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http://www.ceylontoday.lk/22-3916-news-detail-quarterly-earnings-review-of-cse-listed-companies.html
Quarterly earnings review of CSE listed companies
Date:2012-03-26 10:46:00
OVERVIEW
Having recorded double digit earnings growth for back to back quarters, listed companies in the Colombo Stock Exchange were unable to continue the same mind blowing pace in earnings growth for 4QFY2011.
Earnings for the quarter was Rs 43.7 billion (including non-recurring items) with an underwhelming growth of 6.5%YoY. Nonetheless earnings increased sharply by 21% YOY in FY2011 owing to the impeccable profit growth recorded by the preceding quarters. In addition, on a quarterly basis earnings were up by 13.1%QoQ.This marks a CAGR of 19.5% for the post war period starting from 2QFY2009.
Historically fourth quarter of the calendar year is the strongest in terms of earnings (as depicted in the following graph) especially due to companies in the financial services booking high profits during this quarter.
A total of 261 companies have been accounted for this analysis out of which 36 companies did not release financial for 4QFY2011 as they are listed under the Diri Savi Board in which the companies are publishing financials in 6 months terms. It is further worth to mention that majority of the companies that came to the market (through initial public offers and listing by introduction) during the post war season listed on the Diri Savi Board hence their contribution to the quarterly earnings is not reflected.
Despite Consumer goods and Utilities sectors ending up in the negative growth territory all other sectors recorded vigorous bottom line growth. Financial services sector recorded an imposing earnings growth (+24.4%YoY) towards being the highest contributor (37.0%) to the sector earnings.
Industrials sector barely touched green zone with a marginal 0.9%YoY improvement in profits. Diversified holdings subsector failed to generate a significant growth (+3.8%YoY) in earnings while industrial goods and services subsector (-56.2%YoY) pulled down sector earnings. Industrials owned 26.0% of the sector earnings regardless of having a slightly lower contribution (23 %) to market capitalization.
Meanwhile Consumer goods sector which encompasses 33.0% of the market capitalization delivered only 25% of the sector earnings while recording a down fall in profits (-8.7%YoY). Food and beverage sub sector (-18.7% YoY) was down with crash and burns on account of disappointing performance by plantation s and alcohol producers.
Furthermore utilities (-7.3%YoY) was also ended up in the negative region given the slide in profits recorded specially by electricity subsector.
Healthcare sector (+62.7%YoY) emerged from the pack as the top gainer on a year on year basis irrespective of a much lower contribution to both sector earnings and market capitalization.
Consumer services sector (+33.5%YoY) which is totally made up of hotels marked a strong quarter due to the peak tourist arrivals recorded during the quarter.
Even with a considerable 45.7%YoY net profit growth technology sector influence on total market earnings was insignificant.
1.0 FINANCIAL SERVICES
Financial services main sector marked a 24.4%YoY firm net profit growth for 4QFY2011. Sector had its earnings leaping by a solid 25.2%YoY for FY2011. All the sub sectors witnessed unprecedented development in terms of bottom-line except for the investment companies which were battered by the harsh fall in prices in the Colombo Stock Exchange. Extraordinary credit growth due to increasing external activities (Export & imports) drove the volume of loans advances regardless of interest margins being stable for the most part of the year.
1.1 Banks
Banks sub sector attained an endures 22.2%YoY earnings growth supported by the continues credit growth throughout FY2011.In FY2011 the Listed banks in the country experienced an high growth in demand for credit recording a 34% growth in loans and advances compared to 25.1% in FY2010.Contrastingly deposit base grew with a rather lower momentum of 19.0%YoY.Nonetheless, the strong margins enjoyed by the industry in the past came under persistent pressure with lower interest rates (remained close to single digit for the major part of FY2011), intense competition, fallen liquidity etc.
Despite the lower contribution (eight per cent) to subsector earnings SEYB was highlighted from the crowded banking sector as a top performer with an enormous 71.5%YoY earnings growth. The robust growth in the bank's core business activities in the second half of the year gained the momentum and earnings grew substantially in the last quarter. In addition efficiency was enhanced through rationalization of staff numbers achieved by re-structuring, centralization, automation and process re-engineering.
