CSE reports highest quarterly earnings surpassing LKR 100bn milestone: Softlogic Research

The CSE witnessed another landmark, as reported earnings crossed the LKR 100bn mark for the first time in the history of the CSE during the first quarter of the calendar year 2021. The growth is a monumental 189% YoY growth compared to the corresponding quarter the previous year.

Recording its best quarterly earnings performance in history of over LKR 109bn, the total reported earnings tally for the past 6 months reached LKR 195 Bn and LKR 285bn on a TTM basis. It is commendable to note that the growth momentum comes despite the period being stricken by waves of COVID induced lockdowns, which severely impacted mobility and overall economic activity.

The growth is in testament to the favorable climate for local companies during the post-lockdown period backed by import protectionism, economic stimulus and USD depreciation which proved to benefit the local industries and export segments whilst pent-up demand helped play a further role in strengthening the earnings performance.

The earnings momentum continued from its depressed state during the first wave of COVID-19, to record a 462% growth c.f. 2Q 2020 and a 28% growth from 4Q 2020, the quarter that was affected by the second wave of COVID-19. A deeper analysis of earnings reveals the thesis that corporates are becoming better equipped to handle lockdowns as it makes its transition into the new normal, whilst the opening up of the economy provides an instant boost following an extended lockdown period.

A brief segmental analysis is as follows:

HOLDING STRONG: The banking sector continued its recovery, remaining highly undervalued

The Banking sector earnings shot up by 70% YoY (+33% QoQ in 1Q2021/4QFY21) amidst lower impairment provisioning compared to last year and slight margin improvement after bottoming out during 4Q2020.

RIDING THE WAVE: Import restrictions and the recovery in mobility drive strong earnings for the capital goods sector

Capital Goods sector earnings were up +214% YoY in 1Q2021/4QFY21 and up by +63% QoQ basis, on the back of import protectionism, USD depreciation and revival in overall activity levels as the country adjusted to a new normal

A CONSUMER RECOVERY: Consumer driven conglomerates saw a strong boost backed by mobility

Food Beverage & Tobacco saw phenomenal earnings growth of +827% YoY, displaying properties of giffen goods as the country switched back to basics, whilst the palm oil price spike continued to benefit CARS in 4Q’21

THE TOP PERFORMER: A strong sustained growth backed by a favorable post-COVID landscape for the material sector

The Materials sector earnings improved significantly (+267% YoY) remaining broadly around the Q4 earnings mark (+21% QoQ) to record a growth of over 160% on a TTM Basis to be the best performing sector of the CSE*

THE CLEAR WINNER: Built to thrive during a health crisis, the healthcare sector earnings grew by 532% (YoY)

Health Care Equipment & Services sector earnings improved significantly +532% YoY and +22% QoQ due to the surge in demand in the healthcare sector

A SUSTAINABLE GROWTH: Increased consumption patterns drove telecom earnings up 36% (YoY)

Telecommunication sector earnings surged 36% YoY in 1Q2021/4QFY21 on the back of improved data consumption, cost saving initiatives and reduced operational expenses.

EXPLOITING THE TIMES: A COVID-induced growth, with the transportation sector hitting the jackpot during travel restrictions

Transportation sector earnings spiked +998% YoY to LKR 4bn on the back of the extraordinary earnings boost witnessed by EXPO, however on a QoQ basis, earnings dropped 12%.

BOUNCING BACK: A strong recovery drives Q1 earnings of the retail sector up by 612% (YoY)

The Retailing sector witnessed a phenomenal growth in earnings by +612% YoY (+29% QoQ) driven by the strong pent-up demand which continued to be seen in 1Q2021/4QFY21 as mobility recovered to near normalcy.

NON-IMPACTED SEGMENT: An unwavering growth, that remained strong despite the lockdowns 

The Utilities Sector earnings grew 99% YoY in line with its seasonality despite falling 67% QoQ in 1Q2021/4QFY21 due to unfavorable weather conditions compared to 4Q’20.

(Softlogic Equity Research)

Earnings-Review-1Q21