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Tel: +94 11 2131050 Fa x: +9411 2314180

Date 14.06.2013

Equities to Pick as Interest Rates Dip

Interest rates drop As we expected in our previous review the market interest rates have come down in most commercial banks by 100 200 basis points in May 2013. We expect the private sector credit growth to be lower at 15% in 2013 compared to 18% in 2012. The anticipated reduction in the losses made by state owned enterprises (SOEs) and the attempt to reduce budget deficit may contain the demand for credit from government entities. However, due to the high debt service obligations in 2013 we expect robust government borrowing. Accordingly, we do not foresee further significant reductions in interest rates in the short term. Since the government debt service obligations are comparatively less in 2014 further reductions in interest rates could be expected by early 2014 (or late 2013). Global bond and equities runs may slow down The interest rates in USA were maintained at historical lows since 2011 to revive the economy. Therefore, the interest rates were exceptionally low in most parts of the world. Interest rates have gained since May 2013 with the assumption that USA would scale down quantitative easing programs in view of the improving economic conditions (continuing the program eternally was not sustainable). The global equities which were on a run from 2012 slowed down significantly in May simultaneously. We do not expect an increase in global interest rates would have a significant upward pressure on local interest rates since the domestic market interest rates are around 5%-10% higher than global interest rates (and also because the capital account is not fully liberalised). Accordingly, only a steep rise in global interest rates would have an upward pressure on the domestic interest rates. Equities to rebound after correction In our previous reviews we expected the equities to appreciate from 2012H2. Since mid 2012 equities on average has gained in excess of 25% so far. However the gain in stock prices is slightly ahead of our expectation in 2013H1. Therefore, the current correction in share prices was anticipated. Once the economy and the corporates benefit from lower interest rates in 2013H2 we expect the equities to rebound strongly. We anticipate corporate profits on average to increase by 20% in 2014. We maintain our ASPI target of 9,000 by end 2014 (currently the ASPI is at 6,300) while we expect the equities to be relatively stagnant in the short term.

Sri Lanka Equities

Interest rates drop Market interest rates ascended throughout 2012 before stabilizing in early 2013. Interest rates started to increase from late 2011 as the over-valued LKR prompted credit driven imports during 2011. The ensuing shortage of liquidity was temporarily bridged as the Central Bank of Sri Lanka (CBSL) purchased Treasury Bills. The interest rate hike further intensified as the CBSL stopped purchasing Treasury Bills (from April 2012 onwards) and increased the policy rates by over 75 basis points (from February to April 2012).
Interest rates
%
21 18 15 150 12 9 6 Jan-08 100 50 0 Jan-11

CBSL holding in treasury bills

LKR Bn 300 250 200

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jul-11

Jan-12

Jul-12

Jan-13

AWLR Repo Rate

Treasury Bill Rate (1 Year) Reverse Repo Rate

Source: Central Bank of Sri Lanka

Market interest rates down by 100-200 basis points

Since then the CBSL has reduced policy rates twice, once in December 2012 by 25 basis points and by 50 basis points in May 2013. This has triggered a downward momentum in interest rates as we expected in our previous review (in December 2012). The market interest rates have come down in most commercial banks by around 100 200 basis points during May 2013. Credit growth slows The increase in interest rates curbed economic growth in 2012. In addition economic activity slowed down as imports were subdued with the steep depreciation of the LKR and import taxes introduced by the government. Further, the weak global economy and poor weather conditions that was witnessed in Sri Lanka also affected the economy.

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

Credit growth
LKR Bn 160 Credit growth declined to 22% in 2012 120 80 40 0 Jan-11 -40 Net Credit to Government and Corporations Credit to the Private Sector Cumulative
Source: Central Bank of Sri Lanka

Jul-11

Jan-12

Jul-12

Jan-13

With the rise in interest rates and the ensuing slowdown in economic activity, credit growth reduced considerably in 2012 to record an increase of 22% (marginally higher than our previous estimate of 20%) compared to 34% witnessed in 2011. The government sector credit growth slowed down to 25% in 2012 compared to 33% in the in the previous year. The private sector credit growth slumped to 18% compared to 35% recorded in 2011. Curbing the government sector credit has been more challenging while a spike in government sector credit is seen in the month of March 2013. Government borrowing driven by budget deficit The governments budget deficit as a percentage of GDP has been reducing since 2009 from 9.9% to 6.4% in 2012 (in our previous review we expected the budget deficit for 2012 to be 6.7% of GDP). However, the losses incurred by state owned enterprises (SOEs) as a percentage of GDP has expanded from 1.0% to 2.3% during the same period. In 2012 the government revenue grew by only 6% as the steep reduction in imports as well as slowdown in general economic activity affected tax revenue. The expenditure was also kept in check recording an increase of 7% mainly due to the stagnation of capital expenditure.