Meanwhile COMB was able to pull off an earnings growth of 12.2%YoY for the quarter with welcomed reduction in taxation and piercing gains in foreign exchange income despite fall in net interest income. Noteworthy amounts of provisions were made during 4QFY2011 compared with the reversals in the comparative quarter pressing the yearly profit growth.
HNB (27%) the highest contributor to sector earnings saw its bottom line increasing by 20.6%YoY during the quarter helped by lower tax charges and loan loss provision reversals.
SAMP’s net profits dipped by 34.4%YoY as a result of fall in other income (-56.9%YoY) even with net interest income growth (+11.3%YoY). Having laid the foundation for the long-term profitability by way of aggressive branch expansion and staff recruitments, management is confident that it would yield higher earnings in the future in spite of negative results in the quarter.
In addition NDB (+68.9%YoY), NTB (+54.3%YoY), PABC (+155.6%YoY), UBC (+164%YoY), DFCC (+46.6%YoY), HDFC (+954.3%YoY) lift up the sub sector earnings.
1.2 Consumer Finance
Sub sector was on the positive side with an earnings growth of 68.2%YoY during the quarter while on a quarterly basis profits were down by 11.6%QoQ. Expansion in core earnings, reductions in tax expenditure were considered as the key drivers across the sector.
Newly listed PLC emerged as the top contributor (25%) to the quarterly earnings with its profits undergoing a 46.0%YoY growth. Pioneering finance establishment, CFIN recorded a 56.7%YoY bottom line growth due to reversal of loan loss provisions and tax reductions. The young aggressor, LFIN (+92.3%YoY) leveraging on the top line growth put on a resilient performance during the quarter reflecting its potential to reach the top of the sector. Meanwhile LOLC (-6.2%YoY) and CDB (-25.5%YoY) recorded down fall in earnings.
1.3 Insurance
Majority of the companies (especially life insurance segment) in the subsector put on their best performance in the final quarter in the year. A moderate growth (+12.8%YoY) was seen in combined sector earnings for 4QFY2011. Earnings were up by 9.4%YoY for FY2011. Top dogs in the sector, CINS (+26.9%YoY), UAL (+39.7%YoY), HASU (+17.2%YoY) came up with some impressive earnings record. CTCE Suffered by declined investment income recorded a decline in bottom line (-21.4%YoY). At the end CINS (43%), UAL (24.0%), CTCE (23.0%) remained as the top contributors to the subsector earnings.
1.4 Investment Companies
In an atmosphere of double digit earnings growth recorded by peer sub sectors, investment companies came out of 4QFY2011 with heartbroken 145%YoY downfall in net profits. Earnings were down by 44.9%YoY for FY2011. These results were primarily due to the continuous capital losses arising from the fall in market prices of the Colombo Stock Exchange. All share price index (ASI) recorded a 11.7% drop for 4QFY2011 while falling 9.6% during FY2011. Already ASI has fallen by 11% driving down the expectations of witnessing a turnaround during the next quarter. The only survivor with a positive growth, RHL recorded a 4,285.2%YoY during the quarter which is attributable to the vigorous top line growth and improved margins.
1.5 Real Estate Companies
On account of gains arising from fair value adjustments, real estate companies sub sector recorded an enormous 232.8%YoY advancement in its net profits. FY2011 earnings were up by 97.1%YoY. OSEA’s net profits grew by 240.4%YoY for 4QFY2011. Company made a Rs 2.1 billion gain from fair value adjustments to its investment properties. Further, COMD achieved a 677.4%YoY improvement of profitability for the quarter due to fair value adjustments of same nature. Except for these two, CABO (+74%YoY), CTLD (+47.1%YoY), ONAL (+54%YoY), PDL (+23.7%YoY), YORK (+73.1%YoY), CHOU (+135.6%YoY) attained noteworthy growth in earnings.
As non-recurring gains arising from year end fair value adjustments boosted net profits, we are more sceptical towards maintaining the same earnings growth for the future. Furthermore resent upward revision of interest rates could pose some pressure on the real estate company earnings.
