Sri Lankan shares recover from 6-wk closing low on bargain hunting

Reuters: Sri Lankan shares edged higher on Wednesday, ending a seven-session losing streak as investors bought battered down shares a day after the cabinet granted approval for a Chinese-built port lease deal.

The Colombo stock index rose 0.1 percent to 6,669.05, recoding its first gain in eight sessions. On Tuesday, the index had recorded its lowest close since June 13.

Turnover was at a near two-month low of 319 million rupees, around a third of this year's daily average of around 898.9 million rupees.

Sri Lanka's cabinet cleared a revised agreement for leasing its Chinese-built southern port of Hambantota on Tuesday which will bring in around 1 billion dollar inflow, after terms of the first pact sparked widespread public anger in the island nation.

"Bargain hunting in blue chips drove the market as people saw prices are attractive after two weeks of slump," said Reshan Kurukulasuriya, chief operating officer, Richard Pieris Securities (Pvt) Ltd.

Analysts said positive sentiment is returning to the market after the cabinet granted approval for the port deal and exchange control bill presented to parliament.

Foreign investors bought shares worth a net 38.8 million Sri Lankan rupees ($252,686) on Wednesday, extending the year-to-date net foreign inflow to 25.1 billion rupees.

Shares of conglomerate John Keells Holdings Plc rose 0.8 percent while DFCC Bank Plc ended 1.2 percent firmer and Commercial Leasing and Finance Plc rose 3.45 percent. 

($1 = 153.5500 Sri Lankan rupees) 

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

Chevron Sri Lanka unit June net down 34-pct to Rs526mn

ECONOMYNEXT – Chevron Lubricants Lanka’s net profit in the June 2017 quarter fell 34% to Rs526 million from a year ago as floods triggered by heavy rains dampened demand for lubricants.

Sales fell 19% to Rs.2.28 billion during the quarter while earnings per share (EPS) were Rs2.19, according to interim results filed with the Colombo stock exchange.

Chevron Lubricants Lanka’s share last traded at Rs160. EPS for the six months to 30 June 2017 were down 25% to Rs5.62 with sales down nine percent from the year before.

Bigger storage facilities at the new plant of Chevron Lubricants Lanka had helped the firm improve profit margins in 2016, its chairman Farrukh Saeed said in its annual report.

Stockbrokers Bartleet Religare Securities attributed the June 2017 quarter fall in profit of Chevron Lubricants Lanka to floods which had reduced demand for lubricants.

“Reduced top line contribution from the indirect channel following the torrential rains trickled down to the bottom line,” it said in a note on the June quarter results.

Chevron Lubricants Lanka’s June quarter EPS of Rs 2.19 were below its forecast of Rs2.99.

“The variance was due to revenue decline though the lower cost of goods sold could not match the revenue shortfall,” it said.

Lower sales were mainly due to the loss of revenue from the indirect channel which could be mainly attributed to the impact from floods that hindered the demand for lubricants, Bartleet Religare Securities said.

Ceylon Guardian realizes capital gains in face of tax uncertainty

Not best of times to sell but uncertainty on capital market taxes forced our hand, says chairperson

Ceylon Guardian Investment Trust PLC, the country’s wealthiest quoted investment trust, had encashed some unrealized capital gains in its portfolio last year, selling down at a disadvantageous time over concerns on new taxes, the company’s recently released annual report said.

Saying they were carrying "significant" capital gains in their portfolio as a result of a strategy of value driven long term investing, "in order to protect shareholder returns we realized profit on investments that had significant gains over the years," it said.

As a result they had divested "significant positions" in John Keells Holdings, Commercial Bank, Sampath Bank and Tokyo Cement "to secure gains to shareholders under the present tax regime."

"This divestment was prompted by an anticipated tax on share trading as a business," the report said. "It is of significant concern that tax issues have caused us to sell at an unsuitable time. Nevertheless, as a cautionary measure, we decided to realize the higher accumulated gains."

Guardian which is the holding company of the investment business of the Carson Cumberbatch Group held an investment portfolio worth approximately Rs. 18.7 billion as at Mar. 31, 2017. The holding included stakes in some of the country’s best blue chips.

The year under review saw the Group posting an attributable profit of over a billion rupees, double that of the previous year largely on account of capital gains.

Mrs. Rose Cooray, the company’s chairperson, said in the report that the group had performed exceptionally well in a turbulent environment with its discretionary portfolio significantly outperforming the All Share Price Index of the Colombo Stock Exchange during a three-year period by posting a compounded annual growth rate of 4.37%.

