CSE expected to continue bull run on strong company results

During the week the All Share Price Index (ASPI) lost 7.1 points and closed at 1,416.5 while the sensitive Milanka Index gained 15.3 points to close at 2,584.2.

Although the market was expected to perform well during the week, growth was hindered due to the volatility experienced within the country’s political arena.

The rumours with regard to parliament crossovers, prior to the budget presentation was sufficient to trigger tension among the investing community. Further anticipation with relation to the counter proposal agreements presented by the LTTE, was sufficient to put the CSE on the defense stance.

However overall expectations for the country and its economy remain positive due to the strong international backing on the ongoing peace process. Furthermore the finalizations on economic and trade tie-ups with USA, is expected to uplift Sri Lanka’s economy to a new platform.

Market sentiment remained positive during the week except for the mid week dip experienced by the Colombo bourse. Investor activity in the publicly traded equity sector is increasing due to the lack of alternate investment opportunities.

Further the quarterly financial announcements by the following companies also increased the attractiveness of the CSE.

Merchant Bank (MBSL) had recorded an earnings of Rs. 54 Mn, displaying an improvement of 357% compared to the 9 month period in 2002. Therefore the bank expects an EPS of 1.44 at the end of the year while NAPS remains at 5.09.

The net earnings of Rs. 1.19 bn posted by Seylan Bank (SEYB), which represents an increase of 105% compared to 2002 was sufficient to boost investor interest on the stock.

With these improved earnings the bank expects to record an EPS of 27.93 for the year while its NAPS is at 64.10.

However SEYB stock is comparatively undervalued since its trading at a forward PE of 2.23 while the banking sector PE remains at 10.17.

Asian Hotels Corporation (AHOT) the newly acquired subsidiary of JKH announced a 286% improvement in earnings and reported a net profit of Rs. 367.9 Mn for the six month period ending September 30, 2003.

Therefore the EPS for the six month period stands at 1.66 while the company is expected to benefit substantially in the coming months due to increase in tourist arrivals.

Kegalle Plantations (KEPL) along with Namunukula Plantations (NAMU) revealed improvements in their bottom line for the first half of FY03/04.

KEPL recorded an EPS of 1.15 for the period resulting with a drastic improvement from a loss in 2002. NAMU recorded an EPS of 0.45 from a loss of 1.21 compared to the same period last year.

We expect the CSE to continue its upward run fuelled by strong financial results by the listed companies. Further the upcoming government budget would rejuvenate the pre budget rally adding momentum to the Colombo bourse. We expect investor interest in blue chip companies along with the plantation and hotel sector.

We maintain our bullish point of view for Aitken Spence, NDB and Hayleys. Further the leading hotels such as, Asian Hotels, Connaissance and Light House Hotel is also expected to attract investor interest.

Further we expect the HNB Assurance IPO to be a success, though we are of the belief that, possibility of short term investor returns are remote.
SC Securities