Tag Archives: First Capital Equities

PLANTATION SECTOR – ‘BUSINESS TODAY’ – CHANNEL EYE 11-01-2017

Hansanee Eye 11

SNAPSHOT OF THE PLANTATION SECTOR ;

There are 19 companies listed under the plantations sector on the Colombo Stock Exchange generating a total market capitalization of LKR 22Bn. The industry is mainly export oriented revolving around Tea, Rubber and Palm Oil cultivation, however the segment is currently going through changes.

Ceylon Tea commands $ 1.2Bn  of the Export Market while Rubber  has an Export Economy of $24 Mn.

BRIEF ON THE LARGEST CONTRIBUTORS IN THE PLANTAINS SECTOR ;

The largest contributor according to market capitalization is Watawala Plantation with a market cap of LKR 4.5Bn, it is the largest palm oil cultivator in the island.

In the financial year 2016 palm oil generated LKR 1.6Mn profit and in a global context it is in high demand with an expected growth of 7.3% over the next 5 years.

WOULD AN INVESTOR BENEFIT FROM ADDING PLANTATION STOCKS TO HIS PORTFOLIO?

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Analysis of the Plantation Sector and the dynamics involved, on Channel Eye’s “Business Today” 11-01-2017 – Senior Research Analyst Hansinee Beddage.

Find more Sector and Company Reports here >>

 

Strong growth predicted for Lankan oil palm industry

FC Research quoted by Mirror Business 

By Chandeepa Wettasinghe

Sri Lanka’s oil palm plantation operators can expect strong growth in the industry for the foreseeable future due to the global palm oil demand, the research arm of a Colombo-based equity brokerage said in a report.

“This growth is on the back of global palm oil prices moving upward due to the expectations of global shortages in supply matching demand,” First Capital Research (FC Research) said.

It noted that due to the El-Nino weather conditions, the reducing rain fall in the major oil palm cultivating countries such as Malaysia, Indonesia and Thailand in 2015, the supply from those markets are expected to drop by six million tonnes.

“It is expected that the supply of palm oil will not meet the demand in coming years, pushing up the price as forecasted. Global price increase will push up the local palm oil price in correlation,” FC Research said.

It added that within three months, the palm oil prices, which were US $ 583.19 per tonne increased to US $ 692.41 per tonne last September and that the prices would move up to US $ 713 per tonne by 2020, according to the World Bank estimates.

Palm oil is used as a raw material in making vegetable oil and biodiesel—which is gaining demand due to the world moving towards less crude oil consumption—and the combined manufacturing of both are expected to grow by 7.9 percent annually until 2025, according to FC Research.

In Sri Lanka, Watawala Plantations PLC was the country’s first and currently the largest oil palm cultivator with around 3,157 hectares under cultivation under a diversification effort that began over a decade ago, which allowed it to remain profitable during hard times for tea and rubber recently.

Namunukula Plantations PLC had an extent of 2,020 hectares of oil palm under cultivation, followed by Elpitiya Plantations PLC with 1,447 hectares and Agalawatte Plantations PLC with 1,294 hectares at the start of the current financial year.

Kegalle Plantations PLC is planning to plant 1,125 acres of oil palm in its current rubber fields, while Bogawantalawa Tea Estates PLC has also announced its intentions to plant 700 hectares of oil palm over the past year.

FC Research said that oil palm cultivation requires less labour, with just 0.1 workers required per hectare, compared to four workers for tea and one worker for rubber required for the same land extent under cultivation. Oil palm workers have also been noted to earn three times as much as a tea plucker.

Labour wage payment is a major issue in the tea and rubber-dominated plantation industry, which was only recently able to come to a compromise with the trade unions in increasing wages.

