shifting gears - acuitydepreciation is unlikely to be a repeat of the 1998 asian crisis2, the recent...

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Sri Lanka Economy Review & Prospects

Research Team Chethana Ellepola | (+94) 112 206 256 [email protected]

Anouk Weerasinghe | (+94) 112 206 254 [email protected]

Aethra de Silva (+94) 112 206 253 [email protected]

Samalka Athuraliya (+94) 112 206 251 [email protected]

Anjula Nawarathna | (+94) 112 206 255 [email protected]

Shifting Gears

Source: Colourbox

mailto:[email protected]





October 2015 2



Sri La

nka

Eco

no

my &

Pro

spects

While the slow-down in China and the threat of US monetary tightening pitched international markets into turmoil in Q3’15, South Asia has remained relatively insulated from the ongoing instability.

Less volatile debt & equity flows and lower-than-EM-Peer trade flows have underpinned South Asia’s relative tolerance.

The region’s relative insularity implies that its growth prospects are better than that of most EM peers.

Strong growth (7.0% Y-o-Y in Q2’15), historically low inflation levels and robust remittances have partially offset the impact from external vulnerabilities.

While South Asia is not devoid of issues (high debt and structural bottlenecks), India continues to drive both regional and global growth, while historically low inflation levels provide the necessary monetary tractability to shield further external shocks.

Sri Lanka’s political transition in 2015 meanwhile, is likely to help catapult the country to its next growth phase.

The new government’s policy mandate of political-economic reform bodes well for the country; inclusive growth, market-based structural reforms and a globally competitive, export-led economy remain on the agenda and, although concrete policy directives are pending, confidence that reforms will take place remains high.

We estimate 2015E GDP growth at 6.6%5Y-o-Y and see longer-term growth levels trending back up to 7-7.5% levels (in line with South Asian average) amid the revival of key initiatives and market-based structural reforms.

Like its South Asian counterparts, LKR depreciation has been relatively contained. But, the LKR depreciation has been one of the highest in the region mainly due to large external debt repayments at the start of 2015.

In our view, the worst of the depreciation occurred after the free-float of the LKR in Sep’15. Further downside risk is limited due to i) greater indications of a rate hike, ii) easing pressure on the trade deficit, iii) lower external debt repayments in the latter half of 2015, and iv) external tailwinds such as the delay in Fed normalization and low commodity prices.

We expect a 25-50 bps increase in rates latest by H1’16E amid increased private-sector credit appetite (on the back of higher PCE) and higher repayments and roll-over costs on fiscal debt.

We see muted supply-side pressures continuing and estimate headline inflation at ~1.5-2.0% Y-o-Y by year end.

Weak revenue has plagued Sri Lanka’s post-war fiscal space and protracted fiscal consolidation. The 2015E fiscal deficit is expected to be ~5.5-6% of GDP, with the majority of revenue stemming from one-off retrospective taxes.

But, initiatives such as widening the tax base, improving revenue collection and reforming the SOBEs should help address structural deficiencies and ensure longer-term fiscal consolidation.

October 2015 3



South Asia Prospects Limited External Vulnerabilities for South Asia

Minimal Contagion Risk Implies Higher Growth Prospects

Fiscal Space Remains Regional Challenge Sri Lanka Prospects

Political Transition Promises New Political-Economic Era

Coalition Government’s Growth Mandate

Sri Lanka Macro-Economy & Prospects

Consumption and Net Exports to Drive Short-Term Growth

LKR Depreciation to Stabilize

Benign Inflation Continues but Rates to Increase by H1’16

Near-Term Fiscal Space Constrained

Company Profiles

Access Engineering

Commercial Bank

DFCC Bank

Dialog Axiata

Hatton National Bank

John Keells Holdings

MTD Walkers

National Development Bank

People’s Leasing

Singer Sri Lanka

Softlogic Holdings

Sunshine Holdings

Tokyo Cement

Macro-Economic Snapshot

Ta

ble 0

f Co

nten

ts

| 4

| 7

| 8

| 9

| 10

| 13-25

| 26-27

| 5

| 6

| 11

| 12

October 2015 4



Source: IMF: Asia in the 21st Century: The Potential for Sri Lanka (Jul’13)

Source: Fiscal Management Report_2015 & Company Annual Reports

Source: Central Bank of Sri Lanka

Emerging markets have faced a challenging year.

Capital outflows – the 1st since the Asian crisis in 1998 –

have totalled ~$300Bn Y-T-D as markets have been hard

hit both by the slowdown in China and the prospect of

higher Fed rates. Institute of International Finance

estimates that total EM outflows for the year will be

$541Bn1 while the International Monetary Fund estimates

a slowdown in Emerging Markets for the 5th consecutive

year. Although enhanced policy frameworks and greater

resilience to external shocks (increased FX flexibility,

higher FX reserves, greater reliance on FDI flows and

domestic currency external debt) since the late-90s imply

that the recent spate of capital outflows and currency

depreciation is unlikely to be a repeat of the 1998 Asian

crisis2, the recent turmoil in these markets have

underscored the fact that most EMs relied on rapid credit

growth to bypass the worst of the 2008 Global financial

crisis.

Emerging Markets Closely Track China Woes

60

80

100

120

140

160

Jan-13 Sep-13 May-14 Jan-15 Sep-15

Ind

ex (

Reb

ased

to

10

0)

US China

Emerging Markets Frontier Markets

US China EMs Sri Lanka Bangladesh India Pakistan

YTD (%) -2% -14% -10% -3% -2% -3% 5% South Asia’s Lower-than-EM-Peer Depreciation

-16%

-13%

-10%

-7%

-4%

-1%

2%

Dep

reci

atio

n (

Y-T

-D)

Depreciation against USD (YTD)

Avg. Depreciation: -3.4% Avg. Depreciation: -5.0%

AF

N

LK

R

PK

R

NP

R

INR

BT

N

MV

R

BD

T

South Asia

MY

R

TH

B

IDR

RU

B

KR

W

PH

P

CN

Y

TW

D

Emerging Markets

In the chaos that has dominated international markets

though, South Asia has stood out as being relatively

resilient. Both due to its comparative inward orientation

and lower dependence on global markets3, South Asia’s

exposure to the global turmoil has been moderate. The

region’s exports (particularly to China) are notably lower

than that of Asian Emerging market peers implying that its

vulnerability to China’s slow-down is limited. South Asia’s

portfolio flows meanwhile, are comparatively less volatile,

helping buffer it from the ‘risk-off’ environment and the

consequent global portfolio rebalancing that has governed

Q3’15.

South Asia Less Exposed to Global Trade cf. East Asian Peers

Brunei

India

Sri Lanka

Maldives

Pakistan

Afghanistan

NepalBhutan

Bangladesh

China

Mongolia

Rep of Korea Japan

Philippines

Malaysia

Indonesia

Singapore

Cambodia

Thailand

Lao P.D.R

Myanmar

5% 228%

Exports of Goods & Services (% of GDP)

South Asian Portfolio Flows Lower Than That of EM Peers

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

Net

Fo

reig

n P

ort

foli

o In

ves

tmen

t (%

GD

P)

Net Foreign Portfolio Investment Stock (% of GDP)

South Asia Prospects

Limited External Vulnerabilities for South Asia

Source: Bloomberg AFN-Afghanistan; BDN-Bangladesh; BTN-Bhutan; CNY-China; INR-India; IDR-Indonesia; KRW-Korea; LKR -Sri Lanka; MVR-Maldives; MYR-Malaysia; NPR-Nepal; PKR-Pakistan; PHP-Philippines; RUB-Russia; THB -Thailand; TWD-Taiwan

Source: World Bank

Source: World Bank_South Asia Economic Focus (2015)

October 2015 5



South Asia’s relative tolerance to the financial market

outflows has been underpinned by its less volatile

debt & equity flows. The region’s (exlcuding Afghanistan,

Bhutan, Maldives & Nepal) net foreign portfolio

investments are less than 0.2% of GDP highlighting its

limited exposure to global financial market volatility.

South Asia’s low exposure to equity-related portfolio flows

is corroborated further by its correlation to global equities.

In contrast to the EM average of 0.62, South Asian equity

markets indicate a quarterly correlation of 0.31 to US

equities, emphasising its confined contagion risk via

equities.

South-Asia Indicates Better-Than-EM-Peer Diversification Benefits to US Equities

Monthly Quarterly

Emerging Markets MXFM Index 0.54 0.62

China HSCEI Index 0.48 0.54

India SENSEX Index 0.55 0.66

Indonesia JCI Index 0.48 0.66

Korea KOSPI Index 0.63 0.64

Malaysia FBMKLC Index 0.44 0.65

Philippines PCOMP Index 0.47 0.61

Taiwan TWSE Index 0.56 0.59

Thailand SET Index 0.52 0.66

Bangladesh DSEX Index -0.37 -0.26

India SENSEX Index 0.20 0.66

Pakistan KSE100 Index 0.13 0.52

Sri Lanka CSEALL Index 0.17 0.34

South Asia

IndexCountryCorrelation to S&P 500

Region

Emerging

Markets

Least Significant Less Significant Significant Most Significant

The relatively limited external exposure implies that

the region’s prospects are better than that of most EM

peers. The region’s strong growth (7.0% Y-o-Y in Q2’15),

historically low inflation rates and strong remittances

(which have helped counterbalance low exports)3 provide

a buffer to the ongoing external headwinds. While the

region is not devoid of issues (namely high debt and

structural bottlenecks), India continues to drive growth

both regionally and globally3 while low inflation (the

region had the highest global inflation levels in the past)

implies that the necessary monetary space exists to shield

against further external shocks. This contrasts with some

of the Asian EM peers whose stretched corporate/bank

balance sheets suggests greater financial vulnerability2,

and for whom weak prospects for commodity exporters

(especially oil exporters) and a slowdown in China pose

downside risks to output growth.

