Acuity Stockbrokers Research | Sri Lanka Equities

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 28 Sep 2018

Equities Hit a 5-Year low…. Inflation Eases in Aug’18 th th Indices vs. Turnover (25 Sep – 28 Sep) Despite Rising Core Prices….. 5,950 3,300 ASPI

5,920 S&P SL20 3,200 S&P SL20

ASPI ˅ 0.72% | S&P SL20 ˅ 0.49% 5,890 3,100 ASPI 5,860 3,000 The Bourse ended the week… Cont. P2 5,830 2,900 5,800 2,800 25-Sep 26-Sep 27-Sep 28-Sep Foreign investors closed the week... Cont. P3 1.00 0.80 Negative investor sentiment continued….… Cont. P4 0.60

0.40 LKR Bn) LKR

(Turnover 0.20 0.00 Economic Snapshot………… P5 25-Sep 26-Sep 27-Sep 28-Sep

KEY STATISTICS

Week ending 28-Sep 21-Sep +/- ASPI 5,862.18 5,904.90 -0.72% S&P SL20 3,002.00 3,016.76 -0.49%

Banking & Finance 15,456.49 15,621.15 -1.05%

Food & Beverage 24,519.08 24,615.57 -0.39% Diversified 1,465.23 1,466.50 -0.09% Hotel & Travel 2,644.15 2,651.64 -0.28% Plantations 732.17 740.70 -1.15% Manufacturing 2,741.20 2,791.80 -1.81% Turnover (LKR Bn) 1.67 3.50 -52.37% Foreign Buying (LKR Mn) 752.61 1,445.56 -47.94% Foreign Selling (LKR Mn) 1,031.67 2,188.62 -52.86% Daily Average Turnover (LKR Bn) 0.42 0.70 -40.46% Daily Average Foreign Buying (LKR Mn) 188.15 289.11 -34.92% Daily Average Foreign Selling (LKR Mn) 257.92 437.72 -41.08%

TOP 10 GAINERS TOP 10 LOSERS

Opening Closing WoW % Opening Closing WoW % Company Code Company Code Price Price Change Price Price Change ADAM INVESTMENTS AINVN 0.1 0.2 100.0% NATION LANKA CSF N 0.9 0.7 -22.2% S M B LEASING[NV] SEMBX 0.2 0.3 50.0% ADAM CAPITAL PCHHN 0.5 0.4 -20.0% TESS AGRO TESSN 0.4 0.5 25.0% S M B LEASING SEMBN 0.5 0.4 -20.0% SERENDIB HOTELS[NV] SHOTX 11.2 14.0 25.0% HUEJAY HUEJN 24.6 20.5 -16.7% TESS AGRO[NV] TESSX 0.4 0.5 25.0% PEOPLE'S MERCH PMB N 12.0 10.0 -16.7% KELANI CABLES KCABN 69.7 81.9 17.5% BRAC LNKA FNANCE NIFLN 48.2 40.2 -16.6% RADIANT GEMS RGEM 20.5 23.2 13.2% AGSTAR PLC AGSTN 3.8 3.2 -15.8% DIALOG FINANCE CALFN 41.7 46.9 12.5% MTD WALKERS KAPIN 9.6 8.1 -15.6% MALWATTE[NV] MAL X 4.3 4.8 11.6% MULLERS MULLN 0.7 0.6 -14.3% SOFTLOGIC SHL N 19.9 21.9 10.1% BERUWALA RESORTS BERUN 0.7 0.6 -14.3%

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 28 Sep 2018

Market Review

Indices | Liquidity (in Volume Terms) | The Bourse ended the week on a negative note as the The Diversified sector dominated the market in terms of ASPI decreased by 42.72 points (or -0.72%) to close at share volume, accounting for 20.56% (or 10.63Mn 5,862.18 points, while the S&P SL20 Index also shares) of total volume, with a value contribution of LKR decreased by 14.76 points (or -0.49%) to close at 0.68Bn. The Banks, Finance & Insurance sector followed 3,002.00 points. suit, adding 16.57% to total turnover volume as 8.57Mn shares were exchanged. The sector’s volume accounted Turnover & Market Capitalization | for LKR 0.47Bn of total market turnover value. The JKH was the highest contributor to the week’s turnover Telecom sector meanwhile, contributed 4.76Mn shares value, contributing LKR 0.58Bn or 34.83% of total (or 9.20%), amounting to LKR 0.06Bn.

