Tag Archives: Stock market Sri Lanka

Fundamentals strengthening, growth remains key – First Capital Research

Daily Mirror | 16.07.2018

Recap of recommendations of January 2018 and review of 1H2018

First Capital Research expected the yield curve to be upward trending 1Q-3Q2018 with an acceleration in the uptrend towards 3Q amidst bunching of debt maturities during 3Q2018.

The unexpected election results in Feb, saw an early surge in yields across the curve in Mar 2018 with lower investor confidence levels. Following the USD 2.5Bn sovereign bond some stability was seen during Apr 2018. However, business confidence dropped to a 70-month low in Apr 2018.

Investor confidence affected by political uncertainty

More elections on the cards: upcoming Provincial Council elections and Presidential polls are likely to be major deterrents for mid to long term investments as investors would be concerned about long term policy consistency.

Economic outlook to slowly improve

GDP growth for 2018E downgraded to 4.5%: 1Q2018 GDP growth of 3.2% was below expectations. Similarly, 2Q is also likely to be slow amidst business confidence levels falling to a 70-month low. However, we expect a gradual pickup in business activity and consumer demand during 2H2018 with an accelerated GDP growth towards 4Q2018. First Capital Research downgraded 2018E GDP growth to 4.5% (previous 5.1%) but remains positive on uptick in growth specifically during 2H2018. A further acceleration is expected in 2019E with a GDP growth target of 5.0%.

Foreign Reserves jumps back up, but so does imports: The USD 2.5Bn Sovereign Bond resulted in reserves convalescing to USD 9.2Bn by Jun 2018. Despite large outflows, final payment of USD 0.5Bn for Hambantota Port deal and syndicated loan of USD 1.0Bn are likely to assist reserves to remain above USD 9.0Bn by end 2018. However, growing imports resulted in an increased minimum reserve amount required (4 months of imports) to USD 8.0Bn. Further foreign reserve accumulation need to continue amidst the continuous rise in foreign debt payments (large sovereign bond repayment 1Q & 2Q 2019) & BoT deficit.

Debt repayment cover improves: Rise in Foreign Reserves further lowered the foreign currency debt repayment cover to 1.3x of Foreign Reserves. The strengthening of reserves improved the foreign currency repayment cover at a time, when the next 12 months is having the highest level of foreign debt payments before overall debt levels start to ease off.

High level of maturities coming up in 3Q2018 and 1Q2019

Beyond 1H2019 overall debt payments to ease off with less bunching off of debt while debt to GDP levels are likely to be on a downtrend: CBSL has so far been successful in rolling over most of the debt and spreading them over a period to prevent any bunching of debt in the future and also reducing the cost of debt at the same time. We expect Debt to GDP to reduce to 76.5% in 2018E while any SoE selloffs (such as Hyatt or Hilton) and PPPs for Mattala Airport works off the ratio is likely further dip below 76.0%.

Liquidity may improve towards 4Q: In line with our expectations in Jan 2018 through “First Capital Strategy Report 2018”, we experience a liquidity shortage towards 3Q and ease off towards 4Q2018, but low level of liquidity of LKR 20-50Bn is likely during 1H2019.

Higher base effect in 2017 may result in low point to point inflation in 2H2018: Due to higher base effect, point to point Inflation may illustrate a drastic reduction from Oct 2018 – Jan 2019 amidst heavy food shortages witnessed last year. Overall the index is expected to be between 3.2%-6.6% during the next 12 months. The average annual rate for 2018E is likely to be 4.0% while it’s expected to increase to 5.3% in 2019E

Credit to remain steady at 15%: First Capital Research expects private sector credit growth to pick up towards 2H2018 signifying a steady growth of 15% while a moderate 16% in 2019E.

External environment

Global Growth and South Asia Growth is positive: IMF upgraded its Global growth forecast in Jan 2018 to 3.9% for 2018 & 2019. Emerging and developing Asia will grow strongly at around 6.5% over 2018–19, broadly at the same pace as in 2017.

Funds flows are towards US is negative for Sri Lanka: Higher growth across the world is likely to create significant competition for capital and investments which is negative for Sri Lanka. Further the rising global yields supported by further Fed rate hikes have resulted in global funds flowing towards the US.

Overall impact is Neutral: Despite rising global yields the improving macro conditions neutralizes the overall outlook for Sri Lanka unless reform agenda is reversed.

First Capital recommendations Bond market: Bullish

We expect the yield curve in Government securities to peak during 3Q2018, followed by a slow downtrend. Thereby, from bearishness at the start of 2018, we are now bullish on bonds beyond 3Q2018. We believe 1Y, 5Y & 10Y trade within the bands of 9.0%-10.0%, 10.0%-11.0% & 10.5%-11.5%.