South Asian Growth Consistently Above Emerging Markets

0

2

4

6

8

10

2011 2012 2013 2014

GD

P G

row

th (

%)

Sri Lanka* Bangladesh India

Pakistan SA Average EM Avg**

The Region’s Inflation is at Historical Lows

0

2

4

6

8

10

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

Infl

atio

n (

% C

han

ge Y

-o-Y

)

Sub Saharan Africa

South Asia Latin America & Caribbean

Europe & Central Asia

East Asia & Pacific

South Asia Expected to Lead Global Growth in 15/17E

0

3

6

9

2014* 2015E 2016E 2017E

GD

P E

stim

ates

(%

)

World East Asia & Paci•fic South Asia

Notes: * Based on old base Sources: World Bank & IMF **Based on MSCI EM Index Constituents; GDP Data for Taiwan sourced from IMF


Minimal Contagion Risk Implies Stronger Growth Prospects

Source: Bloomberg

Notes: * Estimates Source: World Bank _South Asia Economic Focus (2015) E:Expected

Source: World Bank

October 2015 6



South Asia’s ability to fend further external headwinds

and register strong medium-term growth is dependent

on its ability to strengthen its fiscal position. High fiscal

debt and weak revenue continues to dog the region. Debt-

to-GDP levels in South Asia are a global high while poor

revenue generation and under-developed collection

methods have continued to restrict fisal space. As much of

the region’s recent growth has been fuelled by

Government spending and investment but revenue has not

grown in tandem3, fiscal consolidation has been

protracted. Tight fiscal space hampers the region’s ability

to address its much-needed infrastructure bottlenecks

which in turn could compromise sustainable growth.

While the region is expected to record a gradual increase

in 2015-17E GDP growth and is expected to outdo East

Asia and the Pacific3, unlocking this potential requires i)

more effective resource mobilization (fiscal and financial),

ii) structural reform in the fiscal and financial sectors and,

iii) reduced dependence on single streams of external

account service transfers (ie: remmitances/tourism

inflows). Much of the region’s growth potential is hinged

on investment, implying that effective resource

mobilization is crucial. But, fiscal issues (ineffective public

expenditure in Bangladesh/Nepal, low revenue in Sri

Lanka, high public expense in Maldives)3 continue to

remain a near-term risk. More medium-term risks include

financial sector vulnerabilities of varying degrees (eg: high

solvency risk in Bangladesh/India;high liquidity risk in

Maldives/India) while the over-reliance on single streams

of external service inflows (eg: remittances (Sri Lanka)/

tourism (Maldives)) represent a longer-term risk,

heightening the region’s susceptability to international

developments from which it has so far been shielded from

but to which it is certainly not impervious to.

Across the Region Fiscal Consolidation Remains Near Term Challenge


Fiscal Space Remains Challenge for the Region

Source: World Bank _South Asia Economic Focus (2015)

Notes: 1. Nyshka Chandran (CNBC), Is this the mother of all warnings on EMs?_Oct

2015 2. IMF, Global Financial Stability Report_Oct 2015 3. World Bank, South Asia Economic Focus_Fall 2015 4. Governor of the World Bank Group and the IMF for Sri Lanka , Governer’s

Statement No.19_Oct 2015 5. GDP estimates/figures on old (2002) base 6. EIA, Short-Term Energy and Winter Fuels Outlook_Oct 2015

Short Term Risk:

Fiscal Sector

Mid Term Risk:

Financial

Sector

Long Term Risk:

External

Sector

Afghanistan Large

Financing Gap

High Currency

Risk

Dependence on

Remittances

Bangladesh Tax

Collection Higher

Solvency Risk

India High

Solvency/ Liquidity

Risk

Nepal Ineffective

Public Expense

Dependence on

Remittances

Pakistan Ineffective

Public Expense

Dependence on

Remittances

Maldives High Public

Expense

Higher Liquidity/ Currency

Risk

Dependence on Tourism

Sri Lanka Low

Revenue

Dependence on

Remittances/Tourism

October 2015 7



Sri Lanka’s political transition this year is likely to

help catapult the country to the next phase of growth.

Since the end of the war in 2009, Sri Lanka has steadily

reached the upper-end of its lower middle-income country

status. Much of this growth has stemmed from improved

capacity utilization, namely greater resources and better

resource mobilization and post-war growth has averaged

7.4%5 as the formerly war-torn North-East and

construction sector (particularly infrastructure

investment) have increased their contribution to GDP. This

year’s unprecedented political and constitutional changes

therefore, are likely to help push the country to a higher

growth trajectory despite the initial macro-economic

volatility that has accompanied the transition.

Sri Lanka at Cusp of Upper Middle Income Status

0

1000

2000

3000

4000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

*

Low Lower Middle

Per

Cap

ita

Inco

me

(US$

)

12615 Upper Middle

Lower Middle

Sri Lanka’s Political Development in 2015

Date Political Event

Aug-15Parliamentary

Elections1st National Unity Government Formed

Outcome

Coalition of All Major Parties Comes to Power

with Common Mandate of Reverting to a

Parliamentary System. End of President

Mahinda Rajapakse's 10 year regime.

Powers of Executive President Limited

(Power to Dissolve Parliament & Unilateral

Voting Restricted; Presidential Term Reduced).

Ten Independent Commissions (including

public service, national service, human rights,

bribery commission, Finance, & National

Procurement) Established .

President

Maithripala Sirisena

Wins Snap Elections

Jan-15

Apr-15

19th Amendment to

Sri Lanka's 1978

Constitution Passed

The new government was elected on a platform of

political-economic reform and this bodes well for the

country. The national unity Government’s emphasis

appears to be on inclusive growth and a globally

competitive, export-led economy3. Much needs to be done

in terms of concrete policy directives, but confidence that

the needed political-economic reform will take place

remains high. The first two months since parliamentary

elections have been focused on renewing diplomatic and

external trade relations (particularly with Western

economies) in order to draw more diverse FDI flows. Like

much of the rest of Asia, Sri Lanka’s wide Savings-

Investment gap necessitates FDIs to bridge this gap. And,

while FDIs to the country have increased at a CAGR of 18%

since 2009, the country’s savings-investment gap remains

recalcitrant given the country’s propensity towards low

savings.

Post-War FDIs Grow at 18% CAGR but S-I Gap Remains

-10

-8

-6

-4

-2

0

Sav

ings

-In

ves

tmen

t G

ap

(% G

DP

)

0

200

400

600

800

1000

2007 2008 2009 2010 2011 2012 2013 2014*

FD

I F

low

s ($

Mn

)

Post-War FDIs Grow at 18% CAGR

Savings-Investment Gap Declines from its Highs

The coalition government’s economic program

consists of a five point plan; building the economy,

fighting corruption, ensuring freedom, developing

infrastructure & investment and developing

education4. Much depends on how effectively and quickly

the Government can deliver on its market-based structural

reforms. The lack of a majority in the coalition government

poses some questions as to how efficiently the needed

reforms (export-led growth, rebalancing the public

sector’s role, promoting sustainable growth via investment

in hard and soft infrastructure) take place. But, the

coalition’s common mandate to elevate Sri Lanka to an

upper-middle income status and the party leadership’s

proven ability to work in unison should help ease this risk.

Source: CBSL

Sri Lanka Prospects

Political Transition Promises New Political-Economic Era

Source: CBSL

October 2015 8



Sri Lanka Prospects

New Coalition Government’s Mandate*

Economic Development Finance & Trade

Reduce Development Gap between Metropolitan Cities and Villages

Prepare Village Economy to Cater Food & Other Products to Rapidly

Urbanizing Sri Lanka/Neighbouring States

Provide Economic Centres for 2500 Villages

Infrastructure Development in Villages: Linking Village Roads to its

Economic Centres, Develop Irrigation Systems

Establish a Small Scale Tea Producers Export Organization. Provide

Subsidies to Regrow Tea & Develop Technological Input

New Trade Agreements With USA, India, China,SAARC, Singapore &

Other East Asian Countries to Assure Foreign Markets for Local

Production

Establish 45 Economic Development Zones to Increase Economy's

Global Competitiveness

Establish 11 Industrial & Technological Zones:

Ship Building/Manufacture (Hambanthota);

Consumer & New Technology (Raigama);

Manufacturing (Maha Oya, Vanni & Killinochchi) ;

Services, Commercial & Monetary Services (Colombo);

IT & Agro Tech (Kandy & Jaffna) ;

IT & Other Tech (Galle)

Establish a Sri Lankan Gem Export Centre

Increase Competitiveness of Local Products Via :

1. Establishment of Network of Small Scale Entrepreneurs and Link

Them to Global Markets

2. Encourage Global Leaders to Invest in Sri Lanka

3. Provide Necessary Facilities to Local Entrepreneurs to Improve

Efficiencies

4. Economic Digitalisation

Convert Western Province to South Asia's Most Attractive Megapolis

Urban Development Via Development of Agriculture, Fishing and

Other Services

All Commercial State Entities to be Brought Under One

Umbrella Institution and to be Governed as a Private

Corporate

Establish a Separate Entity to Manage State Pension Funds

(EPF and ETF). The Entity will Manage all the Fund's Equity

& Debt Investments. EPF/ETF will be Directly Subject to

Reporting and Monitoring by the Parliament

Sri Lanka to be Released from Foreign Debt by 2023

Establish Small & Medium Scale Business Development

Authority to:

1) Implement Young Entrepreneur Development Program

2) Establish Small Business Development Office in Each

Electoral District

3) Create Separate Bank for SMEs

Introduce Crop Insurance Schemes

Loans of up to Rs 500,000 for Small Investors to Invest in

CSE

Working Towards Regaining GSP+ Status with EU & Removal of the

EU-imposed Fishing Ban

Micro Loans for Those Affected by Multiple Loans from

Various Financial Companies

State Insurance Scheme for Micro Loan Applicants/

Companies

Efficient Tax Collection Mechanisms

Establish an Agro-Marketing Authority

Promote Use of Mobile Storage Facilities

Popularisation of Packaged Food Industry

*Agreed in principal Source: Deshodya_UNFGG,UPFA,JVP & TNA Manifestos:Parliamentary Elections 2015

October 2015 9



Despite the domestic political and external headwinds

that have dominated 2015, we expect GDP growth of

6.6%5 Y-o-Y by year-end and see longer-term growth

levels trending back up to 7-7.5% levels (in line with

South Asian average) as the GoSL’s revival of key

initiatives and market-based structural reforms come

to fruition. Policy uncertainty on the back of the

Presidential and Parliamentary elections coupled with

global market conditions have had a dampening effect on

growth (H1’15 GDP slowed to 6.1% Y-o-Y cf. 7.7% Y-o-Y in

H1’14). Construction industry growth – which spurred

much of Sri Lanka’s post-war growth – declined to 5.23%

in H1’15 (cf. 21.1% in H1’14) while export trade fell to

4.25% in H1’15 (cf. 11.9% in H1’14) and Hotels & Travel

sector earnings fell to 2.88% in H1’15 (cf. 21.9% in H1’14).

