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First Capital Research : Top Equity Recommendations 2018

Equity Portfolio Performance 2014-2017

As at 31st Dec 2017 at 2018, First Capital Research Top Recommendations have achieved a Capital Gain of 6.4% (Excluding Dividends) compared to the market performance of 2.3%.

Following are our current and previous top recommendations and their performances for 2014, 2015, 2016 & 2017 for your reference.

 

Top Recommendations for 2018

Brief Equity Outlook

Market earnings: The current tight monetary policy has slowed down the economy significantly reducing earnings growth for most companies. The situation is expected to ease off towards 2H2018. Therefore the companies are likely to have a better earnings performance in 2018E/19E compared to the weak performance we are experiencing in CY17/FY18E. We believe overall market earnings are likely to grow by a modest 5%-7% during 2018E/FY19E supported by a recovery in economic performance in the 2H2018. Earnings Growth is likely to accelerate to 10%-12% towards CY19E/FY20E backed by further improvement in economic health of the country and also easing of the monetary policy with more stability in the system.

Market Returns: Market returns are likely to be slow but positive in the 1H2018 due to attractive valuations prevailing in the economy and is likely to improve in the 2H2018 supported by expectations of a better economic outlook and earnings performance. Thereby, we expect overall market returns are likely to be 10%-12% approximately 50% above the expected earnings performance as some counters are likely to re-rate with an expected better earnings outlook in the future. In terms of the ASPI index it is only likely to reach 7000 (+10% or +650 points) towards end of 2018. Market returns are likely to accelerate towards the 2019 to about 15% with the actual earnings performance and renewed investor confidence. Index is likely reach 8000 level (+15% or +1000 points) towards 2019. These targets however are highly dependent on the current stable outlook and reform agenda continuing during 2018 as well.

Key Sectors: We believe the key sectors that are likely to outperform the market and expected provide high returns are the Banking Sector, Building Materials Sector and Apparel Sector while the energy sector also may turnaround depending on the implementation of the pricing formulas by the Government which is also a condition of the IMF.

 

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

R I L Property Limited (RIL) – Initial Public Offer

First Capital Research Reports on RIL Property’s recent IPO

Company Profile:

Incorporated in 2009, RIL is an owner, developer and manager of Grade ‘A’ commercial office space in Colombo. RIL focuses on offering multi-faceted real estate solutions including facilities management, leasing, land acquisition, construction management services, consulting and strategic investment. The company’s flagship asset, Parkland, currently has an occupancy of 90.4% and about 60% of the tenants are foreign. RIL also owns FoodBuzz (Private) Limited (FBPL), a food and beverage company which is a franchisee of the BreadTalk Group based in Singapore.

Growth Prospects:

Parkland’s tenant base has a Weighted Average Lease Expiry (WALE) of 3 years and introductory rates offered to initial clients are expected to be re-priced upon renewal of the respective lease agreements. Furthermore a specific clause in the lease agreements ensures a 10% increase in rentals every 2 years.

The expansion project for FBPL involves increasing the number of BreadTalk outlets from 7 in FY17 to 16 in FY21. This would provide the potential for growth in cash flow generation.

The refurbished Readywear building will be ready for occupancy by June 2018 and would add 194,345 sq. ft. of Net Rentable Area (NRA). Furthermore RIL has a vacant property on Park Street with a land extent of 155 perches, and based on market conditions, the company plans to utilize it for large scale commercial office space development.

RIL also plans to dispose of the Morgan Road property in FY18/19 for LKR 1.3Bn (net of capital gains taxes) and utilize the proceeds for future office space developments. In addition to this, given the company’s strong balance sheet and cash flows, the company has the potential to raise further debt if required.

Read the full report here

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management,  retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.

Sri Lankan shares rise on foreign investor buying; turnover hits 1-mth high

FIRST CAPITAL’S SENIOR RESEARCH ANALYST, ATCHUTHAN SRIRANGAN, SPEAKS TO REUTERS

Tue Mar 28, 2017

Sri Lankan shares closed slightly stronger on Tuesday, recovering from a more than one-year closing low hit in the previous session, as foreign investors bought battered stocks while block deals pushed the day’s turnover to a one-month high.

The Colombo stock index closed 0.17 percent firmer at 5,985.08, closing below a key psychological level of 6,000.

It had closed at its lowest since March 15, 2016 on Monday as investors sold shares of lenders after the central bank tightened its monetary policy on Friday.

The central bank raised its benchmark interest rates by 25 basis points for the first time in eight months to contain high inflationary expectations and a possible acceleration of demand-side inflationary pressures.

“The market is up on continued foreign buying while block deals pushed the turnover up,” said Atchuthan Srirangan, a senior research analyst with First Capital Equities (Pvt) Ltd.

“Retail investors are still on the sidelines as they want to see a clear picture.”

Foreign investors net bought shares worth 401.2 million rupees ($2.64 million) on Tuesday, raising the year-to-date net foreign inflow to 4.29 billion rupees in equities.

Turnover stood at 2.32 billion rupees ($15.29 million), the highest since Feb. 28 and well above this year’s daily average of 716.1 million rupees.

As of Monday’s close, the index had lost 2.18 percent since March 7 when the IMF called for monetary policy tightening if credit growth or inflation do not abate.

