Sri Lankan shares recover from 2-mth closing low as large caps gain

Reuters: Sri Lankan shares ended marginally higher on Monday in dull trade, recovering from a near two-month closing low hit in the previous session, even as investors awaited clarity on new taxes and key legislations.

The Colombo stock index ended 0.05 percent firmer at 6,417.15, edging up from its lowest close since Sept. 26 hit on Friday. The index fell 1.1 percent last week, but is still up 3 percent in the year so far.


Turnover stood at 342.7 million rupees ($2.23 million) on Monday, around a third of this year’s average.

“Investors are on wait-and-see approach with continued political uncertainty,” said Atchuthan Srirangan, senior research analyst, First Capital Holdings PLC.

“The good sign is that the foreign participation is high.”

Foreign investors net bought equities worth 42.9 million rupees on Monday, extending the year-to-date net foreign inflow to 18.4 billion rupees worth of stocks.

Shares in Ceylon Tobacco Company Plc rose 2.1 percent, while Lion Brewery Plc ended 2.3 percent up and Hatton National Bank Plc ended 0.7 percent firmer, pushing the overall index up.

Analysts said political worries over delay in local government polls and a lack of clarity over budget and two other key policy measures continued to weigh on sentiment.

A court on Wednesday issued a stay order on a legislation that cleared the island nation’s Election Commission to hold local government polls in which the coalition partners of the government have decided to contest separately.

Finance Minister Mangala Samaraweera imposed new taxes on motor vehicles, telecoms, banks and liquor in the 2018 budget presented earlier this month, with the final budget vote scheduled for Dec. 9.

Analysts said market participants have sought more clarity on these taxes and that there could be some amendments to these proposals before the final vote.

The government also released gazette notifications on the Inland Revenue Act and the Exchange Control Act, with investors waiting for clarification on the new legislations. 

($1 = 153.6500 Sri Lankan rupees) 

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

First Capital ties up with foreign brokerages

First Capital Equities, the equity arm of First Capital Holdings PLC, has taken several steps to strengthen its business by establishing strategic partnerships with brokering houses based in Asia and the US, in addition to reinforcing its local efforts through the group’s expanding branch network.

Director/Group CEO, Dilshan Wirasekara told the Business Times that they have tied up with foreign brokerages in Japan and New York who will promote local equities amongst their clients.

He added that the group sees its earnings moderating in the second half with interest rates stabilising resulting in lower trading opportunities for the primary dealer business. The group recorded a profit after tax of Rs. 731 million for the first half of 2017/18, a substantial increase compared to Rs. 406 million in the corresponding period of the previous year. Total comprehensive income for the first half was Rs. 641 million (2016/17 – Rs. 406 million).

The primary dealer business dominated the group’s earnings reporting a profit after tax of Rs. 538 million for the first half (2016/17 – Rs. 371 million), Mr. Wirasekara said. First Capital Treasuries PLC capitalised on opportunities created by declining interest rates in the secondary market realising significant trading gains, he added noting that it has a capital base of Rs. 2.2 billion.

A strategic approach has led to improved activity in the corporate finance business, mobilising Rs. 13 billion for clients through structuring and placement of corporate debt securities and recording a fee income of Rs. 42 million (2016/17 – Rs. 30 million) during the period under review.

First Capital Asset Management Ltd recorded a growth in funds under management to end with Rs. 6.7 billion as at 30th September2017.

“Our main focus is to enhance the fee based activities and the management of risk,” Mr. Wirasekara added.

The credit rating of First Capital Holdings PLC and First Capital Treasuries PLC was reaffirmed by ICRA Lanka Ltd in October 2017 at “A-”.

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People’s Insurance PLC records consecutive underwriting profits

The Sri Lankan insurance industry continues its growth as a result of increased awareness on life insurance, introduction of new life insurance products to cater to customer requirements such as retirement solutions and investment products, enhanced customer service, etc, insurance sector experts said in Colombo.

The country has a Rs. 498 billion insurance industry in terms of total assets dividing it as Rs. 332 billion and Rs. 166 between Life and General insurance, respectively.

Twelve insurers operate in the life insurance business along with another three other insurers handling both general and life while 13 companies operate as general insurers, they disclosed.

Sri Lanka’s aging population is going to be a major concern and life insurance will play a vital role towards the welfare of these aged people, they said adding that with frequent occurrence of natural disasters, the risks in the life of normal people are also increasing.

Chairman of People’s Insurance PLC. Jehan P. Amaratunga and newly appointed CEO Deepal Abeysekara expressed these views at a ceremony organised in connection with the re-launching of its insurance brand in Colombo recently.

Outlining the performance of the company, Mr. Amaratunga noted that they commenced business seven years back and today People’s Insurance PLC has emerged as one of the most profitable insurers in the country with consecutive underwriting profits during last five years.