‘Elpitiya Plantations Firing up the Palm oil Engine’

FIRST CAPITAL RESEARCH – COMPANY REPORT PUBLISHED ON THE ISLAND NEWSPAPER.

elpitiya

Elpitiya Plantations PLC (ELPL) is a listed regional plantation company engaged in Tea, Rubber and Palm oil cultivation. ELPL is expected to grow its earnings at a CAGR of c.36% FY16-FY19E, to c. LKR 500Mn in FY19E. Earnings will grow on the back of Palm oil having segment margin improving and contribution to revenue portfolio increasing. FC Research expect ELPL to provide an annualized return of 46% with a fair value of LKR 27.0 by FY18E. STRONG BUY

Palm oil to drive bottom line growth: ELPL’s top line is expected to grow at a CAGR of c.10%YoY in FY16-FY19E. FC Research expect that performance will be on the back of earnings from Palm oil improving with a CAGR of c.28%YoY. As of FY16 Palm oil contributed 17% to ELPL’s revenue portfolio which FC Research expect to increase to c.27% by FY18E. This growth is on the back of global Palm oil prices moving upward due to expectations of global shortages in supply matching demand and mature palm oil plantations hectarage of ELPL increasing by CAGR of c.13%.

Multiplexing revenues through investments: ELPL has diversified from its principal activities to manufacturing specialty tea Hydro power generation, hotel and adventure park operations through its investments which will create additional revenue streams to ELPL. FC Research expects ELPL to benefit substantially from Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd as it will provide an edge to acquire market share in China, 10th largest customer of Ceylon tea and a high growth market, and AEN Palm Oil processing (Pvt) Ltd will provide synergy to ELPL by boosting margins in the segment.

ELPL to provide a return of 46% by FY18E: FC Research estimates ELPL’s fair value at LKR 27.0 (DCF based LKR 30.5, PER based LKR 24.3) providing an annualized return of 46% in FY18E.

Investment risk: Impact from government policy actions in estate worker wage hike and cap on land held by plantations Company is yet to be seen. ELPL is also exposed to the risks of key currency rates’ fluctuations and volatility of product prices.

-First Capital

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Watawala Plantations – Initiating Coverage – STRONG BUY

FIRST CAPITAL RESEARCH – COMPANY REPORT

Watawala Plantations PLC (WATA) is primarily engaged in tea and palm oil cultivation.   We initiate coverage on WATA at a time where the company has made a strategic move to dairy farming while adapting a “quality driven” strategy for tea having discontinued rubber.

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watawala-plantation-plc

 

On the back of rising prices and yields in the palm oil segment which is the major enzyme of its profitability, WATA is expected to grow its earnings at a CAGR of 31% during FY16-19E, despite the headwinds from wage hike.  FC Research estimates a fair value of LKR 30.0 giving a total annualized return of 53% in FY18E. STRONG BUY

 Oil palms shelter the bottom line: With the rising global palm oil prices and increasing yields at WATA’s palm oil nurseries, we expect palm oils to contribute significantly to the bottom-line.  This we believe will completely offset the impact of recent wage hike which is estimated to be ~LKR 230Mn.
Palm oil prices are expected to increase in close correlations to the rising crude oil prices. WATA is the largest palm oil planter in the sector with 3,157 hectares of palm oil of which 76% is mature where the yields are peaking.  As ~756 hectares foster young plants with expectations to add ~200 more, we expect the yields to increase going forward.  Palm oils generated ~55% of gross margins in FY16 which could be seen improving to ~70% in 1HFY17.

 Strategic focus nurtures future profitability: The Company adapted a “quality driven” strategy for tea, where they will produce less quantities for a superior standard.  Moving away from quantities brings down the losses incurred in the tea segment, which is struggling with ever rising wage and utility costs that makes it difficult to sustain margins in a price-sensitive global market. Similarly WATA completely stopped its Rubber processing,
putting a full stop to losses from the segment while converting them to palm oil.  Further, they made an important strategic move to Dairy Farming which is expected to have a sizeable under-tapped demand.

 WATA to provide a return of 53% by FY18E: FC Research estimates WATA’s fair value at LKR 30.0 (DCF based LKR 30.0, PER based LKR 29.0) providing an annualized return of 53% in FY18E.