Banking rates: AWPLR may decline to 10.0%

Banking rates which has a 6-month lag effect to 5 Year Bond is likely experience less volatility over the next 12 months while a further slow dip in AWPLR to 10.0% is expected. In a more broader sense during the next 12 months (Jul 2018-Jun 2019), we expect AWPLR to broadly stay within the band of 10.0% – 11.0%.

Exchange rate: 2018E Exchange Rate target downgraded to LKR161.0 while 2Q2019E is likely to reach LKR164.5

With 4 fed rate hikes on the cards over next 12 months, a stronger dollar is more likely, thereby we downgrade our exchange rate target from Rs. 159 to Rs. 161 : 1USD for end 2018 and target Rs. 164.5 : 1USD over next 12 months upto Jun 2019. Dollar index is expected to remain strong over the next 12 months while with continued reforms inflows into Sri Lanka debt and equity capital markets are likely with the attractive yields. Further Sri Lanka moves into the peak season of exports Sep-Mar. We expect more stability in the rupee in 2H2018, but downgrade our target to LKR161.

Equity Market: Bullish

We expect market returns to be stronger despite slower earnings growth outlook of 5-7%. Healthy valuations may warrant a rerating of the market providing returns of 13% market return over the next 6 months while targeting 15% return for 2019E supported by accelerating earnings growth to 10-12%

Business confidence and consumer demand to normalise in 2H2018

With stable interest rates and low inflation, we expect the stability of the economy to further improve during 2018. The stable environment is expected to slowly improve business confidence and consumer demand towards 2H2018.

We believe business confidence and consumer demand are currently below average and they are expected to normalize during the period. However, the prevailing policy uncertainty created through the political uncertainty is a major deterrent which may slow down the gradual improvement.

Political uncertainty seen dampening investor confidence

Economy Next – 16.07.2018

By First Capital Research

ECONOMYNEXT – Although economic fundamentals are improving with low inflation, stable interest rates and improving demand in overseas markets, political uncertainty in the run-up to elections may dampen investor confidence, First Capital Holdings said.

Economic growth is expected to pick up in the third and fourth quarters of 2018 and to accelerate further in 2019, they said in a research report.

“Stronger macro fundamentals, higher investments and pickup in consumer demand is likely to increase growth in 2019E to 5.0%,” the company’s mid-year economic outlook said.

“ Potential election in 2019 may also push authorities accelerate relaxation of para tariffs which may also support stronger consumer demand,” it said.

“With stable interest rates and low inflation, we expect the stability of the economy to further improve during 2018,” the research report said.

“The stable environment is expected to slowly improve business confidence and consumer demand towards 2H2018. We believe business confidence and consumer demand are currently below average and they are expected to normalize during the period.”

However, First Capital Holdings warned that the prevailing policy uncertainty is a major deterrent which may slow down the gradual improvement.

Following the local government elections, all eyes are on polls for Provincial Councils whose terms are in the process of expiring later this year and early next.

“A further defeat for the present government may worsen the prevailing political uncertainty. But an improvement in the voter base may provide some respite,” First Capital Holdings said.

Another major factor that is creating uncertainty is the forthcoming Presidential election in late 2019.

“None of the three major political parties have announced a clear candidate who would be contesting for the upcoming elections,” First Capital Holdings said.

“It is a major deterrent for any investor. It is an important step in forecasting possible policy direction for the future in order to assess the risk for long term investments.”

The research report noted that the government’s debt repayment pressure is easing with the central bank very successful in rolling over most of the debt at lower rates and spreading them over a period to prevent any bunching of debt in the future.

It also noted that economic growth in key markets in the US and Europe is reviving and that export growth momentum has been picking up over the last few months.
(COLOMBO, July 12, 2018)

First Capital downgrades exchange rate target to 161 rupees for end 2018

July 11, 2018 (LBO) – First Capital Research said they downgraded their exchange rate target from 159 rupees to 161 rupees per dollar for end 2018 since a stronger dollar is more likely in the coming months.

With four fed rate hikes on the cards over next 12 months, First Capital Research said they are targeting an exchange rate of 164.5 rupees per dollar over the next 12 months up to June 2019.

“Dollar index is expected to remain strong over the next 12 months while with continued reforms inflows into Sri Lanka debt and equity capital markets are likely with the attractive yields,” First Capital Research said

“Further Sri Lanka moves into the peak season of exports Sep-Mar. We expect more stability in the rupee in 2H2018, but downgrade our target to LKR161.”

First Capital expects the yield curve in government securities to peak during the third quarter of 2018 and registers a slow downtrend.

“Despite having some pressure in 1Q2019 it is not expected to be as high as 3Q2018, thereby, from bearishness at the start of 2018, we are now bullish on bonds beyond 3Q2018,”

“We believe 1Y, 5Y & 10Y trade within the bands of 9.0%-10.0%, 10.0%-11.0% & 10.5%-11.5%.”