Near-Term GDP Growth to Range between 6.6-6.7%

6.6% 6.7% 6.8%

0%

2%

4%

6%

8%

10%

2009 2010 2011 2012 2013 2014 2015E2016E2017E

Yo

Y G

row

th (

%)

Gradual Pick up in Medium-Term Growth Prospects

Near-term growth is likely to find impetus in stronger

private consumption expenditure (PCE) and be

supported by net exports on the back of the weaker

LKR. Fiscal incentives (both in Budget 2015 and the

interim budget) focused on reinforcing household income

levels, and we expect PCE - which accounts for ~70% of

GDP to offset lower short-term public investment

expenditure. Net exports meanwhile, are likely to benefit

strongly from the weaker LKR. Import trade grew a

significant 20.02% in H1’15 (cf. 1.2% in H1’14) as the

relatively stable LKR coupled with low inflation & interest

rates and higher household income levels fueled demand.

Indeed, cost savings from the lower oil import bill was

partially offset by greater imports of intermediate imports

(ie: cars, machinery and other consumer intermediate and

investment goods). With the depreciation of the LKR

in Q3’15 however, we expect import growth to slow.

Exports by contrast, are likely to find support both due to

i) a stronger recovery in Sri Lanka’s key export markets

(US/EU) and, ii) the weaker LKR.

The US and EU remain Sri Lanka’s major export markets,

accounting for ~60% of total exports; and, given the

persistent (albeit moderate) pace of recovery in these

regions (particularly the US where growth is advancing at

a faster-than-expected pace) we expect stronger export

growth. More significantly though, we expect the

depreciated LKR to spur demand. IMF studies indicate that

a 10% real effective depreciation in an economy’s currency

is associated with an average increase of 1.5% of GDP in

real net exports, though there is significant cross-country

variation around this average. Although the full impact of

FX movement on trade volumes materialize over a period

of years, a substantial portion of the adjustment happens

in the first year. Moreoever, the increase in exports

(stemming from currency depreciation) is most significant

in countries with initial economic slack and normally

functioning domestic financial systems. We thus believe

that the LKR’s 6.7% depreciation in 2015 should have a

notable impact on export volumes, thus helping net

exports and supporting near-term GDP.

Higher Private Consumption Fuels Domestic & Import Trade

2014 2015

Agriculture 3.1% 1.6%

Industry: 12.4% 5.4%

Manufacturing 9.6% 4.7%

Construction 21.1% 5.2%

Services: 6.1% 7.4%

Import trade 1.2% 20.0%

Export trade 11.9% 4.2%

Domestic trade 9.2% 7.8%

Hotels & Restaurants 21.9% 2.9%

Cargo Handling-Ports & Civil Aviation 8.6% 5.2%

Banking,Insurance & Real Estate 5.6% 5.8%

Total GDP Growth (Y-o-Y) 7.7% 6.1%

GDP Components (Y-o-Y Growth )H1

Notes: GDP Numbers on 2002 Base Sources: Department of Census & Statistics

Sources: Department of Census & Statistics & Acuity Estimates

Macro-Outlook

Private Consumption and Net Exports to Drive Short-Term Growth

October 2015 10



Source: Department of Census & Statistics & IMF_ World Economic Outlook

Source: Department of Census & Statistics

Source: Acuity Research Estimates

Source: IMF: Asia in the 21st Century: The Potential for Sri Lanka (Jul’13)

Like much of the rest of South Asia, Sri Lanka’s

currency decline has been relatively contained

compared to that of EM peers. Due to comparatively

lower trade and financial flows, the region’s average FX

depreciation this year has not been as significant as in

emerging markets which are far less insulated from

international market movements. But, because the LKR has

been pressurized on two fronts (external and domestic),

the Y-T-D depreciation (-6.7%) has been one of the highest

in the region and the highest since 2012. Sri Lanka’s net

foreign portfolio investments are <0.2% of GDP (cf. ~0.8-

0.9% for EM peers such as Brazil & Turkey) while trade &

service exports account for ~<25% of GDP. The low

contagion risk via portfolio investments means that the

impact to the LKR from the recent international capital

market volatility has been largely confined while exposure

to ‘Chinese tremors’ has been limited. Much of the LKR’s

weakness this year therefore, has stemmed from domestic

pressures such as increased external debt repayments and

a wider trade deficit (on the back of significantly higher

imports).

LKR’s YTD Depreciation Lower Than That of EM Peers

52%

6.7%

2%

0%

10%

20%

30%

40%

50%

60%

Kaz

akh

stan

Bel

aru

s

Bra

zil

Uk

rain

Tu

rkey

Co

lom

bia

Uru

guay

Mal

aysi

a

Sou

th A

fric

a

Ch

ile

Ken

ya

Mex

ico

Egy

pt

Arg

enti

na

Per

u

Cro

atia

Po

lan

d

Ind

on

esia

Hu

nga

ry

Th

aila

nd

Ru

ssia

Sri L

ank

a

Mo

ngo

lia

Ph

ilip

pin

es

Vie

tnam

Pak

ista

n

Ko

rea

Ind

ia

Ch

ina

YT

D D

epre

ciat

ion

Aga

inst

USD

We expect the LKR depreciation by year end to be

~7.0-7.5% as we expect a further 1.0% decrease in

value over the next quarter. We see the LKR/USD cross

closing the year at 142.48 relative to the current 140.86.

Our view is contingent on a gradual increase in domestic

interest rates and no major shocks in global capital

markets. In our view, the worst of the depreciation

occurred following the free-float of the LKR in September

2015. Since then, pressure on the LKR has somewhat eased

and we believe a number of other factors limit further

downside risk. Prime among these is the fact that the

CBSL’s increasingly hawkish tone of late implies that a rate

hike is in the cards latest by H1’16. Higher private credit

demand coupled with greater fiscal financing via domestic

debt is likely to pressurize rates upwards, while the CBSL’s

cautionary tone on demand dynamics implies a potential

policy rate hike. Measures to curb burgeoning demand on

non essential imports (eg: cars) are also likely to help ease

pressure on the LKR while recent capital inflows in the

form of a Reserve Bank of India (RBI) swap and Sri Lanka

Development Bonds have also helped cushion the LKR.

Total LKR Depreciation in 2015 Expected to be 7-7.5%

0.0066

0.0069

0.0072

0.0075

0.0078

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

USD

/LK

RLKR Floated:

LKR Depreciates 3.3% Against USD

External tailwinds such as the Fed’s decision to delay its

monetary tightening and low global oil prices are also

likely to limit the LKR’s downside risks. The gradual

recovery in Sri Lanka’s key export markets coupled with

stronger service inflows (Tourist receipts grew 17.1% Y-

o-Y between Jan-Aug’15) are likely to further support the

FX. Sri Lanka’s lower-than-EM exposure to volatile foreign

portfolio flows and improved external buffers since the

1998 Asian crisis (relatively flexible FX, FX reserves

consistently above the 3-month minimum, increased

domestic currency debt) meanwhile, should provide an

intrinsic buffer against strong capital outflows. Moreover,

given that upto Aug’15, Sri Lanka had serviced ~76% of its

external debt (and that a further sovereign bond issue may

be likely), we believe the worst of the depreciation has

already occurred. We expect the LKR to average 142.48 by

year end.

LKR Depreciation Attributable to FX Loan Repayments

Jan-15 (31.96) 0.84 (1,657.74) -0.6%

Feb-15 (33.34) 10.45 (108.62) -0.4%

Mar-15 16.94 9.86 (756.32) -0.2%

Apr-15 16.28 5.13 (154.63) -0.1%

May-15 (100.34) 5.21 (351.96) -0.9%

Jun-15 (166.36) (20.09) (406.56) 0.4%

Jul-15 (170.72) (6.26) (677.67) 0.4%

Aug-15 (202.65) (33.20) (407.37) -0.4%

Sep-15 (428.40) (0.97) (487.39) -3.3%

Date

Change in Government

Securities Held by

Foreigners ($Mn)

Net Foreign

Position in Equities

($Mn)

Foreign Currency Loans,

Securities, & Deposit Outflows

($Mn)

LKR

Depreciation

Macro-Outlook

LKR Depreciation to Stabilize

Source: Bloomberg

Sources: CBSL & Acuity Estimates

Source: CBSL, Colombo Stock Exchange & Acuity Estimates

October 2015 11




Source: IMF

Source: Bloomberg & EIA

Source: Ministry of Finance_Fiscal Management Report 2015

After two consecutive years of highly accommodative

monetary conditions, upside pressure on rates is

evident. Since late 2012, Sri Lanka’s monetary policy has

been dovish with the CBSL reducing policy rates between

150-200bps (between 2012-2015) and introducing a

number of less-utilized policy tools (increasing SRR,

providing credit guarantees to gold-backed loans) to

invigorate lacklustre private credit demand. Both on

account of the Gold-price crash in 2013 and lags in the

monetary policy transmission mechanism, private credit

growth was anemic till late 2014. Since then though, credit

appetite has been on an uptrend as markets have finally

responded to the loose monetary conditions and low

inflation levels. Private sector credit has consequently

rebounded strongly, and by August’15 private sector credit

growth stood at 21.3% Y-o-Y both on account of the base

effect and higher demand conditions.

Accommodative Monetary Conditions Since 2013

0%

4%

8%

12%

16%

20%

24%

Jan'13 Jun'13 Nov'13 Apr'14 Sep'14 Feb'15 Jul'15

Pv

t. C

red

it G

row

th (

Y-o

-Y)

4 Policy Rate Cuts

SRR Reduced

0%

4%

8%

12%

16%

20%

24%

Jan'13 Jun'13 Nov'13 Apr'14 Sep'14 Feb'15 Jul'15

Pv

t. C

red

it G

row

th (

Y-o

-Y)

Credit-Guarantee on Pawning Loans

SDF Window Rationalized

We expect a 25-50 bps increase in rates by H1’16E as

increased private-sector credit appetite (on the back

of higher PCE) and higher repayments and roll-over

costs on fiscal debt continue to pressurize rates. Rates

have edged up since Feb’15, following i) the removal of

restricted access to the SDF window (amid improving

private credit growth) and, ii) higher average yields on

government securities (on the back of higher borrowing

requirements). Pressure on rates has been evident with

yields across the 91-364 day treasuries rising between 97-

118bps YTD. Given that global interest rates are likely to

be higher (as the Fed reverts to monetary policy

normalization) and that the LKR is likely to remain at its

current levels, fiscal spending and debt repayment is likely

to be primarily via domestic borrowings. We thus see

upside pressure on rates in 2016E: On the external debt

front meanwhile, although a large portion of the external

debt payments took place in early 2015 (and most of the

LKR’s depreciation occurred immedietly post the free-

float), we see Sri Lanka’s remaining external debt

repayments (~$853Mn remaining as at August’15) placing

some upside pressure on rates.

