Académique Documents
Professionnel Documents
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JULY 2012
150, St. Josephs Street, Colombo 14, Sri Lanka. Tel: +94 112490900, Email: jbs@jb.lk, www.jbs.lk
Contents
Page 2
Page 3
Indices
Current All Share Price Index Milanka Price Index S&P Sri Lanka 20 Index 4,986.7 4,439.3 2,797.4 Change MTD 1.0% -0.1% 0.8% Change YTD -27.7% -31.0% -22.4% Oil Palms 6% Telecoms 6% Hotels & Travels 7% LKR 1,397.4Mn 17.9% 40.9%
Liquidity
Average daily Turnover** Annualised share volume velocity*** Free Float****
* P/E data is as per Bloomberg L.P. ** and *** Figures are based on data from June 2011 to June 2012. Year-to-date figures are as follows: Average Daily Turnover 796.12Mn, Velocity 4.9% ****Free Float reflects the public shareholding of the companies that comprise the top 50% of CSE market capitalisation
JB Securities Research July 2012
*As at 05/07/2012
Page 4
May 2009 Jul 2009 Sep 2009 Nov 2009 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012
Page 5
INTERNATIONAL
President Rajapakse opens the 1st phase of Hambanthota port, funded by China.
2009
Latter stages of the war
2010
2011
End Value = 141
160
140
120
DOMESTIC
100
Start Value = 96
Low point = 87
80
The UPFA capitalizes on the war victory and gets fresh mandates with prescheduled elections, gets parliament supermajority. Incumbent M. Rajapakse wins the presidential election with a clear majority against challenger Gen Sarath Fonseka, who led the SL Forces to victory in the recently concluded war. (6m votes to 4m). The Defeated candidate of the election Gen Sarath Fonseka arrested for allegedly violating rules preventing the discussion of political matters while being a member of the military.
With the 2/3rd Majority in the parliament government sweeps through major legislative reforms AG Mohan Pieris withdraws murder charges against former government MP. Former CJ questions legality. The President appoints an 8 member Lessons Learnt and Reconciliation commission, headed by former Attorney General C. R. De Silva The parliament passes 18th amendment to the constitution. Removes presidential term limits and increases presidential power over the Judiciary, police and civil service. Clashes over proposed new private sector pension bill intensifies. 1 worker killed and 60 seriously injured. Government temporarily suspends the bill.
War Ends with the killing of LTTE leader V. Prabhakaran. 60,000-100,000 total civilian casualties estimated in the 30 year old conflict.
The ruling United Peoples Freedom Alliance wins the parliamentary election with a large majority of seats (64%). The election saw the lowest ever voter turnout (62.26%).
Sources: Newspaper articles, Central Bank of Sri Lanka, LMD, The Nielson Company, JBS Research
Page 6
The Government distances itself more from Western powers and inclines towards China and India
Government (72%)
Opposition (28%)
Page 7
14.0%
12.0%
20%
10.0%
5%
0.0%
-2.0%
0%
Oct-07 Jan-07 Jul-07 Apr-07
Conflict
Oct-08 Oct-09 Jan-08 Jan-09 Jul-08 Jul-09 Apr-08 Apr-09
Post-conflict
Oct-10 Jan-10 Apr-10 Jan-11 Jul-10 Apr-11
-4.0%
Jan-07 Jul-07 Apr-07
Conflict
Oct-07 Oct-08 Jan-08 Jan-09 Jul-08 Jul-09 Apr-08 Apr-09
Post-conflict
Oct-09 Oct-10 Jan-10 Apr-10 Jan-11 Jul-10 Apr-11
* CCPI 2002 Core Inflation 12 month MA, 1 year treasury bill yield
JB Securities Research July 2012
Page 8
Growth in expenditure
190%
Private consumption
CAGR
35.3% Government consumption Investment Exports of goods and services Total consumption (Private + Govt') Imports of goods and services
180%
17.6%
15.6%
14.8%
170% 160%
28.6%
24.5%
27.8%
29.9%
150% 140%
18.3% 21.3% 21.3%
64.3%
130%
65.8%
69.8%
120%
6.6%
110%
-6.5%
2009
-9.1%
2010
-14.6%
2011
100% 2009
2010
2011
Source: CBSL annual report 2011, JBS Research Analysis
Page 9
Provincial growth
CAGR % 2008/10 Northern
120%
Northern
North Central Uva
115%
Eastern
Sabara-gamuwa North Western
105% 110%
Central Southern
45.4% 45.8% 45.1%
Western
95%
90%
2009 LKR4.8Bn
2010 LKR5.6Bn
2008
2009
2010
Conflict affected areas Page 10
Earnings grew
Tourist Receipts (USD millions)
50.0%
64.9%
839
70%
Other Pleasure
Business Growth
800
60%
46.1%
855,975
119,535
40.0%
700
50%
40%
600
800,000
30% 500
20%
400
700,000
68,097
349
10%
654,476 54,668
600,000
300
30.0%
200
9.3%
0%
-10%
30.8% 83,270
100
-20%
-30%
500,000
494,008
110,654
20.0%
2006
2007
2008
2009
2010
2011
438,475
80,135
400,000
52,116
300,000
37,261
9,000
8,000
0.0%
7,000
200,000
6,000
331,238
100,000
321,079 -11.2%
358,188
5,000
4,940 21.9%
-10.0%
4,000
-11.7%
-
3,000
2,000
-20.0%
2007
2008
2009
2010
2011
1,000
-14.7%
-15.7%
-2.2%
(0)
(0)
2006
* Tourist nights spent in both graded and ungraded establishments JB Securities Research July 2012
2007
2008
2009
2010
2011
Page 11
7.06%
8.47%
7.95%
8.57%
7.91%
8.16%
8.44%
8.32%
2.14%
Q2 2009 Q3 Q4 Q1 Q2 2010 Q3 Q4 Q1 Q2 2011
Source: Census and Statistics Sri Lanka, JBS Research Analysis
Q3
Q4
Page 12
Government Expenditure
3yr CAGR 12.0 %
Fiscal Deficit
LKR Bn
(310) (476) 726 834 950 996 1,202 1,280 1,400 (446) (450)
686
2008
2009
2010
2011
2008
2009
2010
2011
2008
2009
2010
2011
Revenue as a % of GDP
Expenditure as a % of GDP
Deficit as a % of GDP
-8.0%
-6.9%
2008
2009
2010
2011
Page 13
-1.4%
2007 2008
2009
2010
2011
6.3%
5.5% * Primary balance is government revenue minus all expenses excluding interest. Assuming nominal interest rates equal nominal GDP growth a primary surplus reduces debt to GDP.
