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Monday, November 22, 2010

Listed manufacturing firms post impressive earnings growth

Listed manufacturing companies have been reporting impressive earnings growth in the quarter ended 30 September, 2010.

According to John Keells Stock Brokers (JKSB) 17 out of 32 companies classified in the manufacturing sector of the Colombo Stock Exchange have so far reported a sharp increase of 12.3% from June to September on the back of revenue growth of 16.6%. These 17 companies account for 84% of the sector’s market capitalisation worth a total of Rs. 97.3 billion. This is 4.4% of the total market.

JKSB said the sector trades in line with total market multiples trading at 21x annualised aggregate June 2010 earnings.

“We estimate that historically the sector has grown earnings at 16.7% over the last five years which by any estimation is a healthy growth for an economy rocked by the turmoil of the ethnic conflict,” the stock broker said.

It noted that a difficult 2008/09 period resulted in a sharp reduction in operational costs due to belt tightening in reaction to revenue falls as well as lower finance costs due to monetary easing. Now with sharper revenue growth thanks to the current recovery, the sector has started increasing earnings at a stronger pace than its historical averages.

JKSB said some of the more impressive quarterly performances thus far have been from Royal Ceramic, Piramal Glass, Dipped Products, Kelani Cables and Dankotuwa Procelain in terms of sequential revenue and earnings growth.

Royal Ceramics continued their streak of sharp revenue growth although their sequential earnings did not have the previous quarter’s gains from other income.

Piramal Glass had sharply increasing GP margins compared to last year in their greatly improved sequential earnings gain. Of the interesting cheaper counters in the sector Richard Pieris Exports has shown sharply eroding GP margins compared to last year and had a 63% reduction in YoY net earnings but showed a sharp sequential improvement.

ACL Plastics had an exceptional item with Rs.16m in sale of shares which boosted earnings. Grain
Elevators showed top line driven earnings growth mostly thanks to widening GP margins, JKSB added.