2.0 INDUSTRIALS
Rather an insignificant profit (+0.9%YoY) record was seen in Industrials main sector. Profits for the quarter were down by 9.2%QoQ. This was mainly due to less than expected growth in the diversified holdings, construction and materials sub sectors.
2.1 Construction and Materials
Main contributor to the sub sector, DOCK (29%) had its profits falling for the quarter (-8.9%YoY) owing to drop in ship building and repair revenue. RCL which makes the second largest contribution to sub sector earnings improved its earnings considerably by 44.3%YoY. This all-round performance was aided by aggressive marketing and prudent financial management which eventually uplifted the top line and the bottom line.
2.2 Industrial Goods and Services
Subsector earnings dipped by 56.2%YoY for 4QFY2011 due to the down fall of bottom line recorded by EXPO and ACME.
Unfavourable external scenarios prevalent during the last quarter of the 2011 lead EXPO, the highs contributor to the sector earnings (42%) to record a 70.8%YoY decline its bottom line. Despite the gravity of the drop in profits management is confident of improved performance in the future.
Provision with regard to unusable inventories in ACME dragged down earnings by 969.9%YoY. GLAS made a notable improvement in its net profits by 7.8%YoY cushioning the impact on sector earnings.
2.3 Specialty Chemicals
HAYC the dominant player in the subsector owning 78% of the sector earnings made a clear 57.7%YoY growth in earnings single-handedly uplifting the subsector earnings by 51.6%YoY. In addition ASPH (+95.8%YoY), CHMX (+70.4%YoY) was on the top performers side despite lower contribution to sector profits.
2.4 Diversified Holdings
Diversified holdings sector which makes the largest contribution to the whole market earnings was rather on the conservative side with its earnings growing marginally by 3.8%YoY. Profits for 4QFY2011 were down by 8.4%QoQ.
Top three contributors to the sector earnings JKH (+55.6%YoY), SHL (+6,327.6%YoY), SPEN (+41.4%YoY) recorded substantial growth in their bottom-line. Yet disappointing performance by BRWN (-88.9%YoY), LCEY (-28.9%YoY) and GREG (-109.5%YoY) pull down sector earnings.
VONE was not included in the analysis as it is listed in Diri Savi Board and did not release financials for this quarter.
2.5 Other Manufacturing entities
On account of earnings growth recorded by LLUB (+76.7%YoY), REXP (+8.6%YoY) other manufacturing entities sub sector grew 19.6%YoY in terms of bottom-line. LIOC (45%) and LLUB (41%) covered most of the sector earnings.
2.6 Traders
CWM which represents almost 100% of sub sector earnings, recorded a 12,681.8%YoY growth in its net profits attributable to the flawless top line growth an improved profit margins.
2.7 Support Services
JKL the leading contributor to sub sector earnings was seen recording a 27.5%YoY decline in its earnings (on account of drop in earnings from stock broking) which drove down the subsector earnings by 19.7%YoY. CPRT (+721.2%YoY), LPRT (+612.6%YoY) were on the top gainers side regardless of minimal contribution to sector earnings.
3.0 CONSUMER GOODS
Main sector closed accounts for 4QFY2011 with crash and burns recording a 9.4%YoY decline in net profit. Compared to previous quarter (3QFY2011) earnings dwindled marginally 2.4%QoQ.
Nevertheless for the cumulative period bottom-line leaped sharply by 27.1%YoY. Negative pressure on the earnings were due to the harsh drop in profits of food and beverage sub sector more specifically alcoholic producers and tea & rubber plantations. Yet promising earnings growth recorded by personal & household goods (+293%YoY) reinforced sector earnings.
3.1 Automobile and Parts
Moderate growth (+9.2%YoY) was seen in sector profits. However comparative to the previous quarter earnings dropped six per cent QOQ. DIMO and UML two of the prime automobile sellers in the country covered almost 54.0% of the sector earnings. A commanding earnings growth was seen in COLO (156.6%YoY), UML (82.3%YoY) regardless of the decline in profits in DIMO (22.6%YoY).
Automobile sector had a major hit recently due to negative dynamics such as sharp depreciation of rupee relative to US dollar, increased interest rates and massive hike in fuel prices. Central Bank’s policy initiatives were expected to curtail the import expenditure which saw a double digit growth in CY2011. Automobile import expenditure encompassed a portion of this growth as the sector witnessed an exponential growth due to the lowered import taxes and duties.