2007
2008
2009
2010
2011
Source : JBS Research Analysis, Central Bank of Sri Lanka
Page 14
Sovereign ratings
Aug 09 S&P: Outlook lifted to B 'stable Fitch: Outlook lifted to B+ 'stable
Jun 10 Central Bank appoints top committee to boost sovereign rating
Review 1
Nov 09
USD 329.4 Mn
Feb 10
IMF holds back third tranche after Q409 budget goes off track USD 407.8 Mn
Jul 11 Moody's: B1 Outlook lifted to Positive Fitch: BB- Stable S&P: B+ Positive
Review 2+3
Jun 10
Dec 08
Review 4
Jun 10 May 09 S&P: Cut outlook to B Negative Sep 10 Moody's initiating coverage with B1 Stable S&P: Rating raised to B+ Stable Fitch: B+ Outlook lifted to Positive
Jul 11
Sep 10 Oct 10
USD 212.5 Mn
Minister Sarath Amunugama highlights the importance of the IMF program for Sri Lanka
Review 5
Feb 11
USD 216.6 Mn
Review 6
Apr 11
USD 218.3 Mn Sri Lanka may not take last IMF loan tranche: Fitch analyst
Jul 11
Conflict
Post-conflict
Positive
Source: Lanka Business Online, IMF
*
JB Securities Research July 2012
Negative
Page 15
3X
13 X
6X
7.5 X
Treasury bills
57 40
64
Oct 07
Oct09
Sep 10
Jul 11
Treasury bonds
184 145 6 50
2007
187
397 bp
499 bp
373 bp
332 bp
18
2008 2009 2010 Jun 11
Conflict
Number of times oversubscribed Spread over US treasury
Post-conflict
Conflict
Post-conflict
Page 16
Foreign sources funded the fiscal deficit easing pressure on domestic sources Budget deficit
Domestic non bank Domestic bank Foreign borrowing
8.8%
LKR Bn
41.2%
45.8% 42.6%
310 246 129 16 101 (5) 2007 2008 2009 195 231 119 49
204
192 10.3%
6.4% 63.0% 244 219 41.0% -1.5% 2011 2007 2008 2009 48.4% 54.7%
Domestic bank
48.6%
Foreign borrowing
(2) 2010
Page 17
Months of Imports
9.00
Gross official reserves Total reserves
Page 18
Crowding out effect decreased enabling private sector credit expansion Credit, Monthly Change
Private Corps. Govt. 150 100 50 0 -50 -100 -150
Jan-09
May-09
Jan-10
May-10
Jan-11
May-11
Sep-09
Sep-10
Jul-09
Jul-10
Mar-09
Mar-10
Mar-11
Nov-09
Nov-10
Jul-11
Jul-09
Jan-09
May-09
Jan-10
May-10
Jul-10
Jan-11
Credit to SOEs
Credit to SOEs
May-11
160 140 120 100 150% 100% 50% 0% -50%
Sep-09
Mar-09
Mar-10
Sep-10
Mar-11
Nov-09
Nov-10
250% 200%
80 60 40 20 -
Jul-09
Jan-09
May-09
Jan-10
May-10
Jul-10
Jan-11
May-09
May-10
May-11
Mar-09
Mar-10
Mar-11
May-11
Sep-09
Mar-09
Mar-10
Sep-10
Nov-09
Nov-10
Mar-11
Nov-09
Nov-10
Jul-09
Jan-09
Jan-10
Jul-10
Sep-09
Sep-10
Jan-11
Page 19
2,500
40% 35%
13%
12%
2,000
30% 25%
11%
5%
Page 20
13%
11%
9%
7%
5% Nov-09 Nov-10 Feb-09 Feb-10 Aug-09 May-09 May-10 Aug-10 Dec-09 Feb-11 Oct-09 Oct-10 Jan-09 Jan-11 Jul-09 Jul-10 May-11 Page 21 Apr-09 Apr-10 Apr-11
50
270%
40.7
46.7
45.7
43.3
Other Hotels & Travels Investment Trusts Oil Palms Telecommunications Manufacturing Food, Bev and Tobacco
40
30
25.7
29.0
30.0
20
11.7
10
6.3
14.5
Banking & Finance
Diversified
0
-10 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
*Earnings figures have not been adjusted for the effect of Cross Holdings
Page 22
Employee Provident Fund* increased their asset allocation into equities Equity asset allocation Overall equity exposure
LKR Bn
8.0%
79.0
4.0% 1.1%
Sep. 2008
1.0%
Sep. 2009 Sep. 2010 Dec. 2011
Sep. 2008
*The Employee Provident Fund (EPF) is the largest superannuation fund in the country. As at September 2011, the EPF accounted for close to 13.25% of financial sector assets of the country, with over 2.3 million active accounts. It is administered by the Commissioner of Labour, while the management of the fund is undertaken by the Monetary Board of the Central Bank of Sri Lanka
