The booming Sri Lankan tourism industry and recovering Maldivian sector earnings would strengthen the bottom line of the company. The expanding Strategic Investments and Services sectors would further enhance and sustain the earnings growth in future.
Backed by growing tourist influx and revival in the hospitality sector (where the company holds 40% of the city 5 star room supply) coupled with the holding company’s real estate portfolio in prime locations in Colombo AHPL is stand to benefit significantly.
Ait. Spence Hotel
AHUN would benefit immensely from the local tourism boom with 09 properties in all strategic locations in the island which are upgraded. Also it plans to build new hotels in Down South, Jaffna and Trincomalee in the near future. In addition, its presence in the Maldives, India and Middle East would further strengthen the earnings with the recovery of the global tourism lull.
Colombo Dockyard exhibited robust earnings growth during the year on the back of increased ship building activity and increased contribution from heavy engineering segment. However the shipping industry has not fully recovered from the recession and thereby ship repairing work will be reduced in the coming year. DOCK expects to deliver 4 ships during the year 2010 and to double the income from heavy engineering activities by contributing to the national infrastructure development projects. Further the strategic move to off-shore engineering work has started paying back. Therefore we believe that DOCK will sustain the earnings growth in the future.
Despite the temporary setback caused by the Supreme Court ruling on SLIC we believe future prospects for DIST are promising, given the sustained growth in the beverage sector and with the purchase consideration for SLIC being paid (LKR 6.05 bn) provides the company the opportunity to capitalize on future lucrative investment opportunities. Further the group recently ventured into the genral insurance business with an initial investment of LKR500 mn and into a 4MW hydro power plant with an investment of LKR750 mn.
After recording a phenomenal performance in FY2010, LION’s future performance would augur with the positive potential outlay for the beer market predominantly coming from the tourist influx, overall increasing level of recreation activity and the incremental contribution from the North and East markets. The Indian venture (22.5% stake by LION) is to add value to LION’s bottom line in the medium-long term due to the long term nature of the investment.
Revived FMCG sector, consistent earnings from the Pharmaceutical and Power segments would support group earnings. Further, the thus far underperforming leisure arm with 3 hotels would begin to strengthen the bottom line from 2010 onwards.
Hatton National Bank
Banking sector earnings are expected to be robust with interest margins of around 4.5% to be maintained in 2010E. Whilst HNB which has a relatively larger retail deposit base is projected to enjoy higher interest spreads and would also benefit from the growth in SME lending.
Consistent performance of South Asia Gateway Terminals coupled with earnings from the much anticipated revival of the city and resort hotels. Further, with the North and East entirely opening up and the expected revival in the economy the consumer food and financial services sectors would strengthen group earnings. Furthermore, acting as a proxy to the market and due to continuous foreign interest on the counter JKH has further upside.
A reconstruction boom in the North and East would drum up the overall economic growth whilst RCL would strongly benefit from the growing demand in the Western and Southern provinces. Further, with the local tourism expected to rebound hotel capacity building would prompt additional demand for highly quality tiles. Further, cost rationalising process in the factories and value added product manufacturing would strengthen company earnings.
Sampath Bank (SAMP) is well positioned to take advantage of this up trend in the banking sector with an island wide branch network of 149 and LKR171.4 bn asset base (which makes them the 3rd largest private commercial bank in the country). SAMP has an interest margin of 5.3% which is relatively higher compared to its peers. SAMP has been able to enjoy a higher interest margin because its focus is more on retail consumer base rather than corporate client base.