"The discretionary portfolio provided a 9.10% annual return for the financial year in a flat market environment," she noted.

On realizing capital gains on some blue chips in the portfolio, Cooray said: "Though it was not the best of times to sell out, lack of confidence in the direction of capital market taxes forced us to realize gains at a sub-optimal point of time to protect shareholder returns."

Guardian’s top five holdings at the end of the year under review comprised HNB, Sampath, Cargills, Commercial Bank and Dialog with a market value opf Rs. 5.25 billion comprising over 40% of its discretionary portfolio.

Carsons which is the controlling shareholder of Guardian holds 67.15% of the company with the second biggest shareholder, Thurston Investments Ltd. owning 3.74% and the EPF 3.58%. The ETF too has 0.59% with some foreign funds and high net worth investors being among the top 20 shareholders with individual stakes of below 2%.

The directors have proposed a dividend of Rs. 4 per share for the year under review, up from Rs. 3 a year earlier. The Guardian share closed at Rs. 90.10 on Mar. 31, 2017, down from Rs. 119.70 a year earlier, trading between a high of Rs. 175 and a low of Rs. 89 during the year under review.

The directors of the company are Mrs. Rose Cooray (chairperson), Messrs. DCR Gunawardena, VM Fernando, K. Selvanathan, CW Knight, TCM Chia and Mrs. WYR Fernando who succeeded Mr. I. Paulraj who resigned on 15.8.16.

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"Government too burnt by its alcohol policy folly" - Lion Brewery CEO

The taxes on beer is killing demand and since the 70% tax increase in October and November of 2015 beer industry volumes have decreased 40%, Mr. Suresh. K. Shah, the CEO of Lion Brewery (Ceylon) PLC has said in the company’s annual report.

"In the meanwhile arrack – the tax on which was increased by a relatively modest 25% - has seen 12% growth in volumes," he said. "At first glance this might seem a reduction in overall consumption. However arrack has approximately four times the pure alcohol content of beer. Thus while literage may have declined, the pure alcohol intake in the country has increased."

Shah has argued that it is well-accepted fact both in Sri Lanka and abroad that mild alcohols are less harmful than spirits. Thus globally, on average, spirits are taxed twice as much as beer from the perspective of the pure alcohol content in each beverage.

"In Sri Lanka, the reverse is true and beer is taxed 1.5 times more than spirits. Viewed in this context, the tax changes made in October and November 2015 are not rational and cannot be justified. It then begs the question, why?" he said.

Shah says that if the intention of the steep tax increase on beer was to reduce consumption of legally made alcobevs (alcoholic beverages) it has not worked because arrack volumes have grown to compensate.

"Had the intention been to reduce consumption, the tax on arrack – a product far more harmful than beer – should also have been increased by or about 70%. Yet this was not the case.

"Had the intention been to increase revenue to government, that too has been a failure. In Sept. 2015 – the month before the tax increase - the beer industry paid excise taxes of Rs. 2,161 million. In the first quarter of 2017, average monthly revenue from the beer industry is down to Rs. 1,156 million."

He has calculated that if loss in government revenue is annualized, the loss per year would be Rs. 12 billion and said "thus the government too has been burnt by its alcohol policy folly."

Shah has described the ‘beer can tax’ introduced in November 2016 as a "world first." This imposes a tax of Rs. 10 and Rs. 15 for cans below and above 350 ml. He has asked why only beer cans. If the intention was to protect the environment, why not tax similar packaging of other products including beverages.

"All these taxes on the beer industry have sent a strong message to consumers: ‘If you must drink,drink hard alcohol.’ A government policy of promoting hard over soft alcohol is surprising to say the least but consumers facing a challenging economic environment and rising cost of living responded as expected. Beer sales fell and arrack volumes grew," Shah said.

He says that alcohol consumption in Sri Lanka is driven first by illicit alcohol, then by hard alcohol and finally by toddy. Of these, illicit alcohol and toddy are outright dangerous since they are produced under questionable conditions using even more questionable ingredients.

"Legally produced hard alcohol is less harmful than illicit (alcohol) and toddy but certainly more injurious than the much milder beer and wine," Shah has said.

They had brought these points to the attention of appropriate policymakers a number of times and they have not refuted this point of view. But "for reasons best known to them, they have persisted with an alcohol policy that drives consumption of harmful products while marginalizing revenue to government."