turnover value. Sampath Bank followed suit, accounting for 13.43% of turnover (value of LKR 0.22Bn) while Top Gainers & Losers | Ceylon Guardian contributed LKR 0.11Bn to account for Adam Investments was the week’s highest price gainer; 6.32% of the week’s turnover. Total turnover value increasing 100.0% W-o-W from LKR0.10 to LKR0.20 amounted to LKR 1.67Bn (cf. last week’s value of LKR while SMB Leasing[NV](+50.0% W-o-W), Tess 3.50Bn), while daily average turnover value amounted Agro(+25.0% W-o-W) and Serendib Hotels[NV] to LKR 0.42Bn (-40.46% W-o-W) compared to last (+25.0% W-o-W) were also amongst the top gainers.

week’s average of LKR 0.70Bn. Market capitalization meanwhile, decreased by 20.14% W-o-W (or LKR Nations Lanka was the week’s highest price loser; 20.14Bn) to LKR2,752.86Bn cf. LKR2,773.00Bn last declining 22.2% W-o-W to close at LKR0.70 while Adam week. Capital(-20.0% W-o-W), SMB Leasing (-20.0% W-o-W) and Huejay Lanka International(-16.7% W-o-W) were Liquidity (in Value Terms) | also amongst the top losers over the week. The Diversified sector was the highest contributor to the week’s total turnover value, accounting for 40.81% (or TOP 10 TURNOVERS LKR 0.68Bn) of market turnover. Sector turnover was driven primarily by JKH, Melstacorp & Softlogic Holdings Opening Closing Value (Rs. Company Code which accounted for 95.69% of the sector’s total Price Price Mn) turnover. The Banks, Finance & Insurance sector JKH JKH N 129.5 131.5 581.29 meanwhile accounted for 28.42% (or LKR 0.47Bn) of the SAMPATH SAMPN 238.6 239.9 224.17 total turnover value, with turnover driven primarily by CEYLON GUARDIAN GUARN 70.0 70.0 105.52 Sampath Bank & Commercial Bank which accounted for COMMERCIAL BANK COMBN 114.1 113.0 87.27 65.66% of the sector turnover. The Investment Trust CEYLON INV. CINVN 37.4 35.0 60.27 sector was also amongst the top sectorial contributors, CHEVRON LLUBN 68.0 65.1 58.12 DIALOG DIALN 12.0 11.9 55.93 contributing 10.97% (or LKR 0.18Bn) to the market MELSTACORP MELSN 50.0 50.0 40.24 driven by Ceylon Guardian which accounted for 57.63% SOFTLOGIC SHL N 19.9 21.9 30.19 of the sector turnover. LMF LMF N 152.2 148.0 26.84

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 28 Sep 2018

Mar ket Review (Cont’d)

Net Foreign Sales (21 Sep-28 Sep) Net Foreign Purchases (21 Sep-28 Sep) NATIONS TRUST TESS AGRO Volume Change ('000s) SWISSTEK Volume Change ('000s) SOFTLOGIC LIFE CARSONS SIERRA CABL EXPOLANKA COMMERCIAL BANK[X] CHEVRON COMMERCIAL BANK RICHARD PIERIS AMBEON HOLDINGS RAIGAM SALTERNS SAMPATH MELSTACORP DISTILLERIES DIALOG JKH SOFTLOGIC* CEYLON INV. - 104 208 312 416 520 (1,600) (1,280) (960) (640) (320) - *Volume change of Softlogic Holdings(1.09Mn shares)from 21st Sep – 28th Sep not displayed. Foreign investors closed the week in a net selling position with total net outflow amounting to LKR 0.28Bn relative to last week’s total net outflow of LKR 0.74Bn (+62.4% W-o-W). Total foreign purchases decreased by 47.9% W-o-W to LKR 0.75Bn from last week’s value of LKR 1.45Bn, while total foreign sales amounted to LKR 1.03Bn relative to LKR 2.2Bn recorded last week (-52.9% W-o-W). In terms of volume, Softlogic Holdings & Dialog Axiata led foreign purchases while Ceylon Investment & JKH led foreign sales. In terms of value, Softlogic Holdings & Melstacorp led foreign purchases while JKH & Sampath Bank led foreign sales.