Source : CBSL Financial System Stability Reviews and Annual Reports
Page 23
377%
7,000
6,000 CBSL reaffirms its commitment to equity investment with a long term outlook
5,000
4,000
Share Volume increased rapidly during the boom Janus Fund enters the market
3,000
2,000
1,000 Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Page 24
Excess liquidity chased a limited number of shares Company wise contribution to market cap growth March 2009 June 2011
2.4% 2.5% Contribution to Growth Free Float* 3.1% 3.9% 6.5% 70.3% 7.1% 28.0% 7.3% 78.5% 31.0% BUKI JKH CARS COMB HNB 60.0% 53.9% 3.1% 15.6% 2.8% 3.0% 14.7% 15.8% 5.5% 18.5% 2.0% 84.5% 49.0%
1.8%
18.7%
2.0% 2.3%
50%
More than 50% of the Market Cap growth during the period can be attributed to growth in 14 companies, most of which have relatively small free floats*
.
SPEN LOLC DIAL CTC SLTL CARG DFCC SAMP AHPL
*Free float has been calculated as the average of period beginning and period end public holding percentage ** The ASI started from a low of 1639 to peak at 7811 within the period.
JB Securities Research July 2012
Page 25
Primary offerings
15,000
21.2 21.8
1.1 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4
1.7
2.9
4.4 1.4
09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4
Total amount of capital attracted by IPOs Quarterly degree of = oversubscription Total amount of capital offered in IPOs
Page 26
59%
135%
9% 5%
9%
09Q1
20%
09Q3
17%
09Q4
27%
31%
10Q1
10Q2
10Q3
10Q4
11Q1
11Q2
09Q1
09Q2
09Q3
09Q4
10Q1
10Q2
10Q3
10Q4
11Q1
11Q2
*Figures have been annualized Penny stocks stocks whose prices were less than LKR 10 at either the beginning or end of a given quarter.
Source: JBS Research Analysis, CSE Data
Penny Stocks
Overall Market
Page 27
Bullish expectations drove the market Contribution to Market Cap growth Disaggregation of Market Cap growth 42%
20.3%
305%
32% 132%
15.4% 64.3%
100%
P/E Growth
Earnings Growth
Combined Effect
Jun-09
P/E Growth
Earnings Growth
Combined Effect
Jun-11
Page 28
43.9%
49.5%
54.1%
Franchise Value
68.7%
72.6%
75.6%
56.1%
50.5%
45.9%
Tangible Value
31.3%
24.4% 18%
18%
22%
14%
Page 29
May 2009 Jul 2009 Sep 2009 Nov 2009 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012
Page 30
2011
Q3 Q4
2012
Q2 Q1 Q2
160
120
100
80
With the 2/3rd Majority in the parliament government sweeps through major legislative reforms Abductees found left near a police station. Activist Gunarathna deported from country citing visa irregularities
Clashes over proposed new private sector pension bill intensifies. 1 worker killed and 60 seriously injured. Government temporary suspends the bill.
Nearly 20,000 metric tonnes of tainted petrol released to the public causing close to a thousand vehicles to suffer engine failure.
Parliament scraps emergency laws for the first time in 6 years. Strengthens Prevention of Terrorism Act temporarily.
Former parliamentari an Bharatha Laksman and others killed in a post election interparty shoot-out. Dozens more injured.
President appointed commission on Lessons Learnt and Reconciliati publishes its report. Makes key recommend ations.
Sarath Fonseka, ex-army chief jailed for three years over charges of making false statements about the presidents brother, who is also the secretary of defense.
Left wing political activists Kumar Gunarathnam and Dimuthu Atygala abducted by unknown gunmen.
DOMESTIC
Sources: Newspaper articles, Central Bank of Sri Lanka, LMD, The Nielson Company, JBS Research
Page 31
180
Private
34.5%
Corps.
Govt.