First Capital, however, said that any breakaway from reform program (Deviations affecting IMF program) or political deadlock may result in breaking the upper bands of the tenors.

First Capital also expects market returns to be stronger despite slower earnings growth outlook of 5 to 7 percent.

“Healthy valuations may warrant a re-rating of the market providing returns of 13% market return over the next 6 months while targeting 15% return for 2019E supported by accelerating earnings growth to 10-12%.”

Dimantha Mathew, Head of Research at First Capital Holdings, with the Market Review on Ada Derana – 08.07.2018

Share Market Sri Lanka

First Capital’s Dimantha Mathew with the Market Review on Ada Derana

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.

First Capital’s Dimantha Mathew with the Market Review on Ada Derana

Earnings of listed corporates gain in March quarter

Published on Daily FT on 09 July 2018

Share Market Sri Lanka

  • Values up 28.5% to Rs. 98 b and by 15.4% to Rs. 87.5 b excluding one-off profits for two corporates
  • Food, Beverage and Tobacco, Bank and Capital Goods sector firms drive 2018 March quarter earnings

Combined earnings of all listed companies has seen health gain in the quarter ended on 31 March, reflecting the resilience on the part of most corporates.

According to First Capital Research, based on results of 284 listed companies, March 2018 quarter earnings spiked 28.5% year on year (YoY) to Rs. 98 billion which includes one-off profit arising from disposal of Janashakthi General approximately Rs. 7 billion by JINS and Union Assurance’s change in the contract liability due to transfer of one off surplus amounting to Rs. 3.4 billion.

Excluding the two one-off gains, overall market earnings grew by 15.4% YoY to Rs. 87.5 billion dominated by healthy performances in Food, Beverage and Tobacco (+41% YoY) Capital goods (+26%YoY) and Banking (+21% YoY) overcoming the negative effect of Diversified Financial (-11%YoY), Material (-36%YoY) and Real Estate (-60%YoY).

First Capital said Beverage and Tobacco sector saw an impressive earnings growth of +41%YoY to Rs. 17 billion, driven by LION (+256%YoY), MELS (+2273%YoY) and DIST (+134%YoY).

The Banking Sector continued to remain as the largest contributor to earnings by achieving a profit Rs. 17.3 billion (+21%YoY) led by SAMP (+41%YoY), HNB (+21YoY) and COMB (+14%).

The Capital Goods sector earnings saw growth of +26%YoY to Rs. 20.1 billion, mainly driven by JKH (+100%YoY) and AEL (+177%YoY). JKH profits were boosted due to UAL’s contractual liability change resulting from the one-off surplus of Rs. 3.4 billion while AEL’s profits were up on the back of fair value gains of Rs. 2.4 billion on its Investment Property.

First Capital said diversified sector saw earnings dipping by -11%YoY to Rs. 15.2 billion due to substantial dip in profit in LOLC (-74%YoY) resulting from large one-off gain in the last comparative quarter (Mar 2017).
The Material sector earnings saw decline by -36%YoY to Rs. 2 billion driven by TKYO (-131%YoY) and DIPD (-57%YoY). TKYO’s earnings were affected by higher cost of sales which

eroded gross margin coupled with higher finance cost (+123%YoY) while DIPD earnings were affect by higher taxation in 4QFY18, First Capital Research added.
In terms market valuations the Price Earnings Ratio (PER) was 10.8x based on four quarter trailing results and Price to Book Value was 1.3 X.

Sri Lankan shares post worst fall in 28 months on foreign selling

JALIYA WIJERATNE, CEO AT FIRST CAPITAL EQUITIES SPEAKS TO REUTERS

JULY 03, 2018

COLOMBO, July 2 (Reuters) – Sri Lankan shares fell over 1 percent on Monday, the sharpest in nearly 28 months, as continued foreign selling and concerns about lower economic growth hurt sentiment, stockbrokers said.

Foreign investors sold the island nation’s risky assets for an eighth successive session, extending the foreign outflow to 841.4 million rupees ($5.32 million).

The Colombo stock index ended 1.07 percent weaker to 6,128.34, its biggest intraday percentage fall since March 9, 2016. The index closed lower for 15 sessions in 17, and marked its sixth straight weekly drop last week.

“Foreign selling triggered the market fall. We still do not see government funds actively coming into market and political uncertainty also weigh on sentiment,” said Jaliya Wijeratne, CEO, First Capital Equities.

Foreign investors net sold equities worth 311.2 million rupees ($1.97 million), extending the year-to-date foreign outflows to 1.64 billion rupees this year.

Turnover was 756 million rupees, less than this year’s daily average of 935 million rupees.

Shares in top listed lender Commercial Bank of Ceylon ended 0.2 percent lower, top conglomerate John Keells Holdings closed 1.9 percent lower, and Sri Lanka’s leading mobile phone service provider Dialog Axiata closed 1.4 percent weaker.

