NDB Stockbrokers in a recent research report says public quoted companies are having a promising start to the 2011/12 financial year with total profits of a sample of companies listed on the Colombo Stock Exchange increasing 27 percent for the period ending June 30, 2011. The full text of the report follows:
"The total profits of a sample set of companies selected to represent the overall market increased 27% (excluding exceptional items) to Rs.31,032Mn for the period ending 30.06.2011. Growth in profits including exceptional items stood at 31%. Profit growth was seen across most sectors.
The highest growth came from the Hotel and Travel sector (464%), followed by the Motor sector (394%). Growing number of tourists helped the hotels to record phenomenal growth rates while demand for vehicles aided by the tax cuts continued to benefit the Motor sector.
Manufacturing (72%) and Diversified (69%) sectors also performed well during the period under consideration.
In absolute terms, Bank, Insurance and Finance (43%), Diversified (18%) and Telecommunication (14%) sectors contributed the highest to the total profits.
Banks, Finance & Insurance…
Our sample size for banks consists of 6 months results ending June 2011 for
COMB, HNB, MBSL, NDB, NTB, PABC, SAMP, and SEYB. DFCC results are for 3 months.
Banks excluding DFCC recorded a profit growth of 58% (excluding exceptional gains) compared to the same period last year. PABC (169%), SAMP (91% - adjusted for the exceptional items) and COMB (75%) recorded the highest growth rates.
The growth was mainly due to the reduction in both Financial Services VAT and Corporate Taxes that was effective from 01.01.2011 while net provision reversals were also common among most banks. Commencing 01 January 2012, banks are required to maintain a general provision of 0.5% of total outstanding of on-balance sheet performing loans and advances. To meet this purpose banks are allowed to reduce the existing general provision requirement of 1% to 0.5% at a rate of 0.1% per quarter during the five quarters commencing 01 October 2010.
The finance companies are represented by 6 companies. The results are for 3 months ending 30.06.2011. The sector recorded a profit growth of 37% (excluding exceptional items). VFIN (139%), CFIN (119%) and LFIN (94%) registered the highest growth rates.
We feel Banking and Finance sector is one of the most attractive sectors considering an average PBV of 2 and a P/E significantly lower than the market P/E. Further, the profit growth during 2011 is likely to be significantly higher compared to 2010, helped mainly by the tax reductions while the demand for loans and advances is expected to be high as a result of the prevailing low interest rates.
Beverage, Food & Tobacco…
We have considered a sample set made up of 11 stocks as representative of the sector. Of them, profit of NEST and CTC are for 6 months. Excluding NEST and CTC, the sector profit improved 35% during the 3 months period while NEST and CTC profits rose 47%.
The largest profit contributors were DIST (57%), CARG (15%) and LION (15%). DIST (58%), CCS (49%) and LAMB (47%) registered the highest growth rates helped by the growth in demand while acquisition of LAMB by CARG boosted its revenue performance.
KFP and LMF’s return to profitability compared to the losses incurred last year further lifted the profits of the sector whilst reduction in profits registered by BFL and COCO during the period hindered the growth.
Chemical & Pharmaceuticals…
CIC and HAYC were considered as representative of this sector.
The sector reported a marginal growth of 4% during FY11/12Q1 compared to FY10/11Q1. CIC (62%) contributed the highest to the sector profit, while its profit growth stood at 29%. HAYC’s (-21%) profits declined compared to FY10/11Q1 as a result of escalating raw material costs.
Diversified…
A sample set consisting 8 stocks was considered to represent the sector. Diversified holdings recorded a growth of 31% excluding exceptional gains during 3 months ending 30.06.2011. CARS (43%), JKH (28%) and SPEN (11%) were the largest profit contributors where they registered profit growths of 77%,
35% and 25% respectively during the period under consideration. HAYL (72%) also recorded a significant improvement during the quarter as a result of the superior performance of hand-protection and transportation sectors.
Healthcare…
We have considered AMSL, LHCL and NHL as representative of the healthcare sector. LHCL profit is for 6 months while AMSL and NHL profits are for 3 months ending 30.06.2011. Excluding the NHL exceptional gain of Rs.904 in FY10/11Q1, the sector recorded a growth of 18% during the period. LHCL contributed 59% to the profits of the sector while it recorded a profit growth of 26%.
Hotels & Travels…
The sample set consists of 5 stocks. Hotels and Travels sector grew at a phenomenal rate (464%) during 3 months ending 30.06.2011 helped by growing tourist arrivals. AHPL and AHUN contributed 76% and 22% respectively to the growth where both local and foreign operations performed better compared to the same period last year. HSIG (1089%), AHUN (354%) and AHPL (57%) recorded the highest growth rates.
We anticipate the sector to post significant profits during FY11/12H2 as the last two quarters attract higher number of tourists compared to the first two quarters of the financial year.
Land and Property Sector…
Sample size consists of 3 companies where profits for CLND and OSEA are for 6 months ending 30.06.2011 while CTLD profits are only for 3 months. The sector profits improved 60% helped mainly by OSEA (70%) profit growth.
Manufacturing…
The sample set taken to represent the sector consists of 13 stocks. Profits of 11 companies represent 3 months ending 30.06.2011. Profit figures for GRAN and LLUB are for 6 months.
Profits excluding GRAN and LLUB grew 185% compared to FY10/11Q1. DIPD (26%), RCL (26%) and TKYO (12%) were the highest contributors to profits while KCAB (760%), DIPD (583%) and CERA (147%) registered the highest growth rates.
Growing demand helped lift the performance of KCAB while the efficiency improvements of the hand protection segment contributed to the exceptional performance of DIPD. CERA failed to record an improvement when compared with the profit excluding the VRS cost of Rs.192Mn incurred during FY10/11Q1. LLUB and GRAN registered a growth of 8% for 6 months. With the expected GDP growth of 8%, the sector is likely to benefit from growing demand.
Motors…
The sample set consists of 2 stocks, DIMO and UML.
The sector posted a profit growth of 394% for the quarter ending 30.06.2011, supported by the demand for vehicles. DIMO (61%) contributed the highest to the profit, and registered a growth of 321% while UML posted a growth of 576%.
Plantations…
A sample made up of 8 stocks has been considered to represent the sector. Profit figures of BALA, KVAL and TPL are for 6 months.
All Plantations recorded a decline in profits during 3 months ending 30.06.2011. The losses are attributable to the cost increase that arose as a result of the wage hike effective from April 2011. Plantations with high exposure to tea are likely to suffer most from the wage hike because tea is more labour sensitive compared to rubber and oil palm.
5 companies that posted FY11/12Q1 results recorded a negative growth of 171% while 6 months results of BALA, KVAL and TPL were down 7%. The rate of loss was lower as a result of the positive growth of KVAL (64%). The wage hike could continue to weigh on the profit growth of the sector despite attractive tea and rubber prices.
Power & Energy…
We have considered a sample set of 4 stocks for the 3 months ending 30.06.2011 to represent the sector. The sector posted a growth of 30% supported by HPWR (4%) while LIOC losses reduced compared to the same period last year. VPEL (54%) contributed highest to the profits during the period under consideration.
Dry weather conditions may pose a challenge to the hydro power sector in the immediate future.
Telecommunication…
The sector consists of DIAL and SLTL. Profits of both companies are for 6 months. The telecommunication sector posted a 50% growth, with SLTL and DIAL posting a 30% and a 77% profit growth respectively. SLTL and DIAL contributed equally to the sector profits.
source - www.island.lk
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