Losses incurred by SOEs increased to 2.3% of GDP in 2012

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

Fiscal performance
LKR Bn 1,800

Losses of SOEs
LKR Bn 180 150

%
2.50 2.00 1.50 1.00 0.50 0.00 2009 2010 2011 2012 % of GDP Losses of SOEs (Absolute)

1,200 120 600 90 60 0 Total revenue and grants Current Total expenditure expenditure & lending minus repayments 2012 Deficit 30 0

2011

2013E

Source: Central Bank of Sri Lanka, NDBS Research

Losses incurred by SOEs expected to reduce to 1.3% of GDP

We expect government revenue to improve slightly with improved economic activity in 2013. Expenditure is also likely to increase driven by recurrent expenses. Therefore, we expect the budget deficit to widen in absolute terms although we estimate it to reduce as a percentage of GDP to 6.1%. More importantly the revision in electricity tariffs, and the improved rainfall in 2013 (hence better utilization of hydro power plants instead of thermal power plants) could reduce losses in SOEs, Ceylon Electricity Board and Ceylon Petroleum Corporation. We expect losses incurred by SOEs to reduce to 1.3% of GDP in 2013. High debt service obligations of the government in 2013 The debt service obligations of the government (both domestic currency and foreign currency dominated long term debt) will be high in 2013. As a result there would be short term pressure for the government to raise further debt as seen in March 2013. Debt service obligations will be comparatively lower in 2014.
Government debt service obligation (excluding treasury bills)
LKR Bn 500 400 300 400 200 100 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Domestic currency debt service obligation Foreign currency debt service obligation Total
Source: Central Bank of Sri Lanka, NDBS Research

Long term debt service obligation of around LKR 710 Bn in 2013

LKR Bn 800 600

200 0

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

Private sector borrowing may remain low Historically the private sector credit growth and market interest rates have shown an inverse relationship. Low interest rate environments have triggered a high growth in credit while high credit growth environments have pushed interest rates up subsequently. On the other hand the growth in deposits has been less volatile recording an annual growth of 10 20% consistently. Private sector lending and borrowing
% 40 30 20 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -10 Loan growth Deposit growth AWLR 0 AWLR 25 20 15 10 5

Source: Central Bank of Sri Lanka

Credit growth to be subdued around 15% for 2013

In line with the relatively high interest rates that prevailed in 2013H1, we expect the credit growth in 2013 to be subdued around 15% similar to the increase recorded in 2012 (up to March 2013 the increase in credit is recorded at only 2%). Accordingly, the deposit growth may exceed the increase in credit in 2013 after four years (since 2009). Interest rates to be stable in the short term The slowdown in private sector credit growth backed by the reduction in policy rates by CBSL has already applied downward pressure on the market interest rates in 2013. While the losses incurred by SOEs are likely to be less and the government budget deficit is likely to be contained in 2013, the higher debt service obligations of the government in 2013 could create a robust demand for credit by the government. Therefore, we do not foresee a further significant decrease in interest rates in the short term. Since the government debt service obligations are less in 2014, we anticipate a further decline in market interest rates by late 2013 or early 2014. Global economy weak but stable Global economic health has been relatively weak although no major issues were witnessed over the last 12 months which is a positive sign (unrest in the Middle East region has died down while the fiscal cliff in USA has been

Late 2013 or early 2014 might see a further dip in interest rates

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

Modest growth expectations for global economies for 2013

avoided and the sovereign debt yields declined in troubled European economies). IMF projections for 2013 is similar to 2012 with modest growth expected overall. World GDP growth
% 8 6 4 2 0 2011 2012 2013E Advanced Economies World

Emerging Market and Developing Economies

Source: IMF

As a result of slow economic activity, interest rates have been maintained at historically low levels in USA. This has resulted in low interest rates globally and along with the quantitative easing programs launched, large amounts of liquidity have been created in global financial markets. The interest rates in USA have started to rise in May (with improving economic conditions as indicated by the credit rating outlook by S&P it is expected that the quantitative easing program will be curtailed), which could result in global interest rates edging up. We do not expect this to have a significant impact on the domestic market interest rates in Sri Lanka as the global interest rates are significantly lower (i.e., AWDR in Sri Lanka is 10.69% compared to 0.28% in USA) and the capital account is not fully liberalised. Further, the improving sentiment on USA economy has appreciated the USD against other global currencies over the last few weeks.
Movement in Crude Oil, Steel and Copper prices
Index 160 150 140 130 120 110 100 90 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Copper Jul-12 Jan-13 HRC Steel 1 Jan-10 2 3