140
Apr-12
Jun-11
Jul-11
Jan-12
May-12
Sep-11
Dec-11
Feb-12
Oct-11
Mar-12
Aug-11
Nov-11
60
40
20
-20
Apr-12
Jun-11
Jul-11
Jan-12
20% 0%
Feb-12
Apr-12
Oct-11
Jun-11
Jul-11
Jan-12
May-12
Sep-11
Dec-11
Mar-12
Aug-11
Nov-11
May-12
Sep-11
Dec-11
Feb-12
Oct-11
Mar-12
Aug-11
Nov-11
Page 32
Currency mispriced
104 LKR/USD(RHS) 103 NEER(LHS) REER(LHS) 102
LKR
140
135
130
101
125
120
99
115
USD Mn
9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 95 May 11 Jun 11 Jul 11 Jan 12 May 12 Sep 11 Feb 12 Apr 11 Dec 11 Mar 12 Aug 11 Nov 11 Apr 12 Oct 11 95 96 97
Peg maintained
98
President in his capacity as Finance Minister depreciates the rupee by 3%
110
105
100
Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12
*NEER is the weighted average of nominal exchange rates of the 24 trading partner and competitor countries including USD, GBP, JPY, INR and SDR
Source : Central Bank of Sri Lanka, JBS Research Analysis
Page 33
3,000
40%
100
2,500
35%
80
60
40
20
0 5.5% -20 Apr-11 Apr-11 May-11 Jun-11 Jul-11 Jul-11 Aug-11 Sep-11 Sep-11 Oct-11 Nov-11 Dec-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 Apr-12 May-12 Jun-12 5.0% Aug-11 Sep-11 Jun-11 Mar-12 Nov-11 Dec-11 Feb-12 Oct-11 Apr-11 Jan-12 Jul-11 May-11 Apr-12
500
10%
5%
Page 34
Increase in Imports
245 426 472 506 509 698 802 1,078 254
Increase in Exports
289
123
100
71
50
85
16.4%
1,754
9.7%
6,926 = 1.52 X 2010
9,706
4,821
2010
Petroleum
Textiles
Vehicles
Ceramic Products
Rubber Products
Petroleum Products
Coconut
Tea
Mineral
Unclassified*
2011
As a % of GDP *Change in unclassified imports of USD 108mn and unclassified exports of USD 193mn have been netted off
Page 35
Services Account
507
51% 22%
Income Account
10 531 709 1,098 19 8 448 385 647
954 1,392
830
501
355
Inflows
Outflows
Inflows
Outflows
Inflows
Outflows Total
Outflows
Inflows
Outflows
Inflows
Outflows
10,559
Transportation
Travel
Other
Direct Investment
Compensation of Employees
20,269
101% 16.4%
25% 12%
45%
19%
96%
25%
467
3,084
1,114
15.6%
9,710
562
Services and Income Accounts almost offsetting each other
60
329%
7.8%
4,615
Imports
Exports
Trade deficit
Receipts
Payments
Receipts
Private receipts
Merchandise trade
As a % of GDP
Percentage increase over 2010
Services
Income
Page 36
Months of Imports
8.00
-23%
7.00 6.00
1.00 -
Page 37
140
120
-20
Page 38
The MPI was an early precursor of the impending collapse The ASI and MPI
4 months
4,500 4,000 3,500
MPI
3,000 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11
ASI
Dec-11 Mar-12 Jun-12
The All Share Price Index (ASI) and the Milanka Price Index (MPI) are market capitalization weighted indices. Whereas the ASI includes every company listed in the CSE, the MPI only contains 25 companies. Criteria for inclusion in the MPI are as set out in http://cse.lk/mpi.do
Source : JBS Research Analysis
Page 39
7,000
6,000
SEC mandates the force sale of securities by T+5 SEC relaxes rules on debt settlement SEC mandates stock broker companies to refrain from extending credits to any investor beyond T+3 days SEC suspends trading of heavily manipulated shares and imposes a 10% price band on all securities SEC relaxes rules on price bands SEC Director General leaves office SEC Chairperson resigns
5,000
4,000
3,000
2,000
1,000
SEC introduces new rules on share allotment to retail investors, while Central Bank places a cap on total number of bank guarantees to be issued for IPO subscriptions
SEC directive permits brokers to extend credit to investors up to three times net adjusted capital SEC revokes directive on price bands all together
0
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
MPI
ASI
Source : Securities and Exchange Commission of Sri Lanka
Page 40
50
46.6 40.7
45.7
46.3
43.3
47.3
Other Hotels & Travels Investment Trusts Oil Palms Telecommunications Manufacturing Food, Bev and Tobacco
40
30
30.0
20
Diversified
0 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Source : JBS Research Analysis, Colombo Stock Exchange
*Earnings figures have not been adjusted for the effect of Cross Holdings
Page 41
36%
37%
126%
20%
45%
6%
8% 4%
9%
10Q2
10Q3
10Q4
11Q1
11Q2
11Q3
11Q4
10Q2
10Q3
10Q4
11Q1
11Q2
11Q3
11Q4
Penny Stocks
Overall Market
Source : JBS Research Analysis,
Page 42
The market lost more than 40% of its value during the bust
8,000
ASI -38.6%
7,500
7,000
6,500
6,000
5,500
5,000
4,500
4,000
3,500
MPI -45.8%
3,000 Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
MPI
JB Securities Research July 2012
ASI
Page 43
May 2009 Jul 2009 Sep 2009 Nov 2009 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012
Page 44
Governance is slipping
Concentration of power leading to a weakening of state and civil institutions
Constitutional amendments have strengthened the executive at the expense of other branches of government. This relative weakening of parliamentary and judicial powers along with other civil institutions has contributed to greater concerns regarding the quality of governance in the country.*
51.7
56.9 52.6**
42.8
40.7**
31.8**
2004
2006
2008
2010
2004
2006
2008
2010
2004
2006
2008
2010
*Three of the six major dimensions of governance that are included in the World Bankss indicative framework for governance as they apply to Sri Lanka are highlighted above. **The ranking is based on a percentile; Higher values imply a better score. *** The rankings provide a directional indication and not an absolute measure of governance. Therefore they should not be construed an absolute quantification of the countrys level of governance, and at higher confidence levels the directional weakening suggested by the indicators may become statistically insignificant.