Call Money Rates Move Away from Policy Corridor

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Jan 13 Sep 13 May 14 Jan 15 Sep 15

Rat

e

SLF (Reverse Repo) Rate

SDF (Repo) Rate

Call Money Rate

Pre-Determined External Debt Repayments Lower in H2’15

-2000

-1600

-1200

-800

-400

0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Pre

-Det

erm

ined

Net

F

ore

ign

Dra

ins

($M

n)

Remainder (~ $853Mn)

Assumed to be Paid Out Evenly

Macro-Outlook

Rates to Increase by H1’16 Despite Benign Inflation Environment

Source: CBSL

Source: CBSL

Source: CBSL_Weekly Economic Indicators

October 2015 12



Much like for its South Asian counterparts tighter

fiscal space remains a risk for the country, but easing

inflationary pressures since 2013 has remained a

boon for Sri Lankan policymakers. Both on account of

low global commodity prices (energy accounts for ~20%

of CPI basket) and well-contained demand pressures,

headline inflation levels have reached historical lows and

shifted to negative territory over Q3’15. We expect

headline inflation to reach ~1.5-2.0% by year end as oil

prices remain accomodative (Brent crude estimated at

$54/b (2015E) and $59/b (2016E)6) and as food prices

(largest (~41%) component of CPI) remain steady. We

note though that the divergent CPI trajectories (headline

inflation has been in negative territory while core inflation

has been heading higher) are indicative of increasing

demand pressures.

Headline Inflation Falls to Historic Lows

-2%

0%

2%

4%

6%

8%

10%

12%

Jan-09 Dec-09 Nov-10 Oct-11 Sep-12 Aug-13 Jul-14 Jun-15

Infl

atio

n (

Y-o

-Y)

Historical Average (5.6%)

Headline Inflation

CPI Divergence Indicates Rising Demand Pressures

-1%

0%

1%

2%

3%

4%

5%

6%

Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15

Infl

atio

n (

Y-o

-Y)

Core Inflation Headline Inflation

Wider Gap

Sri Lanka’s low tax revenue (12.2% of GDP) remains a

persistent macro-economic issue for the country,

compromising much of the progress made in fiscal

consolidation since 2010. The country’s fiscal deficit

rose to 6% of GDP in 2014, marking its first slippage in

fiscal consolidation since 2010. Much of the increase was

due to low revenue generation (revenue grew 5.1% Y-o-Y)

and higher recurrent expenses (9.8% Y-o-Y). Given that

Jan-Apr’15 tax revenue grew 14.5% Y-o-Y (Direct +16% ;

Indirect +0.1%) and that the primary deficit narrowed

only marginally amid a 4.7% increase in recurrent

(wages/pensions/interest) costs, the GoSL’s original target

of reducing the fiscal deficit to 4.4% of GDP has become

increasingly tenuous.

Slippage in Fiscal Consolidation in 2014 Year 2010 2011 2012 2013 2014

% GDP

Revenue 14.6 14.8 13.9 13.1 12.2

Recurrent Expenditure 16.7 15.7 14.9 13.9 13.5

Capital Expenditure and Net Lending 6.1 6.2 5.6 5.4 4.8

Current Account Surplus (+)/Deficit(-) -2.1 -0.9 -1.0 -0.8 -1.3

Overall Budget Surplus (+) / Deficit (-) -8.0 -6.9 -6.5 -5.9 -6.0

Sri Lanka’s Increasing Domestic Debt Component

0%

20%

40%

60%

Domestic Debt Foreign

% o

f G

DP

2009

2010

2011

2012

2013

2014

Weak revenue generation and tax collection methods have

plagued Sri Lanka’s post-war fiscal space, but increasing

government expenditure - both due to fiscal incentives and

higher debt repayments - have increased pressure on the

budget deficit. Indeed, the Government’s most recent

estimate of the fiscal deficit is expected to be ~5.5-6% of

GDP by year end with the majority of revenue expected to

stem from one-off retrospective taxes. While widening the

tax net and improving revenue collection will be vital in

addressing the structural deficiencies in Sri Lanka’s fiscal

space, the turnaround in the country’s state owned

business enterprises (losses on major SOBEs in 2014 were

~2% of GDP) will also be crucial in easing fiscal pressures.

We thus view the coalition Governement’s policy mandate

to convert the loss-making SOBEs into profitable entities

(either via public private partnerships (PPPs), listings or

as a Tamesk model government holding company) as a

strong positive in addressing the Country’s fiscal

challenges.

Macro-Outlook

Constrained Fiscal Space Remains a Near-Term Risk

Source: CBSL/ Acuity Estimates



Source: CBSL & Ministry of Finance

October 2015 13


Access Engineering Construction

Three-Year Performance: AEL vs. ASPI

Top 10 Shareholders (as at 30th June 2015)

Mr. S J S Perera 25.0%

Mr. R J S Gomez 12.0%

Mr. J C Joshua 10.0%

Mrs. R M N Joshua 7.0%

Mr. S J S Perera 4.6%

Mrs. D R S Malalasekera 4.5%

HSBC Intl Nom Ltd-SNFE-Nt Asian Discovery Master Fund 3.6%

Mr. S D Munasinghe 2.4%

Mr. S H S Mendis 2.4%

Mr. D A R Fernando 2.4%

Access E

ng

ineerin

g: A

EL

.N/A

EL

SL E

qu

ity

ACCESS ENGINEERING PLC

Price Rs.22.50

Bloomberg AEL SL Equity

Market Capitalisation (Rs. Bn) 22.5

Market Capitalisation (USD. Mn) 159.4

Issued Quantity (Mn) 1,000.0

Year to Date Turnover (Rs. Mn) 4,678.7

Current Trading Range (Rs.) 22.50-22.50

Year to Date High (Rs.) 35.3

Year to Date Low (Rs.) 18.7

Adjusted All Time High1

42.2

Financial Year Ended 31st March

Key Financials Period FY 2013/14 FY 2014/15 Q1 2014/15 Q1 2015/16

(LKR Mn except per share data)

Revenue 16,386 16,427 3,369 4,207

Rev. Growth (Y-o-Y) 18% 0.2% 7% 25%

Gross Profit 4,184 3,857 809 934

G.P Growth (Y-o-Y) 37% -8% 13% 15%

Profit Before Tax (PBT) 3,327 2,818 637 735

PBT Growth (Y-o-Y) 24% -15% 0% 15%

Net Profit22,832 2,373 545 600

Net Profit Growth (Y-o-Y) 19% -16% -2% 10%

EPS32.83 2.37 2.88 2.45

NAVPS314.91 16.30 15.46 16.62

DPS 0.50 1.00 n.a n.a Note:1. Adjusted for rights, splits, bonuses Price as at 22/10/15 2. Net profit refers to profit attributable to shareholders 3. Calculated on latest issued share capital

First established in 2001, Access Engineering (AEL) has been at the forefront of many of the country’s infrastructure development initiatives. AEL has successfully completed over 100 civil engineering projects including highways, harbours and optical fibre backbone projects. AEL acquired Sathosa Motors in 2012, while Access Realties (Pvt.) Ltd, also became a fully owned subsidiary in 2011. AEL has a PE of 9.2x (sector: 22.4x) and a PBV of 1.4x (sector: 1.4x).

Key Investor Ratios Period FY 2013/14 FY 2014/15 Q1 2014/15 Q1 2015/16

EPS1 (Rs) 2.83 2.37 2.88 2.45

DPS (Rs) 0.50 1.00 n.a n.a

Net Assets Value / Share1 (Rs) 14.91 16.30 15.46 16.62

PER (x) 7.9 9.5 7.8 9.2

PBV (x) 1.5 1.4 1.5 1.4

Dividend Yield (%) 2.2% 4.4% n.a n.a

ROE (%) 20.7% 15.2% 19.0% 14.9%

ROA (After tax) (%) 15.4% 11.1% 14.2% 10.6% Note:1. Calculated on latest issued share capital Price as at 22/10/15 2. Gross NPL Ratio calculated net of interest in suspense

Operating Profit and Net Profit Margins

PE Band Chart

0

10

20

30

40

50

Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15

6X

8X

14X

Pri

ce (

Rs)

10X

8X

12X

Company Profiles

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

PBT

NPMargin

FY 2013/14

FY 2014/1517.28%

14.45%

20.30%

17.20%

October 2015 14


Commercial Bank Banks, Finance & Insurance

Seven-Year Performance: COMB vs. ASPI


DFCC Bank A/C 1 14.8%

Employees Provident Fund 9.7%

Mr.Y.S. H. I. Silva 7.8%

Sri Lanka Insurance Corporation Ltd. - Life Fund 5.0%

HSBC Intl. Nominees Ltd. - JPMLU- Franklin Templeton Inv. Funds 4.5%

CB NY S/A International Finance Corporation 4.5%

Sri Lanka Insurance Corporation Ltd. - General Fund 4.3%

Melstacorp Limited 2.3%

HSBC Intl. Nominees Ltd. - SSBT -Wasatch Frontier Emerging

Small Countries Fund2.5%

HSBC Intl. Nominees Ltd. - BPSS LUX -Aberdeen Global - Asian

Smaller Companies Fund1.8%

Co

mm

ercial B

an

k: CO

MB

.N/C

OM

B SL

Eq

uity

COMMERCIAL BANK OF CEYLON PLC

Price -Voting Rs. 159.70

Price - Non Voting Rs. 130.60

Bloomberg COMB SL Equity

Market Capitalisation (Rs. Bn) -V/NV 130.97/7.35

Market Capitalisation (USD.Mn)-V/NV 935.51/52.52

Issued Quantity (Mn)-V/NV 820.11/56.30

Month to Date Turnover (Rs. Mn)-V/NV 911.1/95.9

Year to Date Turnover (Rs. Bn)-V/NV 15.4/1,17

Y-T-D High (Rs.)-V/NV 188.2/139.7

Y-T-D Low (Rs.)-V/NV 156.0/121.4

Adjusted All Time High1-

V/NV 188.2/139.7

Financial Year Ended 31st December

Key Financials Period FY 2013 FY 2014 1H2014 1H 2015

(Rs. Mn except per share data)

Net Interest Income 25,899 27,323 13,694 14,875

NII Growth (Y-o-Y) 13% 5% 15% 9%

Total Income 36,196 39,047 18,291 19,681

Total Income Growth (Y-o-Y) 10% 8% 13% 8%

Profit Before Tax 14,691 15,860 6,542 7,493

PBT Growth (Y-o-Y) 3% 8% 0% 15%

Net Profit 10,563 11,239 4,517 5,182

Net Profit Growth (Y-o-Y) 5% 6% 1% 15%

EPS212.05 12.82 12.09 13.58

NAVPS270.11 81.25 72.17 80.98


Sri Lanka’s largest private bank, COMB has an asset base of over LKR 815Bn. The bank is rated AA(lka) by Fitch Ratings Lanka Ltd. The bank provides a full spectrum of services and has the largest distribution network among Sri Lankan banks. COMB’s FY’14 Gross NPL ratio declined to 3.2% cf. to the industry Gross NPL ratio of 2.7%. The stock has a current PE of 11.8x (sector: 11.6x) and a PBV of 2.0x (sector: 1.5x).