Net Foreign Purchases (By Transaction Value) Net Foreign Sales (By Transaction Value)

Foreign Holding (%) Value* Foreign Holding (%) Value* Company Net Change Company Net Change 28/09/18 21/09/18 (LKR. Mn) 28/09/18 21/09/18 (LKR. Mn) SOFTLOGIC 31.86% 31.77% 1,085,000 23.76 JKH 55.57% 55.66% (1,113,548) (146.43)

MELSTACORP 26.20% 26.17% 347,500 17.38 SAMPATH 22.26% 22.39% (374,430) (89.83) CARSONS 22.91% 22.89% 39,712 6.63 CEYLON INV. 2.99% 4.56% (1,563,427) (54.72) DIALOG 94.33% 94.33% 515,592 6.14 COMMERCIAL BANK 33.71% 33.73% (189,120) (21.37) CHEVRON 22.12% 22.08% 90,391 5.88 DISTILLERIES 1.73% 1.75% (760,072) (12.69) HNB[X.0000] 47.14% 47.12% 21,170 3.38 COMMERCIAL BANK[X.0000] 24.10% 24.31% (139,753) (12.45) NATIONS TRUST 24.51% 24.49% 36,109 3.21 NESTLE 95.46% 95.47% (4,171) (6.88) CEYLON GUARDIAN 8.13% 8.08% 36,020 2.52 SOFTLOGIC LIFE 45.50% 45.53% (95,000) (2.48) SWISSTEK 2.25% 2.11% 38,890 1.53 LANKA HOSPITALS 29.05% 29.08% (59,713) (2.39) RICHARD PIERIS 73.92% 73.92% 130,747 1.33 AMBEON HOLDINGS 1.06% 1.12% (196,582) (2.18) Note: *Value based on closing price and not on actual traded price

Foreign Purchases Vs. Sales Week Ending Net Position of Foreign Holdings 100 600 Foreign Purchases Foreign Sales -100 450

-300 LKR. MnLKR. LKR. Mn LKR. 300 -500

150 -700

0 -900 25-Sep 26-Sep 27-Sep 28-Sep 07-Sep 14-Sep 21-Sep 28-Sep

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 28 Sep 2018

Announcements for the Week

Dividend Announcements

Company DPS (Rs.) Type XD Date MILLENIUM HOUSING DEVELOPERS 0.35 Final 01-10-18 ASIA SIYAKA COMMODITIES 0.10 Final 04-10-18

Inflation Eases in Aug’18 Despite Rising Core Point of View Prices Negative investor sentiment continued to dominate Sri Lankan Headline inflation at the national level eased in August, in equity markets, and the ASPI ended the week on a negative note contrast to urban inflation levels which rose over the period to

rd for the 3 consecutive week. On Tuesday, the ASPI hit a 5-year 5.9% Y-o -Y cf. 5.4% in Jul’18 due to food inflation (7.5% Y-o-Y in low of 5,833.58 (71 index point drop for the day) amid higher Aug’18 cf. 5.6% in Jul’18). The decline in inflation at the national foreig n selling on the back of worries regarding further rupee level was largely driven by the reduction in food inflation (0.0% depreciation. The LKR depreciated 3.8% against the USD in the in Aug’18 from 2.4% in Jul’18) while non-food inflation rose to

last two weeks, bringing the YTD depreciation on the LKR to just 4.7% Y-o-Y in Aug’18 relative to 4.3% Y-o-Y in Jul’18. The

