C H C Investment buys 31-pct stake in Sri Lanka's Taprobane Holdings for Rs 1.7bn

ECONOMYNEXT - C H C Investment (Pvt) Ltd. has bought a 31 percent stake in the diversified Taprobane Holdings PLC at 5.50 rupees a share in a deal worth 1,709.4 million rupees, a stock exchange filing said.

C H C Investment (Pvt) Ltd. bought 310.8 million shares of Taprobane Holdings PLC at 5.50 rupees a share amounting to 30.99 percent of the firm’s issued capital,Taprobane Securities,a fully owned subsidiary of Taprobane Holdings, said in a statement to the Colombo bourse.

The trade was in two blocks with Ishara Nanayakkara who held a 22.53 percent stake being one seller and P S W Rupasinghe, with an 8.46 percent stake, the other.

Sri Lanka to auction Rs40bn in 5 to 10 year bonds

ECONOMYNEXT - Sri Lanka has called offers to sell 40 billion rupees of 5, 6, 8 and 10 year bonds ahead of a bond maturity with yields moving up slightly over the past week.

The debt office is offering 4.0 billion rupees of 5-year bonds maturing on 01.05.2020, which is not liquid in the secondary market, dealers said.

Bonds maturing on 01.07.2019 were quoted around 8.18/28 percent Friday, up from 8.20 levels on August 18.

Ten billion rupees of 8-year bonds maturing on 01.09.2023 is also offered. Similar bonds were quoted around 9.45/50 percent.

The debt office is also offering 12.5 billion rupees of 10-year bonds maturing on 01.08.2025 and 15-yaer bonds maturing on 15.05.2030.

Ten year bonds were quoted around 9.65/70 percent on Friday, up from 9.45 percent on August 18.

Indicative quotes for the 15-year bond ranged around 10.05/25 percent.

The auction which closes on August 25, has a settlement date of September 01.

There is a 79.5 billion rupees bond maturity of September 01 and yields tend to spike ahead of suc roll-overs encouraging more investors to buy and also for dealers to bid with leveraged funds and sell-them down later.

However in the short end, the Central Bank has started buying up large volumes of Treasury bills to print money and resist an increase in interest rates, which analysts warn is generating pressure on the balance of payments as well as foreign reserve losses.

Sri Lanka company earnings growth picks up in June quarter

ECONOMYNEXT – Sri Lanka’s company earnings growth picked up in the June 2015 quarter as consumption increased, driven by low borrowing costs and higher disposable incomes, a research report said.

Overall market earnings growth in the June 2015 quarter picked up 10.7 percent year-on-year to 46.7 billion rupees after a slowdown to 2.2 percent year-on-year during the March 2015 quarter, CAL Research said.

Trailing 12 month market earnings grew 16.5 percent from a year ago to 207 billion rupees due to low interest rates and improving disposable incomes driving up consumption, compared with a contraction of 8.4 percent during the same period last year, they said.

CAL Research, the research unit of Capital Alliance Ltd., said the Banks, Finance & Insurance sector of firms listed on the Colombo bourse contributed 40 percent to earnings growth, the largest sector-wise contributors to market earnings in the June 2015 quarter.

They were followed by the Beverage, Food and Tobacco sector with a contribution of 18 percent and Diversified Holdings with 13 percent.

Earnings from firms in the Chemicals and Pharmaceuticals sector grew the fastest, up 180 percent from a year ago, followed by those in the Stores and Supplies sector, up 137 percent, and Motor Sector firms, up 78 percent.

But plantations sector firms suffered the most in the June 2015, with earnings falling by 138 percent from the previous year, followed by those in the Hotels & Travels sector, whose earnings slumped 95 percent, and Investment Trusts whose earnings fell 66 percent.

CAL Research said the Colombo Stock Exchange currently trades on a Trailing Twelve Month Price-to-Earnings Ratio of 14.4x and a Price-to-Book Value of 1.6x.

The largest individual contributors to June 2015 quarter earnings on the CSE came from Ceylon Tobacco Company (6.5 percent), Commercial Bank (5.7 percent), Hatton National Bank (5.1 percent) and John Keells Holdings (4.7 percent).

Lanka India Oil Corp. (LIOC) reported a net profit of 171 million rupees in the June 2015 quarter against 1.2 billion rupees in the same 2014 period.

Carson Cumberbatch and Bukit Darah, whose earnings are influenced by palm oil prices, saw net profit declines of 58 percent and 67 percent from the previous year.

The combined earnings of these three firms accounted for 2 percent of market earnings in the June 2015 compared with 9 percent of market earnings the year before.