Source: World Bank, http://info.worldbank.org/governance/wgi/index.asp
Page 45
President Jayawardena authorises the merger of North & East provincial councils
President announces that a 13+ solution should be sought through a Parliamentary Select Committee (PSC)
1987
1988
1989
1st ever PC election takes place in 4 provinces
1990
1991
1992
2006
2009
2010
2011
2012
President discusses 13+ solution with Indian FM and Congress Party delegation
Further to the 13th amendment, several committees have been appointed by various government to explore the issue of devolution of power and other matters relating to the 13th Amendment. These include the Mangala Moonesinghe PSC of 1992, the Gunewardena Committee of 1995, the All Party Representative Committee (APRC) of 2006.
JB Securities Research July 2012 Page 46
Food Inflation
11.2%
7.1%
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% -5% Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12
Source : Ministry of Finance and Planning
-4% 3% 4%
-3%
-2%
-1%
10%
11%
12%
13%
14%
9.3%
2%
5%
6%
5.8%
7%
8%
9%
10%
Page 47
Sources of revenue
16.6% 15.6% 15.0% Tax Tax + Non tax Tax + Non tax + Grants 14.9% 14.6% 15.0% 14.5% 14.7% 14.3% 13.3% 12.9% 12.8% 12.4%
18.5%
14.5% 12.0%
5.1% 9.4% 4.5% 10.1% 3.6% 11.1%
2007
2008
2009
2010
2.0% 11.1%
2011
2012 F
1.6% 12.9%
Vietnam
Malaysia
Thailand
India
(33.9)
-1.8%
2011
LKR Bn
64.0 0.59 Sri Lanka Transport Board Airlines Ceylon Electricity Board Ceylon Petroleum Corporation
182.7 146.3
Combined loss (LKR Bn) Combined loss (USD Bn) 120.0 1.08
73.8
58.2
2008
2009
2010
2011
2007
2008
2009
2010
2011
* Cross holdings have not been eliminated Source: Ministry of Finance and Planning, CSE, JBS Research Analysis
Page 49
Loan mix
32.8%
Commercial Loans
30.7%
27.8%
82.9%
84.7% 72.2%
62.6% 57.0%
Concessional Loans
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Source : Central Bank of Sri Lanka
* Sovereign bonds and foreign holding of treasuries are classified as commercial loans
JB Securities Research July 2012
Page 50
6.3%
6.6% 23.7%
Private
17.9%
-0.7%
2010 2011
2009
National Savings/GDP
Net private transfers
-3.1%
5.8%
6.0% 6.7%
-7.8%
Private
21.7%
20.8%
16.5% -1.1%
2011
Source: Central Bank of Sri Lanka , JBS Research
Government
-3.7%
2009
-2.1%
2010
Page 51
-0.7%
-3.1%
5.3% 4.7%
4.2%
Government borrowing
0.7%
0.4% 0.4% 0.9% -0.5% -1.8% 1.5% -0.3% -0.1% -1.1% -1.8%
Grants and transfers FDI FPI Trade liabilities Reserve movement Other Commercial bank net assets & errors
-7.8%
0.0%
0.9%
-6.5%
-2.2%
-0.4%
Source: Central Bank of Sri Lanka, JBS Research Analysis
Page 52
956 USD Mn 752 603 159 131 221 231 411 223 44 19 154 2008 2009 195 2010 218 Reinvested earnings 33 Equity capital 404 239
Includes land purchases
1.86%
1.62%
210 478
705
Other capital
2007
2008
2009
2010
2011
1.4%
India
0.9%
Bangladesh Page 53
2007
2011
2,863,854
396,853
-11,938
80%
-2%
2,365,501
Contribution to GDP
LKR Mn
GDP-2008
Capital intensity
CAGR
Capital productivity
CAGR
GDP-2011
CAGR
CAGR
2008/11
5.31%
-0.14%
1.33%
6.58%
Labour productivity
5.19%
Note CAGR of GDP = [(1+CAGR of Capital Intensity)*(1+CAGR of Capital Productivity)*(1+CAGR of Labour Force)]-1 JB Securities Research July 2012
Source: Census and Statistics Sri Lanka, JBS Research Analysis
Page 54
Page 55
India
57/75 54/80 56/102 55/104 45/117 43/125 48/131 50/133 49/133 51/139 56/142
Vietnam
60/75 65/80 60/102 77/104 81/117 77/125 68/131 70/133 75/133 59/139 65/142
33/75 35/80 32/102 34/104 36/117 35/125 28/131 34/133 36/133 38/139
61/75 59/80 68/102 73/104 98/117 79/125 70/131 77/133 79/133 62/139 52/142
2010 2011
39/142
Page 56
Key contributor being the greater stability from the end of the conflict
High
Overall Ranking Overall BasicRequirements requirements Basic Institutions Infrastructure Macroeconomic environment health & primary education Efficiency Enhancements Efficiency enhancers Higher education & training Goods market efficiency Labour market efficiency Fin. market development Technological readiness Market size Innovation & sophistication Innovation Sophistication Business sophistication Innovation
Current Rank - 2012 Improving competitiveness will depend on improving these key problem areas 2012 Ranking out of 142 Countries 2009 Ranking out of 134 Countries
Competitiveness
Low
Improvement
0%
JB Securities Research July 2012
25%
37%
50%
57%
75%
100%
Page 57
Source: World Economic Forum, World Investment Report 2012 UNCTD, JBS Research Analysis
17 89 98 132 136
Sri Lanka
2011 2012
Vietnam
2011 2012 2011
India
2012
Overall
