|
|
 |
 |
 |
| Monday, 8 March 2004 |
 |
|
 |
Business | |
| News Business Features Editorial Security Politics World Letters Sports Obituaries
|
HNB stockbroker's weekly market review Week records a healthy turnover The market went through a technical correction, with investor sentiment turned mixed after varied developments in the political front. However the week recorded a healthy turnover amid the Sri Lanka Insurance' (SLI) purchase of 10% stake in Aitken Spence, seller being Distilleries. SLIC bought 2.79 million shares at Rs. 285 per share contributing Rs. 795 million towards the weekly turnover. The ASPI and MPI closed the week at 1,237.3 points and 2,019.8 points. On week on week basis, ASPI gained 13.18 points (1.08%) mainly on account of a 300 share transaction of Carson Cumberbatch at Rs. 10,000. However the more sensitive MPI lost by 67.91 points (3.25%) as Carsons is not a stock covered in MPI. For the week, the market recorded a turnover of Rs. 1.51 billion at an average daily turnover of Rs. 302 million, improving from previous week's Rs. 217 million. Once again the foreigners were more on the buying side having recorded a net foreign inflow of Rs. 45.2 million. Top five stocks reported based on volumes were SLT, Vanik(X), Aitken Spence, Distilleries and Asia Capital. LTTE defections and possible outcomes According to newspapers, the reported split in the LTTE further deepened, with certain eastern leaders fleeing to Vanni after differences between leadership and Eastern military leader Karuna, which arose last week. Meanwhile the Tamil net quoted LTTE's special commander for theBatticaloa-Amparai region saying, he was certain that the problem would be resolved smoothly. Such differences within the ranks of the LTTE could dilute their position in a negotiation table, specially since they claim to be the sole representative of the Tamil people. The latest developments suggest that there are many differences among the Tamil community towards the role of the LTTE, and if it continuous, could reduce their bargaining power. From another angle, it may have a negative impact towards the peace process, if LTTE leadership consider this development as a consequence of the stalled peace process. We believe these scenarios may be a part of ups and downs of the peace process. Meanwhile the initial reaction towards such news was that it could be created by the LTTE themselves, to enable political killings. However the latest news reports seem to overrule this judgment. Election fever All political parties continued their campaigns and as expected by us, number of election related violence was reported from many parts of the country. The killings in the East coupled with the withdrawal of UNF candidates from the election, justified our argument that the Tamil National Alliance (TNA) would increase their representation in the parliament after the elections. Market goes through an inevitable correction Meanwhile the market went through a correction during the week but picked up mainly due to selected transactions in Carsons and Aitken Spence. Furthermore, 2003 earnings certainty contributed towards the bounce back, as most corporate earnings released during the week were in line with our expectations. We expect the market to be fluctuated in a narrow range during the coming week, while being sensitive towards the developments in both political and peace related issues. Sri Lanka Telecom Ltd (SLT) released its results for the FY2003, with a 16% decline in net profits to Rs. 2.25 billion after writing off Rs. 710 million as the cost of a VRS. The company which recorded a marginal 1% growth in the top line during the period under review, failed to produce a growth in the bottom line largely due to high operating costs and the losses in its newly acquired subsidiary Mobitel. Total borrowings declined from Rs.25.9 billion (as at 31st Dec 2002) to Rs.18.1 billion (as at 31st Dec 2003) over the last 12 months. However we expect the borrowings and the finance expense to increase during FY2004, as Mobitel's conversion to GSM technology is expected to cost Rs.14 billion. VRS to generate immediate cost savings. SLT has taken further steps to strengthen its long-term position by introducing a Voluntary Retirement Scheme (VRS) for its employees at a cost of Rs. 814 million. Already they have written off Rs. 710 million during FY2003 and the balance Rs. 104 million is on account of the gratuity payable for those employees. More importantly, the VRS will generate immediate cost savings with the annual saving estimated to be approximately Rs. 300 million. The results produced an EPS of Rs. 1.25 per share and at the current market price of Rs. 19.00, the PER stand at 15.2x. This will be followed by a 34.9% net profit growth to Rs. 3.03 billion in FY2004, thus reducing the PER to 11.3x. Furthermore SLT declared a dividend of Rs. 0.50 per share, which is in line with our expectations. No reason to change our positive long-term fundamental outlook SLT remains well positioned to take advantage of further economic development in Sri Lanka and remains a key proxy into the Sri Lankan market. Furthermore, once 100% owned subsidiary Mobitel is fully converted to GSM, we believe that it could become a major player in