US government bond yields

%
4

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Brent Crude

*Base Jan 2010 =100

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

Source: Bloomberg

On the other hand the weak global economic prospects have pulled global commodity prices lower so far in 2013. Trade deficit to narrow slightly in the short term The trade deficit reduced significantly in 2012H2 compared to 2011H2 as the import taxes, depreciation of the LKR and high interest rates brought the imports down. The exports also reduced with the weak global economy and poor weather conditions in Sri Lanka which affected agricultural exports. As we expected in our previous reviews the trade deficit narrowed to USD 9,409 Mn in 2012 compared to USD 9,710 Mn in 2011. Sri Lanka external trade
USD Mn 2,500 2,000 1,500 1,000 500 0 Jan-10

Jul-10

Jan-11

Jul-11 Imports

Jan-12

Jul-12

Jan-13

Exports

Trade deficit
Source: Central Bank of Sri Lanka

Trade deficit down by 20% in 2013Q1

While the trade deficit has narrowed to USD 2,219 Mn in 2013Q1 compared to USD 2,779 Mn in 2012Q1, we estimate that improved economic conditions and pick up in imports in 2013H2 may widen the trade deficit compared to 2012H2. Considering the lower global commodity prices (including crude oil) expected to prevail in 2013 and lower imports of thermal fuel in view of a higher rainfall (resulting in higher utilization of hydro power), we estimate the trade deficit for 2013 to be slightly lower than 2012. Balance of Payment (BOP) to improve A modest increase is expected in worker remittances and earnings from Services sector (transportation, leisure and BPO sectors in particular) in 2013. These increases in inflows could be largely set off by the increase in foreign currency denominated interest payments. However we expect a reduction in the current account mainly due to the improvement in the trade account.

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

Composition of balance of payment

USD Mn 5,000

-5,000

-10,000 Trade account Current account 2011 2012 Capital & Financial account BOP balance 2013E

Source: Central Bank of Sri Lanka

BOP expected to improve to USD 500 Mn in 2013

While we expect a marginal increase in Foreign Direct Investments (FDIs) and private sector borrowings, the government sector long term borrowings would be lower than last year in the absence of an issue of a sovereign bond. Commercial bank borrowings would remain high with Bank of Ceylon and National Savings Bank coming up with bond issues. Accordingly, we expect the Capital and Financial Account inflows will be maintained at levels seen in 2012. Therefore, we estimate the BOP to reflect the improvement in trade account and record a surplus of around USD 500 Mn in comparison to USD 151 Mn recorded in 2012. Stable Exchange Rate

CBSLs net purchasing of USD and Foreign Reserves

USD Mn 400 200 8 0 -200 -400 6 -600 -800 Jan-11 5 Jul-11 Jan-12 Jul-12 Jan-13 Central Bank net purchases of foreign exchange Gross official reserves USD Bn 7 USD Bn 9

Movement of exchange rate

LKR/USD 150 130 110 90 70 50 30 10 1978 1983 1988 1993 1998 2003 2008 2013

Sri Lanka Rupee per USD

Trend line

Source: Central Bank of Sri Lanka

Along with BOP deficit witnessed in 2011, CBSL was selling foreign reserves in the foreign currency market to prevent LKR from depreciating. The CBSL stance changed in 2012 as it allowed greater exchange rate flexibility which resulted in the LKR depreciating steeply at the beginning of

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

2012. As the pressure on BOP eased during 2012, exchange rate as well as foreign reserves stabilized as we expected in our previous reviews. We anticipate the exchange rate to be stable in 2013 around the current levels (i.e, LKR 127 per USD) with the improved BOP position. The appreciation of USD against global currencies may have a depreciating impact on the LKR in the short term. We estimate the annual average LKR depreciation of 3% witnessed over the last 11 years to continue from 2014 2016 in view of the recurring current account deficit. The situation may change from 2017 onwards if the development of ports and air ports and other foreign currency earning initiatives bear successful results. UNHRC Resolution on Sri Lanka may affect FDIs The continuous attention that Sri Lanka receives at the annual sessions of the United Nations Human Rights Council (UNHRC) could be a hindrance to attract FDIs. Although the council per se will not inflict economic actions against Sri Lanka, the publicity it generates in the western media could be a hurdle in attracting investors to Sri Lanka. Accordingly, we feel an improvement with respect to this issue and improved relationship with the west will exponentially increase the FDIs to the country. Inflation likely to be contained CBSL has reduced the holdings of Treasury Bills by well over LKR 100 Bn from 2012H2 up to now draining excess liquidity from the financial markets. The M2 money supply growth has been steadily decreasing since the latter part of 2012. The sudden spike in February and March 2013 is due to the increase in government borrowing. Since the government borrowing may remain robust in 2013 there could be some demand pull inflationary pressure in 2013. Money supply Vs CCPI YoY change
Money Supply 25 CCPI 12

LKR depreciation of 3% p.a would continue in medium term

8 15 4

5 Jan-10

0 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

M2 growth

CCPI YoY % change

Source: Central Bank of Sri Lanka

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

The improved local weather conditions, stability of exchange rate (which would stabilize prices of imported items) and likelihood of relatively low global commodity prices is expected to reduce supply push inflation.
Headline inflation to be under 10% for 2013