Starting a business Construction permits Getting electricity
102 78
98
89
Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency
2011 India
Vietnam
Page 58
66.7%
66.0%
60.0%
Sri Lanka
Vietnam
2010
India
Pakistan
Sri Lanka
Vietnam
2010
India
Pakistan
Source : Key Indicators for Asia and the Pacific 2011 - ADB
Page 59
Literacy rate
61.1%
91.9%
92.8%
62.8%
Sri Lanka Vietnam India Pakistan
55.5%
Vietnam
India
Pakistan
The primary completion rate =(No. of primary school graduates/No. of children in primary school age). The ratio can go above 100 percent, which can be a symptom of late entry, grade repetition, or of an enrollment push at some point in the past, perhaps as a consequence of a school enrollment campaign
Sri Lanka
Vietnam
India
Pakistan
Page 60
75
75 74
6.80%
69
65
Bangladesh
S. Asia Avg. 52
20 10 0
14
11
Global Avg. 41
Sri Lanka
Vientnam
Thailand
India
Bangladesh Page 61
Population < 15 Years Working Age Population, 15+ Years Not Participating
5,410
15,459
61%
63%
26% 74%
Prime (25-54)
8,446
7,013
34%
66%
322
28%
21%
Young (15-24)
Employed Labor
6,691
Male Female
2010
E2017
14,402
Source: United Nations ,Population Division (2011). World Population Prospects: The 2010 Revision/ Sri Lanka Labour Force Survey 2011
Page 62
Sri Lanka
13,042
1,382 392 1,307 797
12,005
1067 208 894 901 1,492
Malaysia
25%
61%
13%
896
India
70%
23%
7%
2,198
2,704
4,405
5,142 4,012
4,830
Indonesia
46%
46%
8%
Primary or lower
Secondary
Tertiary
2006
2007
2008
Source: McKinsey Global Institute -The world at work Jobs, pay, and skills for 3.5billion people, June 2012/CBSL annual report 2012
Page 63
Central
500
Sab.
250 50 100 150 200
Nothern
R2 =0.89
450 500
World Urbanization Prospects: The 2011 Revision UNDESA 2011, Annual Report 2011 CBSL 2012
Economic Density = GDP per unit Area Sri Lanka: Reshaping Economic Geography WB 2011 Page 64
Diaspora opportunity
Regions with significant populations of Sri Lankans*
Denmark 13,000 Canada 300,000 U.S.A. 35,000 U.K. 200,000 Italy 60,000 India 200,000 Norway 14,000 Sweden 8,000 S. Korea 20,000 Japan 20,000
Aggregate (000's)
Mid. East Europe N. America S. & East Asia Australasia 1,408 560 335 240 107 2,650
W. Europe (000's)
France Germany Switzerland Netherlands 150 60 55 10 275
Australia 100,000
*Currently living or working on a temporary or permanent basis outside of SL *Not official estimates of the Government of Sri Lanka
JB Securities Research July 2012 Page 65
Completion
June 2012 2013 2015 2017
1 2 4 3 4 2
Upper Kotmale Hydro Power Plant (150MW) Norochcholai Coal Fired Power Plant Phase II (600MW) Uma Oya Development Project (120MW) Trincomalee Coal Power Plant (500MW)
Completion
2013 2012/13 2015 n/a
8 6 7
5 1 3 6 7 8 5
Southern Expressway Extension (35km) Colombo-Katunayake Expressway (25km) Colombo Outer Circular Highway (29.1km) Colombo-Kandy Expressway (98km)
*Estimated figure
Source: Ministry of Ports and Highways, Ministry of Power and Energy, Department of External Resources, Treasury Annual Reports, Central Bank of Sri Lanka, RDA
Page 66
Completion
2013&14 2011,12&15 n/a n/a 2012 2015
1 2 3 4 5 4 6 1 5 3 2
JB Securities Research July 2012
Colombo South Harbour Development Project 9.6mn TEU of transshipments Hambantota Commercial operations & Bunkering tank farm (80,000MT) Galle Yacht marina and general infrastructure development Oluvil Fisheries port development Mattala International Airport (1 million passengers p/a) Bandaranaike International Airport Expansion (6 million passengers p/a)
Telecommunication Regulatory Commission of Sri Lanka (TRCSL) has initiated an island-wide fibre backbone network The key goal is to provide all-island broadband connectivity through 5 fibre optical cable rings Completion by 2014 This will provide high speed internet connectivity to all regions of the country
Source : Sri Lanka Ports Authority, Ministry of Ports and Highways, TRCSL
Page 67
6%
Broadband connections
(Per 100 people| 2012)
5%
4.13
4.61
4%
3%
2.32
2%
Wireless
1.23
1%
0.79
0.90
1.09
Fixed
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 March
Indonisia
India
Sri Lanka
Vietnam
Thailand
Page 68
2008
2009
2010
2011
2012 F
-1.7%
-1.4%
-1.3%
-2.2%
-3.4%
12.5%
12.7%
11.2%
10.4%
10.3%
2008
2009
2010
2011
2012 F
2008
2009
2010
2011
2012 F
Page 69
Sri Lanka
GDP CAGR* Contribution to national economy In 2011 8.68% 7.82%
59,183
7x
407,702
GDP CAGR* Contribution to national economy In 2011 GDP CAGR* Contribution to national economy In 2011 CAGR 2007/11*
8.41% 5.73%
8.01%
Kerala
8.01%
62,107
8.09% 3.96%
Karnataka
90,835
Andhra Pr.
