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| Monday, 27 December 2004 |
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HNB Stockbrokers' weekly market review LIOC pumps up market The market rose to new heights as the much awaited Lanka IOC (LIOC) shares made a strong debut offering almost a 100 per cent return on the first days trading. The ASPI (All Share Price Index) rose to 1580.7 points on Wednesday, up by 33.8 points or 2.2 per cent, a new height beating the previous high of 1560.9 points recorded on 22nd October 2004. This was mainly due to the entrance of LIOC, which increased the Colombo Stock Exchange's (CSEs) market capitalisation to Rs. 400.8 billion on Wednesday. However the MPI (Milanka Price Index) remained static for most part of the week, but fell 11.8 points, on Thursday, to close at 2209 points. The index was marginally down by 1.7 points or 0.08 per cent compared to last Friday's closing. The turnover for the week was a staggering Rs. 1.92 billion, resulting in an average daily turnover of Rs. 480.5 million showing a 159 per cent growth compared to last week. Apart from LIOC, which accounted for approximately 58 per cent of the week's turnover, heavy trading was seen in counters such as Nawaloka, JKH and Distilleries. Interest on JKH shares came in on Monday where approximately 1.1 million of JKH shares traded at a high of Rs. 127.75 and a low of Rs. 125.50. It was reported by the press that the sellers of the counter were captains and related parties. On Thursday, 1.3 million shares of JKH exchanged hands, but the stock closed the week at Rs. 125.75, down by Rs. 0.25 compared to last week. Large quantities of Distilleries traded on Monday, with approximately 3 million shares circulated at a high of Rs. 31.75 and a low of Rs. 31.25. According to newspapers, the buyers were reported to Captains and other high net worth investors. Foreign purchases, for the week stood at Rs. 461.3 million. While, foreign sales for the week stood at Rs. 414.7 million. This resulted in a net inflow of Rs. 46.6 million for the 4-day period. Foreign participation for the week was 22.8 per cent of total activity. LIOC, Nawaloka, Distilleries, JKH and Seylan Bank (non voting) were among the highest trading stocks for the week. LIOC debuts on exchange Lanka IOC Ltd (LIOC) made its first appearance in the Colombo bourse on Wednesday, opening at Rs. 54 before fluctuating in the range of Rs. 45.25 - Rs. 54.25. Approximately 18.2 million shares were traded on the opening day, with the total value of Rs. 888.1 million. However price settled down around Rs. 45.50 - Rs. 47 on the 2nd day of trading before closing the week at Rs. 46 per share. Based on our projected earnings for FY2005 the EPS stands at Rs. 3.83, resulting in a PER of 12.2x at Thursday's closing price. Even though the stock price has surpassed our one year forward target price of Rs. 39.96 (based on FY 2005 earnings), it is currently trading well below our two year price target of Rs. 57.96 per share (based on FY 2006). Therefore, we believe that the stock still offers strong fundamental value, based on its rapid business growth and expansion opportunities. (Refer our IPO report, titles Ship Shape and Steady for further details). Furthermore we believe that the company is well poised to beat our FY2005 earnings target of Rs. 2.04 billion, allowing for better dividends with the increase in earnings. Thus we recommend the stock a Buy. Costs for the 1st half rose by 52.5% to stand at Rs. 94.1 million. Apart from staff costs administration costs also include overhead costs such as electricity costs, which have also seen a jump with the increasing of activity levels with AMS starting operations. Furthermore as highlighted during the 1st quarter, depreciation cost have also been a sizable component of the administration cost with the new building of AMS and new machinery (apart from medical equipment) coming in we project the administration costs to stand at Rs. 198 million for the full year of FY2005, which is in line with the 1st half performance. Finance costs expected to drop considerably The group finance cost for the period showed a considerable 141.5% increase compared to the last financial year, to stand at Rs. 35.1 million. However the company has subsequent to 30th September 2004 settled at total of Rs. 329.5 million worth of short-term loans, debentures and commercial paper. Therefore a considerable reduction in finance cost can be expected during the 3rd quarter onwards, thus our full year projected finance cost stand at Rs. 46 million. AMS listing offers healthy capital gains in the 3rd quarter The settlement of debt comes in the back of the listing of AMS shares in the Colombo Stock Exchange (CSE). With the listing of AMS, Asiri hospitals has managed to dispose approximately 7.2 million shares of AMS. Apart from the sale of shares, the company had converted Asiri Hospital debentures worth Rs. 50 million into AMS shares, with Lanka Ventures taking up the option of receiving a total of 4,11,667 shares of