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Vallibel Finance assets reach Rs. 30 bn, pre-tax profit passes Rs. 1.39 bn

Vallibel Finance PLC reported its strongest performance ever on the back of a yet another resoundingly impressive financial year with key indicators for the year 2016/2017.

Gross profits rose by a momentous 45.30%, crossing the 1 billion threshold reaching Rs. 1.3 billion as against the previous year’s figure of Rs. 911 million. The announcement comes in the wake of two global awards for the company from the Banking & Finance Review, capping an extraordinary year of highs.

Income, despite challenging times across markets, grew impressively, reaching Rs.5 billion. The increase in gross income marked a 47.5% increase over the previous year’s figure of 3.46 billion, further consolidating the company’s ability to steer through stormy waters.

“A truly triumphant year, indeed for Vallibel Finance to record its best ever performance and to walk away with two prestigious global awards are laurels that make the entire Group proud of its name-bearer.” says Dhammika Perera, Executive Director and Founder Chairman of Vallibel.

Rising public confidence in Vallibel Finance was once again illustrated by deposits which amassed to Rs. 17.8 billion from the previous year’s Rs. 14 billion, a significant rise of 20.67% considering a highly competitive outlook in deposits mobilization. “The public has once again showed its unbridled confidence in us as our annual report shows a year of unparalleled highs in the history of the company in which Vallibel Finance was also bestowed with international recognition, says Jayantha Rangamuwa, Managing Director of Vallibel Finance.

Crossing yet another milestone was the company’s asset base which leapfrogged to Rs. 30.7 billion from Rs. 22.8 billion in the previous financial year. The 34.8% growth in this key indicator mutes testimony to a new-age financial tradition in the making.

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Fitch affirms ratings of 10 Lankan finance companies

Fitch has affirmed ratings of 10 Sri Lankan finance companies. They are, People’s Leasing & Finance, Central Finance Company, Melsta Regal Finance Ltd, HNB Grameen Finance Limited, LB Finance PLC, Siyapatha Finance, Senkadagala Finance, AMW Capital Leasing and Finance, Singer Finance and Mercantile Investments and Finance. In addition, Fitch assigned Siyapatha’s proposed subordinated debentures an expected rating of ‘BBB+(lka)(EXP)’.

The rating actions follow Fitch’s periodic review of the large and mid-sized finance companies in Sri Lanka.

Fitch expects capitalization in the sector to come under pressure as a result of asset quality pressures stemming from a challenging operating environment and unfavorable weather conditions and declining profitability due to higher funding and credit costs.

Fitch sees that the shift in the business mix of the entities considered in this peer review has become more apparent given the slowdown in the vehicle financing segment following the increase in import tariffs, imposition of lower allowable loan-to-value ratios coupled with a high interest rate environment.

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Car registrations decline

Car registration has declined in June compared to May. However brand new motor cars registration has shown a marginal increase by 6% from 982 in May to1,044 in June. However the small car segment share dropped slightly from 94% to 92.6%.

Financing share for Large cars declined from 37.5% to 26.8%, medium car financing share increased from 25.7% to 30.5%. Small car financing share increased from 58% to 61%. Overall financing share for brand new cars increased from 56% to 59%.

Pre-owned motor cars declined MoM by 4% but increased YoY by 38%. Suzuki performed slightly better owning to the Wagon-R. Medium car segment share for Pre-owned cars declined from 55% in May to 49% in June. Overall financing share for pre-owned cars increased from 49.3% to 53.6%.

Overall premium motor cars observed significant growth from last month, further it has also reached its highest in the year so far.

Brand new premium cars were led by Mercedez Benz(E-Class) and the Audi ( A-6). Used premium cars were led by BMW 5-series and Mercedez Benz E-class.

Electric cars also got a slight relief from its downward trajectory, increasing from 9 in May to 13 in June. SUV’s continued its momentum increasing from 472 in May to 492 in June. Brand new SUV’s were up by 30% MoM while pre-owned SUV’s declined by 3%. No significant changes in Hybrid category. Toyota’s witnessed a decline especially the Axio (from 539 to 493 in June).

Van registrations declined in June, with both Midsize vans’ and mini vans declining. Financing share increased marginally from 69.6% to 71.1%.