~10.2%. Similar to most other EM/FM countries (which are increase in non-food inflation was driven by higher i) transport

facing higher currency depreciation in 2018 amid higher US costs, ii) health care, iii) housing, water, electricity, gas & other rates), LKR pressure has partially stemmed from rising US rates fuels, and iv) an increase in prices of alcoholic beverages & and the USD. So far this year, the US Fed has raised interest rate tobacco. Upward price revisions to petrol and diesel in line with 3 times and indicated that a fourth hike in December is possible rising global crude oil prices led to an increase in transport costs while 3 hikes are likely in 2019 and one more in 2020. Although while bus and taxi fares including three -wheelers were also

the Colombo bourse recovered on Wednesday (from Tuesday’s revised upwards. Moderating inflation levels (due to the easing

LKR depreciation-led decline) by regaining 55 points, it failed to of food prices compared to last year’s higher base prices)

retain this positive momentum and the Index lost a further 25 meanwhile led ADB to lower its inflation outlook for Sri Lanka to

points over Thursday and Friday to end the week ~38 points 4.5% (from 5.2%) in 2018 and 4.7% (from 5.0%) in 2019. The below the 5,900 mark (ie: 5862.18). Meanwhile, despite ADB also noted that tightening Government consumption, Tuesday’s higher foreign selling, the foreign equity sell -off on the stagnant fixed investments and lower net exports also

bourse eased somewhat over the remainder of the week, with warranted a downward revision in the country’s growth forecast

foreign investors recording a net outflow of just Rs.279Mn cf. to 3.8% in 2018 and 4.5% in 2019. Meanwhile, greater import Rs.743Mn last week. Subsequently, the YTD foreign outflow on dollar demand led the LKR to hit an all-time low of 169.25

the Colombo bourse increased to Rs.6.1Bn (cf. Rs.5.9Bn). The yesterday despite CBSL intervention. The LKR has weakened

negative sentiment surrounding the LKR depreciation was also ~5% against the USD during September and depreciated ~10% reflected in the week’s activity levels, and weekly turnover so far this yea r and the CBSL has reiterated that it will intervene

during the week declined 52% W-o-W to just Rs.1.7Bn cf. during periods of excessive volatility.

Rs.3.5Bn last week. Markets in the week ahead are likely to look

for cues from next week’s Central Bank’s decision on policy rates. Sources: CBSL, economynext and Daily Mirror

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 28 Sep 2018

Economic Snapshot

Jan’18 Feb’18 Mar’18 Apr’18 May’18 Jun’18 Jul’18 Aug’18 Interest Rates Prime Lending Rate 11.29 11.27 11.10 11.27 11.34 11.20 11.41 11.65 Ave. Wtd. Deposit Rates 9.08 9.05 9.00 8.98 8.91 8.92 8.64 8.66 Ave. Wtd. Fixed Dep. Rates 11.54 11.45 11.41 11.38 11.23 11.26 10.82 10.81 CCPI Inflation Y-o-Y % (Base 2013) 5.8 4.5 4.2 3.8 4.0 4.4 5.4 5.9

2012 2013 2014 2015 2016 2017 Q1’18 GDP Growth (Base 2010) 9.1% 3.4% 4.9% 4.8% 4.4% 3.1% 3.2% Source Central Bank

Exchange Rate, Rs. vs. US$ Inflation (CCPI-N) YoY%

10.0 170.0

162.0 8.0

154.0 6.0 CCPI

Rs /USD Rs 146.0 4.0

138.0 2.0

130.0 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 0.0 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18

Source: Central Bank Source: Central Bank

6 Month T-Bill Yield Tea Prices

12 700

10 620

9 540

7 460

Bill (6M ) Rate (%) Rate ) (6M Bill

- T

6 380 Rs. Per kilo(Unweighted)Per Rs. 4 300 Sep-15 Jun-16 Mar-17 Dec-17 Sep-18 Sep-15 Jun-16 Mar-17 Dec-17 Sep-18