Excluding LIOC, Carson and Bukit Darah, overall market earnings grew 18 percent in the June 2015 quarter from the year before, CAL Research said.

Sri Lanka shares fall to near 3-week low on global selloff

Reuters: Sri Lankan shares fell about 2 percent to a near three-week low on Monday, posting their biggest daily fall in nearly seven months, after foreign investors exited risky assets as fears of a China-led global economic slowdown churned world markets.

Alarm bells rang across world markets as a 9 percent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.

The main stock index fell 1.87 percent, or 140.08 points, to 7,331.09, its worst single-day percentage loss since Feb. 2 and hit its lowest since Aug. 4.

"Panic selling came in with the global market meltdown. There was heavy selling in stocks with foreign exposure," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd.

"This trend will continue for the next couple of days and there could be some margin selling too as the index fell steeply in a very short period," Mathew said.

Foreign investors were net sellers of 163.6 million rupees ($1.2 million) worth of shares on Friday, extending the year to date net foreign outflow to 1.33 billion rupees.

The day's turnover stood at 3.37 billion rupees, the highest since July 29 and about thrice of this year's daily average of 1.16 billion rupees.

Shares in conglomerate John Keells Holdings Plc fell 2.96 percent, while the country's biggest listed lender Commercial Bank of Ceylon Plc fell 2.46 percent, dragging the index down. 

($1 = 134.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

SL’s regional competition offers more for less, says Eden boss

A major player in the tourism industry has said that significant foreign investment has been made in the country’s tourism industry with local hotels and companies now facing intensified competition with regional challengers offering "more for less."

Mr. Kapila Jayawardene, Chairman of Eden Hotels Lanka PLC, an LOLC company, has said that foreign investment has flown into the hospitality sector here in the context of projected significant growth in the mid to long term.

"Sri Lanka is also facing competition from the region which offers more at a lesser price which causes immense challenges to the local industry," he said in the Eden annual report.

This has resulted in the local industry facing the challenging of reduced margins as well as price pressure coming from markets which were attractive in the past but are currently not performing as a result of the global economic crisis, he noted.

The result was Eden incurring a substantial group loss of Rs. 273.2 million in the year ended March 31, 2015, down from a profit of Rs. 58.9 million the previous year. At company level, there was a loss of Rs. 212.3 million against a profit of Rs. 14.8 million a year earlier.

Jayawardene attributed the lower performance mainly to falling occupancy, reduced room rates and increased operational expenses. Average occupancy for the year in review was down to 58% from 62% the previous year, he said.

However, during the winter season, there was a significant increase in the numbers they hosted and resulting revenue. The average occupancy in the final quarter starting in January was 76% which resulted in revenue of Rs. 252 million in that quarter.

He was optimistic that despite reduced performance against the previous year, the company which had a strong asset base of Rs.4.8 billion as at March 31, 2015 was well positioned for the future.

They had completed a major refurbishment covering the rooms and had also acquired Dickwella Resorts (Pvt) Ltd in the previous financial year in order to strengthen their overall value proposition.

"With the development of the tourism industry in future years, the company is expected to reap the benefits of these investments which will have a positive impact on the company’s profitability and overall value proposition," he said.

He further noted that they had the advantage of LOLC Group resources to strengthen occupancy, increase margins and manage costs.

Dickwella Resorts has ocean frontage on three sides of the property providing sea views for all of its 76 rooms. The sea-water swimming pool and diving centreare also popular, the Director’s report said.

The report said that the directors had reviewed an investment opportunity in Maldives and identified it as one with potential for high returns.

Palm Garden Hotels PLC (46.21%), Confifi Management Services (Pvt) Ltd (10.7%) and the ETF (9.98%) are the top shareholders of Eden. The ETF too owns 3%. Palm Garden and Confifi Management are LOLC companies.

Eden has stated capital of Rs. 525 million, reserves of Rs.1.6 billion and retained earning of Rs.180.8 million in its books. Total assets ran at Rs. 5.03 billion and liabilities at Rs.2.7 bullion.

The Directors of Eden are Mr. W.D.K. Jayawardene, Mrs. K.U. Amarasinghe, Prof. M.T.A Furkhan, S. Furkhan, D.S.K. Amarasekera and Dr. J.M. Swaminadan. 

www.island.lk

Kelani fears dumping of Chinese tyres here

Global supplies exceed demand, China looks for alternative markets in face of prohibitive U.S. duty

The Chairman of Kelani Tyres had warned that the global outlook for tyres originating from manufactures like Sri Lanka looks bleak due to supply being substantially over demand.

