ECONOMYNEXT - Import restrictions on vehicles and electronic appliances and low wage and consumption growth are expected to impact earnings of listed companies which grew 1 percent from a year earlier to 49.72 billion rupees in the June 2018 quarter, LOLC Securities said.
Colombo's All Share index fell 8.19 percent, down 552 points from a year ago to 6,195 points at end June 2018. During this period Sri Lanka's economy had grown 3.7 percent.
Financial services sector contributed 56 percent of total market earnings of 196 stocks in the June 2018 quarter, which were analysed by LOLC Securities, followed by 18 percent from beverages, food and tobacco, and 13 percent from diversified.
Banking, finance and insurance sector net earnings grew 12 percent to 27.61 billion rupees, followed by beverages, food and tobacco up 32 percent to 8.84 billion rupees.
"Banks showed a topline growth of 21 percent to 65.41 billion rupees in the June 2018 quarter on increased private sector credit and continuous growth in net fee and commission incomes," LOLC Securities said.
Pan Asia Bank reported the highest growth in earnings at 92 percent due to a tax reversal in the quarter.
Net incomes were seen improving for NDB (up 70 percent), HNB (up 32 percent) and Commercial Bank (up 10 percent).
"Bank provisioning increased significantly with individual and collective categories growing 133 percent and 51 percent respectively," LOLC Securities said.
Non-bank finance companies reported earnings growth of 21 percent to 9.80 billion rupees led by LOLC Finance, HDFC and Mercantile Investments and Finance.
Currency depreciation, higher vehicle import taxes and 100 percent margin deposit for vehicle imports will impact sector earnings, LOLC Securities said.
Insurance sector earnings grew a marginal 1 percent to 1.79 billion rupees in the June 2018 quarter on strong earnings growth by Union Assurance (349 percent) and AIA Insurance (257 percent).
In the beverages, food and tobacco sector, earnings at Ceylon Tobacco had grown 47 percent to 4.36 billion rupees and Lion Brewery reported earnings growth of 134 percent 740 million rupees.
"Going forward the sector will be challenged by slow real wage and disposable income growth, inflationary pressure from currency depreciation and colourless consumer confidence," LOLC Securities said.
Power and energy sector earnings were up 265 percent to 620 million rupees on improving weather conditions and improving earnings at Pan Asian Power and Vidullanka PLC.
Telecommunication sector earnings grew 33 percent to 4.51 billion rupees on data and digital offerings with Sri Lanka Telecom earnings growing 58 percent from a year earlier to 1.66 billion rupees and Dialog reporting 21 percent growth to 2.85 billion rupees.
The diversified sector saw earnings fall 20 percent to 6.25 billion rupees due to lacklustre earnings by Aitken Spence (down 41 percent), John Keells Holdings (down 23 percent) and Melstacorp (down 31 percent), LOLC Securities said.
Aitken Spence was impacted by tourism related invested as was John Keells Holdings which was also hit by weak FMCG and retail earnings on lower consumption. Melstacorp earnings were impacted by consumers switching to beer from hard liquor.
Earnings at Carson Cumberbatch had grown 26 percent followed by 21 percent at Expolanka and 14 percent at Softlogic Holdings.
Hotel stocks saw earnings fall 117 percent from a year earlier to a loss of 1.13 billion rupees in the June 2018 quarter despite tourist arrivals to the country growing 12.5 percent during the period, due to competition from smaller properties.
"Removal of the minimum room price by Sri Lanka Tourism Development Authority will further exacerbate price competition in the industry affecting upper tier hotel operators," LOLC Securities said.
Healthcare stocks earnings fell 15 percent to 710 million rupees with Asiri Hospital Holdings gaining just 2 percent to 390 million rupees.
"Healthcare being a defensive industry is expected to revert back to improved performances in near future.
"In the medium to long term, growth impetus is backed by rising non-communicable diseases and an aging population.
"Healthcare insurance has recorded an annual growth rate of 30 percent in the last five years reflecting the growth prospects of the industry," LOLC Securities said.
-Plantations and others-
Plantation companies reported an 81 percent decline in earnings to 310 million rupees with revenue falling 22 percent to 13.83 billion rupees from a year earlier in the June 2018 quarter due to bad weather and falling global prices for commodities.
Combined earnings of manufacturing stocks fell 49 percent from a year earlier to 1.53 billion rupees while Motor Sector earnings fell 96 percent to 20 million rupees.
Construction sector earnings fell 372 percent to 350 million rupees due to a slowdown in revenue and income tax rate increasing from 12 percent to 28 percent. (COLOMBO, 01 October 2018)