The point to point CCPI which was close to 10% throughout 2012H2 has reduced since March 2013. We expect headline inflation (CCPI on both point to point and average basis) to be under 9% in 2013. Sri Lanka economic growth to rebound Sri Lanka economy grew by 6.4% in 2012 almost in line with our previous projection of 6.5%. Services sector which contributes to almost 60% of the economy recorded a growth of only 4.6% in 2012 with import trade services getting negatively affected due to LKR depreciation. With the lower interest rates in 2013H2 and stable exchange rate and inflationary conditions, the economic activity is likely to pick up. Accordingly, we expect the economic growth in 2013 to increase to 6.8% (slightly lower than our previous expectation of 7%). It could pick up to 7% in 2014 to record a decade of over 6% growth (with the exception of 2009 when it was 3.5% as global economies went into a recession) for the first time in its history.
Components of GDP (% of GDP)
%
100 80 60

Economic growth expectation of Sri Lanka for 2013 around 6.8%

Sector growth
%
12 10 8 6 4 2 0 Agriculture 2010 Industry 2011 Services Overall 2012

40 20 0 2008 Investment 2009 2010 2011 Export 2012 Import Consumption

Source: Central Bank of Sri Lanka

While contribution of external trade (imports exports) to GDP seems to have remained stable over the last 5 years, the contribution of investments seems to be increasing (from 27% to 30%) at the expense of consumption (decrease to 83% from 86%). Likely continuation of this may result in short term profits of corporates, slightly underperforming the broad economic growth (as was seen in China where investment driven economic growth did not result in consistent increase in corporate profits).

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

10

Corporate profits to rebound

EPS growth Vs GDP growth
%
100 80 60 40 20 0 -20 2007 2008 Earnings growth 2009 2010 2011 GDP growth 0 -20 Sri Lanka 2011 Pakistan 2012 Thailand Vietnam 2013E 3 6 20 0 9

Profit growth
%
60 40

Source: NDBS Research, Bloomberg

The universe of 83 stocks covered by us recorded a profit growth of 12% in 2012. This is a reduction compared to 124% and 17% recorded in 2010 and 2011 respectively. However a decline in profit growth was expected (our expectation in the previous review was for the profits to be stagnant in 2012) in view of the slowdown in economic activity.
Average profit growth of 20% expected for 2014

Statistically the corporate profits seem to have a positive correlation with the GDP growth of the following year (the study based on the earnings of the S&P SL 20 stocks). However, as mentioned earlier this relationship may get slightly diluted in the short term and profits may underperform the broad economic growth in 2013. Therefore we expect a modest increase in profits of 10 15% for 2013. With the pickup in economic activity and lower interest rates we expect a robust growth in profits of 20% in 2014. Competitive Valuations

Historical trailing price to earnings ratio

X 25 20 15 10 10 5 0 1996 2000 2004 2008 2012 5 15

Forward price to earnings ratio of regional markets

X 20

Sri Lanka

Pakistan

Thailand

Vietnam

MSCI Emerging Markets

MSCI World

2012

2013E

Source Bloomberg, NDBS Research, CSE

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

11

Sri Lankan equities trading at a forward P/E of 12x

According to our estimates, the broad market is currently trading at a forward P/E of 12x based on 2013 expected earnings. We feel it is attractively priced compared to the regional equity markets considering the optimism and growth expectations in Sri Lanka over the next 2 3 years. Global equities outperform Sri Lanka in 2012

Performance of regional markets

Index 12,000

Performance of developed markets

Index 12,000

9,000

9,000

6,000

6,000

3,000 Jan-12

Jul-12 Sri Lanka Thailand

Jan-13 Pakistan Vietnam

3,000 Jan-12

Jul-12 Sri Lanka Japan

Jan-13 United States United Kingdom

Source Bloomberg

Sri Lanka has significantly underperformed both regional and developed markets since early 2012. While excess liquidity prevailing in global financial markets (due to depressed interest rates and quantitative easing programs as mentioned earlier) and gradual recovery of the world economy (although still relatively weak) have boosted global equities. Foreign investors have been actively investing in Sri Lankan equities as well since early 2012. However, since the market correction experienced in 2011 and high interest rates that prevailed in 2012, local investors have been exiting the equity market, which resulted in the weak performance of Sri Lankan equities since early 2012. Therefore, we feel there is significant upside potential for Sri Lanka equities.