AMS, in exchange of the debentures. This would further help Asiri to reduce its debt proportion and bring the Debt: Equity ratio 37.5%. The company posted healthy capital gains from the AMS share transactions of Rs. 155.6 million. Asiri Hospital goes for rights issue The company has already announced a l for 4 rights issue at Rs. 30 per share. The proceeds from the rights issue would be utilised mainly for refurbishment purposes of Asiri hospitals and the settlement of debt. Minority Interest rises, with the dilution of stake in AMS The Minority Interest component for the 2nd half is expected to rise substantially, with Asiri Hospital's disposal of its stake in AMS. Asiri Hospitals owned a 78% stake in AMS as at 31st March 2004 which reduced quite substantially with the company selling off a total of 6.03 million AMS shares to Directors and related parties at Rs. 20 per share. In addition, as highlighted before the company also surrendered approximately 4.2 million shares in exchange of its debentures. Apart from this Asiri Hospitals disposed of a further 7,184,700 shares of AMS, subsequent to the listing of AMS in November. AMS listed a total of 35,230,498 shares on the Colombo Stock Exchange (CSE) at a price of Rs. 10 per share (however the shares started trading at Rs. 22 per share and above). Thus Asiri hospitals now hold only a 28.72% stake in AMS. AMS turnover increases, but marginal decrease in profits AMS posted a Rs. 14.9 million net profit for the 2nd quarter of FY 2005 showing a marginal decrease of 5.5%. While the turnover increased by 16.5% quarter on quarter, the decrease in profits came in the back of a 95% increase in administration costs to stand at Rs. 20.1 million for the 2nd Point of View Trading in LIOC may disturb investor's holiday The market activity showed a sizeable improvement compared to previous weeks amid the LIOC's debut in the Colombo bourse. While LIOC remained in the limelight, large parcels of leading blue chips such as John Keells Holdings, Distilleries, Seylan Bank, exchanged hands. Boosted by these trades market activity showed considerable improvement despite the holiday season. However, we expect the market activity levels to slowdown in the coming week, as the investors are likely to stay away from market. This may create opportunities to accumulate fundamentally strong counters at cheaper price levels. Therefore we advice the investors to closely monitor the price movements in order to capitalize on bargain hunting opportunities. Asiri results 1H FY 2005 Turnover grows by 52% Asiri Hospitals Group recorded a net profit of Rs. 86 million, for the 1st half of FY 2005, up by 53% compared to the corresponding period of last financial year. This was mainly due to a substantial 52% increase in turnover, to Rs. 514.9 million for the 1st half, mainly due to Asiri Medical Services (AMS) recording a considerable increases in revenue (contributions from AMS were not incorporated in the accounts of the 1st half of last financial year). The second quarter alone saw the group revenue rising by 54.2% compared to the same period last financial year. Quarter on quarter, AMS posted a 16.5% increase in revenue to stand at Rs. 70.8 million, compared to Rs. 60 million posted during the 1st quarter of FY 2005. Meanwhile the parent company Asiri Hospitals saw a 13.5% quarter by quarter increase in revenue, which was mainly attributed to substantial increases in laboratory tests. As highlighted in the 1st quarter, the cost of services of the group has been adversely affected by the depreciation of the rupee and the increase in expenses with AMS becoming operational. The expense saw a 55% increase in the 1st half compared to the last financial year. The group gross profit for the period saw a 62.5% growth for the 6 month period compared to the corresponding period of the last financial year to stand at Rs. 227.2 million. The gross profit margin stood at 44.1% remaining stable compared to the corresponding period of last financial year, which posed a similar gross profit margin of 44.2%. Staff costs increase as AMS recruits new cadre The staff costs of the group have increased considerably, with new recruitments being made to AMS. According to the company they have recently recruited new staff into various categories including Indian medical officers, who specialize in areas such as radiology. However Asiri apportions its total staff cost between administration and operational on a proportionate basis. Therefore the staff cost increases can be highlighted as a reason for both Direct and Administration cost rises (operational staff costs have been included in Direct expenses, administration staff costs have been included in Administration expenses). Direct expenses rose by 47% compared to the same period last financial year to stand at Rs. 102.5 million. The increase in expense was also affected by depreciation costs (medical equipment) and housekeeping expenses hiking up with the increase in activity levels of AMS. |
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