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Trading lacked direction and activity has stopped for all intents and purposes, ahead of the two IPOs, both open for applications currently. There is still inherent market weakness as investors are still overly cautious following last week's budget proposals.

The market is facing a stiff upward resistance as the ASPI was down 11.75 points or 1.45%, and the Blue chip Milanka Index slipped 1.88% from last Friday's close. The ASPI and Milanka closed the week at 798.87 and 1326.68 points respectively.

The market remained in a dull trading mood as the weekly turnover counted to only Rs.362.76 million at an average daily turnover of Rs.72.55 million.

Friday's turnover of Rs.18.11 million was the lowest since 25th April 2002.

On 24th and 25th April the turnover was nominal at Rs.17.36 million and Rs.18.06 million respectively.

Foreigners ended up being net sellers for the week, even though the participation was relatively significant compared to turnover. Foreign purchases for the week were Rs.118.6 million with a net outflow of Rs.17.8 million.

A couple of big blocks of JKH (663,600 and 450,500) exchanged hands during the week, while large parcels of Lanka Ceramics, Distilleries and HNB were also traded. On Thursday, a High Net-Worth Individual (HNWI) bought a 9% stake in Lanka Ceramics for Rs.16.00 per share.

Plantation stocks

Most of the plantation stocks were seen heavily traded during the week, after a long lapse. Last week, ADB granted a $30 million loan to be channelled to the plantation sector, and will be used for training, worker housing and institutional development.

Meanwhile, 12 regional plantation companies are expected to benefit from a proposed reduction in the management fees and freezing of lease rentals.

At present, most plantation companies are liable to pay the management fee as a percentage of the profits, turnover and supplies. However, the proposed scheme is expected to suggest the payment to be as a percentage of profit before interest, tax, depreciation, amortization and management fees. The new scheme should identify different percentages for different companies based on the premiums they paid at the privatisation stage.

The reduction in lease rentals will enable the Regional Plantation Companies to increase their profitability. Some Plantation companies such as Hapugastenne, Bogawantalawa, kahawatta etc. are expected to benefit from this exercise.

Meanwhile, some plantation companies released their interim results for the period ended September 30, 2002. Maskeliya Plantations recorded a net loss of Rs.12.6 million for the first six months of the FY 2002/03. However, during the first six months of FY2001/02, the Company made a net profit of Rs.39.8 million. Most plantation companies have recorded a drop in performance mainly due to the recent wage hikes in the plantation sector.

NDB records exceptional profit growth

Banking giant National Development Bank performed exceptionally well during the first nine months of 2002, with the group net profits rising by 222% to Rs.627 million from Rs.195 million compared to the corresponding period in 2001.

The Group managed to record improvements in almost all areas in a difficult operating environment, with interest rates declining and business activity subdued. Net interest income increased by 9%, while other income picked up by 39%, when compared with the corresponding period of 2001. However, total revenue declined by 9% to 4.43 billion as against the first 9 months of 2001.

The Bank made provisions for credit losses of Rs.282 million during the period while the net loans stood at Rs.27.6 billion, down by 12% compared with a year earlier. Group assets were down by 5% while the liabilities were down by 10% as the net assets per share improved to Rs.126.86.

NDB share traded as high as Rs.106/= during the quarter whereas the lowest price for the period was Rs.58/=. The improved performance contributed towards the upward trend of the share as NDB was trading at Rs.93/= on Friday.

Based on the latest result, annualised EPS for the group is Rs.15.55 per share and trades at 5.98 times of earnings. NDB still remains as one of the most attractive shares in the market while significantly contributing to the market turnover during the last few weeks.

The recent budget proposals imposed an additional 10% VAT surcharge on Banks from January 01, 2003. NDB's next 3 months profits will not be affected due to this surcharge and we expect the earnings to grow steadily during the last quarter of 2002.

DFCC Group net profit up by 32%

For the six months ended on September 30, 2002, DFCC Bank's group net profit was up 10.5% at Rs.524 million from Rs.474 million the previous year.

The group's higher profits were mainly due to the reduction in taxation. In fact, Profit Before Taxation was down by 8.8% at Rs.749 million.

A sharp increase in other income also helped to lift profits, with profit on sale of shares and higher dividend income enabling the bank's other income to rise by 46% during the period under review.