 Investment risks: Extreme weather conditions, changing political and social landscape, pressure on costs from continuous wage demands and rising utility costs and difficulty of sourcing land for palm oil cultivations limiting further expansion are some of the risks WATA faces.

TOKYO CEMENT COMPANY – Earnings Update “Defining the Indistinctive Leadership” – STRONG BUY

FIRST CAPITAL RESEARCH – COMPANY REPORT

Earnings Performance –

Earnings up by 118% YoY: TKYO’s earnings for the 2QFY17 was recorded at LKR 1.1Bn oppose to LKR 490Mn recorded in comparative quarter in FY16 registering a 118%YoY. On a QoQ basis the earnings saw a 66% growth compared to LKR 644Mn recorded in 1QFY17. During the 1HFY17, TKYO generated an earnings of LKR 1.7Bn as opposed to LKR 956Mn recorded in 1HFY16 registering an impressive YoY growth of 79%.

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tokyo-cement-company-lanka-plc1

 

Revenue generation grows by 24%YoY: Resultant to the boom in the construction sector coupled with the company’s investment into capacity enhancement to reach total plant capacity to 2.8Mn MT that’s coming into effect towards the latter part of the year 2016, topline was recorded at LKR 9.8Bn during the 2QFY17 with a 24%YoY growth in comparison to LKR 8Bn recorded in 2QFY16 while on a QoQ basis the same was recorded a growth of 30% as opposed to LKR 7.6Bn recorded in 1QFY17. During the 1HFY17 the topline was recorded at LKR 17.4Bn with a YoY growth of LKR 14.9Bn during 1HFY16. LKR 60.0 increase in Maximum Retail Price (MRP) to LKR 930.0 per 50kg of cement bag towards the latter part of the 1H2016 also impacted favourably on the revenue.

Future Outlook

Boom in construction sector led by Government led Infrastructure projects: With the recommencement of the construction of the Government led Infrastructure projects coupled with the Port City project and the initiation of the Western Region Megapolis development project undertaken by the government are likely to lead to a boom in the overall construction sector which is expected to boost the volumes of TKYO which in turn would increase the topline. TKYO revenue is expected to reach c.LKR 34.8Bn in FY17E registering a 15%YoY growth while the same for FY18E expected to reach c.LKR 40.8Bn.

Capital investments to increase volume and improve margins: Investment of USD 50Mn in construction of a new cement manufacturing plant in Trincomalee is expected to add 1.0Mn metric ton enhancing the overall capacity to 2.8Mn metric ton per annum. This would enable TKYO to increase volume thus benefit from the boom created in the industry. Further, newly built 8MW biomass plant would enable to meet the energy requirement of the increase capacity. These investments are expected to increase cost efficiencies and improve the GP margin to c.24% and c.25% in FY17E and FY18E respectively. TKYO invested USD 2Mn investment in a Joint Venture to manufacture 300,000 MT of sand per annum locally which would bring down the cost further.

Recommendation

Total return of 32% for both TKYO.N and TKYO.X: FC recommends a STRONG BUY on TKYO.N with a fair value of LKR 86.0 [LKR 87.3 on DCF based and LKR 85.0 on PER based] providing a total return of 32% and STRONG BUY on TKYO.X with a fair value of LKR 69.0 providing a total return of 32% for FY18E. For FY17E we expect a fair value of LKR 78.0 on TKYO.N while LKR 62.0 for TKYO.X.

Sri Lanka shares hit near 8-mth low on foreign fund outflow

FIRST CAPITAL’S HEAD OF RESEARCH, DIMANTHA MATHEW, SPEAKS TO REUTERS

 

Sri Lankan shares fell on Tuesday for the third straight session to end at a near eight-month low as foreign investors trimmed their exposure to the island nation’s risky assets amid concerns over budget tax proposals.

The Colombo stock index ended 0.11 percent down at 6,231.87, its lowest close since April 7. The bourse lost 1.17 percent last week, marking its third straight weekly fall.

A proposed hike in various taxes and fees would reduce disposable income and challenge consumption-led growth, analysts said.

