Dec 04, 2015 (LBO) – Sri Lanka equity market earnings declined 6 percent in the third quarter of this year largely due to lower earnings in diversified and telecommunications sectors, CT CLSA said in a research report.
A slowdown in banking, finance and insurance added to this performance, the securities firm said.
On a twelve-month basis, however, motors, manufacturing and healthcare showed strong earnings growth.
The diversified sector reported 10 percent lower earnings in the third quarter, year on year, “impacted by various challenges, including the declines in power segment earnings, volatile interest rate environment and impacts of the currency depreciation.”
Telecommunications earnings fell 65 percent in the third quarter largely due to book losses incurred on the back of currency depreciation.
The banking, finance and insurance sector rose by a slow 6 percent in the third quarter, with topline growth supported by private sector credit growth and demand for leasing.
Earnings of certain sector heavy weights were negatively impacted by marked to market losses amid rising interest rate environment, CT CLSA said.
Diversified earnings were particularly affected by losses incurred by Carson Cumberbatch (CARS) and Dunamis Capital (CSEC).
“CARS losses were attributable to the exchange losses recorded in oil palm subsidiaries amid depreciation of Indonesian Rupiah against the dollar.”
CSEC earnings were impacted by the decreased profits of subsidiary, First Capital Holdings (CFVF), which recorded trading and fair valuation losses on the sale of government securities, amid the increase in interest rates during the quarter.
“Sector heavy John Keells Holdings (JKH) earnings was boosted by boosted by exchange gains, amid the depreciation of LKR.”
In the meantime, Consumer Foods, Retail, Finance, FMCG and Logistics subsectors improved earnings of CT Holdings (CTHR), ExpoLanka Holdings (EXPO) and Valliblel One (VONE).”
In terms of telecommunications, revenue growth at DIAL and SLTL were driven by growth in data business volumes (at an estimated sector data margin of 26 percent) and Pay TV business volumes.
However, revenue related to international termination continued its decline amid increased usage of Voice Over Internet Protocol (VOIP) tools such as Skype, Viber and WhatsApp.
International termination revenue related business margins are estimated at 60 percent for the overall telecommunications sector in Sri Lanka
Motors +66 pct growth
In terms of the last twelve month earnings, up to September, Motors is the best performing sector up 66 percent over the previous year, followed by Manufacturing up 39 percent, and Healthcare up 32 percent.
Banking, finance and insurance is up 27.7 percent, and beverage, food and tobacco showed earnings growth of 18.4 percent.
For the market, overall, trailing twelve-month (TTM) earnings increased 5 percent.
“Current TTM market PER stands at 14.2X – we forecast forward market PER at 14.7X by 2015E and 13.8X by 2016E, supported by YoY total market earnings growth of +8% and +6% respectively,” the report said.
The report can be viewed here:CT-CLSA-3Q2015-Market-Earnings-Review-30-November-2015