3-wheelers continued its upward trajectory, increasing by 12.5% MoM. Financing share increased from 59.7% in May to 63.4% in June. 2-wheelers declined in June by 11.6% MoM. Scooters also observed a decline from 17,783 in May to 14,846 in June.

Financing share for 2-wheelers remained at 71%. No major changes for Pickup registrations from last month.

Meanwhile the registratrion of mini trucks has increased by 12% MoM. Brand new Mini trucks totaled 230 in June in comparison to 197 in May.

Mahindra observed a growth in market share from 16.8% to 20.9%.

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Amana Bank doubles capital, Rights Issue oversubscribed

Amãna Bank was infused with over Rs. 4.75 billion to its capital base, when its shareholders expressed confidence in the Bank resulting in its recent rights issue being oversubscribed.

In doubling its capital, the Bank issued 1,250,695,567 ordinary voting shares in the ratio of one new share for every share held at an issue price of Rs. 3.80 per share. With the fresh capital input, the Bank has comfortably met the statutory capital requirement of Rs. 10 billion, well ahead of the January 2018 timeline. Subscribing to the Rights Issue, IB Growth Fund (IBGF) together with their ultimate parent company Islamic Development Bank (IDB), have increased their shareholding to 29.9% of the Bank, showing strong confidence on the Banks future and the country’s economic progress and future prospects, despite Sri Lanka being a non-member country of the IDB. Commenting on the successful rights issue campaign, the Bank’s Chairman Osman Kassim said “The oversubscription of the Bank’s Rights Issue signifies the confidence our shareholders have in Amãna Bank’s journey and we are really honoured and grateful to have their support and commitment. This capital infusion will take the Bank to greater heights”

Chief Executive Officer Mohamed Azmeer said, “I am very optimistic of our future and look forward to the excitement and challenge as we enter our next phase of growth.”

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NDB records highest ever Profit After Tax of Rs 2.3 bn

National Development Bank PLC (NDB) concluded the first half of the financial year with a record Profit After Tax (PAT) of Rs 2.3 billion (81% growth YOY).

This is the highest recorded PAT for the Bank in its history for the first half of a financial year, which was supported by commendable growth in core banking operations and dividend contributions from Group companies.

The reported growth levels for the Bank’s Profit Before Tax (PBT) of Rs 3,814 million was 70% over the comparative period of H1 2016. It is noteworthy to mention that the PBT and PAT of the Bank, excluding the Group dividends grew impressively by 56% and 63% respectively, which is a clear reflection of the strong performance of the core banking operations.

The Balance Sheet grew by 9% in 6 months and stood at Rs 365 billion. This was supported by the growth in loans and advances to customers which grew by 11%, (by Rs 24.8 billion) and deposits by a notable 17%, (by Rs 35.5 billion), furthering the growth momentum achieved in the first quarter of the year.

The Director, CEO of NDB, Dimantha Seneviratne, sharing his views on the performance of the 1st half, mentioned that the Bank has been able to well maintain the sound growth coming from all the sectors diversifying the core banking income base.

Net interest income (NII) recorded a 17% growth over the corresponding period to Rs 4,746 million. This growth is satisfactory in an environment where the loan book has grown by 11% where further volatility and downward trend in interest rates are noted.

Net fee and commission income grew by 6% in H1 2017 over H1 2016 up to Rs 1,141 million. The Bank envisages stronger growth in net fee and commission income in to the future. Improving the net interest income to net fee and commission ratio up 30:70 ratio is one of the key strategic priorities of the Bank.

Net gains from trading of Rs 533 million grew by 17% in H1 2017 over the comparative period. Other operating income was Rs 1,197 million and included dividend earned from the NDB Group companies.

The total impairment charges for H1 2017 was Rs 581 million, a reduction of 30% compared to H1 2016. The sound credit review and monitoring processes have resulted in reduced impairment charges which are also reflected in an improved Non-Performing Loan ratio (NPL) for H1 2017.

Total operating expenses were kept under close watch with only a 5% increase over the prior period. Managing growth in operating costs, amidst accelerated business growth and inflation is one of the key challenges managed well via structured and focused cost management initiatives, as opposed to cost cuts.

The Bank made encouraging strides in the Balance Sheet (growth of 9%) during the first half of 2017 to reach Rs 365 billion with a quantum growth of Rs 30 billion. Asset growth was supported by the growth in loans to customers by an 11% growth, to close at Rs 252 billion, (by Rs 24.8 billion). its grew by an impressive 17%, (by Rs 35.5 billion).
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