It is part of the country’s largest financial group, consisting of People’s Bank and People’s Leasing & Finance PLC and is backed by strong international re-insurers (rated above the minimum standards set by the IBSL), he pointed out.

Newly appointed Chief Executive Officer of People’s Insurance PLC Mr. Abeysekara told the gathering that the company is in the forefront of the non-life insurance industry.

“We are well known among our insured public for our prudent underwriting and efficiency of service. Our successful journey reached a culmination in 2016 when our company was positioned among the biggest stakeholders in the insurance sector after recording an investment portfolio which surpassed Rs. 5 billion,” he said.

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Brush manufacturer BPPL faced tough six months

By Duruthu Edirimuni Chandrasekera

Brush manufacture, and exporter of sanitary maintenance tools, BPPL Holdings PLC has had a tough six months ending September this year.

The impact of floods in May/June affected timber supplies, restricting their sales growth during the period. In a bid to avoid such hardships in the future, the company has opted to import some timber for manufacturing their products, BPPL Managing Director Dr. Anush Amarasinghe told the Business Times.

“We now carry a limited quantity of imported timber as a safety measure to manufacture our products.” Although the situation had normalised by July 2017, inventory replenishment took longer than anticipated due to the threat of landslides affecting tree uprooting early on. Inventories only normalised by September 2017, which meant that shipments could only be regularised towards the end of the reported period.

Dr. Amarasinghe added the order pipeline for the next few quarters is strong with substantial order flows from customers in the disaster management and janitorial sectors in the US. “The need to replenish inventory rapidly following the recent hurricanes has boosted orders from the disaster management sector. We have also had significant wins from customers in the janitorial sector for our synthetic fiber/monofilament products. Revenue from these orders is expected to flow through from the Oct-Dec’ 2017 quarter onwards,” he has said in the quarterly statement.

Supply of the yarn extrusion machinery is also on track with deliveries expected during November – December 2017. Machinery will be commissioned during the January to March quarter of 2018 and contribute to revenue from April 2018.

Consolidated revenue for the period was Rs. 1.2 billion, up 7 per cent over the corresponding period in the previous year. The North American region remained the dominant contributor, accounting for 82 per cent of reported revenue. The region saw a 9 per cent increase in revenue over the previous financial year. Robust growth was also seen in Australia, and the European region, Dr. Amarasinghe has said.

BPPL has continued to roll out their own brand of cleaning products in the South-East Asian region. A distributor was appointed in Malaysia during the past quarter and another national hypermarket chain undertook to carry its products in Indonesia. “Now there are four national hypermarket chains and seven local stores in the Jakarta region that retail our products,” Dr. Amarasinghe has added.

BPPL’s gross profit was slightly down to Rs. 439 million for the six month period as gross margins fell due to wage escalation as a result of the floods. Irregular timber supplies increased overtime payments as workers had to process the timber as and when it arrived.

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Only Sri Lanka’s top five stockbrokers profitable

Out of the 29 stockbrokers operating at the Colombo Stock Exchange (CSE), only the top five are profitable, the next 10 may be breaking even while the rest are full of woes, market analyst say.

Some stockbrokers are closing their outstation branches in a move to cut costs and manage bottom-lines and some who boasted over 25 branches have cut this number by four fold to end up at just five, they say.

While the broking companies are faced with several serious issues with strapped cash flows, some firms are shedding staff. The Securities and Exchange Commission (SEC)’s new rules in capital adequacy which direct the implementation of a risk based Capital Adequacy Requirement (CAR) of 1.2 times the risk requirement of stock brokers subject to a minimum liquid capital requirement of Rs. 35 million is also curtailing their operation, they said.

Broking firms have cost cuts on many items since the crisis in the CSE nearly three years ago, but to no avail. It’s hard to rally in profits and some new firms are selling their licenses.

At least three firms are in the market for sale, according to analysts. Some others who are chugging along had hinted at reintroducing margin credit, but the SEC is firm on not doing so. Margin credit is to extend credit facilities to clients in broking firms through margin providers registered with the SEC.

“In the wrong hands margin credit will be disaster and it’ll be a repeat of the 2011-2013 era,” a SEC official said.

They said that some run their branches on CSE premises which are subsidised by the CSE. “Branches at Matara, Kandy, Kurunegala, Negombo and Jaffna are highly subsidised. They pay a minimal rent only and no utilities,” a CSE official said. But this isn’t enough, many in the industry say.

“There should be a stronger pull to attract retailers, otherwise many firms in the trade will sink,” a CEO at a broking firm added.

The CSE insists that the market continues to trade at a discount compared to regional peers and offers further opportunities for investors – with a market price to earnings (P/E) recorded at 10.99 as of the end of October. “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 that is substantial compared to foreign activity in 2015/16. 2017 also recorded an all-time high for foreign investor buying recorded in the first half of a calendar year,” the CSE said in a statement earlier this month.