Key Investor Ratios Period FY 2013 FY 2014 1H2014 1H 2015

EPS1 (Rs) 12.05 12.82 12.09 13.58


PER (x) 13.2 12.5 13.2 11.8

PBV (x) 2.3 2.0 2.2 2.0

ROE (%) 18.4% 17.0% 14.7% 14.8%

ROA (before tax) (%) 2.6% 2.3% 2.0% 1.9%

NPL Ratio2 3.9% 3.5% 4.3% 3.2%

Net Interest Margin (NIM) 4.5% 3.9% 4.1% 3.7% Note:1. Calculated on latest issued share capital Price as at 22/10/15 2. Gross NPL Ratio calculated net of interest in suspense

Operating Profit and Net Profit Margins Segmental Breakdown of Income

0%

20%

40%

60%

80%

100%

2012 2013 2014Other Income Other Operating Income

Net fees and commission income Net interest income

Company Profiles

Period FY 2013 FY 2014


Net Interest Income 25,899 27,323

NII Growth (Y-o-Y)

Profit Befor Tax 14,691 15,860

PBT Margin 56.7% 58.0%

Net Profit1 10,563 11,239

Net Profit Margin 40.8% 41.1%

Note:1. Net profit refers to profit attributable to shareholders

5.5%

October 2015 15


DFCC Bank Banks, Finance & Insurance

Seven-Year Performance: DFCC vs. ASPI

0

2250

4500

6750

9000

0

65

130

195

260

Nov-08 Mar-10 Jul-11 Nov-12 Mar-14 Jul-15

ASP

I Lev

el

Pri

ce (

Rs)

DFCC ASPI


Bank of Ceylon No.2 A/c. 14.4%

Hatton National Bank PLC A/c No.1 12.2%

Sri Lanka Insurance Corporation Ltd-Life Fund 10.0%


Mr. M A Yaseen 7.3%

Melstacorp Limited 6.4%

Seafeld International Limited 5.8%

Renuka City Hotels PLC 2.6%

HSBC Intl Nom Ltd-BPSS LDN-Aberdeen Asia Pacific Equity Fund 2.6%

HSBC Intl Nom. Ltd-BPSS Lux-Aberdeen Global Asia Pacific

Equity Fund4.6%

DF

CC

Ba

nk: D

FC

C.N

/DF

CC

SL E

qu

ity

DFCC BANK PLC

Price Rs.174.90

Bloomberg DFCC SL Equity



Issued Quantity (Mn) 265.1





Adjusted All Time High1 247.1


Key Financials Period 2013/14 2014/15 1Q 2014/15 1Q 2015/16



NII Growth (Y-o-Y) 13% -16% -20% 4%

Total Income 9,809 10,669 2,215 2,338


Profit Before Tax 4,117 5,416 1,412 910

PBT Growth (Y-o-Y) -8% 32% 63% -36%

Net Profit 3,151 4,362 1,123 622

Net Profit Growth (Y-o-Y) -10% 38% 89% -45%

EPS211.89 16.46 13.88 13.32

NAVPS2151.34 180.72 158.78 174.64

DPS 10.00 n.a n.a n.a Note:1. Adjusted for rights, splits, bonuses Price as at 22/10/15 2. Net profit refers to profit attributable to shareholders 3. Calculated on latest issued share capital

DFCC Bank hails as the pioneer development bank in Sri Lanka. It has an asset base of LKR 152Bn and is rated AA -(lka) by Fitch Ratings Lanka. In 2015, DFCC Vardhana Bank amalgamated with DFCC Bank and DFCC Bank PLC obtained license to operate as a licensed commercial bank with effect from Oct’15. The stock currently trades at a PE of 13.1x (sector: 11.6x) and has a PBV of 1.0x compared to a sector PBV of 1.5x.

Key Investor Ratios Period 2013/14 2014/15 1Q 2014/15 1Q 2015/16

EPS1 (Rs) 11.89 16.46 13.88 13.32


PER (x) 14.7 10.6 12.6 13.1

PBV (x) 1.2 1.0 1.1 1.0

ROE (after tax)(%) 7.9% 9.7% 8.9% 7.5%

ROA (after tax) (%) 2.0% 2.3% 2.0% 1.6%

NPL Ratio2 n.a n.a n.a n.a

Net Interest Margin (NIM) n.a n.a n.a n.a Note:1. Calculated on latest issued share capital Price as at 22/10/15 2. Gross NPL Ratio calculated net of interest in suspense


Segmental Breakdown of Income

0%

20%

40%

60%

80%

100%

2012 2013 2014

Other Income Other Operating Income


Company Profiles

Period 2013/14 2014/15



NII Growth (Y-o-Y)

Profit Before Tax 4,117 5,416


Net Profit1 3,151 4,362



-15.5%

October 2015 16


Dialog Telecommunications

Seven-Year Performance: DIAL vs. ASPI

0

1800

3600

5400

7200

9000

0

5

10

15

20

25

Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15

ASP

I Lev

el

Pri

ce (

Rs.

)

DIAL ASPI


Axiata Investments (Labuan) Limited 83.3%

HSBC INTL Nom Limited-BBH Genesis Smaller Companies 2.2%


SSBT-Wasatch Frontier Emerging Small Countries Fund* 1.7%

HSBC INTL Nominees Limited-JPMCB Scottish ORL SML TR GTI 6018 0.8%

CB NY S/A International Finance Corporation 0.8%

BNY-CF Ruffer Investment Funds: CF Ruffer Pacific Fund 0.7%

BBH-Genesis Emerging MarketsOpportunities Fund Limited* 0.7%

SSBT-National Westminister Bank PLC as depositary of first state

Asia Pacific Sustainability fund a sub fund of first state

investments

0.5%

SSBT-National Westminster Bank PLC as depositary of

first state Indian subcontinent fund a sub fund of first state

investments ICVC*

1.1%

Dia

log

Axia

ta: D

IAL

.N/D

IAL

SL E

qu

ity

DIALOG AXIATA PLC

Price Rs.11.5

Bloomberg DIAL SL Equity












Revenue 63,298 67,286 32,985 35,075

Revenue Growth (Y-o-Y) 12% 6% 7% 6%

Operating Profit (EBIT) 7,664 8,054 3,598 5,108

EBIT Growth (Y-o-Y) 13% 5% -13% 42%

Profit Before Tax (PBT) 6,328 7,330 3,512 4,599

PBT Growth (Y-o-Y) 56% 16% 13% 31%

Net Profit25,201 6,098 2,926 3,888

Net Profit Growth (Y-o-Y) -14% 17% 15% 33%

EPS30.64 0.75 0.68 0.88

NAVPS34.88 5.51 5.51 5.85


Dialog Axiata (DIAL), a subsidiary of the Axiata Group Berhad, is one of Sri Lanka’s largest listed companies in terms of market capitalization. In addition to its core business of telephony, DIAL operates a wide array of international telecommunication services and is also the country’s largest Tele-Infrastructure provider. Currently, the stock trades at a PBV of 2.0x against a sector PBV of 1.6x and indicates a PE of 13.1x against a sector PE of 17.5x.


EPS1 (Rs) 0.64 0.75 0.68 0.88

DPS (Rs) 0.29 0.13 n.a n.a


PER (x) 18.0 15.4 16.8 13.1

PBV (x) 2.4 2.1 2.1 2.0

Dividend Yield (%) 2.5% 1.1% - -

ROE (%) 13.5% 14.4% 22.8% 15.4%



Segmental Breakdown of Revenue

0%

20%

40%

60%

80%

100%

2012 2013 2014

Mobile Operation Fixed Telephony & Broadband Operation Television Operation

Company Profiles

10.9%

9.06%

10.0%

8.22%

0.0% 3.0% 6.0% 9.0% 12.0% 15.0%

PBT

NPMargin

FY 2013/14

FY 2014/15

*Via HSBC Intl. Nominees Ltd.

October 2015 17


Hatton National Bank Banks, Finance & Insurance

Seven-Year Performance: HNB vs. ASPI


Sri Lanka Insurance Corporation Ltd. 14.7%


Milford Exports (Ceylon) Limited 8.0%

Mr.Sohli Edelji Captain 7.3%

Stassen Exports Ltd 6.9%

Sonetto Holdings Limited 4.5%

HSBC Int'l Nominees Ltd-JPMLU-Franklin Templeton Investment 4.3%

Distilleries Company of Sri Lanka PLC 3.1%

National Savings Bank 2.9%

Citi Group Global Markets Ltd Agency Trading Prop. Sec. 2.3%

Ha

tton

Na

tion

al B

an

k: HN

B.N

/HN

B SL

Eq

uity

HATTON NATIONAL BANK PLC



Bloomberg HNB SL Equity





Year to Date Turnover (Rs. Bn)-V/NV 6.3/2.3

Y-T-D High (Rs.)-V/NV 240.3/186.9

Y-T-D Low (Rs.)-V/NV 195.0/153.9

Adjusted All Time High1-

V/NV 273.00/186.9





NII Growth (Y-o-Y) 16% 0% -1% 13%

Total Income 33,315 37,329 18,378 20,034



PBT Growth (Y-o-Y) 3% 21% 5% 23%

Net Profit 7,650 9,820 3,647 4,301

Net Profit Growth (Y-o-Y) -4% 28% 7% 18%

EPS218.87 24.22 19.45 25.83

NAVPS2141.95 167.45 144.90 171.26


Hatton National Bank has been acknowledged globally by The Asian Banker as the Best Retail Bank in Sri Lanka for five consecutive years between 2007-11. It has an asset base of LKR 635bn and is rated AA- (lka) by Fitch Ratings Lanka. The Gross NPL ratio for Q2 2015 stood at 3.2% cf. the industry Gross NPL ratio of 2.7%. The stock currently trades at a PE of 8.4x as against a sector PE of 11.6x and has a PBV of 1.3x compared to the sector PBV of 1.5x.