“Investors are concerned over the current uncertainty and they are worried over the sustainability of the rates given the current economic uncertainty,” said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

The government aims to boost its 2017 tax revenue by 27 percent to 1.82 trillion rupees year-on-year and meet a commitment given to the International Monetary Fund in return for a $1.5 billion loan in May.  The market shrugged off the central bank’s key monetary policy decision on Tuesday to keep rates unchanged. Brokers said investors are concerned about the sustainability of the rates.

At the post-monetary policy media briefing, central bank Governor Indrajith Coomaraswamy said aggressive monetary policy tightening by the U.S. Federal Reserve will have an impact on the foreign outflow.  Turnover was 1.01 billion rupees ($6.78 million), more than this year’s daily average of 695.1 million rupees.

Foreign investors sold a net 295.8 million rupees worth of shares on Tuesday, extending the year-to-date net foreign selling to 1.68 billion rupees.

Shares of Dialog Axiata Plc fell 0.98 percent while Asiri Hospitals Plc fell 0.77 percent.

($1 = 149.0000 Sri Lankan rupees)

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

 

Sri Lanka shares end little changed; turnover slumps

FIRST CAPITAL’S HEAD OF RESEARCH, DIMANTHA MATHEW, SPEAKS TO REUTERS

reuters

Sri Lankan shares ended little changed on Friday, hovering near eight-month lows, while turnover slumped as investors kept to the sidelines on concerns over recent tax proposals.

The Colombo stock index ended 0.02 percent down at 6,252.12, and lost 1.17 percent during the week, marking its third straight weekly fall.  The bourse hit its lowest close since April 7 on Wednesday on caution over the budget tax proposals, including revisions in corporate and withholding taxes.

The government aims to boost its 2017 tax revenue by 27 percent to 1.82 trillion rupees year-on-year, and meet a commitment given to the International Monetary Fund in return for a $1.5 billion loan in May.

“Investors area worried and staying on the sideline with the uncertainty haunting the markets,” said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

Analysts said the increase in various taxes and fees would reduce disposable income and challenge consumption-led growth.  Turnover was 110.5 million rupees ($745,614.04), the lowest since March 17, 2014 and well below this year’s daily average of 695.1 million rupees.

Foreign investors bought a net 19.6 million rupees worth of shares on Friday, but have been net sellers of 1.25 billion rupees worth of shares so far this year.

Shares of Ceylon Cold Store Plc fell 7.35 percent while conglomerate John Keells Holdings Plc fell 0.89 percent and Dialog Axiata Plc fell 1.92 percent.

($1 = 148.2000 Sri Lankan rupees)

(Reporting by Ranga Sirilal; Editing by Sunil Nair)

 

 

 

Sri Lanka shares end 8-day losing streak

stock

FIRST CAPITAL’S HEAD OF RESEARCH, DIMANTHA MATHEW, SPEAKS TO REUTERS

Sri Lankan shares snapped an eight-day falling streak to end slightly higher on Thursday, but concerns over recent tax proposals continued to weigh on sentiment.

The bourse hit its lowest close since April 7 on Wednesday on caution over the budget tax proposals, including revisions in corporate and withholding taxes.

The government aims to boost its 2017 tax revenue by 27 percent to 1.82 trillion rupees year-on-year, and meet a commitment given to the International Monetary Fund in return for a $1.5 billion loan in May.  The benchmark index of the Colombo Stock Exchange ended up 0.17 percent at 6,253.28. The bourse has fallen 2.77 percent over the past eight sessions through Wednesday after the budget was presented on Nov. 10.

The index was in oversold territory, with the 14-day relative strength index at 19.845 versus Wednesday’s 15.978, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

“Bargain-hunting was there but no big level of buying interest was seen… as investors are cautious due to rising interest rates,” said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

Foreign investors sold a net 5.6 million rupees ($37,800) worth of shares on Thursday, extending the year-to-date net foreign outflow to 1.27 billion rupees. Analysts said the increase in various taxes and fees would reduce disposable income and challenge consumption-led growth.

