Two hundred and seventy four (274) companies listed on the Colombo Stock Exchange posted cumulative earnings for the December 2012 quarter amounting to Rs. 63.7 billion, up 44 percent from a year earlier, and up 34 percent from the previous quarter, with the Banking, Finance and Insurance Sector reporting earnings of Rs. 29.08 billion, up 88 percent from a year earlier and 113 percent more than the previous quarter.
"Market earnings witnessed strong improvement reflecting the recovery in market conditions and business sentiment compared to the 1H2012 where the government policy changes slowed down the economy. December quarter earnings performance was in line with our expectations with the above sectors leading the growth in earnings. Market earnings grew 44% YoY while it grew 34% QoQ analysing 274 companies that have released results so far," Softlogic Equity Research, a unit of Softlogic Stockbrokers, said.
"Banking and Finance sector spearheaded market earnings with an impressive 88% YoY growth backed by its exposure to high interest rates whereby higher NIMs were achieved reflecting loan books that locked in relatively high interest rates in comparison to deposits. Hotel sector earnings grew 27% YoY supported by the growth in tourist numbers with the country having reached a record of 1 mn tourists for the year 2012. Diversified sector followed with a 43% YoY growth given its high exposure to the tourism and F&B sectors. With unexpected improvement in tea prices as most prices reached record high levels, plantation earnings saw a considerable jump growing 879% YoY.
"During the last 2 quarters as per our expectations, market earnings have fully recovered while market returns have been lagging behind. We expect the market earnings to continue its growth momentum with Dec 2013E / Mar 2014E annual market earnings expected to grow by a further 13%-15%. We expect Banking and Finance, Food and Beverage and Diversified sectors to lead the earnings growth for the market. Telecommunication sector earnings are likely to show a recovery in earnings amidst growing revenue from the broadband and mobile segments. In order for market / benchmark index to catch up with the uptrend in earnings, we believe the bourse is likely to rally initiating from the next 3-6months.
"We continue to stand by our forecast that the listed entities are likely to witness a complete recovery of their earnings by the 4QCY12 and 1QCY13 with the Banking Sector, Hotel Sector and Diversified Sector leading the growth in earnings," Softlogic Equity Research said.
""As we anticipated in our previous report (April 2012 Report) for economic conditions and earnings of most companies to stabilize by August, we adhere to the same as we see the USD stabilizing at LKR130.0 levels. We expect a better second half for most companies with the recovery of economic conditions and business activity affecting companies towards the 4QCY12 and 1QCY13. We further expect the Dec 2013E / March 2014E to be a year of strong growth in corporate earnings," Softlogic Equity Research said.