COLOMBO: Sri Lankan listed companies posted earnings of 49.9 billion rupees in the quarter to June, up six percent from the same quarter last year, according to Acuity Stockbrokers.
Together with a depressed market, this means valuations have improved. Lanka Business Online spoke to Chethana Ellepola, head of research at Acuity Stockbrokers, to get the inside scoop.
“If you compare current sector PEs to the Bloomberg consensus estimate for the market PE in 2016 (10.64x), then sectors such as Bank, Finance, Insurance, Land & Property, Manufacturing, Power & energy really stand out in terms of low PEs,” Ellepola said.
The potential for these sectors along with F&B, Healthcare and Construction is “strong especially as the country’s medium-term economic policies and strategies come into effect,” Ellepola added.
The island’s macroeconomy has begun to stabilize after a support program from the IMF mitigated the effect of capital outflows from the bond market, and a balance of payments deficit. In the last few months money has begun to flow back into Sri Lankan bonds and stocks.
The stock market is now primed for some careful investing. According to Acuity, financial services has an attractive trailing PE of 7.7. So too does land and property at 8.4, manufacturing at 8.3, and power and energy at 7.7, all below a market PE of 12.8.
In banking and finance, growth in the first half of 2015/2016 was driven by growth in the core leasing business, helped by lax import duties on small cars, low rates and higher disposable incomes.
Despite an increase in interest rates, depreciation of the rupee and tightening of import duties in the second half of the year, there was volume growth in other secured loans, particularly within the SME and micro-finance sectors.
“The fact that a number of the finance companies locked in lower rates via debenture issues meanwhile, helped trim funding costs and aided NII growth,” Ellepola said.
In terms of the construction industry, although an overall slowdown particularly in 2015 was evident, earnings in the sector are likely to rebound. Construction showed a 44 percent drop in earnings in the June quarter this year, and a 61 percent drop in earnings in the 12 months of FY15/16.
Resumption of key infrastructure projects such the Port City project, integrated development in Hambantota, completion of the Matara-Hambantota stretch of the Southern Expressway, the Colombo-Ratnapura expressway and phase IV of the Central Highway to Jaffna would support this rebound, Ellepola said.
