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| Monday, 08 November 2004 |
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HNB Stockbrokers' weekly market review Activity slows down as investors await budget proposals Trading lacked direction and activity slowed down, ahead of the budget proposals to be read in parliament in the coming weeks. The market faced a stiff upward resistance throughout the week, with the ASPI falling 39.7 points or 2.59% compared to the previous week, to close at 1494.7 on Friday. Meanwhile the Milanka Price Index (MPI) showed high volatility to close the week at 2127.5 points, showing an overall reduction of 3.04% or 66.6 points. The contributing factors towards the downward trend remained profit taking and dip in Sri Lanka Telecom (SLT) share by Rs. 1.25. Total Turnover for the week remained low at Rs. 987.9 million, compared with last weeks total turnover level of Rs. 1.33 billion, which included turnover for only four trading days. The daily average turnover for the week stood at Rs. 197.58 million. SLT counters contributed most to the weeks Turnover with approximately 4 million shares trading. Heavy trading in SLT counter came in the back of share prices depreciating due to SLT posting a dip in earnings due to a Rs. 2.06 billion charge for International Telecom Operators' Levy (ITL). The share price closed at Rs. 16.75 on Friday. Apart from SLT, Royal Ceramics shares were also seen being heavily traded for yet another week running, though the volumes traded were comparatively lower than that which was seen last week. A net inflow of Rs. 22.1 million was posted for the week, with foreign purchases totaling Rs. 161 million and foreign sales totaling Rs. 138.9 million. Meanwhile Foreign participation for the week stood 15.2% of total activity. Heavily traded counters for the week were Royal Ceramics, SLT, Vanik Incorporated, Kelani Tyres and Asiri. Activity to remain subdued As expected by us indices slipped sharply throughout the week, as the investors cashed in profits after a continuous Bull Run that lasted for almost 3 weeks. While the macro economic indicators continued to suffer, little or no positive news appeared from the peace and the political front to boost the investor confidence. We do not expect the market to return to a flamboyant mood in the coming weeks, as the investors would cautiously wait to see the outcome of the budget proposals expected to be read in parliament within the next few weeks. Furthermore, Lanka IOC IPO will open on November 29, thus selected investors may prefer to be in cash in order to plan their investments. Therefore we expect the market activity to remain subdued in the coming weeks and would advise the investors to look for buying opportunities in the event of a steep market correction. SLT results for 9 months FY2004 Sri Lanka Telecom Ltd (SLT) released its results for the 9 months of FY2004, reporting a 27% decline in net profits to Rs.1.3 billion, compared to the corresponding period of the previous financial year. Despite recording a 14% and 63% growth in operating profits and profit before tax and levies, the bottom line suffered a set back due to a newly introduce International Telecommunication Operators' Levy (ITL) that amounted to Rs. 2.1 billion. The telecom company recorded an encouraging 15% growth in the top line, backed by additional international call revenue and rapid growth in Mobitel' s revenue. During the period SLT repaid loans to the value of Rs. 8.6 billion, while they borrowed back Rs. 5.3 billion. 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. We revise our profit forecast downwards to Rs. 1.9 billion for FY2004, a dip of 15.3% compared to FY2003. These projections are on the assumption that the ITL is applicable till March 2005 and the company would not recover it as an income. Based on the projected EPS of Rs. 1.06, the forward multiples are expected to be at 15.9x. Furthermore, we project a net profit of Rs. 4.3 billion in FY2005, with earnings multiples declining to an attractive 7.1x. We continue to rate SLT as a Long Term Buy. 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. |
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