will grow on the back of Palm oil having segment margin improving and contribution to revenue portfolio increasing. FC Research expect ELPL to provide an annualized return of 46% with a fair value of LKR 27.0 by FY18E. STRONG BUY

Palm oil to drive bottom line growth: ELPL’s top line is expected to grow at a CAGR of c.10%YoY in FY16-FY19E. FC Research expect that performance will be on the back of earnings from Palm oil improving with a CAGR of c.28%YoY. As of FY16 Palm oil contributed 17% to ELPL’s revenue portfolio which FC Research expect to increase to c.27% by FY18E. This growth is on the back of global Palm oil prices moving upward due to expectations of global shortages in supply matching demand and mature palm oil plantations hectarage of ELPL increasing by CAGR of c.13%.

Multiplexing revenues through investments: ELPL has diversified from its principal activities to manufacturing specialty tea Hydro power generation, hotel and adventure park operations through its investments which will create additional revenue streams to ELPL. FC Research expects ELPL to benefit substantially from Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd as it will provide an edge to acquire market share in China, 10th largest customer of Ceylon tea and a high growth market, and AEN Palm Oil processing (Pvt) Ltd will provide synergy to ELPL by boosting margins in the segment.

ELPL to provide a return of 46% by FY18E: FC Research estimates ELPL’s fair value at LKR 27.0 (DCF based LKR 30.5, PER based LKR 24.3) providing an annualized return of 46% in FY18E.

Investment risk: Impact from government policy actions in estate worker wage hike and cap on land held by plantations Company is yet to be seen. ELPL is also exposed to the risks of key currency rates’ fluctuations and volatility of product prices.
-First Capital
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Sri Lanka's Bank of Ceylon sells out of Mireka Capital Land

ECONOMYNEXT - Sri Lanka's Overseas Realty (Ceylon) Plc, said it had bought a 40 percent stake in a property unit from state-run Bank of Ceylon boosting its stake to 100 percent.

Overseas Realty said it had paid 3.88 billion rupees to buy the 40 percent stake in Mireka Capital Land Ltd.

Mireka Capital Land is involved in Colombo's Havelock property project.

Sri Lanka Amana Bank seeks foreign investors for capital enhancement

(LBO) – Sri Lanka’s Amana Bank today said its director board is currently in discussions with prospective foreign investors to enhance their capital in line with Central Bank requirements.

The budget 2017 proposed to increase the minimum core capital level from the current 10 billion to 20 billion rupees for all licensed commercial banks.

It also proposed to increase the minimum capital of licensed specialized banks to 7.5 billion and primary dealers to 1.5 billion rupees.

“The Bank is seeking to enhance the required capital as per CBSL requirements,” Amana Bank said in a stock exchange filing.

Amana Bank said such raising of funds, by way of equity would be subject to the approvals of the Central Bank, Exchange Control Department, SEC, CSE and shareholders.

“The Bank would make further Announcements to the market, on the progress of such discussions, upon receiving firm commitments.”

The government is of the view that consolidation of financial institutions will be beneficial in the long term and encourages voluntary consolidation especially for the private banks.

The government said it will enhance the size of the banks, facilitate the fund raising from diversified sources, enhance risk taking capacities and enable banks to participate in large state and private sector projects.

Sri Lanka’s banking sector is relatively polarized with 6 banks out of the total 34 banks in the country accounting for almost 65 percent of the assets at around 5,600 billion rupees.

Newly listed Melstacorp wants to blend revenue streams

(LBO) – Sri Lanka’s newly listed Melstacorp is to blend the revenue streams the group receives through its different sources to ensure an appropriate blend, Managing Director Amitha Gooneratne said.

He emphasized that the company wants to maintain its diversified interests and income generation going forward.

“The greatest challenge of Melstacorp would be to blend the fusion of the income the group receives through its different sources,” Gooneratne said.

Gooneratne was speaking at the commencement of share trading of Melstacorp at the Colombo Stock Exchange today morning.