3.2 Food and Beverage
Profits were down for this quarter by 18.7%YoY even though cumulative earnings rose by 20.4%YoY. Disappointing performance for the quarter was due to less than expected performance by alcoholic producers (-14.9%YoY), food producers (-48.5%YoY) including plantations.
Plantations were down due to factors such as heavy cost burden streaming from worker wage hike, volatile demand for end products and adverse weather patterns in the country. Except for KVAL (+13.1%YoY), SUN (+34.3%YoY) and CTEA (+58.4%YoY) all plantations (Tea & Rubber) companies failed to depict positive growth in quarter earnings.
Prices and demand for tea prices have been highly volatile due to the internal struggles in main tea buying countries such as Iran, Libya, Syria, and Iraq. These countries show no sign of recovering from the Middle Eastern political crisis which could further put pressure on Sri Lankan tea demand.
Poultry companies such as BFL (-8.5%YoY), GRAN (-63.7%YoY), TAFL (-70.3%YoY) failed to generate adequate earnings in this quarter which traditionally record high profits in the final quarter of the year due to the seasonality in the demand patters.
3.3 Personal and Household Goods
Sector was on the positive side with a considerable 104.1%YoY earnings growth on account of KURU (+112.2%YoY), MGT (+75%YoY) being able to recover losses.
KURU returned to profits helped by lower cotton prices and lower operational costs due to companywide restructuring including the voluntarily retirement scheme. High growth in sales volume shouldered by the continuous focus on quality and time delivery is expected to improve the profitability of the company.
MGT was able to cut down its losses. These losses originated from write down of a part of inventory to its net realizable value and a correction to receivables which was overstated. Timely intervention and quick response by the management to these discrepancies have enabled the management to arrest these negatives and necessary measures have now been taken to ensure the sustainability and growth of the company and its operations. Company is optimistic with regard to its performance in the future given its retention of the customer base.
Meanwhile SINS (53%) and TJL (24%) reflected their supremacy to the sector earnings. (Analysis based on Lanka Securities Research)
Quarterly earnings review of CSE listed companies
Date:2012-03-26 10:46:00
OVERVIEW
Having recorded double digit earnings growth for back to back quarters, listed companies in the Colombo Stock Exchange were unable to continue the same mind blowing pace in earnings growth for 4QFY2011.
Earnings for the quarter was Rs 43.7 billion (including non-recurring items) with an underwhelming growth of 6.5%YoY. Nonetheless earnings increased sharply by 21% YOY in FY2011 owing to the impeccable profit growth recorded by the preceding quarters. In addition, on a quarterly basis earnings were up by 13.1%QoQ.This marks a CAGR of 19.5% for the post war period starting from 2QFY2009.
Historically fourth quarter of the calendar year is the strongest in terms of earnings (as depicted in the following graph) especially due to companies in the financial services booking high profits during this quarter.
A total of 261 companies have been accounted for this analysis out of which 36 companies did not release financial for 4QFY2011 as they are listed under the Diri Savi Board in which the companies are publishing financials in 6 months terms. It is further worth to mention that majority of the companies that came to the market (through initial public offers and listing by introduction) during the post war season listed on the Diri Savi Board hence their contribution to the quarterly earnings is not reflected.
Despite Consumer goods and Utilities sectors ending up in the negative growth territory all other sectors recorded vigorous bottom line growth. Financial services sector recorded an imposing earnings growth (+24.4%YoY) towards being the highest contributor (37.0%) to the sector earnings.
Industrials sector barely touched green zone with a marginal 0.9%YoY improvement in profits. Diversified holdings subsector failed to generate a significant growth (+3.8%YoY) in earnings while industrial goods and services subsector (-56.2%YoY) pulled down sector earnings. Industrials owned 26.0% of the sector earnings regardless of having a slightly lower contribution (23 %) to market capitalization.
Meanwhile Consumer goods sector which encompasses 33.0% of the market capitalization delivered only 25% of the sector earnings while recording a down fall in profits (-8.7%YoY). Food and beverage sub sector (-18.7% YoY) was down with crash and burns on account of disappointing performance by plantation s and alcohol producers.