EPS1 (Rs) 18.87 24.22 19.45 25.83


PER (x) 11.5 9.0 11.2 8.4

PBV (x) 1.5 1.3 1.5 1.3

ROE (%) 14.3% 16.0% 13.0% 14.0%

ROA (before tax) (%) 2.1% 2.2% 1.9% 2.0%

NPL Ratio2 3.6% 3.2% 4.1% 3.2%


Operating Profit and Net Profit Margins Period FY 2013 FY 2014



NII Growth (Y-o-Y)



Net Profit1 7,650 9,820



0.1%

Segmental Breakdown of Income

0%

20%

40%

60%

80%

100%

2012 2013 2014Other Income Other Operating Income


Company Profiles

October 2015 18


John Keells Holdings Diversified

Seven-Year Performance: JKH vs. ASPI

0

1800

3600

5400

7200

9000

0

75

150

225

300

Aug-09 Oct-10 Dec-11 Feb-13 Apr-14 Jun-15

ASP

I Lev

el

Pri

ce (

Rs)

JKH ASPI


Mr S E Captain 10.6%

Broga Hill Investments Limited 10.4%

Paints & General Industries Limited 7.8%

Melstacorp (Private) Limited 3.7%

Aberdeen Global-Asian Smaller Companies Fund 3.6%

Schroder International Selection Fund 3.5%

Deutsche Bank AG – London 3.0%

Aberdeen Global Asia Pacific Equity Fund 2.2%

Aberdeen Institutional Commingled Funds, LLC 1.7%

Aberdeen Global-Emerging Markets Smaller companies fund 1.5%

Joh

n K

eells Ho

ldin

gs: JK

H.N

/JKH

SL E

qu

ity

JOHN KEELLS HOLDINGS

Price Rs.175.1

Bloomberg JKH SL Equity


Market Capitalisation (USD. Mn) 1,425.9


Year to Date Turnover (Rs. Bn) 31.5





252.5


Key Financials Period FY 2013/14 FY 2014/15 1Q 2014/15 1Q 2015/16


Revenue 86,706 91,582 20,696 21,003

Rev. Growth (Y-o-Y) 2% 6% -67% 1%

Operating Profit (EBIT) 10,240 12,075 1,445 2,060

EBIT Growth (Y-o-Y) 11% 18% -74% 43%

Profit Before Tax (PBT) 15,320 19,075 3,021 3,189

PBT Growth (Y-o-Y) -2% 25% -66% 6%

Net Profit211,722 14,348 2,143 2,178

Net Profit Growth (Y-o-Y) -3% 22% -69% 2%

EPS310.28 12.58 10.77 12.61

NAVPS3107.79 120.86 108.32 121.84

DPS 3.50 3.50 2.50 2.50 Note:1. Adjusted for rights, splits, bonuses Price as at 22/10/15 2. Net profit refers to profit attributable to shareholders 3. Calculated on latest issued share capital

The CSE’s largest listed company, John Keells Holdings (JKH) is among the key blue-chip stocks watched closely for its economic significance and ability to move equity markets. JKH’s business interests span Transportation, Leisure, Property, Consumer Foods & Retail, Financial Services, IT and Plantations with Transportation and Leisure consistently dominating earnings since the early 2000s. JKH is a full member of the World Economic Forum and has operations in India and Maldives. The stock has a PBV of 1.4x (sector: 1.7x) and a PE of 13.9x (sector: 19.1x).

Key Investor Ratios Period FY 2013/14 FY 2014/15 1Q 2014/15 1Q 2015/16

EPS1 (Rs) 10.28 12.58 10.77 12.61

DPS (Rs) 3.50 3.50 2.50 2.50


PER (x) 17.0 13.9 16.3 13.9

PBV (x) 1.6 1.4 1.6 1.4

Dividend Yield (%) 2.0% 2.0% 1.4% 1.4%

ROE (%) 11.0% 11.0% 10.0% 10.4%


Operating Profit and Net Profit Margins Period FY 2013/14 FY 2014/15


Turnover 86,706 91,582

Turnover Growth (Y-o-Y)



Net Profit1 11,722 14,348



5.6%


0%

20%

40%

60%

80%

100%

2012/13 2013/14 2014/15

Property

Transportation Leisure Cons Food & Retail

Fin. Services Others IT

Company Profiles

October 2015 19


MTD Walkers Construction s

Seven-Year Performance: KAPI vs. ASPI

0

1800

3600

5400

7200

9000

0

18

36

54

72

90

Jan-08 Feb-09 Mar-10 Apr-11 May-12 Jun-13 Jul-14 Aug-15

ASP

I Lev

el

Pri

ce (

Rs)

KAPI ASPI


MTD Capital Bhd 90.8%

Seylan Bank PLC/Capital Trust Holding (Pvt) Ltd 0.5%

Mr.Hans Anton Van Starrex 0.4%

Standard Chartered Bank Singapore 0.4%

Sandwave Limited 0.3%

Mr.Mushtaq Mohamed Fuad 0.3%

Mr. H W McDonald Woodward 0.2%

Mr.Rizmy Ahamed Rishard 0.2%

E-Tech Corporation (Pvt) Ltd 0.2%

Mr. Mohmed Zareen Rasheed 0.2%

MT

D W

alkers: K

AP

I.N/K

AP

I SL E

qu

ity

MTD WALKERS PLC

Price Rs.59.90

Bloomberg KAPI SL Equity









81.5




Revenue 10,092 14,014 3327 2221

Rev. Growth (Y-o-Y) 37% 39% 76% -33%

Operating Profit (EBIT) 1,338 1,905 506 46

EBIT Growth (Y-o-Y) -19% 42% 58% -91%

Profit Before Tax (PBT) 730 1,337 369 -151

PBT Growth (Y-o-Y) 18% 83% 96% -141%

Net Profit2480 872 282 -140

Net Profit Growth (Y-o-Y) 6% 82% 74% -150%

EPS32.86 5.20 3.72 2.68

NAVPS328.15 48.00 29.83 47.16

DPS n.a 0.50 n.a n.a Note:1. Adjusted for rights, splits, bonuses Price as at 22/10/15 2. Net profit refers to profit attributable to shareholders 3. Calculated on latest issued share capital

Through its 5 wholly-owned subsidiaries, MTD Walkers (KAPI) is engaged in general/mechanical, civil engineering and piling projects plus the manufacture and sale of tea rollers and other tea machinery (Local +Exports). KAPI’s most recent venture is a renewed focus on marine engineering. KAPI is majority owned by MTD Capital Bhd, a Malaysian investment holding company involved in civil engineering and construction. The stock trades at a PE of 22.3x (sector: 22.5x) and has a PBV of 1.3x (sector: 1.4x).


EPS1 (Rs) 2.86 5.20 3.72 2.68

DPS (Rs) n.a 0.50 n.a n.a


PER (x) 20.9 11.5 16.1 22.3

PBV (x) 2.1 1.2 2.0 1.3

Dividend Yield (%) n.a 0.8% n.a n.a

ROE (%) 10.6% 13.7% 12.8% 5.6%




0%

20%

40%

60%

80%

100%

2012/13 2013/14 2014/15Civil Engineering Engineering Power Generation

Real Estate Trading Other

Marine Engineering

Company Profiles

9.5%

6.22%

7.2%

4.75%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

PBT

NPMargin

FY 2013/14

FY 2014/15

October 2015 20


National Development Bank Banks, Finance & Insurance

Seven-Year Performance: NDB vs. ASPI

0

2250

4500

6750

9000

0

65

130

195

260

325

Nov-08 Dec-09 Jan-11 Feb-12 Mar-13 Apr-14 May-15

ASP

I Lev

el

Pri

ce (

Rs)

NDB ASPI


Bank Of Ceylon No. 1 Account 9.9%


Sri Lanka Insurance Corporation Limited - General Fund 5.7%

Hsbc Intl Nom Ltd - Snfe-Ntasian Discovery Master Fund 5.4%

Dr. S Yaddehige 5.3%

Sri Lanka Insurance Corporation Limited - Life Fund 4.7%

Employees Trust Fund Board 3.2%

Mr. R S Captain 3.2%

Bny-Cf Ruffer Investment Funds: Cf Ruffer Pacific Fund 2.9%

Hsbc Intl Nom Ltd-Bpss Lux-Aberdeen Global Asia Pacific

Equity Fund3.5%

Na

tion

al D

evelop

men

t Ba

nk: N

DB

.N/N

DB

SL E

qu

ity

NATIONAL DEVELOPMENT BANK PLC

Price Rs.221.1

Bloomberg NDB SL Equity













NII Growth (Y-o-Y) 19% 13% 16% -2%

Total Income 11,549 12,966 6,299 6,136

Total Income Growth (Y-o-Y) -23% 12% 17% -3%


PBT Growth (Y-o-Y) -62% 45% 42% -23%

Net Profit 2,642 4,134 2,034 1,444

Net Profit Growth (Y-o-Y) -70% 56% 56% -29%

EPS216.00 25.03 20.41 21.46

NAVPS2148.42 168.77 154.89 173.67


National Development Bank, a fully-fledged financial conglomerate with regional operations in Maldives and Bangladesh, has an asset base of LKR 277Bn. The bank is rated AA-(lka) by Fitch Ratings Lanka and its Gross NPL ratio for Q2 2015 stood at 2.6% (cf. to industry average of 2.7%). The stock is currently trading at a PE of 10.3x as against a sector PE of 11.6x and has a PBV of 1.3x compared to a sector PBV of 1.5x.