Finance Minister Mangala Samaraweera said early this month that the economy was likely to grow about 4.5 percent this year, below a central bank estimate of 5 percent.

The International Monetary Fund (IMF) said on June 20 that Sri Lanka’s economy remained vulnerable to adverse shocks because of sizable public debt and large refinancing needs.

Ratings agency Moody’s said on Wednesday a strengthening U.S. dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation.

Moody’s said a strong U.S. dollar would also lead to a drop in foreign exchange reserves of countries such as Argentina, Ghana, Mongolia, Pakistan, Sri Lanka, Turkey, and Zambia.

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.

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

Sri Lanka stocks down 1.07-pct, rupee slightly weaker

Economy Next – 02.07.2018

By First Capital Research

ECONOMYNEXT – Sri Lankan stocks closed lower Monday with block deals dominating and continued foreign selling in companies with a heavy weighting on the indices while the rupee also ended weaker against the US dollar, brokers and dealers said.

The All Share Price Index of the Colombo stock exchange fell 66.29 points (1.07%) to close at 6,128.34 while the more liquid SP SL20 index ended at 3,348.28, down 40.60 points (1.20%). Turnover was Rs756 million.

Brokers First Capital Equities said it was the main index was the lowest in almost 15 months and Monday’s fall the highest drop in two years, witth the main index dragged down by falls in John Keells Holdings and Distilleries Corp.

Brokers Asia Securities said crossings or off-the floor negotiated deals accounted for 77% of the turnover.

There were three deals in Commercial Bank which closed at Rs122.70, down 30 cents (0.24%), and one each in John Keells Holdings, which fell Rs2.80 (1.9%) to Rs144.70, Dialog Axiata, which ended at Rs14.00, down 20 cents (1.41%) and Hatton National Bank, which closed at Rs223.20, down Rs1.80 (0.80%).

Foreign investors were net sellers of Rs311.2 million worth of shares, Asia Securities said.

Estimated net foreign buying was mainly in HNB while net foreign selling was highest in Commercial Bank.

The rupee closed slightly weaker against the US dollar at 158.40/50 from Friday’s close of Rs158.20/40, dealers said.
(COLOMBO, July 02, 2018)

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

Dimantha Mathew, Head of Research at First Capital Holdings, with the Market Review on Ada Derana – 01.07.2018

Stock Market Sri Lanka

First Capital’s Dimantha Mathew with the Market Review on Ada Derana

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.

First Capital’s Dimantha Mathew with the Market Review on Ada Derana

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.

First Capital’s Dimantha Mathew with the Market Review on Ada Derana

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 extend fall to near 15-month closing low

DIMANTHA MATHEW, HEAD OF RESEARCH AT FIRST CAPITAL HOLDINGS PLC, SPEAKS TO REUTERS

JUNE 29, 2018

COLOMBO, June 28 (Reuters) – Sri Lankan shares declined for a fourth straight session on Thursday and posted their lowest close in nearly 15 months, as foreign investors continued to offload the island nation’s risky assets, while month-end settlements also weighed on the bourse.

The Colombo stock index ended 0.11 percent weaker at 6,181.48, its lowest close since April 4, 2017.

“Foreign selling has not stopped yet which is pushing the market down,” said Dimantha Mathew, head of research, First Capital Holdings.

“Today we saw some foreign buying and that absorbed the selling pressure to some extent. Margin calls are also there.”

Foreign investors net sold equities worth 196.1 million rupees ($1.24 million), extending the year-to-date foreign outflows to 1.2 billion rupees this year.

Turnover was 1.3 billion rupees, more than this year’s daily average of 934.9 million rupees.

Shares of Cargills (Ceylon) Plc fell 4.4 percent, conglomerate John Keells Holdings Plc ended 0.7 percent weaker, Bukit Darah Plc declined 3.7 percent and Commercial Bank of Ceylon Plc, the country’s biggest listed lender, slipped 0.7 percent.

Finance Minister Mangala Samaraweera said last week the economy was likely to grow about 4.5 percent this year, below a central bank estimate of 5 percent.

The International Monetary Fund (IMF) said on June 20 Sri Lanka’s economy remained vulnerable to adverse shocks because of sizable public debt and large refinancing needs.

Ratings agency Moody’s said on Wednesday a strengthening U.S. dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation.

Moody’s said a strong dollar would also lead to a drop in foreign exchange reserves of countries such as Argentina, Ghana, Mongolia, Pakistan, Sri Lanka, Turkey, and Zambia.

Sri Lankan markets were closed on Wednesday for a public holiday. ($1 = 158.1000 Sri Lankan rupees) (Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Weekly Government Securities Market – 28-06-2018

Stock Market Sri Lanka