The stock index moved to “neutral” territory from “oversold”, with the 14-day relative strength index rising to 30.957 versus Monday’s 27.488, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

Shares of Dialog Axiata Plc rose 2.70 percent, while Sri Lanka Telecom Plc climbed 1.55 percent.

($1 = 151.8000 Sri Lankan rupees)

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management,  retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.

Sri Lanka – Budget 2017 Review

The Budget for 2017 focused on simplifying the tax system and removing tax exemptions with the view to enhance revenue while focusing measures to provide educational support and improving healthcare facilities and staff. Government plans on a sustained path of fiscal consolidation as it aims for the first time to achieve a revenue surplus and to reduce budget deficit to 4.6% of GDP for 2017 while the Debt to GDP ratio is expected to improve to 75.0%.

sl-budget-2017

  •  The Government’s vision to enhance revenue has resulted in measures to provide higher focus on removing tax exemptions in order to broad base the taxes and increase taxes in certain areas. Further, simplification of taxes were adopted with removal of cess on 100 items, introducing 3 corporate rates and revising personal income taxes.
  • The Government has focused on measures to provide education support especially for tertiary education while was bringing in laws to streamline private education. Heavy funding has been allocated to enhance healthcare via additional infrastructure and capacity of healthcare education. Government has also targeted to promote PPPs for large investment projects.
  • Significant Capital Market Development measures have been proposed including the Demutualization of CSE, amendment of SEC Act, trading platform for Government Securities, REITs, the introduction of a Commodity Exchange and listing of non-strategic enterprises in the CSE.

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Sri Lankan shares fall for 2nd session, led by John Keells

COLOMBO, Oct 11 (Reuters) – Sri Lankan shares ended weaker for a second straight session on Tuesday, led by top conglomerate John Keells Holdings, though foreign investors’ buying and gains in financials helped to cap the fall.

Trading volume was low as cautious investors awaited direction from the budget and September-quarter corporate results.

reuters

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Sri Lankan shares end up on Commercial Credit stake sale

COLOMBO, Oct 4 (Reuters) – Sri Lankan stocks closed at their highest level in six weeks on Tuesday, led by record gains in Commercial Credit and Finance Plc after Thailand’s Group Lease PCL bought a 30 percent stake in the firm.

Motorcycle lessor Group Lease has acquired a 30 percent stake in Commercial Credit and Finance PLC (CCF) for $70 million, the company said on Monday, in its first major expansion outside Southeast Asia

reuters

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Sri Lankan shares end higher; blue chips lead

COLOMBO, Sept 30 (Reuters) – Sri Lankan stocks posted a fourth straight session of gains on Friday to end at a near one-month closing high, led by blue chips, while the drop in T-bill yields boosted sentiment.

The benchmark index of the Colombo Stock Exchange ended up 0.1 percent, or 6.47 points, at 6,534.77, its highest close since Sept. 2.

reuters

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Sri Lanka Construction Sector Boom Seen Reviving

SRI LANKA CONSTRUCTION SECTOR “Construction back with a BOOM” – First Capital Research Report

megapolis

ECONOMYNEXT – Sri Lanka’s construction industry is expected to do well in the next few years given increasing homeownership affordability, big government infrastructure projects and rising demand for high-rises, stock brokers First Capital Equities said.

Growth in the sector slowed down in 2015 after the new government halted some big infrastructure projects, pending reviews of their costs and environmental impact.

“Infrastructure being one the main driving forces of the construction sector, suffered a hefty blow amidst slowdown in the infrastructure drive during 2015,” the brokers said in a research report on the construction sector.

But the brokers said they expect “a booming construction sector over next 2-3 years supported by rising affordability for housing, demand for skyscrapers and the government’s mega infrastructure drive.”

The report said the listed Construction & Building Material Sector on the Colombo bourse is expected to provide 46% average return (annualized 29%) over an 18-month period, well above the expected market return.

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Image courtesy of ww.megapolis.gov.lk

Sri Lankan Shares Post 3-wk Closing High as Banks Gain on Rate Decision

First Capital’s Head of Research, Dimantha Mathew speaks to Reuters Wed Sep 28, 2016

COLOMBO, Sept 28 (Reuters) – Sri Lankan stocks closed higher on Wednesday, hitting a more than three-week closing high, led by gains in banking stocks after the central bank held the key monetary policy rates steady.

The central bank’s widely expected decision earlier on Wednesday to hold the rates steady suggested that policy makers were keen to support a slowing economy even as they kept a tight leash on rampant credit growth.

Treasury bill yields fell for the second session at Wednesday’s auction. They fell between 16-33 basis points.

reuters

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Sri Lankan shares end flat amid foreign outflows

First Capital’s Head of Research, Dimantha Mathew speaks to Reuters Mon Sep 26, 2016

COLOMBO, Sept 26 (Reuters) – Sri Lankan stocks ended steady on Monday, as gains in financial shares were offset by losses in consumer staples, amid foreign outflows and tax hike concerns.

Foreign investors sold a net 183 million rupees worth of shares on Monday extending the year-to-date net forging outflow to 3.01 billion rupees worth of equities.

The International Monetary Fund (IMF) on Friday said Sri Lanka’s government, which has failed to raise taxes as promised when it received a $1.5 billion loan from the lender in June, needs to implement a tax reform package without further delay.

reuters

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