the mobile market. This in turn would help SLT consolidate itself as the dominant telecom service provider in the country in the long term. Therefore we have also pitched SLT as a long-term growth story, as evidenced by our forecasts and DCF valuation. We rate SLT as a Long Term Buy. Commercial Bank results for FY2003 Commercial Bank released its results for the FY2003 recording a 12.6% improvement in profit attributable to ordinary shareholders to Rs. 1.344 billion, after consolidating the Bangladeshi operations. Total interest income showed only a marginal increase of 2.3% to Rs.7.6 billion, due to the continuous decline in interest rates despite a 28% growth in the loan book. Commercial is more focused on core banking activities compared to other commercial banks as non interest income represented 36% of total revenue. In contrast, both HNB and Seylan had approximately 50% of total revenue generated through non- interest income. Net profit attributable to ordinary shareholders was up 12.6 % to Rs. 1.344 million. The fully diluted EPS stood at Rs. 19.29 resulting in a PER of 8.1x. We project a 16.8% growth in earnings to Rs. 1.57 billion during FY2004, with a diluted EPS of Rs. 22.53, resulting in forward multiples of 6.8x. The earnings for FY2005 are expected to grow by 10.4% to Rs. 1.73 billion, reducing the PER to 6.1x. We believe Commercials clean loan book will grow at 18% during FY2004 and the debenture and preference share issues would provide additional funds for such growth. Therefore we maintain our Buy recommendation at the current price levels. Colombo Dockyards Ltd. FY 2003 Results The 4th quarter cumulative results released for Colombo Dockyard Ltd. saw a drop in net revenue by 33% to Rs. 3.14 billion from last year's Rs. 4.71 billion. The 4th quarter alone did well compared to last year with a 10% growth in net revenue to end up at 916 million. This was due to increased ship repair assignments and also a shipbuilding contract, which was secured during the latter part of 2003. Around 10% of the work on this contract was carried out during Q 4 and accordingly a portion of the revenue was recognized. The improved debt collection cycles as well as the reduced inventory of the company has improved the cash flows and brought down the short-term loans and OD levels significantly. This has resulted in reducing the finance cost by 60% to Rs. 25.9 million. Q 4 achieved a growth in earnings of 131% to 96.9 million. Thus the full year earnings are in the positive territory at Rs. 60.6 million (down 74% from FY 2002). This gave an EPS of Rs. 0.98 and a PER of 24.74 at a market price of Rs. 24.25. The counter continued to trade less than its book value, which was at Rs. 27.79 giving a PBV of 0.87. Based on 2004 earnings estimates the forward multiples are expected to decline to 9.5x. We rate DOCK as a Buy Lanka Milk Foods 3Q results for FY2004 Lanka Milk Foods Ltd recorded net earnings of Rs. 52.4 for 3Q FY2004 despite a 9.21% decline in turnover, compared to the corresponding period of FY2003. The groups finance cost has shown a severe turnaround due to an exchange gain achieved through a stable exchange rate between the rupee and the dollar together with decrease in borrowings. We maintain our forecast of earnings for FY2004 at Rs. 92.2 million and at a market price of Rs. 21.50 and a forward PER of 6.94x the counter looks attractive in 2005 and 2006 periods with the PER declining to 6.72x and 5.66x in 2005 and 2006 respectively. Asiri Hospitals Limited 3Q results for FY2004 Asiri Hospitals Ltd recorded a 11.5% growth in revenue with its new subsidiary Asiri Medical Services (AMS) which commenced its operations recently. Asiri's direct expenses component has increased significantly by 21.9% to Rs. 107.9 million from Rs. 88.6 million during the corresponding period last year. Asiri group's earnings have marginally improved by 0.8% to Rs. 104.7 million in FY2004 from Rs. 103.9 million in the corresponding period of FY2003. Accordingly annualized EPS based on 3Q profits of the group, stands at Rs.3.68 while at a price of Rs.29.50 the share is trading at PE multiples of 8.02x. RCL results for 9 months Dec 2003 The net revenue of Royal Ceramic Lanka Ltd. (RCL) showed a 55% growth to record Rs. 1.10 billion, which in turn helped operating profit and net profit to grow by 27% and 120% to Rs. 114 million and Rs. 57 million respectively With the new plant coming in, the total production capacity of RCL has doubled to 200,000 square meters, which has in turn helped to increase the consolidated revenue to grow by 55%. When considering the 9 months results, the annualized EPS stands at Rs. 1.38 and at the current market price of Rs. 17.50, the counter gives annualized PE of 12.7x. The views based herein are expressed with no malafide intension to any party whatsoever based on already published data and from the information obtained by the research team. No matter published as above creates any liability of any kind whatsoever on HNB Stock Brokers Pvt Ltd or its associates. The views cannot be reproduced in any form without the explicit (written or otherwise and photocopied) permission from HNB Stock Brokers (Pvt) Ltd. |
|
News | Business | Features
| Editorial | Security
Produced by Lake House |
