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| Monday, 20 September 2004 |
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HNB Stockbrokers' weekly market review Investor interest in hotels and travel as season approaches The market moved in the positive direction throughout the week, with large quantities of selected blue chips and second tier counters exchanging hands heavily. The ASPI was up 2% or 28.3 points from last Friday, to close the week at 1413.4 points, while the Milanka Price Index (MPI) was up 1.46% or 30.7 points to close at 2134.9 points. Turnover for the week saw a substantial increase of 109.7% compared to last weeks as the activity level stood at Rs. 1.94 billion at a daily average of Rs. 387.7 million. Nawaloka shares remained a contributing factor for the week's turnover, as on average approximately 2.3 million shares being traded daily. The counter closed at Rs. 36.25 on Friday gaining Rs. 6.75 from last weeks close. Investors showed a keen interest in the Hotels and Travels sector, amid the upcoming tourist season with counters such as Marawila Resorts, Galadari, Reefcomber and Eden Hotel were seen being heavily traded. On Wednesday and Thursday, approximately 5.8 million and 4.9 million respectively of Marawilla Resort shares were seen being traded in the exchange. One of the key buyers of Marawila Resort counters was the Al Nakib family, who upped their stake to 20%, with the purchase of 4.8million shares at a price ranging from Rs. 9.25-10 per share. The week posted a net inflow of Rs. 74 million, with Foreign purchases for the week totaling to Rs. 635.6 million and foreign sales for the week standing at Rs. 561.6 million. While, foreign participation for the week stood at an encouraging 30.9% of the total activity. Marawila Resorts, Nawaloka Hospitals, East West, National Development Bank and Distilleries were among the heavily traded stocks for the week. Policy rates unchanged despite strict warnings The Central Bank maintained the policy rates unchanged at 7%, as it raised concerns over the excessive growth in public sector credit largely due to the increased subsidies. As highlighted by us the budget deficit has continued to widen the gap as the government continued to subsidise imported commodities such as petroleum products and wheat flour. The Monitory Board pointed out the need to revise the domestic petroleum prices in line with international prices and that such a move would support interest rate and exchange stability. Oil prices showing signs of stability Meanwhile the global oil prices have settled down around US$40 - 42 per barrel after reaching extraordinary levels of US$50 per barrel few weeks ago. However we do not expect the oil prices to run down below US$40 levels, thus continuing the pressure on the country's economic development. Furthermore we maintain our full year GDP growth target at 5.4%, despite slow down in the growth towards the 2nd and 3rd quarters of 2004. More trading opportunities in selected sectors Nawaloka continued to dominate in the market with an undisclosed foreign buyer increasing his stake to approximately 10% coupled with unchanged policy rates, managed to push the indices into positive territory. We expect the indices to further improve, in the next week with sizeable volatility in the indices that would offer trading opportunities. While advising the investors to take trading positions in selected sectors such as Hotel, Plantation and Health Care, we insist the need to cash in the profits on a regular basis. Distilleries results 1Q FY2005 The 1Q FY2005 results of Distilleries recorded a Net Turnover growth of 89% to Rs. 2.96 billion compared to Rs. 1.57 billion during 1Q last year. The major reason for the turnover growth was the consolidation of insurance segment. The F & B segment grew by 10% to Rs. 1.1 billion during 1Q FY2005. Approximately 60% of this growth was generated through the increased prices while the balance was from growth in volumes. Increase in volumes in this saturated market could only come through capturing the market share away from illicit manufacturers. However the high excise duty structure that drives the legal manufacturers' prices up remains a main barrier in this regard, since the illicit products are sold at significantly low prices. We see the insurance segment growing by 15% in FY2005 to Rs. 4.14 billion. We do not anticipate an exponential growth in the top-lines of SLI in the immediate future since the initiatives taken at present (particularly in the fields of IT and human resources) may take at least till the medium term to yield justifiable returns. The plantation sector turnover growth forecast for FY2005 is at 7% to Rs. 2.67 billion, while the textile sector we project a 20% growth in FY2005 to Rs. 420 million. Net Earnings up by 19% The net finance income for 1Q is Rs. 161.4 million compared to a net finance cost of Rs. 106.8 million during 1Q last year. The interest income of SLI has helped to set off the cost of borrowings (in the SLI acquisition) and end up with a net finance income. The net earnings to shareholders for 1Q FY2005 stood at Rs. 656.9 million, up 19% from Rs. 553.8 million during 1Q last year. At a share price of Rs. 28.00 and an annualized EPS of Rs. 8.76 the PER stood at 3.20x. The NAPS was at Rs. 22.47 giving a PBV of 1.25x. Our forward earnings forecast for DIST for the FY2005 stands at Rs. 1.826 billion. Despite the decline in the earnings, this results in an EPS of Rs. 6.09 yielding a PER of 4.6x at a market price of Rs. 28.00. Though this is an increase from the current PER level of 3.8x, we still see the counter very attractive at 4.6x compared to the market. Furthermore DIST diversifying in to insurance justifies it being ranked higher than the historical PER range of 1.9x - 4.2x that it has traded over the last five years. Additionally, the forward PBV of 1.1x remains attractive compared to DIST being ranked higher than the normal PBV range of 0.4x-1.1x that it has traded during the last five years. Thus we maintain our recommendation, a Long Term Buy. The views based herein are expressed with no malafide intentive 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. |
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