Furthermore utilities (-7.3%YoY) was also ended up in the negative region given the slide in profits recorded specially by electricity subsector.
Healthcare sector (+62.7%YoY) emerged from the pack as the top gainer on a year on year basis irrespective of a much lower contribution to both sector earnings and market capitalization.
Consumer services sector (+33.5%YoY) which is totally made up of hotels marked a strong quarter due to the peak tourist arrivals recorded during the quarter.
Even with a considerable 45.7%YoY net profit growth technology sector influence on total market earnings was insignificant.
1.0 FINANCIAL SERVICES
Financial services main sector marked a 24.4%YoY firm net profit growth for 4QFY2011. Sector had its earnings leaping by a solid 25.2%YoY for FY2011. All the sub sectors witnessed unprecedented development in terms of bottom-line except for the investment companies which were battered by the harsh fall in prices in the Colombo Stock Exchange. Extraordinary credit growth due to increasing external activities (Export & imports) drove the volume of loans advances regardless of interest margins being stable for the most part of the year.
1.1 Banks
Banks sub sector attained an endures 22.2%YoY earnings growth supported by the continues credit growth throughout FY2011.In FY2011 the Listed banks in the country experienced an high growth in demand for credit recording a 34% growth in loans and advances compared to 25.1% in FY2010.Contrastingly deposit base grew with a rather lower momentum of 19.0%YoY.Nonetheless, the strong margins enjoyed by the industry in the past came under persistent pressure with lower interest rates (remained close to single digit for the major part of FY2011), intense competition, fallen liquidity etc.
Despite the lower contribution (eight per cent) to subsector earnings SEYB was highlighted from the crowded banking sector as a top performer with an enormous 71.5%YoY earnings growth. The robust growth in the bank's core business activities in the second half of the year gained the momentum and earnings grew substantially in the last quarter. In addition efficiency was enhanced through rationalization of staff numbers achieved by re-structuring, centralization, automation and process re-engineering.
Meanwhile COMB was able to pull off an earnings growth of 12.2%YoY for the quarter with welcomed reduction in taxation and piercing gains in foreign exchange income despite fall in net interest income. Noteworthy amounts of provisions were made during 4QFY2011 compared with the reversals in the comparative quarter pressing the yearly profit growth.
HNB (27%) the highest contributor to sector earnings saw its bottom line increasing by 20.6%YoY during the quarter helped by lower tax charges and loan loss provision reversals.
SAMP’s net profits dipped by 34.4%YoY as a result of fall in other income (-56.9%YoY) even with net interest income growth (+11.3%YoY). Having laid the foundation for the long-term profitability by way of aggressive branch expansion and staff recruitments, management is confident that it would yield higher earnings in the future in spite of negative results in the quarter.
In addition NDB (+68.9%YoY), NTB (+54.3%YoY), PABC (+155.6%YoY), UBC (+164%YoY), DFCC (+46.6%YoY), HDFC (+954.3%YoY) lift up the sub sector earnings.
1.2 Consumer Finance
Sub sector was on the positive side with an earnings growth of 68.2%YoY during the quarter while on a quarterly basis profits were down by 11.6%QoQ. Expansion in core earnings, reductions in tax expenditure were considered as the key drivers across the sector.
Newly listed PLC emerged as the top contributor (25%) to the quarterly earnings with its profits undergoing a 46.0%YoY growth. Pioneering finance establishment, CFIN recorded a 56.7%YoY bottom line growth due to reversal of loan loss provisions and tax reductions. The young aggressor, LFIN (+92.3%YoY) leveraging on the top line growth put on a resilient performance during the quarter reflecting its potential to reach the top of the sector. Meanwhile LOLC (-6.2%YoY) and CDB (-25.5%YoY) recorded down fall in earnings.
1.3 Insurance
Majority of the companies (especially life insurance segment) in the subsector put on their best performance in the final quarter in the year. A moderate growth (+12.8%YoY) was seen in combined sector earnings for 4QFY2011. Earnings were up by 9.4%YoY for FY2011. Top dogs in the sector, CINS (+26.9%YoY), UAL (+39.7%YoY), HASU (+17.2%YoY) came up with some impressive earnings record. CTCE Suffered by declined investment income recorded a decline in bottom line (-21.4%YoY). At the end CINS (43%), UAL (24.0%), CTCE (23.0%) remained as the top contributors to the subsector earnings.