EPS1 (Rs) 16.00 25.03 20.41 21.46


PER (x) 13.8 8.8 10.8 10.3

PBV (x) 1.5 1.3 1.4 1.3

ROE (%) 10.7% 15.8% 16.2% 10.2%

ROA (before tax) (%) 1.3% 1.7% 2.0% 1.1%

NPL Ratio2 2.5% 2.5% 2.7% 2.6%


PE Band Chart


Period FY 2013 FY 2014



NII Growth (Y-o-Y)



Net Profit1 2,642 4,134



12.9%

Company Profiles

October 2015 21


Peoples Leasing & Company Banks, Finance & Insurance

Four-Year Performance: PLC vs. ASPI

0

2250

4500

6750

9000

0

6

12

18

24

30

Nov-11 Aug-12 May-13 Feb-14 Nov-14 Aug-15

ASP

I Lev

el

Pri

ce (

Rs)

PLC ASPI

Top 10 Shareholders (as at 30th September 2015)

People’s Bank 75.0%

BNYM SA/NV-Neon Liberty Lorikeet Master Fund LP 4.0%

National Savings Bank 2.9%


Bank of Ceylon No. 1 Account 0.7%

BNYM SA/NV-Frontier Market Opportunities Master FD,L.P. 0.6%

BNY-CF Ruffer Investment Funds: CF Ruffer Pacific Fund 0.6%

Mellon Bank N.A. - Acadian Frontier Markets Equity Fund 0.5%

HSBC Intl Nom Ltd - SSBT -Wasatch Frontier Emerging Small

Countries Fund1.6%

Northern Trust Company S/A Ashmore Emerging Markets

Frontier Equity Fund0.5%

Peo

ples L

easin

g &

Fin

an

ce: PL

C.N

/PL

C SL

Eq

uity

PEOPLE'S LEASING & FINANCE PLC

Price Rs.21.4

Bloomberg PLC SL Equity










Key Financials Period FY 2013/14 FY 2014/15 1H 2014/15 1H 2015/16



NII Growth (Y-o-Y) 15% 18% 24% 8%

Total Income 12,780 14,229 6,850 7,338



PBT Growth (Y-o-Y) 9% 19% 34% 28%

Net Profit 3,463 4,102 1,874 2,349


EPS2 2.19 2.60 2.45 2.90

NAVPS2 11.55 13.96 13.26 15.00DPS 0.50 0.75 n.a n.a Note:1. Adjusted for rights, splits, bonuses Price as at 22/10/15 2. Net profit refers to profit attributable to shareholders 3. Calculated on latest issued share capital

People's Leasing Company, (PLC) is a fully-owned subsidiary of the state-owned People's Bank which offers financial products ranging from leasing & financing services for motor vehicles and equipment and personal loans. The bank has a total asset base of approx. LKR 122bn and is rated AA- (lka) by Fitch Ratings Lanka Ltd. The stock is currently trading at a PE of 7.4x as against a sector PE of 11.6x and has a PBV of 1.4x compared to a sector PBV of 1.5x.

Key Investor Ratios Period FY 2013/14 FY 2014/15 1H 2014/15 1H 2015/16

EPS1 (Rs) 2.19 2.60 2.45 2.90


PER (x) 9.8 8.2 8.7 7.4

PBV (x) 1.9 1.5 1.6 1.4

ROE (After tax) (%) 18.2% 19.6% 19.0% 19.8%

ROA (After tax) (%) 3.2% 3.5% 3.4% 3.8%

NPL Ratio2 n.a n.a n.a n.a

Net Interest Margin (NIM) n.a n.a n.a n.a Note:1. Calculated on latest issued share capital Price as at 22/10/15 2. Gross NPL Ratio calculated net of interest in suspense

PE Band Chart


Period FY 2013/14 FY 2014/15



NII Growth (Y-o-Y)



Net Profit1 3,463 4,102



18.3%

Company Profiles

October 2015 22


Softlogic Holdings Diversified

Four-Year Performance: SHL vs. ASPI

0

1800

3600

5400

7200

9000

0

5

10

15

20

25

Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec-14 Aug-15

ASP

I Lev

el

Pri

ce (

Rs)

SHL ASPI


Mr. A K Pathirage 41.6%

Mr. H K Kaimal 8.3%

Mr. R J Perera 7.8%

Mr. G W D H U Gunawardena 7.4%

Pemberton Asian Opportunities Fund 5.9%

Commercial Bank of Ceylon PLC/ A K Pathirage 5.0%


Bank of Ceylon A/C Ceybank Unit Trust 0.7%

Asian Alliance Insurance PLC - A/C 02 (Life Fund) 0.6%

Mrs. A Selliah 0.5%

Softlo

gic H

old

ing

s: SHL

.N/SH

L SL

Eq

uity

SOFTLOGIC HOLDINGS PLC

Price Rs.15.50

Bloomberg SHL SL Equity









29.0




Revenue 29,246 39,488 8,043 13,038

Rev. Growth (Y-o-Y) 15% 35% 15% 62%

Operating Profit (EBIT) 3,623 4,423 898 1,432

EBIT Growth (Y-o-Y) 55% 22% 32% 59%


PBT Growth (Y-o-Y) 160% 88% 36% 60%

Net Profit2156 635 41 84


EPS30.20 0.82 0.28 0.87

NAVPS38.73 9.81 9.81 9.77

DPS 0.16 n.a n.a 0.25 Note:1. Adjusted for rights, splits, bonuses Price as at 22/10/15 2. Net profit refers to profit attributable to shareholders 3. Calculated on latest issued share capital

Softlogic Holdings Plc (SHL) is a diversified company with exposure to sectors such as ICT, Healthcare, Retail, Financial Services, Automobile and Leisure. The Group was listed on the CSE in 2011 and currently trades at a PE of 17.8x relative to the Diversified sector PE of 19.1x and a PBV of 1.6x relative to the sector PBV of 1.7x.


EPS1 (Rs) 0.20 0.82 0.28 0.87

DPS (Rs) 0.16 n.a n.a 0.25


PER (x) 77.5 19.0 55.7 17.8

PBV (x) 1.8 1.6 1.6 1.6

Dividend Yield (%) 1.0% n.a n.a 1.6%

ROE (%) 2.2% 8.8% 3.1% 8.9%




0%

20%

40%

60%

80%

100%

2012/13 2013/14 2014/15

Property

Transportation Leisure Cons Food & Retail

Fin. Services Others IT

Company Profiles

6.0%

1.61%

4.3%

0.53%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

PBT

NPMargin

FY 2013/14

FY 2014/15

October 2015 23


Singer Sri Lanka Trading

Seven-Year Performance: SINS vs. ASPI

0

1800

3600

5400

7200

9000

0

32

64

96

128

160

Jan-08 Feb-09 Mar-10 Apr-11 May-12 Jun-13 Jul-14 Aug-15

ASP

I Lev

el

Pri

ce (

Rs)

SINS ASPI


Singer (Sri Lanka) BV 86.1%

Bank of Ceylon A/c Ceybank Unit Trust 3.5%

Bank of Ceylon A/c Ceybank Century Growth Fund 0.5%

Mrs. Mihiri Virani Fernando 0.5%

Mrs. Zohra Taher Jafferjee 0.3%

People's Bank 0.2%

Dr. Nimal Ebenezer Herat Sanderatne 0.2%

Mrs. Anoma Kamalika Amarasuriya 0.1%

Mrs. Maria Tasneem Moosajee 0.1%

Deutsche Bank Ag as Trustee for Jb Vantage Value Equity

Fund Deut0.6%

Sing

er Sri La

nka

: SINS.N

/SINS SL

Eq

uity

SINGER SRI LANKA PLC

Price Rs.141.10

Bloomberg SINS SL Equity









151.3


Key Financials Period FY 2013 FY 2014 1H 2014 1H 2015


Revenue 25,486 29,700 14,027 18,004

Revenue Growth (Y-o-Y) 0.2% 17% 11% 28%

Gross Profit 8,764 9,723 4,640 5,683

Gross Profit (Y-o-Y) -0.1% 11% 4% 22%

Profit Before Tax (PBT) 728 1,156 418 1,008

PBT Growth (Y-o-Y) -59% 59% -11% 141%

Net Profit2462 714 247 617

Net Profit Growth (Y-o-Y) -60% 55% -19% 150%

EPS33.69 5.70 3.22 8.66

NAVPS339.65 43.73 39.12 46.16


Singer Sri Lanka (SINS) is a member of the worldwide franchise of Singer. Listed on the CSE in 1981, the Company has over 40 years of trading in Industrial Machines, Electric & Electronic Equipment and Consumer Durables. The group also manufactures of furniture and Agricultural Equipment and provides Financial Services. The stock currently trades at a PE of 16.3x (sector: 9.0x) and has a PBV of 3.1x compared to a sector PBV of 0.9x.

Key Investor Ratios Period FY 2013 FY 2014 1H 2014 1H 2015

EPS1 (Rs) 3.69 5.70 3.22 8.66

DPS (Rs) 2.50 2.50 n.a n.a


PER (x) 38.2 24.7 43.8 16.3

PBV (x) 3.6 3.2 3.6 3.1


ROE (%) 9.0% 13.7% 8.3% 19.4%


PE Band Chart


5.6%

3.43%

3.0%

1.76%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

PBT

NPMargin

1H 2014

1H 2015

Company Profiles

October 2015 24


Sunshine Holdings Diversified

Seven-Year Performance: SUN vs. ASPI

0

1800

3600

5400

7200

9000

0

18

36

54

72

90

Aug-08 Oct-09 Dec-10 Feb-12 Apr-13 Jun-14 Aug-15

ASP

I Lev

el

Pri

ce (

Rs)

SUN ASPI


Sampath Bank/Seylan BankDr.T.Senthilverl 23.5%

Lamurep Investments Limited 20.3%

Deepcar Limited 18.9%

Moneymore Securities Limited 16.9%

Tansinghe (Private) Limited 11.9%

Ceylon Property Development Limited 2.2%

Est of Late M. Radhakrishnan (Deceased) 0.6%

Hatton National Bank PLC 0.5%

Nuwaraeliya Property Developers (Pvt) Ltd 0.4%

Deutsche Bank AG as Trustee for JB Vantage Value 0.3%

Sun

shin

e Ho

ldin

gs: SU

N.N

/SUN

SL E

qu

ity

SUNSHINE HOLDINGS PLC

Price Rs.53.40

Bloomberg SUN SL Equity









83.5




Revenue 14,697 16,327 3,984 4,179

Rev. Growth (Y-o-Y) 12% 11% 15% 5%


EBIT Growth (Y-o-Y) -7% -11% 114% -10%


PBT Growth (Y-o-Y) -3% -10% 149% -8%

Net Profit2599 484 147 162

Net Profit Growth (Y-o-Y) -2% -19% 124% 11%

EPS34.43 3.58 5.03 3.76

NAVPS335.88 39.24 36.96 40.44


Incorporated in 1967, Sunshine Holdings (SUN) is a conglomerate whose core focus areas include Healthcare, Agribusiness and FMCG sectors. SUN also has Strategic/Other Investments in sectors spanning metal packaging, energy, leisure and telecommunications and commodity broking. The stock currently trades at a PER of 14.2x against a sector PER of 19.01x, and has a PBV of 1.3x (sector PBV: 1.7x)


