Sri Lankan stocks fall to 2-wk closing low; cbank rate move, budget awaited

Reuters: Sri Lankan shares fell on Monday to a two-week closing low as investors awaited the central bank’s monetary policy decision and the national budget presentation scheduled this week.

The Colombo stock index closed 0.28 percent weaker at 6,602.72, its lowest since Oct. 24.

“It was a dull trade as local retail investors were awaiting for direction from the budget. The September quarterly earnings are also either flat or negative, which also failed to boost the sentiment,” said Prashan Fernando, CEO at Acuity Stockbrokers.

Sampath Bank lost 1.3 percent, while Nestle Lanka fell 0.6 percent.

Finance Minister Mangala Samaraweera will present the 2018 budget on Thursday.

The central bank is expected to keep its key interest rates steady on Tuesday to support the sluggish economy despite a pick-up in inflation amid strong credit growth, a Reuters poll showed.

Foreign investors bought shares net worth 15.8 million rupees ($102,898), extending the year-to-date net inflows to 20.4 billion rupees in equities.

The session’s turnover was 588.3 million rupees, lower than this year’s average daily turnover of 941.1 million rupees.

($1 = 153.5500 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Amrutha Gayathri)

Strong growth by top 3 Lankan grocery retail chains

Sri Lanka’s modern grocery retail sector in Sri Lanka – dominated by Cargills Food City, Keells Super and Arpico – is expected to expand in the medium term, supported by aggressive expansion and growth in same-store sales, according to Fitch Ratings. The three companies account for more than 80 per cent of the retail trade.

Increasing per capita income and rising urbanisation should make modern grocery retail more affordable and accessible to a larger portion of the population, the agency said in a report on the retail marker. Sri Lanka’s supermarket penetration is still around 15 per cent compared to 30 per cent for regional peers with similar social and economic characteristics, which indicates the potential for the industry to grow.

The aggregate revenue of all three companies almost doubled to Rs. 121 billion in the year ending March 2017 from Rs. 74 billion ending in March 2013.

“We believe more people are now willing to shop at supermarkets and hypermarkets compared with five years ago, helped by the competitive prices offered by modern retailers, which are equal to or even below the prices of traditional retailers. Modern retailers are able to source products at low prices due to their larger scale while most of the fast-moving consumer goods (FMCG) they sell are subject to maximum retail prices which reduce the price difference with traditional retailers. We believe customers will gradually prioritise convenience and quality over price amid rising income levels, which also bodes well for modern grocery retail,” the report said. 

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Haycarb records turnover of Rs. 7.1bn and PBT of Rs. 296 mn for 1H 2017/18

The Sri Lankan multinational Haycarb PLC reported a revenue of Rs. 7.1 billion and profit before tax of Rs. 296 million for the six months ending 30th September 2017. The profit after tax stood at Rs. 251 million.

Haycarb PLC Managing Director Rajitha Kariyawasan said that whilst the company continued to expand its market reach and recorded a healthy growth in turnover, the sharp increase in the price of its key raw material, coconut charcoal impacted its bottom line significantly. While the company made significant efforts to revise prices upwards through comprehensive discussions with its valued customers, the inability to pass the full impact of the raw material price increases and the lagging effect of price revisions has resulted in lower margins than last year. The company has successfully implemented initiatives to strengthen the raw material supply chain networks in Sri Lanka and Thailand during the period under review through its "Haritha Angara" program of assisting to build more environment friendly charcoal pits in Sri Lanka and by strengthening its own charcoaling operations in Thailand. However, the raw material availability in these two locations is expected to decline during the latter half of the year due to seasonal factors, a key challenge to be reckoned with. The raw material supply chain in Indonesia has recovered from the severe setback it suffered and is expected to improve further during the third and fourth quarters.

