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DNH Financial (Pvt) Ltd.

20th October 2011
Market Performance
ASPI MPI Turnover (mn) Foreign Purchases (mn) Foreign Sales (mn) Traded Companies Market PER (X) Market Cap (LKR bn) Market Cap (US$ bn) Dividend Yield (%) Price to Book (X) 20.10.2011 6,282 5,629 689.6 110.9 81.6 232 16.2 2,256 20.3 1.7 2.0 19.10.2011 6,348 5,705 687.0 24.9 161.6 268 16.3 2,280 20.5 1.6 2.1 %Chg. -1.0 -1.3 0.4 345.2 -49.5 -13.4 -0.6 -1.0 -1.0 6.3 -4.8


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Market Indices
6,800 6,600 6,400 6,200 6,000 5,800 5,600 14/10/2011 17/10/2011 18/10/2011 19/10/2011 20/10/2011


Market Outlook
The market continued in downward trajectory with the ASPI shedding 1.0% while the MPI lost 1.3% to close the trading session at 6282 and 5629 respectively. Turnover remained muted at LKR690mn with Commercial Bank, Regnis,and John Keells Holdings accounting for 17% of the days total. Losers outpaced gainers with Serendib Land, Kalamazoo and SMB Leasing (W0016) declining by 50%, 38% and 33% offsetting gains in Shalimar, People's Finance (W0020) and Hayleys MGT which advanced by 18%, 17% and 14% respectively. Global markets meanwhile traded largely lower ahead of the EU meeting on Sunday which investors hope may provide the necessary panacea to the eurozones ongoing crisis.
While market PEs have been on a declining trend, we believe that the current multiple of 16X does not fully reflect the valuations of a number of fundamentally strong stocks which are trading at multiples of below 10X. With investors having pushed up the price of lower quality companies during the 2009/2010 bull run, an opportunity to invest in companies of higher fundamental value now exists with significant upside potential of reversing relative underperformance.With trading volumes showing increasing signs of declining, we believe that the market is coming close to consolidating before changing course towards a rerating. Consequently, with the majority of 3Q2011 results yet to be released, we advise investors to take advantage of this window period to select stocks that are likely to outperform based on solid intrinsic values.

Economies rank on the ease of doing business


Gainers /Losers (%)

J.L. Morison (X) SMB Leasing (W0016) Kalamazoo Serendib Land Industrial Asphalts Hayleys MGT People's Finance(W0020) Shalimar


-37.5 -50.0 6.6 13.6



Significant Trades (Turnover in LKR Mn)

60 40 20 0

Global Markets
Sri Lanka - ASPI India - Sensex Pakistan - KSE 100 Taiwan Weighted Singapore - Straits Times Hong Kong - Hang Seng Index 6282 16937 11685 7244 2694 17983 %Chg. -1.04 -0.87 0.38 -1.48 -0.96 -1.78

Interest Rates & Currencies

Prime Lending Rate (Avg. Weighted) Deposit Rate (Avg. Weighted) Treasury Bill Rate (360 Days) Dollar Denominated Bond Rate LKR/US$ (Avg. Rate) LKR/EURO (Avg. Rate) 22.08.2011 20.10.2011 9.4% 6.5% 7.3% 6.3% 111.1 153.4

This Review is prepared and issued by DNH Financial (Pvt.) Ltd. (DNH) based on information in the public domain, internally developed and other sources, believed to be correct. Although all reasonable care has been taken to ensure the contents of the Review are accurate, DNH and/or its Directors, employees, are not responsible for the correctness, usefulness, reliability of same. DNH may act as a Broker in the investments which are the subject of this document or related investments and may have acted on or used the information contained in this document, or the research or analysis on which it is based, before its publication. DNH and/or its principal , their respective Directors, or Employees may also have a position or be otherwise interested in the investments referred to in this document. This is not an offer to sell or buy the investments referred to in this document. This Review may contain data which are inaccurate and unreliable. You hereby waive irrevocably any rights or remedies in law or equity you have or may have against DNH with respect to the Review and agree to indemnify and hold DNH and/or its principal, their respective directors and employees harmless to the fullest extent allowed by law regarding all matters related to your use of this Review. DNH Financial is a fully owned subsidiary of Environmental Resources Investment PLC (ERI).