EPS1 (Rs) 4.43 3.58 5.03 3.76

DPS (Rs) 0.95 0.95 n.a n.a


PER (x) 12.1 14.9 10.6 14.2

PBV (x) 1.5 1.4 1.4 1.3


ROE (%) 14.9% 9.5% 13.8% 9.4%




0%

20%

40%

60%

80%

100%

2011/12 2012/13 2013/14

Investment Healthcare FMCGEnergy Plantation PackagingManagement Services

Company Profiles

8.02%

2.96%

9.87%

4.07%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00%

PBT

NPMargin

FY 2013/14

FY 2014/15

October 2015 25


Tokyo Cement Manufacturing Company Profiles

Seven-Year Performance: TKYO vs. ASPI


St. Anthony's Consolidated (Pvt) Ltd 27.5%

Nippon Coke & Engineering Co. Ltd 23.7%

South Asian Investment (Pvt) Ltd 20.1%

Capital City Holdings (Private) Limited 3.0%

Deutsche Bank Ag-National Equity Fund 1.3%

Mariapillai Radhakrishnan (Deceased) 1.2%

Deutsche Bank Ag As Trustee For Namal Acuity Value Fund 0.7%

4.4%

Cb Ny S/A Wasatch Frontier Emerging Small Countries Cit

Fund0.7%

Hsbc Intl Nom Ltd-Jpmcb-T.Rowe Price Institutional Frontier

Markets Equity Fund0.8%

Hsbc Intl Nom Ltd -Ssbt -Wasatch Frontier Emerging Small

Countries Fund

To

kyo C

emen

t: TK

YO

.N/T

KY

O SL

Eq

uity

TOKYO CEMENT COMPANY



Bloomberg TKYO SL Equity




Year to Date Turnover (Rs. Bn)-V/NV 0.86/1.49


Year to Date High (Rs.)-V'NV 73/54.8

Year to Date Low (Rs.)-V/NV 48/36.2


73/54.8




Turnover 28,908 29,599 7,044 6,912

Turnover Growth (Y-o-Y) 6% 2% 2% -2%


EBIT Growth (Y-o-Y) 64% -23% -11% -13%


PBT Growth (Y-o-Y) 109% -25% -10% -13%

Net Profit22,127 1,782 524 466

Net Profit Growth (Y-o-Y) 141% -16% -14% -11%

EPS36.36 5.33 6.09 5.13

NAVPS327.52 29.88 27.59 31.27


Sri Lanka’s largest manufacturer & supplier of Cement, Tokyo Cement (TKYO) has been operational for 3 decades. With an installed capacity of approx. 2mn tons, TKYO remains a pioneer in cement manufacturing technology, and has claimed a number of industry firsts, including the country’s 1st automated cement factory and the 1st local corporate to achieve ISO certification in Environment & Quality Management Systems. The stock trades a PE of 9.4x (sector: 20.9x) and a PBV of 1.5x (sector: 2.9x).


EPS1 (Rs) 6.36 5.33 6.09 5.13

DPS (Rs) 1.50 1.19 n.a n.a


PER (x) 7.5 9.0 7.9 9.4

PBV (x) 1.7 1.6 1.7 1.5


ROE (%) 25.9% 18.6% 22.1% 16.8%


PE Band Chart


6.7%

6.02%

9.1%

7.36%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

PBT

NPMargin

FY 2013/14

FY 2014/15

October 2015 | 26

Macro-Economic Indicators ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES


FY 2010 2011 2012 2013 2014P

LKR Bn (Unless otherwise stated)

Nominal GDP 5,604 6,544 7,579 8,674 9,785

Y-o-Y Change (%) 15.9% 16.8% 15.8% 14.4% 12.8%

Nominal GDP (USD Bn) 49.6 59.2 59.4 67.2 74.9

Y-o-Y Change (%) 17.8% 19.4% 0.3% 13.1% 11.5%

Per Capita GDP (USD) 2,397 2,836 2,922 3280 3,625

Y-o-Y Change (%) 16.7% 18.3% 3.0% 12.3% 10.5%

Mid-year Population (Mn) 20.7 20.9 20.3 20.5 20.7

Y-o-Y Change (%) 1.1% 1.0% -2.9% 0.9% 1.0%

Real GDP (Y-o-Y %) 8.0% 8.2% 6.3% 7.2% 7.4%

Total Consumption (% of GDP) 80.7 84.6 83.1 80.0 78.9

Private 65.2 69.8 69.6 66.9 65.4

Public 15.6 14.8 13.5 13.1 13.5

Investment (% of GDP) 27.6 29.9 30.6 29.5 29.7

Private 21.4 23.7 23.7 22.7 22.9

Public 6.2 6.3 6.9 6.9 6.8

Exports of Goods and Services (% of GDP) 22.4 23.1 22.8 22.5 22.3

Imports of Goods and Services (% of GDP) 30.7 37.6 36.5 32.0 30.9

Domestic Savings ratio (%) 19.3 15.4 16.9 20.0 21.1

National Savings Ratio (%) 25.4 22.1 24.0 25.8 27.0

Domestic Debt 2,566 2,804 3,232 1 3,832 4,278

External Debt 2,025 2,329 2,767 1 2,960 3,113

Total Debt 4,590 5,133 6,000 6,793 7,391

Unemployment Rate (%) 4.9 4.2 4.0 4.4 4.3

Tourist Arrivals ('000) 654 856 1,006 1219 1527

Y-o-Y Change (%) - 30.9% 17.5% 21.2% 25.3%

FY 2010 2011 2012 2013 2014P

Price Indicators (annual average Y-o-Y Change % )

Colombo Consumer Price Index (CCPI) 6.2 6.7 7.6 6.9 3.3

Wholesale Price Index (WPI) 11.2 10.6 3.5 9.2 3.2

Financial Indicators


M2b 1813 2193 2593 3059 3461

Y-o-Y Change (%) 18.0% 20.9% 18.3% 18.0% 13.1%

Loans and Advances 1455 1906 2306 2548 2776

Y-o-Y Change (%) 27.9% 31.0% 21.0% 10.5% 9.0%

Deposits 1955 2361 2798 3253 3641

Y-o-Y Change (%) 16.9% 20.8% 18.5% 16.3% 11.9%

Interest Rates (%)

Prime Lending Rate, year end 9.3 10.8 14.4 10.1 6.3

Annual Average 9.3 10.5 14.3 10.0 6.4

12-month T-bills, year end 7.6 9.3 11.7 8.3 6.0

Annual Average 7.6 9.3 11.7 8.3 6.0

Mac

roec

on

om

ic S

um

mar

yP

rice

& F

inan

cial

In

dic

ato

rs

Notes:1. Excludes Government bond of Rs. 78,447 issued to CPC in Jan 2012: P-Provisional Source: Central Bank of Sri Lanka & Department of Census & Statistics

October 2015 | 27

Macro-Economic Indicators ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES


FY 2010 2011 2012 2013 2014P

RS/USD (Unless otherwise stated)

Period Average 113.1 110.6 127.6 129.1 130.56

Y-o-Y Change (%) -1.6% -2.2% 15.4% 1.2% 1.1%

End of Period 111.0 113.9 127.2 130.8 131.1

Y-o-Y Change (%) -3.0% 2.7% 11.6% 2.8% 0.3%


Total Revenue 834 983 1,068 1153.3 1204.62

Y-o-Y Change (%) 15.0% 17.8% 8.6% 8.0% 4.4%

Total Expenditure 1,280 1,433 1,556 1669.4 1795.9

Y-o-Y Change (%) 6.5% 11.9% 8.6% 7.3% 7.6%

Overall Surplus (+)/Deficit (-) -446 -450 -489 -516.1 -591.24

Y-o-Y Change (%) -6.4% 0.9% 8.6% 5.5% 14.6%

Budget Deficit as % of GDP -8.0% -6.9% -6.5% -5.9% -6.0%

FY 2010 2011 2012 2013 2014P

USD Mn. (Unless otherwise stated)

Exports 8,626 10,559 9,774 10,394 11,130

Y-o-Y Change (%) 21.7% 22.4% -7.4% 6.3% 7.1%

Imports 13,451 20,269 19,190 18,003 19,417

Y-o-Y Change (%) 31.8% 50.7% -5.3% -6.2% 7.9%

Trade Balance -4,825 -9,710 -9,417 -7,609 -8,287

Y-o-Y Change (%) 54.6% 101.2% -3.0% -19.2% 8.9%

Current Account -1,075 -4,615 -3,982 -2,541 -2,018

As % of GDP -2.2% -7.8% -6.7% -3.8% -2.7%

Overall Balance 921 -1,061 151 985 1,369

Gross Official Reserves 7,197 6,749 7,106 7,495 8,208

Months of Imports 6.4 4.0 4.4 5.0 5.1

FX

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Notes: P-Provisional Source: Central Bank of Sri Lanka & Department of Census & Statistics

Research Team Chethana Ellepola (+94) 112 206 256 [email protected] Anjula Nawarathna (+94) 112 206 255 [email protected] Aethra de Silva (+94) 112 206 253 [email protected] Samalka Athuraliya (+94) 112 206 254 [email protected]

Anouk Weerasinghe (+94) 112 206 254 [email protected]

Sales Team

Deva Ellepola (+94) 112 206 220/221 [email protected] Prashan Fernando (+94) 112 206 222 [email protected] Kapila Pathirage (+94) 112 206 227/228 [email protected] Naren Godamunne (+94) 112 206 225 [email protected] Arjuna Dasanayake (+94) 112 206 235 [email protected] Amarasena Liyanage (+94) 112 206 231 [email protected] Susil Fernando (+94) 112 206 234 [email protected]

Chathura Siyambalapitiya (+94) 112 206 232 [email protected]

ACUITY Stockbrokers (Pvt) Ltd., (Company Reg: No-P.V.3310) ‘ACUITY House’, No. 53, Dharmapala Mw,

Colombo 03, Sri Lanka.

TEL : (+94) 112 206 206 FAX : (+94) 112 206 298

S. Vasanthakumar (+94) 112 206 250/251 [email protected] Dhammika Wanniarachchi (+94) 112 206 229 [email protected] Shivane Wijayaratnam (+94) 112 206 236 [email protected] Sameera Rajawatte (+94) 112 206 279 [email protected] Kumar Dias Desinghe (+94) 814 474 443 [email protected] Prasanna Semasinghe (+94) 814 474 443 [email protected] Thehani Weerasinghe (+94) 112 206 224 [email protected]

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“Distributed in Sri Lanka and abroad by Acuity Stockbrokers (Private) Limited (ASB) and its authorized representatives. ASB is fully owned by Acuity Partners (Pvt) Ltd (APL) and APL is a joint venture of DFCC Bank and Hatton National Bank PLC. The Information contained herein has been compiled from sources that ASB (“The Research Institution”) believes to be reliable but none of the Research Institution holds itself responsible for its completeness or accuracy. It is not an offer to sell or a solicitation of an offer to buy any securities. The Research Institution and its affiliates and its officers and employees may or may not have a position in or with respect to the securities mentioned herein.

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