He further added, that "the current trend of shortages and resultant increases in prices of coconut charcoal is likely to continue in to the second half of the financial year in Sri Lanka and in India in particular. The company is in the process of negotiating further adjustments necessary to its sales pricing to the extent permissible based on the competitive market conditions. The adverse currency movements experienced in Thailand and Indonesia, where the company has a significant presence, can further aggravate the impact on margins." On a positive note he added that the company has achieved encouraging savings in its lean platforms and growth in some markets and value added product segments that signal potential for the future.

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JKH to fully subscribe its entitlement of NTB rights issue

LBO - Sri Lanka’s diversified conglomerate John Keells Holdings said it will fully subscribe to its entitlement of the proposed rights issue of Nations Trust Bank (NTB).

NTB expects to raise a total of 3.21 billion rupees through the rights issue, of which the JKH share of the rights issue would amount to 959 million rupees.

The John Keells Holdings group currently holds 29.9 percent in Nations Trust Bank.

In line with Basel III, NTB has announced a rights issue of 4 convertible nonvoting shares per 23 ordinary voting shares held at 80 rupees per share.

The shares will be convertible to ordinary voting shares on a quarterly basis as stipulated by the Bank.

Meanwhile, the Central Bank has informed NTB that they permitted JKH to retain its current shareholdings in the bank till 31 December 2020 and reduce it to 15 percent thereafter.

The Central Bank has also required NTB to limit the voting rights of the JKH group to 10 percent with effect from 31 March 2018.

Chairman of JKH, Susantha Ratnayake said NTB will continue to be an associate company of the JKH group and the group’s external auditors have concurred with this position.

Overseas Realty records Rs. 2.6 b 3Q profit

Overseas Realty (Ceylon) PLC recorded a group profit after tax of Rs. 2,572 million for nine months ended 30 September, an increase of 15% over the corresponding period last year.Revenue of Rs. 1,549 million was recorded from Property Leasing at the World Trade Center (WTC) Colombo, an increase of 11% over the corresponding period of last year and the company expects to maintain good occupancy levels during 2017. Revenue from other services was Rs. 188 million, an increase of 26% over the previous period.

Revenue from Apartment Sales of Havelock City Phase 3 was recognised during the quarter since construction of Phase 3 reached the required completion level of 25%, thereby recording revenue of Rs. 507 million, an increase of 79% over the previous period.

As at end September ‘17 almost 50% of Phase 3 Apartment Units had been pre-sold. Piling works of the Havelock City Commercial Development is currently underway and is scheduled to be completed in March 2018.

The Group Net Asset Value per Share as at 30 September 2017 stood at Rs. 29.44 and the Earnings per Share for the period stood at Rs. 2.10.
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Hayleys Fabric returns to profit in 2Q

Hayleys Fabric made a profit of $ 95,854 during the second quarter ended 30 September 2017 as against a loss of $ 162,648 in the first quarter.

Nevertheless, the company is at a cumulative loss of $ 66,794 for the first half ending 30 September 2017.

The main contributory factor for the loss was the unprecedented floods which hampered production in the first quarter.

The outlook for the next quarter, amidst an increase in raw material costs, looks positive with an order book with better margins with production from new machinery also coming into operation. The enhancement of the printing facility with reactive printing and the commencement of sublimation printing and embossing facilities will enhance the company’s product offering to attract a higher market share.

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DPL ups 1H revenue by 26% to Rs. 14.6 b

Dipped Products Group posted Rs. 14.6 billion turnover during the 1st half of the financial year, 26% increase from a year ago. Group Profit before Tax (PBT) for the period improved to Rs. 229 million.

The Hand Protection segment contributed Rs. 8 billion to the revenue, 14% higher than the previous year. The sector was able to grow its sales across global markets consistently by developing high quality products catering to customer specific needs. However due to steep increase in latex prices the contribution to PBT from the segment dropped to Rs. 65 million.

The Plantation segment reported Rs. 6.6 billion in revenue, 44% higher than the previous year. Contribution to PBT from the segment improved to Rs. 164 million. Plantation segment performance was affected by adverse weather conditions and restrictions on weedicides.