1.4 Investment Companies
In an atmosphere of double digit earnings growth recorded by peer sub sectors, investment companies came out of 4QFY2011 with heartbroken 145%YoY downfall in net profits. Earnings were down by 44.9%YoY for FY2011. These results were primarily due to the continuous capital losses arising from the fall in market prices of the Colombo Stock Exchange. All share price index (ASI) recorded a 11.7% drop for 4QFY2011 while falling 9.6% during FY2011. Already ASI has fallen by 11% driving down the expectations of witnessing a turnaround during the next quarter. The only survivor with a positive growth, RHL recorded a 4,285.2%YoY during the quarter which is attributable to the vigorous top line growth and improved margins.
1.5 Real Estate Companies
On account of gains arising from fair value adjustments, real estate companies sub sector recorded an enormous 232.8%YoY advancement in its net profits. FY2011 earnings were up by 97.1%YoY. OSEA’s net profits grew by 240.4%YoY for 4QFY2011. Company made a Rs 2.1 billion gain from fair value adjustments to its investment properties. Further, COMD achieved a 677.4%YoY improvement of profitability for the quarter due to fair value adjustments of same nature. Except for these two, CABO (+74%YoY), CTLD (+47.1%YoY), ONAL (+54%YoY), PDL (+23.7%YoY), YORK (+73.1%YoY), CHOU (+135.6%YoY) attained noteworthy growth in earnings.
As non-recurring gains arising from year end fair value adjustments boosted net profits, we are more sceptical towards maintaining the same earnings growth for the future. Furthermore resent upward revision of interest rates could pose some pressure on the real estate company earnings.
2.0 INDUSTRIALS
Rather an insignificant profit (+0.9%YoY) record was seen in Industrials main sector. Profits for the quarter were down by 9.2%QoQ. This was mainly due to less than expected growth in the diversified holdings, construction and materials sub sectors.
2.1 Construction and Materials
Main contributor to the sub sector, DOCK (29%) had its profits falling for the quarter (-8.9%YoY) owing to drop in ship building and repair revenue. RCL which makes the second largest contribution to sub sector earnings improved its earnings considerably by 44.3%YoY. This all-round performance was aided by aggressive marketing and prudent financial management which eventually uplifted the top line and the bottom line.
2.2 Industrial Goods and Services
Subsector earnings dipped by 56.2%YoY for 4QFY2011 due to the down fall of bottom line recorded by EXPO and ACME.
Unfavourable external scenarios prevalent during the last quarter of the 2011 lead EXPO, the highs contributor to the sector earnings (42%) to record a 70.8%YoY decline its bottom line. Despite the gravity of the drop in profits management is confident of improved performance in the future.
Provision with regard to unusable inventories in ACME dragged down earnings by 969.9%YoY. GLAS made a notable improvement in its net profits by 7.8%YoY cushioning the impact on sector earnings.
2.3 Specialty Chemicals
HAYC the dominant player in the subsector owning 78% of the sector earnings made a clear 57.7%YoY growth in earnings single-handedly uplifting the subsector earnings by 51.6%YoY. In addition ASPH (+95.8%YoY), CHMX (+70.4%YoY) was on the top performers side despite lower contribution to sector profits.
2.4 Diversified Holdings
Diversified holdings sector which makes the largest contribution to the whole market earnings was rather on the conservative side with its earnings growing marginally by 3.8%YoY. Profits for 4QFY2011 were down by 8.4%QoQ.
Top three contributors to the sector earnings JKH (+55.6%YoY), SHL (+6,327.6%YoY), SPEN (+41.4%YoY) recorded substantial growth in their bottom-line. Yet disappointing performance by BRWN (-88.9%YoY), LCEY (-28.9%YoY) and GREG (-109.5%YoY) pull down sector earnings.
VONE was not included in the analysis as it is listed in Diri Savi Board and did not release financials for this quarter.