"This situation has been further aggravated with the US Government imposing prohibitive duties on Chinese tyre imports which has forced Chinese manufactures to start dumping in alternate markets in Africa, the Middle East and Asia including Sri Lanka," Mr. Chanaka de Silva, Chairman of Kelani Tyres has said in the Company’s annual report.

"Although we did not experience the negative effects of this in Sri Lanka up to now, it is possible that this situation would have serious repercussions on volumes and margins in our business beginning in the next financial year (2015/2016)."

While production in the year ended March 31, 2015 by the Joint Venture (JV) company, CEAT Kelani Holdings (Pvt) Ltd (CKH) which handles the manufacturing business for Kelani Tyres was down slightly to 15,440 mt from 15,469 mt the previous year, the JV’s average profit after tax was slightly over Rs.1.5 billion against Rs. 1.3 billion a year earlier.

De Silva said that the JV was able to maintain its top market position in truck/bus, three-wheeler, tractor tyres and passenger car/van tyres and the second position in motorcycle tyres. CEAT is by far the highest selling tyre in the local market and continues to be placed as the ‘best value’ quality tyre locally.

The year under review had seen 20 new sizes introduced to the market with a state-of-the-art passenger car radial tyre manufacturing facility declared open in June last year.

"We have been able to capture 30% in the domestic radial car tyre segment," de Silva said. "The production of radial tyres would increase to 37,000 monthly with the new facility and we are looking at further expansion and growth in sales in the local market with the introduction of 32 new sizes expected to be introduced to our range in the coming financial year."

He said that the board of the JV continues to take a positive outlook of the industry and they are taking several decisions which would have a positive impact on Kelani Tyres as and when economic opportunities and trends emerge.

The JV had increased its capacity for the manufacturing of motorcycle tyres this year and had commissioned its new state-of-the- art facility in Kelaniya. The initial capacity will be 162,000 tyres a year in 17 sizes, some with all new tread patterns suitable for local conditions.

"This is expected to enhance the CEAT product portfolio in two-wheel segment," de Silva said.

They were investing Rs.365 million on a new compounding/mixing line with most of the items needed for this already ordered. The line will be functional by the end of the next financial year. A further Rs. 165 million is being invested to expand two-wheeler tyre production with the resulting increased production expected before the close of the current financial year.

De Silva thanked the Ministry of Finance for its continued support towards bringing them closer to achieving their objective of import substitution of the country’s total tyre requirement with a quality product on par with international standards and brand names.

He said that based on the performance of the company in the year under review and a subsequent dividend received by JV, the directors have declared an interim dividend of Rs. 1.50 per share amounting to a payout of Rs. 120.6 million for 2015/16.

The Kelani Tyre Group’s share of the results of the joint venture for the year under review was Rs. 750.2 million, up from Rs. 693.3 million a year earlier. Group earnings per share at Rs.8.92 was up to from Rs.8.19 a year earlier while the company’s earning per share was up to Rs.2.07 from Rs.1.65 per year earlier.

Kelani Tyres has a stated capital of Rs. 402 million, and group retained earnings of Rs. 2.23 billion in its books. At company level, retained earnings stood at Rs. 141.2 million. Total group assets stood at Rs.3.2 billion and total liabilities Rs. 188.15 million.

Silverstock Ltd with 41.69% followed by Ceybank Unit Trust (9.69%) Mr. M. Ganaraja (7.88%) and Messrs M.M. and H.M. Udeshi (5.4%) are the principal shareholders of Kelani Tyres. The EPF (2.008%) and the Bank of Ceylon (1.55%) are also among the main shareholders.

The Directors of the Company are Messrs Chanaka de Silva (Chairman), Rohan T. Fernando (MD), Lasantha P. Fernando (Executive Director) T. Bevan Perera (Executive Director) D.S.K. Amarasekera and Ms. S.S. Jayatilaka.

www.island.lk

Ceylon Investment continue stock picking to good advantage

Rs. 986 million profit earned under "exuberant market conditions"

Ceylon Investment PLC, owning a quoted share portfolio worth Rs. 4.6 billion and is a subsidiary of Ceylon Guardian Investment Trust PLC, the country’s biggest quoted portfolio holder, has posted a profit of Rs. 996.9 million in the year ended March 31, 2015, up from Rs. 889.5 million a year earlier according to Company’s Annual Report.

The Company’s Chairman, Mr. I, Paulraj, said that the year under review had been a memorable one with the Colombo Stock Exchange recording a strong positive growth of 14.28% after two years of subdued activity.