Established in 1976, Dipped Products is one of the leading non-medical rubber glove manufacturers in the world, and accounts for a 5% share of the global market. The company’s products now reach 68 countries.

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Senthilverl ups Sunshine Holdings stake to 10%

High net worth but low-profile investor Dr. T. Senthilverl has increased his stake in Sunshine Holdings Plc to over 10%.

This followed the acquisition of 0.676 million shares at Rs. 54.50 on 1 November for Rs. 37 million. His total shareholding is now at 13.76 million shares or 10.08%.

He is the fourth largest shareholder in Sunshine Holdings after Lamurep Investments Ltd. (49.34%), Deepcar Ltd (18.94%) and SBI Ven Holdings Ltd. (10.99%).

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Sri Lanka's John Keells Holdings Sep net edge down

ECONOMYNEXT - Sri Lanka's John Keells Holdings, which has interest in hotels, ports, consumer goods and finance said profits in the September 2017 quarter were marginally down 01 percent from a year earlier, amid higher expenses and lower profits in leisure.

The group reported earnings of 2.69 rupees per share for the quarter. In the six months to September it reported earnings of 473 rupees per share on total profits of 6.5 billion rupees which grew 7 percent.

Gross revenues rose 15 percent 29.6 billion rupees but cost of sales rose at a faster 26 percent to 22.4 billion rupees, shrinking gross profits 10 percent to 7.12 billion rupees.

Administrative expenses rose 11 percent to 3.1 billion rupees, and finance income was flat at 2.5 billion rupees.

Profits from shipping which includes a container terminal rose to 1040 million rupees in the September quarter from 651 million rupees a year earlier.

Financial services profits rose t0 374 million rupees from 245 million

Profits from hotels fell to 719 million rupees from 1.2 billion rupees a year earlier as room rates in Colombo hotels fell and two Maldivian resorts were closed for construction.

Profits at consumer goods and retail fell to 789 million rupees from 1,142 million rupees. Information technology profits fell to 94 million rupees from 133 million rupees.

JKH sells BPO Solutions unit in India for Rs. 633 m

John Keells Holdings (JKH) has sold its 100% interest in a BPO unit in India for Rs. 633 million.

The divestiture occurred in September and the move was due to the fact that the BPO unit did not figure as part of its core business.

John Keells BPO Solutions India provided front, mid and back office support for small to medium enterprises as well as global companies.

The gain on disposal was Rs. 28.5 million whilst the net cash inflow on disposal was Rs. 130.8 million.

In the second quarter of FY18, JKH Group’s Information Technology segment’s profit before tax was Rs. 141 million, down by 13% from the corresponding period of the last financial year.

Last year (FY17), the Information Technology industry group recorded revenue of Rs. 11.11 billion and a PAT of Rs. 468 million, contributing 9% and 3% to Group revenue and PAT respectively.

The 2016/17 PAT increased significantly over the previous year. The Office Automation (OA) business improved its market share in both the mobile and copier markets, driven by increased volumes and revenue from new products.

JKH allowed to keep in Sri Lanka's NTB till 2020, but cut voting rights

ECONOMYNEXT - Sri Lanka's John Keells Holdings has been permitted by the regulator to retain a 29.9 percent stake in Nations Trust Bank, until 2020, but its voting rights have to be cut to 10 percent by 2018, shareholders have been told.

Chairman Susantha Ratnayake told shareholders that the director of banking supervision had informed JKH that its equity stake will have to be cut to 15 percent by 31 December 2020.

But its voting rights have to be cut to 10 percent by March 2018.

NTB has announced a rights issue of 4 non-voting shares for every 23 existing shares at 80 rupees a share to raised 3.21 billion rupees.

The share will be convertible to voting shares on a quarterly basis.

JKH has a 20 percent stake in NTB directly and another 9.9 percent through Mackinnons Keells Ltd.