Upside potential for Sri Lanka equities

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

12

Change in investor profile

Turnover Vs Daily transactions
LKR Bn 16 '000

Net foreign inflow (% of total turnover)

%
100

Speculation

50

High net inflows

12

50

Value investing
25 0

-50

0 Jan-10

0 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

-100 Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Turnover

Transactions Source CSE, NDBS Research

The participants in the Sri Lanka equity market have shifted significantly over the last 2 years. In 2011 the market activity was driven by local retail investors as witnessed by the high number of transactions (per day). However, it has reversed since early 2012 as the foreign investors have significantly increased their investments in Sri Lanka. The entry of longer term investors suggests there is optimism regarding the equity market prospect in the medium term. Investable funds accumulating Capital raised through Colombo Stock Exchange
LKR Bn 40 30 20 10 0 2009 Rights 2010 2011 IPO
Source CSE

2012

Funds to return to equity market from debt market

The primary and secondary issues in the equity market have diminished significantly since 2012. This is in contrast to the number of IPOs and Rights issues witnessed in 2010 and 2011 (which shifted investable funds from the secondary market to the primary market). We believe this has created excess

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

13

liquidity in the debt markets which could return to the equity market with the decline in interest rates. Sri Lanka equities on the rise In our previous reviews we expected the Bull Run to commence from the latter part of 2012. The ASPI has gained 28% since our review in May 2012. However, the rise in stock prices of 13% in 2013 (by end of May) is slightly ahead of our expectations. Accordingly we expect a lower rate of appreciation of stock prices in 2013H2 compared to 2013H1. ASPI target
9,000 7,000 Over sold 5,000 3,000 1,000 Jan-09 Over bought

Equities may slow down in the short term

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

ASPI Index

Trend line forecast

Source CSE

We remain optimistic regarding the prospects in the equity market in 2014 on the premise the interest rates would ease resulting in improved corporate profitability and attraction of investors to equities (from fixed income investments). Therefore, we maintain the Bull Run would continue in 2014 to reach our ASPI target of 9,000.

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

14

QUARTERLY FINANCIALS 10-Jun-13 Bank and Finance mths QTR CFIN COMB COMB-x DFCC CFVF HNB HNB-x LFIN LOLC LVEN NDB NTB* PMB SEMB SEMB-x PABC SAMP* SEYB SEYB-x VFIN HASU UAL CTCE CINS CINS-x PLC SDB 12 3 3 12 12 3 3 12 12 12 3 3 12 3 3 3 3 3 3 12 3 3 3 3 3 12 3 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mkt. Price 7-Jun-13 192.00 121.70 98.00 141.00 17.70 169.00 124.50 132.00 59.00 37.50 171.00 66.50 14.50 0.90 0.40 20.00 217.10 66.10 37.60 33.80 53.50 107.00 301.50 1039.00 370.00 14.90 73.60 Shares (Mn) 104.88 780.94 53.47 265.10 101.25 317.85 79.70 69.26 475.20 50.00 164.20 230.61 67.50 1,191.77 614.07 295.04 162.84 175.98 168.98 41.55 50.00 85.71 30.00 20.00 6.41 1,560.00 25.18 2013 NP (mn) 3,041.11 2,256.05 2,256.05 3,523.20 490.11 1,262.19 1,262.19 1,702.67 1,862.55 181.98 506.89 501.93 (89.27) 17.77 17.77 151.45 1,055.90 509.51 509.51 292.53 50.09 111.37 32.04 326.66 326.66 3,045.00 138.82 2012 Growth Net Assets (mn) 16,109.16 52,962.06 52,962.06 28,138.79 1,896.02 51,054.77 51,054.77 5,328.60 19,962.21 1,036.57 22,926.44 10,112.92 837.05 947.03 947.03 4,089.00 27,959.15 19,774.76 19,774.76 937.33 1,789.33 3,985.48 4,107.76 14,201.60 14,201.60 19,236.00 3,760.72 ROE 21% 18% 18% 13% 32% 10% 10% 37% 10% 19% 8% 19% -10% 8% 8% 15% 18% 11% 11% 41% 11% 11% 3% 9% 9% 16% 16% EPS 29.00 11.61 11.61 13.29 4.84 12.70 12.70 24.58 3.92 3.64 12.35 8.42 (1.32) 0.04 0.04 2.05 29.69 5.91 5.91 7.04 4.01 5.20 4.27 49.47 49.47 1.95 22.06 13.20 10.30 Annualised PER 6.62 10.48 8.44 10.61 3.66 13.31 9.80 5.37 15.05 10.30 13.85 7.90 (10.96) 22.86 10.16 9.74 7.31 11.19 6.36 4.80 13.35 20.59 70.58 21.00 7.48 7.63 3.34 22.88 14.51 69.81 8.19 30.73 27.51 21.45 10.60 22.24 29.39 17.51 13.93 28.31 12.58 10.01 29.14 21.13 6.38 10.15 12.64 8.74 16.59 18.91 12.70 11.19 18.73 7.54 16.78 12.90 (5.91) (5.91) 6.60 3.19 13.08 9.62 153.59 63.47 63.47 106.14 18.73 128.43 128.43 76.94 42.01 20.73 139.62 43.85 12.40 0.52 0.52 13.86 171.70 57.32 57.32 22.56 35.79 46.50 136.93 537.64 537.64 12.33 149.38 1.25 1.92 1.54 1.33 0.95 1.32 0.97 1.72 1.40 1.81 1.22 1.52 1.17 1.72 0.76 1.44 1.26 1.15 0.66 1.50 1.49 2.30 2.20 1.93 0.69 1.21 0.49 2.50 4.50 4.50 5.00 2.00 8.50 8.50 5.00 0.50 1.50 15.00 2.10 1.00 6.00 1.00 1.00 1.00 2.75 5.00 2.50 12.50 12.50 1.00 5.00 1.3% 3.7% 4.6% 3.5% 11.3% 5.0% 6.8% 3.8% 0.8% 4.0% 8.8% 3.2% 0.0% 0.0% 0.0% 5.0% 2.8% 1.5% 2.7% 3.0% 5.1% 4.7% 0.8% 1.2% 3.4% 6.7% 6.8% BV PBV DPS DY

