Stock Market The Forbes ABN AMRO Business Roundup
For the trading week ended Friday 13th of August 1999
— Market sentiments passive
— Hatton National bank
— Increase in interest ratesMarket sentiments passive: Market activity registered a set back due to the wearing off of interest in the plantation sector coupled with limited profit taking. This resulted in draging the benchmark ASPI 1.7 points to close at 583.2. Overall turnover registered a scanty Rs. 241m compared to last weeks Rs. 851m, recording a 71% decline in average daily activity levels. However, last week’s turnover was mainly distorted by one off transactions of Ceylon Glass & Aitken Spence which contributed towards 39% of the overall turnover. Nevertheless general activity indicates remain depressed registering a 53% decline excluding these one offs. Foreign interest mirrored market sentiments registering a 77% decline in average daily foreign activity. However foreign investors remained net buyers registering a total inflow of Rs. 14m, whilst main interest from this segment was forcussed on Ceylon Brewenes, Cold Stores, Asian Hotels & Sampath bank.
Company update
Hatton National bank: For the six months to June, HNB reported a net profit of SL Rs. 326.2m, up 9%. The results would have been worse if not for a 40% fall in provisions - which include loan loss provisions plus provisions for diminution in investment value. Profit before provisions came in at SLRs533.4m, down 8% from the corresponding period last year. Although the bank has not disclosed a detailed P&L breakdown, we suspect the main reasons for the poor operational results were a squeeze in margins and a sharp rise in overheads. The rise in overheads can be traced to some 25% rise in personnel costs after the union action against most local banks.
These results are slightly below our full year expectations. For the full year, we expect HNB to report a net profit of SL Rs. 776m or a growth of 13.5% Although our numbers appear slightly optimistic, we are not changing forecasts given an expected economic recovery in the second half. So, there could be quite a gain from lower provision in the second half on a year on YOY basis. At a 19% prepõium to the sector, we maintain that HNB is overvalued. Earnings this year proved unexciting, capital adequacy and NPL cover are lower and overheads/income is high. Still a SELL.
Increase in interest rates: 3, 6 & 12 months interest rates decreased from 11.81%, 12.04% & 12.74% to 1 1.80%, 12.03% & 12.71%.
Bartleet’s Weekly Market Commentary
Enthusiastic buying that emerged among domestic investors in the plantation counter could not be sustained with the same momentum as the previous week due to anticipated losses for the quarter ending June. However speculation on the sector remained high as the release of quarterly results approach closer, resulting in intensified interest in plantation stocks towards the end of the week. Both the ASI and sensitive MPI fluctuated within a narrow band during the week to record a slight gain on Monday but lost ground Tuesday through Thursday and bounced back on Friday resulting in a decline of 0.29% and 0.68% WoW, to close on 583.18 and 971.7 points respectively. Turnover recorded for the week declined 71% to Rs. 248.2Mn whilst recording an average daily turnover of Rs. 49.65Mn.
Foreign interest remained positive with a net inflow of Rs. 13.9Mn with foreign purchases and sales accounting for 35% and 29.5% of total turnover. The market capitalization, which opened the week at Rs. 116.3Bn, declined by around Rs. 1.06Bn to close at Rs. 115.24Bn for the week. The market PER was on 6.7 at the close of the week.
On a broader comparative basis for the month of July the ASI and MPI recorded 10% and 16% gains with all sectors except trading, recording gains for the month. Investment trust (21%) and Banks & Finance (18%) appreciated the most while Hotels & Travels and Diversified followed close behind (16% and 15% respectively). Foreign participation was encouraging with purchases and sales accounting for 46% and 19% of total turnover and being net buyers after a lapse of 11 months to record a net foreign inflow of Rs. 548.8Mn for the month.
Tourist arrivals this year have begun to show a strong improvement with arrivals for the first half of the year recording a high of 212,766 which is up almost 23% from the 173,145 arrivals recorded in the first half of 1998. Industry analysts predict that such robust growth in the first half of the year coupled with a strong winter would push tourist arrivals in 1999 past the 420,000 mark, a 10% improvement from the arrivals recorded in 1998.
June ‘99 arrivals are also up 16.8% from the same period last year. June growth received momentum with an increase in Asian arrivals while a large number of British arrivals too helped improve the picture.
However the sector remains volatile as a result of the ongoing war in the North-East and the prevailing security risk in the heart of Colombo. Therefore investor’s are best advised to keep a close watch on this sector as for those willing to take a risk, rich dividends will be on the cards.