Sri Lanka’s NTB Sept net profit up 33-pct to Rs1bn

ECONOMYNEXT – Sri Lanka’s Nations Trust Bank (NTB) said net profit for the September 2017 quarter rose 33% to just over Rs1 billion from a year ago with a sharp hike in tax costs and a rise in trading losses while impairment charges fell.

Interest income rose 42% to Rs8.1 billion while interest expenses rose 57% to Rs4.9 billion with net interest income up 24% to Rs3.2 billion, according to interim accounts filed with the stock exchange.

NTB reduced impairment charges for the September quarter by 35% to Rs139 million although for the nine months to September 2017 they rose 38% to Rs745 million.

Earnings per share for the quarter were Rs.4.39. The share last traded at Rs79.90.

EPS for the nine months to September 2017 were Rs10.58 with net profit up 20% to Rs2.4 billion despite the 31% rise in pre-tax profit to Rs5,063 million.

“Post-tax profits increased at a lower rate of 20% as a result of the increase in the effective tax rate stemming from the increase in the financial services VAT rate as well as the additional tax provided for the inter-company dividend payments which impacted the group bottom line growth,” NTB said in a statement.

The dividend income received from the subsidiaries resulted in a higher other operating income for the bank, it said.

The nine-month net interest income increase of 21% was mainly driven by the volume growth which offset the unfavorable impact arising from declining bet interest margins (NIMs), NTB said.

“The faster increase in deposits rates which mirrored market trends due to tight liquidity resulted in interest expenses increasing by 65% whilst the corresponding increase in interest income was lower at 44%,” it said.

“However, NIMs are expected to improve in the forthcoming quarter with the stability of market rates and improved liquidity evidenced during 3Q.”

Net fees and commission based income grew 31% in the nine months primarily driven by cards and trade related products with other operating income also showing good growth due to non-trade related foreign exchange income, the bank said.

However, net trading losses for the year amounted to Rs.492 million.

This was “partly reflective of the swap cost arising from an increase in the funding FX SWAP book of 21% and increase in SWAP premiums by 112bps,” NTB said.

“However, the bank continued to benefit from the relatively lower funding costs of the forex swaps compared to high cost rupee deposits. Realized capital gains on fixed income securities portfolio amounted to Rs131 million for the period under review compared to Rs21 million in the corresponding year.”

Impairment charges for the nine months grew 38% increase mainly due to the increase in individual impairment under the small and medium enterprise (SME) portfolio.

“Collective impairment charges which saw an increase in the previous quarters due to a fall back in recovery targets on consumer portfolios has been fully arrested in the 3Q as seen by the lower collective impairment provisions for the quarter,” the bank said.

Total asset growth for the nine months of 21% was driven by the loan book growth of 18% primarily driven by SME lending, it said.

Deposits grew 21% while current account and savings accounts (CASA) grew by 13% with the CASA mix maintained at 26%.

Commenting on the results and achievements, Renuka Fernando, CEO/Executive Director said:

“It is indeed pleasing to see our core businesses reaching scale and delivering enhanced earnings year on year and our first nine months results are reflective of the collaboration efforts across the enterprise.”

Singer revenue grows to Rs 37 bn in first 9 months

The Singer Group announced results for the nine months ending September 30, 2017 with revenues increasing to Rs. 37 billion, an increase of 12% compared to the same period last year, demonstrating resilience by growing competitively and consistently in tough market conditions.

During the quarter a major milestone occurred with the majority shares of Singer (Sri Lanka) PLC being purchased by Hayleys Group from Retail Holdings (Sri Lanka) B.V., thus making Hayleys the new parent company of the Singer Group.

Both companies together have ensured a smooth and seamless transition where Singer will continue to pursue its programmes and strategies to retain its market leadership in consumer durables. Additionally, synergies with Hayleys and its associate companies augurs a brighter future for the Singer Group and its stakeholders.

Group Net Profit for the first nine months was Rs. 789.2 million, a reduction of 37% compared to the prior year (excluding the one-time gain during first nine months of 2016). Operating Profit decreased marginally to Rs. 2,874 million from Rs. 2,966 million compared to the previous year.