2.5 Other Manufacturing entities
On account of earnings growth recorded by LLUB (+76.7%YoY), REXP (+8.6%YoY) other manufacturing entities sub sector grew 19.6%YoY in terms of bottom-line. LIOC (45%) and LLUB (41%) covered most of the sector earnings.
2.6 Traders
CWM which represents almost 100% of sub sector earnings, recorded a 12,681.8%YoY growth in its net profits attributable to the flawless top line growth an improved profit margins.
2.7 Support Services
JKL the leading contributor to sub sector earnings was seen recording a 27.5%YoY decline in its earnings (on account of drop in earnings from stock broking) which drove down the subsector earnings by 19.7%YoY. CPRT (+721.2%YoY), LPRT (+612.6%YoY) were on the top gainers side regardless of minimal contribution to sector earnings.
3.0 CONSUMER GOODS
Main sector closed accounts for 4QFY2011 with crash and burns recording a 9.4%YoY decline in net profit. Compared to previous quarter (3QFY2011) earnings dwindled marginally 2.4%QoQ.
Nevertheless for the cumulative period bottom-line leaped sharply by 27.1%YoY. Negative pressure on the earnings were due to the harsh drop in profits of food and beverage sub sector more specifically alcoholic producers and tea & rubber plantations. Yet promising earnings growth recorded by personal & household goods (+293%YoY) reinforced sector earnings.
3.1 Automobile and Parts
Moderate growth (+9.2%YoY) was seen in sector profits. However comparative to the previous quarter earnings dropped six per cent QOQ. DIMO and UML two of the prime automobile sellers in the country covered almost 54.0% of the sector earnings. A commanding earnings growth was seen in COLO (156.6%YoY), UML (82.3%YoY) regardless of the decline in profits in DIMO (22.6%YoY).
Automobile sector had a major hit recently due to negative dynamics such as sharp depreciation of rupee relative to US dollar, increased interest rates and massive hike in fuel prices. Central Bank’s policy initiatives were expected to curtail the import expenditure which saw a double digit growth in CY2011. Automobile import expenditure encompassed a portion of this growth as the sector witnessed an exponential growth due to the lowered import taxes and duties.
3.2 Food and Beverage
Profits were down for this quarter by 18.7%YoY even though cumulative earnings rose by 20.4%YoY. Disappointing performance for the quarter was due to less than expected performance by alcoholic producers (-14.9%YoY), food producers (-48.5%YoY) including plantations.
Plantations were down due to factors such as heavy cost burden streaming from worker wage hike, volatile demand for end products and adverse weather patterns in the country. Except for KVAL (+13.1%YoY), SUN (+34.3%YoY) and CTEA (+58.4%YoY) all plantations (Tea & Rubber) companies failed to depict positive growth in quarter earnings.
Prices and demand for tea prices have been highly volatile due to the internal struggles in main tea buying countries such as Iran, Libya, Syria, and Iraq. These countries show no sign of recovering from the Middle Eastern political crisis which could further put pressure on Sri Lankan tea demand.
Poultry companies such as BFL (-8.5%YoY), GRAN (-63.7%YoY), TAFL (-70.3%YoY) failed to generate adequate earnings in this quarter which traditionally record high profits in the final quarter of the year due to the seasonality in the demand patters.
3.3 Personal and Household Goods
Sector was on the positive side with a considerable 104.1%YoY earnings growth on account of KURU (+112.2%YoY), MGT (+75%YoY) being able to recover losses.
KURU returned to profits helped by lower cotton prices and lower operational costs due to companywide restructuring including the voluntarily retirement scheme. High growth in sales volume shouldered by the continuous focus on quality and time delivery is expected to improve the profitability of the company.
MGT was able to cut down its losses. These losses originated from write down of a part of inventory to its net realizable value and a correction to receivables which was overstated. Timely intervention and quick response by the management to these discrepancies have enabled the management to arrest these negatives and necessary measures have now been taken to ensure the sustainability and growth of the company and its operations. Company is optimistic with regard to its performance in the future given its retention of the customer base.
Meanwhile SINS (53%) and TJL (24%) reflected their supremacy to the sector earnings. (Analysis based on Lanka Securities Research)
