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