“Our main objective is to ensure that the income from the non-alcoholic beverage sector becomes almost equal, which would ensure an appropriate blend of revenue streams.”

Directors Royle Jansz, Jagath Kahanda, Vyjayanthimala Senaratne, Corporate Consultant Damien Fernando and the senior management of Melstacorp were present at the ceremony.

The listing of Melstacorp by way of an introduction follows a decision by the shareholders of the Distilleries Company of Sri Lanka to establish Melstacorp as the holding company of the group, marking a modification in the ownership structure.

The shares, which were listed by introduction on the Main Board of the CSE have been classified under the ‘Diversified Holdings’ sector.

Melstacorp Limited is a diversified conglomerate with its business interest spanning beverage, plantations, telecommunication, financial services and other diversified sectors.

The Distilleries Company, Balangoda Plantations and Browns Beach Hotels which are listed on the CSE are subsidiaries of the Melstacorp Group.

CSE listed conglomerate Aitken Spence and Madulsima Plantations are associate companies of Melstacorp.

Monetary Policy Review – December 2016 - Policy rates unchanged

According to the provisional estimates of the Department of Census and Statistics (DCS), the Sri Lankan economy is estimated to have grown by 4.1 per cent during the third quarter of 2016 compared to the growth of 5.6 per cent in the corresponding period of the previous year. Services activities grew by 4.7 per cent, while Industry activities grew notably by 6.8 per cent during the third quarter of 2016. However, Agriculture related activities continued to report a contraction, for the second consecutive quarter, by 1.9 per cent, impacted by the adverse weather conditions that prevailed during the third quarter of 2016. Favourable developments in leading economic indicators as well as the lower base in the fourth quarter of 2015 are likely to steer economic growth upwards in the final quarter of 2016 in spite of the effect of adverse weather conditions and global economic uncertainties.

Headline inflation, as measured by the Colombo Consumers’ Price Index (CCPI, 2006/07=100), increased to 4.1 per cent, on a year-on-year basis, in December 2016 from 3.4 per cent in November 2016. In the month of November, headline inflation as measured by the National Consumer Price Index (NCPI, 2013=100), declined to 4.1 per cent, year-on-year, compared to 5.0 per cent in October 2016. Core inflation increased noticeably during December 2016 mainly reflecting the effect of government tax changes. Consequently, core inflation as per the CCPI accelerated to 6.3 per cent (year-on-year) in December 2016 from 5.1 per cent in November 2016, while core inflation based on NCPI increased markedly to 6.8 per cent in November 2016 from 5.7 per cent in October 2016. Despite these transitory movements, inflation is likely to remain at midsingle digits in the period ahead, on average.

In the monetary sector, year-on-year growth of credit extended to the private sector by commercial banks witnessed the anticipated deceleration, and was 22.0 per cent in October 2016 compared to 25.6 per cent in the previous month. However, the net increase in credit extended to the private sector, in absolute terms, remained high at Rs. 79.0 billion during October 2016. Meanwhile, credit to the public sector from commercial banks increased modestly in October 2016. Accordingly, broad money (M2b) growth decelerated to 17.8 per cent, on a year-on-year basis, in October from 18.4 per cent in September 2016. Rupee liquidity in the domestic money market returned to surplus levels in December, while market interest rates, which increased in response to monetary tightening measures adopted by the Central Bank, appear to have broadly stabilised during the month.

In the external sector, mainly due to the effect of a one-off increase in the expenditure on imports, the deficit in the trade balance increased substantially in October 2016. Earnings from tourism as well as workers’ remittances continued to grow at a healthy pace. Gross official reserves were estimated at US dollars 5.6 billion by end November 2016, while the Sri Lankan rupee has depreciated by 3.6 per cent against the US dollar thus far during the year.

Taking into consideration the developments discussed above, the Monetary Board, at its meeting held on 30 December 2016, was of the view that the current monetary policy stance of the Central Bank is appropriate. Accordingly, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 7.00 per cent and 8.50 per cent, respectively.