NP (mn) 2,676.62 14% 2,810.99 -20% 2,810.99 -20% 2,900.21 21% (259.97) 289% 1,277.97 -1% 1,277.97 -1% 1,713.99 -1% 2,932.92 -36% 204.33 -11% 1,062.99 -52% 435.69 15% 0.51 -17742% 13.76 29% 13.76 29% 198.66 -24% 1,539.58 -31% 404.11 26% 404.11 26% 238.98 22% 30.04 67% 85.19 31% 63.35 -49% 211.10 55% 211.10 55% 4,503.00 -32% 41.35 236%

Beverage Food and Tobacco BFL 12 Mar CARG 12 Mar CCS 12 Mar CTC 3 Mar COCO 12 Mar COCO - x 12 Mar DIST 12 Mar KFP 12 Mar NEST 3 Mar TSML 12 Mar LAMB 12 Mar LION 12 Mar LMF 12 Mar Chemical and Pharmaceuticals CIC 12 Mar CIC-x 12 Mar HAYC 12 Mar Construction and Engineering DOCK 3 Mar AEL 12 Mar Diversified CARS HAYL HHL JKH RICH SPEN EXPO

144.00 180.00 165.00 960.00 21.80 17.00 195.00 79.90 2000.00 50.00 52.00 391.10 125.00

16.00 224.00 95.04 187.32 89.77 4.77 300.00 25.50 53.73 30.00 31.40 80.00 40.00

158.79 577.54 1,915.72 1,463.00 74.92 74.92 5,519.72 91.63 914.02 85.69 117.19 1,045.91 397.47

432.57 1,079.09 2,235.45 1,489.00 142.14 142.14 5,675.37 129.64 461.82 (1.22) 83.42 1,220.26 187.23

-63% -46% -14% -2% -47% -47% -3% -29% 98% 7153% 40% -14% 112%

1,697.74 7,760.30 9,175.49 3,660.00 2,239.85 2,239.85 49,381.19 1,597.62 3,071.28 805.95 747.26 5,910.23 8,733.12