While acknowledging all this, brokers reiterate their issue lies with the retailers. To be fair by them, the CSE tries hard.

“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 SEC on ‘Invest Sri Lanka’ investor forums in the US, 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 programmes so far in 2017. In addition, CSE and the Colombo Stock Brokers Association is 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,” the CSE statement said.

It added that the Benchmark All Share Price Index (ASPI) has made a 2.78 per cent gain in October alone and a 6.31 per cent 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 per cent gain in October and a 11.50 per cent 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 per cent and 9.66 per cent, 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 per cent increase from Rs. 737 million in 2016.”

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Sri Lankan shares hit 2-month closing low on foreign selling

Reuters: Sri Lankan shares fell to a near two-month closing low on Friday on foreign selling, while investors waited for clarity on new taxes introduced in the national budget and on key legislations.

The Colombo stock index ended 0.66 percent weaker at 6,413.68, its lowest close since Sept. 26. The index fell 1.1 percent during the week, but is still up 3 percent for the year so far.

Turnover stood at 596.4 million rupees on Friday, less than this year’s average of around 953.3 million rupees.

“It is turning into a typical year-end market. But, we expect to see foreign activity supporting the market. They see value in some select shares,” said Hussain Gani, deputy CEO at Softlogic Stockbrokers.

Foreign investors net sold equities worth 117.5 million rupees ($764,476) on Friday, but they have bought a net 18.4 billion rupees worth of stocks so far this year.

Top fixed-line phone operator Sri Lanka Telecom fell 5.4 percent and Lion Brewery Ceylon Plc lost 4.9 percent, dragging the overall index down.

Analysts said political worries over delay in local government polls and a lack of clarity over budget and two other key policy measures also weighed on sentiment.

A court on Wednesday issued a stay order on a legislation that cleared the island nation’s Election Commission to hold local government polls in which the coalition partners of the government have decided to contest separately.

Finance Minister Mangala Samaraweera imposed new taxes on motor vehicles, telecoms, banks and liquor in the 2018 budget presented earlier this month, with the final budget vote scheduled for Dec. 9.

Analysts said market participants have sought more clarity on these taxes and that there could be some amendments to these proposals before the final vote.

The government also released gazette notifications on the Inland Revenue Act and the Exchange Control Act, with investors waiting for clarification on the new legislations. 

($1 = 153.7000 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Vyas Mohan)

Amana Takaful Group nets Rs.128.5 mn pre-tax profit in 3Q

Amana Takaful Groups’ growth and profit momentum continued into the 3rd Quarter netting in a pre-tax result of Rs. 128.5 million for the period ending September 2017. This compares with a loss of Rs 96.5 million in the same period last year.

With a modest 7% upside on Gross Written Premium(GWP) of Rs. 2.8 billion for the 9 months, the re-structured group has been able to harness a return of Rs. 285 Million on its investment assets in a relatively lackluster environment. Amana Takaful PLC, Amana Takaful Life PLC and Amana Takaful Maldives have all positively contributed to this performance.

“Steering a delicate balance of Portfolio restructure, a selective Under-writing & prudent risk appetite, tight productivity measures together with a robust claims management ethos, the Group is better positioned now to meet and exceed stakeholder expectations,” Group Chairman, Tyeab Akbarally said.

Amana Takaful PLC generated a GWP of 1.32 billion, 10% ahead over the corresponding period in 2016. The profit efore tax out-turn of Rs.46 million compares with a loss of Rs 111 million in 2016. A better than expected performance of 32% on the non-Motor classes, Medical and Micro Takaful segments totally mitigated the downside in motor revenue. Claims on account of the recent flood were disbursed on time and in full. Motor loss ratios improved significantly to 58% vs 76% a year ago. Performance of the company’s new product lines has been exemplary.

The combined ratio has improved markedly to 102% from 118% a year earlier. Following a conscious decision to re-align its portfolio strategy, Amana Takaful Life PLC, listed on the CSE in August 2016, more than doubled its profit to Rs. 32 Million in the nine months to September, from the previous period’s result of Rs. 14 Million.

On account of phasing out a product line, the total GWP in the nine months is 95% of the previous year. However, the long term endowment life plans continue to grow in line with expectations, boosting the Life Fund by 11%.

The off-shore operation Amana Takaful Maldives PLC, the only listed entity among industry players in the Maldives Stock Exchange, chugged along steadily with 7% growth in GWP, 61% upside in profit before tax compared to the previous year, while defending its market share despite the advent of new competition. Hereto, new product lines have delivered promising performance. Productivity measures have mitigated the rise in re-takaful expenditure and an upsurge in claims cost.

Both Amana Takaful PLC and Amana Takaful Maldives PLC emerged winners of the Gold Award for single entity Takaful operators at the recent Islamic Finance Forum for South Asia.
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