132,054
Tamil Nadu
GDP CAGR* 6.42%
122,706
Source: Directorate of Economics Statistics of respective State Governments, and for All-India Central Statistical Organization / CBSL Annual report 2011
Page 70
Sri Lanka
Sri Lankas strategic location places it on 6 of the 10 largest trade routes in the world and within reach of over 26% of all the worlds container traffic
2.4 Mn TEU
2005
4.1 Mn TEU
2010
Page 71
Ports and maritime hub cont... Major Ports of Sri Lanka Bunkering Services
Colombo & Hambantota
Trincomalee
Current Sri Lankan bunkering capacity: 35,000 MT Capacity after completion of proposed expansions: > 115,000 MT
524 168
2007
253
2008
133
2009
259
2010 2011
Transshipment Services
Colombo & Hambantota
Current Sri Lankan transshipment capacity: 4.5mn TEU Capacity after completion of proposed expansion: > 14mn TEU
TEU Millions 20 15 10 5 -
Total transshipment activity related to the ISC Container volume transshipped from Colombo 2000 2003 2006 2009
89
78 2008
66 2009
74 2010
74 2011
2007
Source : Colombo Dockyard PLC annual reports, Drewry Maritime Research, Treasury Annual Reports
Page 72
1,651,777 3x
200,000
2,300,000
855,975 654,476
116,907 130,086
1,451,777
2x
327,902
725,889 537,569
52,464.32
387,622
58,143
275,438
329,479
2010
2011
Note: 2011/12 VFF figures are based on 14-16% of total arrivals, this category is forecasted to grow at 10% till 2016
Page 73
209 $2,046Mn
14,653
Graded
13,967
Incentives on offer for selected hotel projects: Tax holidays for 1st 10 yrs. Reduced tax rate of 6% or half the applicable rate (currently 12%) Payee tax exemptions on expatriate workers Withholding tax exemptions (i.e. interest on deposits, management fees, royalty & marketing fees) Exemptions on VAT, PAL & Customs duty on imported or locally purchased project related goods
Inventory mismatch
6,350 7,313
+ -
Scenario 1
42,074
Scenario 2
28,411
Forecast assumptions Avg. occupancy 70% Avg. stay 8days Avg. room sharing 1.6persons
Scenario 1: Tourist arrivals estimated by SLTDA (2.5Mn) Scenario 2: Tourist arrivals increase by 2x of YE2011 Note: Major portion of room inventory expected in 2016
Source : SLTDA ,JBS Research Analysis
Page 74
5% 4% 6%
Kerosene LPG
32 X
Diesel
Time line
2013 2014 2015 2016 2017 2018
Setting up sub- sea completion (Upstream) Setting up transport infrastructure (midstream) Downstream activities
Page 75
$ 2,250 Mn
150
Presence
1,816
1,898
1,764
1,842
1,892
Labour
1,786
2007
1,921
2008 Knit
1,774
2009 Woven
1,887
2010
2,068
Capabilities
2011
Value Addition
84.6
87.2
87.8
92.3
102.3
Reputation
2007
Source: World Bank, Central Bank of Sri Lanka
2008
2009
2010
2011
Page 76
21 85 20 79
31 148
28 155
3.26
74
211
208
185
142
133
2.73 2.47
Mombasa
2007
World
2008
Bulk
2009
Packets
2010
Bags
2011
Kolkata Chittagong Cochin 155 89 121 185 475 623 598 695 667
Middle East
271 209 102 136 202 196 95 117 179 120 135 220
2008
2009
2010
2011
*World price is as at 31st March of every year. March 2012 prices are spot prices and have not been averaged over a given period.