10% 8% 23% 162% 4% 4% 13% 9% 107% 12% 17% 19% 7%

9.92 2.58 20.16 31.24 0.79 0.79 18.40 3.59 68.05 2.86 3.73 13.07 9.94

106.11 34.64 96.54 19.54 23.69 23.69 164.60 62.65 57.17 26.86 23.80 73.88 218.34

1.36 5.20 1.71 49.13 0.92 0.72 1.18 1.28 34.99 1.86 2.19 5.01 0.57

4.00 2.00 4.00 45.15 1.00 1.00 3.00 2.00 54.00 1.00 4.00 1.00

2.8% 1.1% 2.4% 4.7% 4.6% 5.9% 1.5% 2.5% 2.7% 2.0% 0.0% 1.1%

0.8%

71.00 51.50 201.00

72.90 21.87 29.71

230.93 230.93 935.99

863.08 863.08 471.19

-73% -73% 99%

7,759.85 7,759.85 4,417.40

3% 3% 24%

2.44 2.44 31.50

81.88 81.88 148.67

0.87 0.63 1.35

1.00 1.00 7.00

1.4% 1.9% 3.5%

236.40 20.70

71.86 1,000.00

336.04 2,367.49

744.91 1,724.54

-55% 37%

10,171.54 12,472.36

13% 20%

18.71 2.37

141.55 12.47

1.67 1.66

8.00 0.25

3.4% 1.2%

12 12 12 12 12 12 12

Mar Mar Mar Mar Mar Mar Mar

440.00 314.00 36.00 266.60 7.40 135.00 7.00

196.39 75.00 515.29 857.24 1,939.24 406.00 1,954.92

4,569.76 1,855.02 1,657.66 12,201.08 1,902.72 3,266.84 1,060.66

7,017.00 1,042.18 1,164.53 9,686.91 2,575.06 3,487.67 1,033.33

-35% 78% 42% 26% -26% -6% 3%

34,692.19 22,458.86 12,153.34 89,819.17 7,949.44 28,053.26 9,081.43

14% 9% 15% 15% 27% 12% 12%

23.27 24.73 3.22 14.23 0.98 8.05 0.54

176.65 299.45 23.59 104.78 4.10 69.10 4.65

2.49 1.05 1.53 2.54 1.81 1.95 1.51

2.00 4.50 0.45 3.50 0.70 1.50 0.12

0.5% 1.4% 1.3% 1.3% 9.5% 1.1% 1.7%

Footwear and Textiles MGT 12 Mar Healthcare AMSL LHCL NHL

10.20

152.34

(262.94)

(352.13)

25%

1,548.69

-20%

(1.73)

10.17

1.00

0.0%

12 3 12

Mar Mar Mar

10.50 41.00 3.10

528.46 223.73 1,409.51

1,738.39 175.32 454.26

506.92 77.96 270.69

243% 125% 68%

3,438.36 3,804.50 3,781.34

59% 19% 13%

3.29 3.13 0.32

6.51 17.00 2.68

1.61 2.41 1.16

1.00 0.50 0.05

9.5% 1.2% 1.6%

NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013

15

Hotels and Travels mths QTR AHPL AHUN HSIG KHL SHOT SHOT-x 12 12 12 12 12 12 Mar Mar Mar Mar Mar Mar

Mkt. Price 7-Jun-13 74.00 78.40 85.00 13.40 17.70 17.70

Shares (Mn) 442.78 336.29 5.86 1,456.15 75.51 36.01

2013 NP (mn) 2,494.30 1,782.06 67.57 1,120.99 274.09 274.09

2012 NP (mn) 2,148.88 1,377.98 46.87 1,105.27 30.09 30.09

Growth % 16% 29% 44% 1% 811% 811%

Net Assets (mn) 21,697.47 12,925.71 237.64 16,294.19 1,809.23 1,809.23

ROE 14% 15% 30% 7% 16% 16%

EPS 5.63 5.30 11.53 0.77 2.46 2.46

14.24 Annualised PER 13.14 14.79 7.37 17.41 7.20 7.20 8.36 8.64 6.28 4.34 14.15 (777.01) 8.64 8.00 8.05 11.56 5.36 (4.40) 8.92 15.70 9.00 7.16 7.06 8.58 6.53 10.02 7.85 8.00 5.25 10.93 3.94 14.27 14.27 4.00 16.53 5.28 4.50 4.78 1.41 1.60 4.49 3.08 3.19 4.65 8.58 15.76 14.65 4.98 11.51 11.11 11.91 17.31 37.65 15.91 17.63

BV 49.00 38.44 40.56 11.19 16.22 16.22

PBV 1.51 2.04 2.10 1.20 1.09 1.09

DPS 4.00 1.00 5.00 0.30 -

DY 5.4% 1.3% 5.9% 2.2% 0.0% 0.0%

Investment Trust GUAR 12 RHL 12 RHL - x 12

Mar Mar Mar

197.00 37.60 26.00

87.84 44.52 6.43

2,002.41 305.02 305.02

2,247.80 269.87 269.87

-11% 13% 13%

14,707.15 2,301.18 2,301.18

14% 14% 14%

22.80 5.99 5.99

167.44 45.17 45.17

1.18 0.83 0.58

2.00 0.70 0.70

1.0% 1.9% 2.7%

Land and Property CLND 3 Mar OSEA 3 Mar Manufacturing ACL 12 CERA 12 DIPD 12 GRAN 3 GLAS 12 LLUB* 3 KCAB 12 LWL 12 RCL 12 TYRE 12 TILE 12 TKYO 12 TKYO-x 12 TJL 12 Motors DIMO UML Oil Palms BUKI Plantations BALA KGAL KVAL NAMU MASK TPL WATA BOPL ELPL

51.50 19.50

199.88 843.48

(3.31) 475.67

(1.82) 461.25

-82% 3%

3,712.12 22,437.15

0% 9%

(0.07) 2.26

18.57 26.60

2.77 0.73

0.30

0.0% 1.5%

Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar

71.50 116.10 127.00 48.00 6.80 315.00 84.00 68.20 106.50 47.20 77.80 27.30 21.40 12.40

59.89 30.00 59.86 60.00 950.09 120.00 21.80 54.60 110.79 80.40 53.05 202.50 101.25 655.00

532.03 301.38 1,417.89 26.82 724.38 769.86 203.53 520.01 1,670.39 442.28 632.42 827.85 827.85 1,016.60

