JKH hits post war valuation lows as second Balendra era beckons

LBO – The Colombo Stock Exchange has had a tough 2018, and there is no stock where this is more apparent than John Keells Holdings (JKH). JKH has been referred to as Sri Lanka’s bluest of blue chips.

To many foreign institutional investors, JKH is the only stock in Sri Lanka that meets their investment criteria. Along with Ceylon Tobacco (CTC), JKH is only one of two listed companies that have market capitalisations over US$1bn. However unlike CTC, JKH’s entire float is free, with no controlling or even dominant shareholder.

JKH, whose footprint spans many industries, is seen by foreign investors as an equity proxy for entire Sri Lankan economy. It is also the only stock where foreign investors can effectively enter and exit position sizes in excess of US$10mn.

The emergence of JKH as Sri Lanka’s premier listed company took place under the stewardship of Ken Balendra, perhaps the most pre-eminent corporate figure in the history of Sri Lanka. Ken took over from Mark Bostock and was the first Sri Lankan head of JKH. For the last decade the company has been led by Chairman Susantha Ratnayake, and recently retired Deputy Chairman Ajit Gunawardene.

For the next decade, JKH will be led by the scion of the legendary Ken Balendra, his son Krishan. Upon the retirement of Ajit Gunawardene, Krishan Balendra was recently appointed Deputy Chairman and will officially take over as Chairman/CEO on January 1st.

Krishan Balendra is already one of the most well known corporate figures in Sri Lanka. He has chaired the Colombo Stock Exchange, Nations Trust Bank, and led several JKH subsidiaries. He is a proven commodity and for some time has been the front runner for the JKH CEO position.

The next generation Balendra will take over a JKH that is in a significant transition. The immediate complex issue to be addressed is a billion dollar bet on their Cinnamon Life property development. Although one would think that post war boom would be in full force, enabling Cinnamon Life to be a smashing success, this is not the case. GDP growth in the Sri Lankan economy has sputtered, and political prospects are uncertain. Their property development has also faced significant delays and uncertainty over the ROI of the project that was previously planned with casino license in mind.

The Malaysian sovereign fund Khazanah, JKH’s largest shareholder with a 10.2% stake, is sitting on a significant loss in dollar terms. Sources say that they are likely to be a seller of the stock at the right price.

The company’s city hotels, the Cinnamon Grand and Cinnamon Lakeside, have been in decline since the opening of the far superior Shangri La. Both these city hotels are rumoured to be for sale, with a possible deal already in the works.

Most importantly for investors, the stock is in the dumps. JKH is now hitting valuation levels not seen in the post war period. The company trades at Rs138, below its net asset value of Rs144. It also trades at less than 10 times trailing earnings. Analysts say that these valuations are almost unheard of, and are below the market price to earnings (PE) and price to book (PBV) ratios. JKH has almost always traded at a premium to the market.

Many in Sri Lanka are excited at the change of leadership at JKH. Senior staff have indicated that they are looking forward to a new generation of leaders and a relatively young CEO. With the stock in the dumps, incoming CEO Krishan Balendra has a lot on his plate.

Cabinet awards Rs1.5bn contract to ACL Cables for supplying aerial conductors

LBO – Sri Lanka’s cabinet of ministers has approved a proposal to award a contract of supplying 2,500 km of aerial bundle conductors to ACL Cables.

The proposal presented by Power Minister Ranjith Siyambalapitiya shows that the value of the contract is 1,456 million rupees.

Meanwhile, the government has also decided to establish a 10 Megawatt solar power plant in a land near the grid substation Valachchenai upon construction, ownership and maintenance basis.

Accordingly, the cabinet has approved the proposal to award this contract to Didul (Pvt.) Ltd at a cost of 12.49 rupees per 1 Kilowatt Hour.

Sri Lanka’s 01-year Treasury yield rises to 9.43-pct

ECONOMYNEXT - Sri Lanka’s 01-year Treasury Bill yield rose 04 basis points to 9.43 percent at an auction Wednesday from last week, data from the state debt office showed.