Turnover was 516.9 million rupees, less than this year’s daily average of 698.6 million rupees.

Shares of Ceylon Cold Store Plc jumped 14.54 percent while conglomerate John Keells Holdings Plc rose 0.55 percent and Lanka ORIX leasing Plc fell 1.86 percent.

($1 = 148.2000 Sri Lankan rupees)

(Reporting by Ranga Sirilal; Editing by Sunil Nair)

 

Sri Lanka shares fall for 8th session; tax proposals weigh

First Capital’s Head of Research, Dimantha Mathew, speaks to Reuters

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Sri Lankan shares extended falls to an eighth session on Wednesday, posting their lowest close since April 7, as investor sentiment was hit by budget tax proposals, including revisions in corporate and withholding taxes.

The government aims to boost its 2017 tax revenue by 27 percent to 1.82 trillion rupees year-on-year, and meet a commitment given to the International Monetary Fund in return for a $1.5 billion loan in May.

The benchmark index of the Colombo Stock Exchange ended down 0.21 percent at 6,242.68. It has fallen 2.77 percent over the past eight sessions after the budget was presented on Nov. 10.  The index was in oversold territory, with the 14-day relative strength index at 15.978 versus Tuesday’s 16.929, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

“Market is down in low trade as investors are on wait-and-see mode,” said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

Foreign investors sold a net 100.7 million rupees ($678,571.43) worth of shares on Wednesday, extending the year-to-date net foreign outflow to 1.27 billion rupees.

Analysts said the increase in various taxes and fees would reduce disposable income and challenge consumption-led growth.  Turnover was 284.9 million rupees, well below this year’s daily average of 698.6 million rupees.

Shares of Lion Brewery Plc fell 6.81 percent, while Hemas Holdings Plc declined 5.00 percent and Ceylon Tobacco Company Plc fell 1.24.

($1 = 148.4000 Sri Lankan rupees)

(Reporting by Ranga Sirilal; Editing by Sunil Nair)

 

Sri Lankan shares fall for 6th session; tax proposals weigh on mkt

First Capital’s Head of Research, Dimantha Mathew, speaks to Reuters

reuters

Sri Lankan shares fell for a sixth straight session on Monday, posting their lowest close in four and a half months, in thin volume as investor sentiment was hit by budget tax proposals, including revisions in corporate and withholding taxes.

The government aims to boost its 2017 tax revenue by 27 percent to 1.82 trillion rupees ($12.36 billion) year-on-year, and meet a commitment given to the International Monetary Fund in return for a $1.5 billion loan in May.

The benchmark index of the Colombo Stock Exchange ended down 0.8 percent, or 50.85 points, at 6,275.26, its lowest close since July 5. It has declined 2.27 percent over the past six sessions after the budget was presented on Nov. 10.

The index was in oversold territory, with the 14-day relative strength index at 18.405 versus Friday’s 23.399, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

“Confidence levels are very low and selling pressure is starting to increase with continued foreign selling,” said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.  “No catalyst at the moment to reverse the trend amid global worries.”

Analysts said some of the budget proposals were still unclear, and there were concerns that some of them could be reversed like last year.

The market shrugged off a move by the Securities and Exchange Commission to change the minimum floating rule to raise market liquidity.

Foreign investors sold a net 47.98 million rupees ($324,298.75) of shares on Monday, extending the year-to-date net foreign outflow of 1.16 billion rupee of shares.

 

Analysts said the increase in various taxes and fees would reduce the disposable income of people and challenge the consumption-led growth.

Turnover was 395.4 million rupees, well below this year’s daily average of 700.8 million rupees.  Shares of conglomerate John Keells Holdings Plc fell 1.16 percent, while Asiri Hospital Holdings Plc dropped 5.54 percent.

Shares of Sampath Bank Plc fell 1.88 percent, while Sri Lanka Telecom Plc dropped 1.41 percent.

($1 = 147.9500 Sri Lankan rupees)

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)