485.12 522.71 1,905.98 32.88 685.31 661.10 275.71 751.73 1,243.28 299.20 588.36 978.89 978.89 628.03

10% -42% -26% -18% 6% 16% -26% -31% 34% 48% 7% -15% -15% 62%

5,717.99 2,757.36 6,844.72 2,684.15 3,629.06 4,535.68 2,167.72 4,617.63 8,401.47 1,754.59 3,165.50 6,722.11 6,722.11 5,731.96

10% 12% 23% -24% 21% 56% 10% 12% 22% 28% 21% 13% 13% 18%

8.88 10.05 23.69 (10.90) 0.76 20.07 9.34 9.52 15.08 5.50 11.92 2.73 2.73 1.55

95.47 91.91 114.34 44.74 3.82 37.80 99.44 84.57 75.83 21.82 59.67 22.13 22.13 8.75

0.75 1.26 1.11 1.07 1.78 8.33 0.84 0.81 1.40 2.16 1.30 1.23 0.97 1.42

1.00 1.10 7.00 0.14 0.38 11.00 2.50 1.00 2.00 1.45 1.50 1.30 1.30 0.66

1.4% 0.9% 5.5% 0.3% 5.6% 3.5% 3.0% 1.5% 1.9% 3.1% 1.9% 4.8% 6.1% 5.3%

12 12

Mar Mar

569.00 118.00

8.88 67.27

462.15 2,012.91

2,701.65 2,281.33

-83% -12%

7,631.17 7,370.63

6% 31%

52.06 29.92

859.71 109.57

0.66 1.08

10.00 10.00

1.8% 8.5%

12

Mar

705.20

102.00

5,042.37

7,299.35

-31%

31,845.39

17%

49.43

312.21

2.26

3.00

0.4%

3 12 3 12 12 3 12 12 12

Mar Mar Mar Mar Mar Mar Mar Mar Mar

31.90 114.50 80.00 82.30 14.00 24.10 12.90 12.60 19.00

23.64 25.00 34.00 23.75 26.98 23.75 236.67 83.75 72.87

11.40 542.62 150.98 409.16 268.55 89.54 680.24 342.36 434.03

(33.25) 769.23 116.00 352.62 (258.75) 12.11 455.04 (296.30) 184.89

134% -29% 30% 16% 204% 639% 49% 216% 135%

2,637.79 3,349.33 2,515.46 1,995.83 1,570.55 1,440.81 3,843.45 1,041.68 2,520.37

2% 18% 24% 23% 21% 26% 19% 39% 19%

1.93 21.70 17.76 17.23 9.95 15.08 2.87 4.09 5.96

111.60 133.97 73.98 84.03 58.21 60.67 16.24 12.44 34.59

0.29 0.85 1.08 0.98 0.24 0.40 0.79 1.01 0.55

1.00 7.50 6.00 4.50 2.50 0.75 -

3.1% 6.6% 7.5% 5.5% 0.0% 10.4% 5.8% 0.0% 0.0%

Power and Energy HPWR 12 VPEL 12 VLL 12 LIOC 12

Mar Mar Mar Mar

20.20 6.10 3.60 27.20

125.20 747.11 477.27 532.47

294.66 289.14 117.27 2,911.16

270.33 248.70 12.70 905.94

9% 16% 824% 221%

2,960.40 1,822.75 1,102.65 13,028.32

10% 16% 12% 25%

2.35 0.39 0.25 5.47

23.65 2.44 2.31 24.47

0.85 2.50 1.56 1.11

2.00 0.25 0.20 -

9.9% 4.1% 5.6% 0.0%

Telecommunications DIAL* 3 Mar SLTL 3 Mar Trading BRWN CWM SINS

9.00 42.30

8,143.78 1,804.86

1,594.52 1,602.00

(530.91) 491.00

400% 226%

38,776.07 56,136.00

17% 12%

0.81 3.55

4.76 31.10

1.89 1.36

0.33 0.85

3.7% 2.0%

12 12 3

Mar Mar Mar

127.50 71.60 98.50

70.88 35.99 125.21

240.04 161.98 174.85

1,164.22 383.50 362.44

-79% -58% -52%

14,696.29 1,661.85 4,681.23

2% 10% 14%

3.39 4.50 5.59

207.36 46.18 37.39

0.61 1.55 2.63

1.32 2.00 6.00

1.0% 2.8% 6.1%

* Forecast EPS ** EPS adjusted for cyclicality Annualised results are considered in all other cases

This document is based on information obtained from sources believed to be reliable, but we do not make any representations as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken as substitution for the exercise of judgment by addressee. N D B Stockbrokers (Pvt) Ltd and its associates, their directors, and/or employees may have positions in, and may affect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. NDB Stockbrokers (Pvt) Ltd Sri Lanka Equities 14th June 2013 16