JB Securities Research July 2012
Sri Lanka Ranked 21st in the AT Kearney Global Services Location Index
India China Malaysia Egypt Indonesia Mexico Thailand Vietnam Philippines Chile Estonia Brazil Latvia Lithuania UAE UK Bulgaria USA Costa Rica Russia 0.91 2.82 0.45 2.84 2.48 3.20 2.97 3.05 2.14 2.54 0.76
2.17 1.27 1.03 2.27 0.69 1.16 0.78 1.58 1.28 0.76 1.11 1.09 0.77 0.81 2.88 0.94 1.79 0.95
3.11 2.62 2.78 3.10 3.24 2.68 3.05 3.27 3.18 2.44 2.31 2.02 2.56 2.48 2.41
2.26 0.88 1.27 0.95 2.07 0.93 0.93 0.94 1.60 1.38 1.19 1.31 1.38 1.36 1.53 2.55
2.76 1.31 1.83 1.35 1.01 1.44 1.29 1.24 1.16 1.82 2.24 1.38 1.96 2.02 2.05 2.23 1.67 2.01 1.56 1.07 1.11 1.49 1.37 1.81 1.65
1.14
387
70% 60% 50% 40% 30% 20% 10% 0%
175
31%
Sri Lanka Jordan Tunisia Poland Romania Germany Ghana Pakistan Senegal Argentina 2.45
Source: Treasury Report 2011, Ministry of Finance & Planning, AT Kearney Global Services Location Index 2011, ATKEARNEY
Page 78
Inward Remittances
8.7% 5,141
USD Mn
262,960 19,829
8.9%
239,021 18,707
Other
As a % of GDP
4,416 568
67,612
60,757
7.9% 7.2% 2,918 200 90 55 128 175 525 3,330 224 10057 148 203 603
EU
50,848
61,320
71,114
67,703
Skilled
House Maids
108,709 113,777 113,087 107,816 1,745 1,995
2008
2009
2010
2011
2008
2009
2010
2011
Source: Central Bank of Sri Lanka
Page 79
Merchandise trade
2012 106 2009 Imports Exports Balance of Trade
USD Mn
Kerosene
51
107.8%
2,500
1,986 1,876 1,915
1,837
1,770
1,763
1,683
1,634
1,669
1,568
954
923
931
933
889
886
858
880
836
817
749
820
836
15%
918
962
12.08
1,236
115
1,441
149
29.6%
1,490
1,581
1,697
57.5%
1,757
Auto Diesel
115 73
2,000
1,500
1,000
680
500
-500
-703 -742 -701 -761
-645
-847
-848
-808
-883
-904
-868
-942
-1,101
-997
-861
-1,000
-1,500 May 11 Jan 11 Sep 11 Feb 11 Apr 11 Jan 12 Feb 12 Mar 11 Dec 11 Mar 12 Aug 11 Nov 11 Apr 12 Oct 11 Jun 11 Jul 11
50 30
2007
2008
2009
2010
2011
2012
Page 80
25% 20%
102
130
15% 10% 5% 0%
98
115
97
-5%
96
110
-10%
Apr 11 Jun 11 Aug 11 May 11 Sep 11 Apr 12 Jan 11 Jan 12 May 12 Mar 11 Oct 11 Mar 12 Nov 11 Dec 11 Feb 11 Jul 11 Feb 12
95 Apr 11 May 11 Apr 12 Jun 11 Jan 11 Jul 11 Jan 12 May 12 Feb 11 Mar 11 Sep 11 Feb 12 Mar 12 Oct 11 Aug 11 Nov 11 Dec 11
105
Page 81
8.0%
8.3%
2010
2011
CBSL Estimate*
IMF Estimate
ASEAN-5
* CBSL expects GDP growth of 7.2% in 2012 and 8% in the medium term ** JBS estimate = Investment rate (27%) / ICOR average (4.5)
JB Securities Research July 2012
Page 82
42.2%
48.3%
75.6%
Tangible Value
65.5%
57.8%
51.7%
31.3%
14%
*Current treasury rates: 1yr 12.99%, 5yr 14.15%, 10yr 14.75% (6th July 2012)
JB Securities Research July 2012
Page 83
2009
2010
2011
Thailand
Phillippines
India
*Peer comparisons are for March 2012 ** P/B Multiples are for Systemically Important banks. In cases where such classification was not available, the six largest listed banks by asset size were taken into consideration
Source: Various Stock Exchange Filings
Page 84
20.9
15.0%
15.8% 11.4%
9.7
9.2
JKH
SPEN
CTHR
CARS
HAYL
HHL
JKH
SPEN
CTHR
CARS
HAYL
HHL
Page 85
Page 86
Page 87
About us
JB Securities Ltd is a full service brokerage firm that is licensed to operate on the Colombo Stock Exchange (CSE). The firm was a founding member of the Colombo Stock Exchange in 1985 and has extensive experience dealing with domestic and foreign institutional investors and high net worth individuals and family offices. In order to provide unique investment insights to our clients we conduct extensive deep-dive research in the industry verticals pertaining to the large listed companies to identify their industry and business dynamics. This process is aided by the largest team of equity analysts in the country, a majority of them either being CFA charter holders or CFA candidates who have undergone a 20 month intensive in-house training program based on international curricula. The firm continues to invest in the development of its analyst team to widen and deepen its research coverage. The firm is part of the family owned Jafferjee Brothers group based in Sri Lanka that was founded in 1944. The groups business interest spans a wide array of activities in trading, manufacturing and services and has extensive experience dealing with global companies. The core ethical values of the family have been enshrined in all its businesses. All employees of JB Securities have signed off on a code of ethics and standards of professional conduct that is based on that of the CFA Institute.
Page 88
Legal disclosures
Page 89
For further information contact: Murtaza Jafferjee CFA +94 11 2490900 murtaza.jaff@jb.lk
150, St. Josephs Street, Colombo 14, Sri Lanka. Tel: +94 112490900, Email: jbs@jb.lk, www.jbs.lk
JB Securities Research July 2012 Page 90