However, an unexpected sharp drop in the average weighted prime lending rates has resulted in lower margins in the bank's customer loan portfolio, and in its money market and treasury activities. As a result, the group reported a 24% drop in net interest income to Rs.600 million during the quarter compared to the same period last year.

DFCC has consolidated its activities to focus on project lending, investment banking and lease finance. DFCC has a strategic alliance with Commercial Bank of Ceylon, in which it holds a 29% stake. Commercial Bank's profit growth has enable DFCC to record a 8% increase in its share of profits from associates.

Currently, the annualised EPS stands at Rs.24.74 per share resulting in a PE ratio of 6.28 times. The net assets per share is Rs.166.44 and currently trades at a discount to the book value. DFCC closed the week at Rs.155.50 per share.

DFCC and National Development Bank are the country's main channels for loans from several international funding agencies, including the World Bank and the Asian Development Bank. Both banks are trading at discounts to their book values and the PERs are less than the banking sector PER of 10 times.

Aitken Spence reports healthy growth in profits

According to group results for the six months ended September 30, 2002 Gross revenue increased 38% to Rs. 3,126.2 billion while profit from operations doubled from Rs. 151.8 million to Rs. 311.8 million. Lowering of costs and savings on corporate tax reduction saw the bottom lines improve by a hefty 188% to Rs. 132.7 million. Increased earnings from the tourism sector was the main contributor, with a major part of it coming from its Maldivian resorts Rannalhi and Meedhupparu.

Meanwhile SPEN's Sri Lankan operations have witnessed a rebound with increased tourist arrivals. Kandalama, Tea Factory, Earls Regency (management only) and Palm Village have performed exceptionally well while the contribution from other hotels too seems satisfactory.

The Tourism sector contributed 56% of SPEN's group turnover and 72% of its profit from operations in FY 2001/2002.

Outlook for the 2nd half of SPEN

The second half of the year is expected to perform even better, with the start of the tourism season in November. Historically, SPEN's earnings from tourism skyrocket during the 2nd half of the year.

For example in FY 2000/2001 SPEN's hotel management arm (AHUN of which SPEN holds 75%) made a loss of Rs. 33 Mn for the 1st half of the year (for the period ended April 1, to September 30). However, it bounced back during the 2nd half to record a profit of Rs. 247.6 Mn at the year-end.

The annualized EPS of SPEN is Rs.10.38 which trades at PE multiples of 13.8 times. Net assets per share of the company stands at Rs.170.00 as at September 30, 2002 while at Friday's closing price of Rs. 141.00 it trades 0.86 of its book value.

Trans Asia, Asian Hotels see a rebound

According to Trans Asia's (TRAN) results for the 6 months ended September 30, 2002 the company recorded a 28% growth in revenue to Rs. 329.4 million.

Reduction in operational cost, increase in finance income and reduction in corporate surcharge helped the company to record a net profit of Rs. 69.74 million, an increase of 99% over the same period last year.

The annualised EPS of TRAN is Rs. 3.80 while the net assets per share is at Rs. 34.50.

Asian Hotels (AHOT), the parent company of Trans Asia also released results for the 6 months ended September 30, 2002 with a 28% increase in revenue to Rs. 619.3 million. Decline in finance costs by 50% to Rs. 36.0 million (due to paying off a considerable part of its loans), increased contribution from its associate (Trans Asia) helped the company to increase its net profit by eight-fold to Rs. 96.3 million.

Crescat Developments, a subsidiary of Asian Hotels performed well with a 36% increase in revenue to Rs. 316.2 million, which is approximately 51% of AHOT's group revenue. Annualised EPS of AHOT is Rs. 0.80 while the net assets per share is Rs.17.58.

Point of View :

Market may remain flat in the coming week

We may not see a significant movement in the coming week in the view of the oncoming SLT IPO. Short-term profit taking by most investors brought the market down considerably last week, as the two IPOs would parch the market of its liquidity that is available for active trading. With the market edging sideways a considerable decline cannot be ruled out at present. The weakness in the market may prompt the bargain hunters to wait for the next sell-off to resume their buying. What we are encountering now may well be the final sell-off before the beginning of another bull run. The market perhaps needs a good bout of selling to give it a springboard to embark on a sustained upwards move.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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