JKH trades above book value despite dull trading at the CSE

August 28, 2019 (LBO) – Stocks in Sri Lanka are continuing a streak of relatively dull trading with average daily turnover for the last 8 trading days hovering around Rs500mn (US$3mn) at the Colombo Stock Exchange (CSE).

Foreign investor participation has been low, with negligible net foreign buying or selling. Foreigners have generally been net sellers of Sri Lankan bonds and stocks in 2019, as global market volatility trickles down to the island nation. Protests in Hong Kong and President Donald Trump’s trade war have kept global markets on edge.

Despite the dull market conditions, Sri Lanka’s most important market bellwether seems to be inching higher. Shares of John Keells Holdings (JKH) are trading above book value after a period of weakness following Sri Lanka’s terrorist attacks.

Shares of JKH are trading at around Rs158/share with a market capitalisation comfortably over US$1bn. The company reported weak earrings with profits down 50% year over year for the June quarter. This weakness was expected after the global incidents of terrorism that hit Sri Lanka. These terrorist attacks ground Sri Lanka’s tourism industry to a halt. Tourism is a sector in which JKH has a significant footprint.

Despite the expected earnings weakness in the June quarter, JKH was still very much profitable with revenues still managing to grow 6%. Sri Lanka’s tourism industry is slowly rebounding, and the country’s security situation is stable. With the current security and economic backdrop, it is likely that JKH has hit the low point in its earnings for the foreseeable future.

Sri Lanka has just recently lifted its state of emergency and life is has more or less returned to normal. Presidential elections and political stability are due by the end of the year. Interest rates have also recently been reduced by the Central Bank, setting the country up for a GDP and earnings recovery in 2020.