The Ceylon Investment’s portfolio has outperformed the market during the year posting 23% growth against the index appreciation of 14.28% with the discretionary portfolio outperforming the market by 7.68% in a three-year horizon and 5.86% on a five-year horizon.

"The Company recorded a profit after tax of Rs.986.8 million given exuberant market conditions," Paulraj said. "Our portfolio value increased to Rs. 13.35 billion from Rs. 11.86 billion, recording an appreciation of 12.52% without adjusting for the distribution of dividend an inclusive of the strategic portfolio."

He said that the company’s portfolio is built for long term sustainability and continuity. Rather than getting into risky but lucrative short-term positions, they believed in holding consistently good companies for continued value creation.

Paulraj admitted that this may mean that their cash resources can sometimes remain uninvested until good equity opportunities are found.

He said that Ceylon Investment remains confident on the long term potential of Sri Lankan equities and the sustainability of the economic development plans set in place. They believe that the long term development potential of the country will flow through to its equity markets if the country continues to adopt good policy frameworks providing a strong foundation for economic activity and good governance.

"Needless to say, serious investor confidence will improve when policy makers as well as corporates take action to demonstrate vibrancy with stability," he said.

However, Pauraj said that the depth of capital markets remain a challenge as investors need a variety of companies to invest in, particularly state-owned enterprises and other top private sector corporates so that the market is more representative of the economy.

Guardian Fund Management Ltd, managers of the Ceylon Investment portfolio, explained that their buy and sell decisions are influenced by whether share prices are above or below intrinsic value. The portfolio was divided into long term core holdings and a short term trading portfolio.

During the year, divestment of holdings generated sales proceeds of Rs.1.25 billion and they had made purchases worth Rs.1.67 billion which made Ceylon Investment a net buyer in the market.

The divestment of the long term segment of the portfolio had focused mainly on Commercial Bank of Ceylon, their largest holding in the banking sector. The stake was cut back "with the superlative share price performance" and the banking portfolio rebalanced by buying intp HNB which they identified as an undervalued stock both in fundamental and relative terms.

"HNB is one of the largest commercial banks in Sri Lanka with an asset base of Rs. 624 billion and is poised for better performance in its strongest segments," the managers said. "However, Commercial Bank yet continues to be one of our largest holdings as we believe that it could deliver consistent steady growth in the long term as the most efficient and highest return-generating private sector bank."

JKH, the largest market-cap company quoted on the CSE was traditionally given high weightage in the Ceylon Investment portfolio. They have now moderated exposure to this stock taking advantage of the spike in share prices during mid year and await the outcome of its new mega real estate development project They saw a stable performance in JKH’s diverse sectors going forward.

They had sold out their total holdings in Hemas Holdings during the period under review. This stock was one of the best performing on CSE and had reached valuation targets sooner than expected.

The managers said that they will continue to hold their stake in Sampath Bank where they see further value-creation opportunities and an upside to their banking model.

The Ceylon Investment portfolio had continued to lean heavily on the banking and finance sector with substantial holdings in HNB, Commercial Bank, Sampath and Central Finance. The managers said that they were very bullish on the banking and finance sector which they believe will yield good medium to long term results capturing the first economic tide of the country.

They were underweight in beverage, food and tobacco and diversified sectors due to their portfolio stance on the multi-national companies and large conglomerates represented in the sector as being perceived as over-valued and continue to be so on forward valuation.

Ceylon Investment has booked Rs. 538.29 million net realized gains from disposals from their long term portfolio during the year under review. The company had used cash of Rs. 58 million for its operations and its earnings per share had increased to Rs.10.02 from Rs. 9.03 a year earlier-an increase of 11%.

The company had paid an interim dividend of Rs.2.50 per share similar to the previous year and a scrip dividend of Rs.1 for the year under review maintaining consistent dividend policy matching shareholder expectations.

The managers also noted that the net asset value of the Ceylon Investment share amounted to Rs. 133 per share based on fair value of the portfolio. However, a share had been trading at a discount of CSE over the past few years with a market price of Rs. 91 as at March 31, 2015.

Ceylon Investment has a stated capital of Rs. 673.53 million, capital reserves of Rs.187.14 million and revenue reserves of Rs.12.24 billion. Total assets stand at Rs.13.38 billion and total liabilities at Rs.274.8 million.

Ceylon Guardian Investment Trust with 64.36% is the controlling shareholder of Ceylon Investment with all other individual shareholders holding less than 1.5%.

The Directors of the Company are Messrs: I. Paulraj (Chairman), D.C.R Gunawardene, A.P. Weeratunga, Mrs. Rose Cooray, V.M. Fernando, K. Selvanathan and T.C.N Chia. www.island.lk