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Market moved side ways as it broke through the psychologically important 800 level, with the All Share Price Index jumping 22.19 or 2.79% to close the week at 817.23 points. In fact the index moved to 822 points on Wednesday but declined marginally over the next two days. Healthy interim results of Commercial Bank and Seylan Bank contributed towards further blue chip buying as the Milanka Price Index closed the week at 1377.05 points, up by 42 points or 3.08% from previous Friday's close.

Activity remained moderate through out the week as the weekly turnover amounted to Rs.649.04 million resulting in an average daily turnover of Rs.129.81 million.Overseas investors kept a low profile as the foreign buying amounted to Rs.43.25 million, while the foreign sales were Rs.29.09 million, accounting for a net foreign inflow of Rs.14.16 million for the week.

The commencement of peace talks coupled with strong corporate earnings boosted the investor enthusiasm during the first 3 days of the week, with large quantities of Commercial Bank (non voting), DFCC, CIC (non voting) and Seylan Bank exchanging hands.

Among the highlights for the week was the privatisation of six bus companies through the Colombo bourse. The transaction took place on Thursday as a British consortium of companies bought into a 39% stake in each of Colombo Metropolitan, Gampaha, Kaluthara, Mahanuwara, Rajarata and Sabaragamuwa Bus Companies at a cost Rs.1.45 billion.

Two IPOs in November..

As mentioned in our previous market report Apollo hospitals will be listed in the Colombo bourse shortly. Offer will be opened on 20th November 2002. Meanwhile much awaited SLT privatisation will be on offer of 25th November 2002. Approximately 12.5% or 225.6 million shares will be released to the Colombo market at an issue price between Rs.15 - Rs.18. The two issues are expected to add liquidity and size to the Colombo bourse.

Commercial Bank continues successful run

Commercial Bank out performed 2001 results and justified its position as the leader as it recorded growth in almost all the key areas during the 1st 9 months of 2002.

The Group recorded a profit growth of 23.76% (before tax) and 48.71% (after tax) for the nine months ended September 30, 2002, compared to the corresponding period in 2001. Bank too recorded a profit growth of 11.93% (before tax) and 33.87% (after tax) over the 1st nine months of last year.

Foreign exchange profit recorded a significant drop due to the rate of depreciation of the Sri Lanka Rupee against the US Dollar being only 3% during the nine months ended September 30, 2002 as against the higher rate of depreciation of 9.3% during the corresponding period in 2001. The higher rate of depreciation of the Rupee in 2001 was due to the floating of the currency in January 2001. Despite this drop in exchange profit, the Bank recorded a growth in profit before tax mainly due to growth in the underlying business volumes. Both net interest income and other income of the Bank recorded growths of 15.26% and 33.31% respectively. The growth in the profit after tax was mainly due to the removal of the 20% surcharge on income tax. Based on the above earnings the Group has recorded an annualised EPS of Rs.35.28 per share. Shares of Commercial bank closed at Rs.209.00, trading 5.29 times of earnings. Meanwhile the non-voting share was more popular as it closed at Rs.155.00 after reaching a peak of Rs.160.00 per share.

Lanka Tiles records healthy growth in profits

* Lanka Tiles (TILE) released its results for the 6 months ended September 30 2002. Turnover increased by 4.0% to Rs. 459.68 million while profit attributed to shareholders increased by 9.6% to Rs. 65.46 million.

The main reasons for the growth in profits were reduction in surcharge in corporate tax by 20% helped the company to reduce its effective tax rate from 43% to 33% while the finance cost too reduced from Rs. 2.2 million to Rs. 1.1 million. Based on current earnings the annualised EPS is Rs. 6.52 while the net assets per share of the company stands at Rs.29.51.

* Capacity to expand - The company is planning to construct a third tile manufacturing company at a cost of Rs. 450.0 million. Tile's existing two factories are running at 95% capacity and the additional factory would initially increase the capacity by 35% with a further 45% increase in two years. The cost of the proposed programme would be met by obtaining a Rs. 300.0 million facility from DFCC in the form of a debenture issue while the balance would be met through internally generated funds. The interest on these debentures would be payable quarterly at an interest rate of 6.5% per annum above the Average Weighted Deposit Rate (AWDR). This would add around Rs. 45.0-50.0 million to TILE's finance cost in the medium term, which the company should be able to manage with increased sales volumes. Lanka Tiles currently is the second largest tile manufacturer in the country with a market share of 30% - 32%. TILE is not affected by the global gloomy economic scenario as only around 10% of its products are exported.

Ceylon Oxygen profits come lower

According to the 9 months ended results of Ceylon Oxygen (COXY) revenue has declined marginally by 0.5% to Rs. 338.51 million while net profit for the period has seen a 25% decline to Rs. 83.62 million over the same period last year.

* Decline in gross margins - COXY's gross margins have come down to 30% from 40% for the same period last year due to price competition from small scale operators entered the industry. In spite of new entries to the market COXY still maintains around 80% share in the industrial gas market. However large-scale production, capacity to increase production and economies of scale enjoyed by COXY would eliminate competition in the long-run.

* Reduction in issued capital - Recently the company announced a reduction to its issued capital by 25% by paying back part of its capital to its existing shareholders, which would effectively lower the share capital from current 9.0 million to 6.75 million.

However availability of large accumulated reserves would facilitate such a move. As at 30th September 2002 company's accumulated reserves stand at Rs. 520.73 million.

* Annualized EPS of COXY is Rs. 12.39 while net assets per share is Rs. 90.70.

Point of View:

In our last report we predicted the importance of the market breaching the 820-825 barrier for a sustained upward movement in the market. However the 820 resistance point was tested a few times and though the market reached 822 level on Wednesday (30th October), the momentum was not strong enough to sustain the sentiment. The minor communal violence in Colombo managed to dampen the fragile confidence that was building up with the political uncertainties fading away. Corporate results continue to offer a picture of growth but the market has been extremely slow to respond to this due to panic selling by the retail investors. Although we expect the market to be dull in the short-term, the market is expected to reach high with the expected listing of the Sri Lanka Telecom and Apollo Hospitals. The Colombo Bourse, which suffers from an acute liquidity shortage, the listing of Telecom and would inject the much-needed liquidity to revive the bourse. However the activity will continue to be dull over the next week with the indices fluctuating within a thin spread and the market might take a correction before bouncing back in time for the coming IPOs. With declining interest rates, improving international trade, narrowing budget deficit, improved liquidity after the expected listings and the situation in the North-East pointing towards a solution there is no reason for the market continue the "bear sentiment" we witnessed during the latter part of the week.

All is calm on political front

With possibility of fresh elections ruled out by both parties all is calm on the political front at present. The first round- second session of peace talks which kicked off on Thursday is progressing steadily with both parties agreeing on a joint development committee for the rehabilitation of North-East, davasted by the ethnic war. Meanwhile the 200-year jail sentence given to the LTTE chief Velupillai Prabhakaran in absentia for planning the, bombing of the Central Bank of Sri Lanka in 1996 which killed 96 people, appears to have no impact on the peace process with talks continuing on Friday hours after the Court Order was declared.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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