Company net profit also decreased 32% for the first nine months to Rs. 544.9 million.

The third quarter was largely affected due to a reduction in harvesting incomes. As a result, the third quarter revenue increased at a slower pace of 8%.

Net finance cost for first nine months of 2017 increased by 44% to Rs 1,494 million largely due to an increase in interest rates. The lower margins and higher interest rates have both impacted group profitability.

Challenging market conditions, notably the continuous drought in the dry zone, reduction in customer purchasing power due to currency devaluation, increased value added tax (VAT) and higher interest rates and floods in the wet zone contributed to the decrease in the demand for consumer durables.

As a result of the adverse conditions, the company too could not increase prices, and gross margins reduced to 29% in the first nine months compared to 31% last year. The increased mix of smart phone sales, which have lower margins, also impacted the overall group gross margins.

However, the group was successful in lowering selling and administration expenses from 22.6% last year to 21.7% in the current year.

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CSE says stock market continues encouraging performance

• Capital raised through rights issues highest since 2007

• Shift to foreign capital inflow trend in 2017

The Sri Lankan stock market has continued what has been an encouraging year in 2017, where both market indices continue to record positive returns.

The Benchmark All Share Price Index (ASPI) has made a 2.78% gain in October alone and a 6.31% gain year-to-date, while the S&P SL 20 index, which features the CSE’s 20 largest and most liquid stocks, has also improved consistently, making a 5.74% gain in October and a 11.50% gain since the start of 2017.

The positive growth of the indices mark a reversal of the declining trend recorded in 2015 and 2016, during which the ASPI recorded a decline of 5.54% and 9.66% respectively. The performance of the market has also resulted in an improved involvement among investors, where the Daily Average Turnover is recorded at Rs. 943 million year-to-date, which is a 28% increase from Rs. 737 million in 2016.

Commenting on the market performance, CSE CEO Rajeeva Bandaranaike stated: “2017 has offered encouragement as far as market performance is concerned and investors are starting to recognise long-term value in the market. The foreign activity we have witnessed indicates that international investors have been quick to identify an opportunity in Sri Lankan stocks and with the macroeconomic environment continuing to improve we hope to see further advances where the secondary market activity is concerned, especially among local retail and institutional investors.”

The significant amount of capital raised via rights issues during the year presents another standout feature, with the figure of Rs. 37 billion raised as of end October recording the highest yearly figure since 2007. This development continues to indicate the confidence placed by listed companies in the capital market when addressing their additional capital requirements. 

The market has also continued to attract foreign investment throughout 2017, with Rs. 98 billion in foreign buying contributing to a net foreign inflow of Rs. 19.6 billion year-to-date, a figure which is substantial compared to foreign activity in 2015/16. The year 2017 also recorded an all-time high for foreign investor buying recorded in the first half of a calendar year.

An attractive market valuation (P/E), encouraging performance among listed entities and capital gains tax exemptions offered to share transactions are considered to be defining factors in attracting the level of foreign investor interest the market has witnessed so far in 2017.

In the midst of the growth of the indices and a number of other positives so far this year, the market continues to trade at a discount compared to regional peers and offers further opportunities for investors - with a market P/E recorded at 10.99 as of the end of October.

The CSE, through its market development activities, has embarked on an awareness drive in 2017, reaching out to multiple investor segments around the country and in international markets. Such efforts have seen the CSE work with the Securities and Exchange Commission of Sri Lanka (SEC) on ‘Invest Sri Lanka’ Investor Forums in the United States, Australia and New Zealand in 2017 and an island-wide local retail investor focused Investor Forum campaign to create awareness on stock market investment.

The CSE branch network has also conducted over 500 educational programs so far in 2017. In addition, CSE and the Colombo Stock Brokers Association (CSBA) are also presently conducting a series of events presenting investment research on companies featured on the S&P SL 20 Index, to an exclusive audience of local institutional investors.

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