The 3-month yield edged up 03 basis points from a week earlier to 8.35 percent while the 06-month yield stayed steady at 8.85 percent.

The state debt office offered 15 billion rupees of Treasury Bills and accepted bills worth 11 billion rupees, having got bids of 31 billion rupees.

Sri Lankan shares hit 15-month closing low on foreign selling

Reuters: Sri Lankan shares extended losses on Wednesday to hit their lowest close in more than 15 months as continued foreign selling in blue-chip stocks dampened sentiment.

Concerns about lower economic growth also dented sentiment, analysts said.

The Colombo stock index declined for a 17th session in 19 and closed 0.61 percent weaker at 6,044.03, its lowest close since March 30, 2017. On Monday, the index fell the most in intraday trade in nearly 28 months.

Foreign investors sold for the tenth consecutive session, extending the foreign outflow to 1.1 billion rupees ($6.94 million) worth of equities.

Foreign selling has continued, and this is mainly due to foreign investors’ exit from emerging markets,” said Dimantha Mathew, head of research, First Capital Holdings.

Foreign investors net sold equities worth 82.1 million rupees, extending the year-to-date foreign outflows to 1.82 billion rupees.

Turnover was 261.6 million rupees, less than a third of this year’s daily average of 926.2 million rupees.

Top conglomerate John Keells Holdings closed 1.3 percent lower, Distillers Co of Sri Lanka Plc ended 1.5 percent lower, leading fixed line telephone operator Sri Lanka Telecom Plc ended down 3.2 percent and Lanka ORIX Leasing Co Plc closed 3.1 percent lower.

Investors are waiting for some positive news both on the economic and political fronts, said analysts, adding that the government’s policy implementation had been sluggish since both main parties in the ruling coalition suffered local polls in February.

Finance Minister Mangala Samaraweera said last month that the economy was likely to grow about 4.5 percent this year, below a central bank estimate of 5 percent.

The International Monetary Fund (IMF) said on June 20 that Sri Lanka’s economy remained vulnerable to adverse shocks because of sizable public debt and large refinancing needs.

Ratings agency Moody’s said on Wednesday a strengthening U.S. dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation.

Moody’s said a strong U.S. dollar would also lead to a drop in foreign exchange reserves of countries such as Argentina, Ghana, Mongolia, Pakistan, Sri Lanka, Turkey, and Zambia.

($1 = 158.6000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez, Editing by Sherry Jacob-Phillips)

Colombo Stock Exchange to launch new board for SME sector security listings

LBO – Sri Lanka’s Securities and Exchange Commission with the Colombo Stock Exchange will be launching a Small and Medium Enterprise Board for the SME sector next week.

The SME Board which is to be launched for the first time in Sri Lanka will provide an opportunity for the SME sector to empower entrepreneurship by generating capital through the stock market.

This new SME Board named as ‘Empower’ will be introduced in addition to the Main Board and Dirisavi Board already existing in the Colombo Stock Exchange.

The Colombo Stock Exchange has 299 companies representing 20 business sectors as at 29th March 2018, with a market capitalization of 3,032.7 billion rupees.

Public companies incorporated under the Companies Act or any other statutory corporation, incorporated under the laws of Sri Lanka are currently eligible to seek a listing on the exchange to raise debt or equity.

Companies desiring to be admitted to the official list of the exchange and to secure a listing of their securities will be required to comply with the listing rules of the exchange.

Colombo stocks sink to new lows with S&P SL 20 index down 10% for 2018

LBO – Colombo stocks continued their decline hitting new lows for 2018.

Key indices were both lower with the All Share Price Index (ASPI) down .77% and the S&P SL 20 down 1.34% on the session.

Turnover was a weak Rs566mn (US$3.6mn).

The trend of foreign selling continued as net foreign sales were Rs183mn (US$1.2mn).

Year to date the ASPI is down 4.52% while the S&P SL 20 is now down 10%.

Index heavyweight John Keells Holdings (JKH) was hit hard down 3.4%, with trading in its shares accounting for 32% of the total paltry market turnover.

With stocks moving down steadily and closing at the lows of the day, several brokers expect the pain to continue.