Quarterly Results Review

Quarterly Results Review / Sector Summary / Results update for All Companies – December 2016 Quarter prepared by First Capital Research

Content

Quarterly Reports –

Banking Sector and Capital Goods Sector drive earnings

Dec Quarter earnings up by 5%YoY for 278 Companies: December quarter earnings grew 10%YoY to LKR62.2Bn and 3%QoQ for the 278 companies reported but considering all companies of the previous year earnings growth is 5.3% YoY. Dec 2016 Quarter earnings were dominated by healthy performance in Banking Sector (+20%YoY) with higher margins while Capital Goods Sector (+14%YoY) was positively affected by earnings from diversified conglomerates. However, the earnings growth was partially offset by Energy Sector (-94%YoY). Utilities Sector (-102% YoY) also saw deteriorated performance due to adverse weather conditions. Food, Beverage and Tobacco Sector (-7% YoY, adjusted) was affected by lower volumes in tea and rubber plantations despite increased prices, having adjusted for one-off losses from DIST and non-operating gains from CARS Group.

Private sector credit growth boosted banking earnings: Banks Sector continued to remain as largest contributor to earnings by achieving a profit of LKR 15.2Bn (+20%YoY) primarily driven by stronger Net Interest Margins and higher than expected private sector credit growth despite the increased taxes (VAT). Big Banks led by COMB (+26%YoY), HNB (+14%YoY) and SAMP (+67%YoY), jointly represented 72% of the sector earnings. JKH (+32% YoY) and DOCK (+93% YoY) contributed to improved performance in the Capital Goods Sector which posted a net profit of LKR 12.7Bn (+14% YoY). JKH saw strong retail segment and higher finance income with rising interest rates while DOCK experienced better margins via ship repair activities.

Energy and Utilities adversely affect earnings: Market earnings were negatively affected by Energy Sector that recorded a net profit of LKR 72Mn (-94% YoY) driven by LIOC (-71% YoY) & LGL (-170% YoY) which saw a steep dip in margins due to increased oil gas prices in the global market. Utilities Sector posted a net loss of LKR 14Mn (-102% YoY) due to lack of rainfall affecting many hydro power plants including VLL (-111% YoY) and VPEL (-70% YoY).

One off events affect 4Q16 earnings: Market earnings were significantly affected by the losses of LKR 74Bn attributable to DIST during the quarter following share swap arrangement with MELS. In addition, 5 companies of the CARS Group (+377% YoY) – BUKI (+509% YoY), SHAL (+20,060% YoY), INDO (+21,649% YoY), SELI (-826%) and GOOD (+52,245% YoY) together recorded a total gain of LKR 12.6Bn attributable to disposal of plantation assets. After adjusting for these gains and losses the sector resulted in a profit of LKR 9.1Bn (-7% YoY, adjusted).

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Quarter: December 2016

This Review is prepared and issued by First Capital Equities (Pvt) Ltd. and is based on information available in the public domain, internally developed and other sources believed to be correct. Although all reasonable care has been taken to ensure that the contents of this document are accurate, First Capital Equities (Pvt) Ltd and its Directors and employees, are not responsible for its accuracy, usefulness and reliability and disclaim liability for any loss suffered by the use of information contained herein.

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