Source: Central Bank Source: Sri Lanka Tea Board

Export & Trade Balance Trends in Tourist Arrivals

2000 600 Trade Balance (USD Mn 250,000 80%

1600 200 64%

200,000 Y

o -

48% Y Growth 1200 -200 150,000 32% 800 -600 100,000 16% 400 -1000 Total Arrivals ) 50,000 0% Exports /Imports (USD Mn) (USD /Imports Exports 0 -1400 0 -16% Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Aug-15 May-16 Feb-17 Nov-17 Aug-18 Exports (LHS) Imports (LHS) Trade Balance (RHS) Source: Sri Lanka Tourism Development Authority Source: Central Bank 5

ACUITY Stockbrokers (Pvt) Ltd., (Company Reg: No-P.V.3310) ‘ACUITY House’, No. 53, Dharmapala Mw, Colombo 03, Sri Lanka.

TEL : (+94) 112 206 206 FAX : (+94) 112 206 298

ResearchResearch Team Team Sales Team Dhammika Wanniarachchi Susildha [email protected] Chethana Ellepola Prashan Fernando Chethana Ellepola, CFA (+94)+94 112112206 206 229234 [email protected] (+94) 112 206 222 (+94) 112 206 256 [email protected] +94 112 206 256 [email protected] chethana @acuitystockbrokers.com

Anjula Nawarathna AuburnThehani Senn Weerasinghe Arjuna Dasanayake [email protected] Alagesan, CFA (+94)[email protected] 112 206 239 (+94) 112 206 235 (+94)+94 112 112 206 206 255 255 [email protected]+94 112206 224 [email protected] [email protected] Aethra de Silva S. Vasanthakumar [email protected] Surajdeen Kapila Pathirage (+94) 112 206 250/251 (+94)+94 112 112 206 206 253 253 (+94) 112 206 227/228 [email protected] Sahrah @acuitystockbrokers.com [email protected] Samalka Athuraliya Kandy Branch Prasanna Semasinghe [email protected] Maxtina Fernando Naren Godamunne (+94) 814 474 443 +94 112 206 253 Kumar Dias Desinghe (+94) 112 206 251 (+94) 112 206 225 [email protected] [email protected] [email protected] [email protected] Anouk Weerasinghe +94 814 474 443

[email protected] Warana Sumanasena Chathura Siyambalapitiya +94 112 206 254 (+94)Prasanna 112206 Semasinghe 231 (+94) 112 206 232 [email protected]@sltnet.lk [email protected] +94 814 474 443 Dinuk Subasinghe Dhammika Wanniarachchi (+94) 112206 237 (+94) 112 206 229 [email protected] [email protected] Danuksha Koralage Kumar Dias Desinghe (+94) 112206 233 (+94) 814 474 443 [email protected] [email protected] Nishanthi Ratnayake (+94) 112206 248 [email protected]

Disclaimer:

“Distributed in Sri Lanka and abroad by Acuity Stockbrokers (Private) Limited (ASB) and its authorized representatives. ASB is fully owned by Acuity Partners (Pvt) Ltd (APL) and APL is a joint venture of DFCC Bank and Hatton National Bank PLC. The Information contained herein has been compiled from sources that ASB (“The Research Institution”) believes to be reliable but None of the Research Institution holds itself responsible for its completeness or accuracy. It is not an offer to sell or a solicitation of an offer to buy any securities. The Research Institution and its affiliates and its officers and employees may or may not have a position in or with respect to the securities mentioned herein.

The Research Institution and its affiliates may from time to time have consulting relationship with any company, which is being reported upon. This may involve the Research Institution providing significant corporate finance services or acting as the company’s official or sponsoring broker.

All opinions and estimates included in this report constitute judgment as of this date of the Research Institution and are subject to change or amendment without notice. The Research Institution has the copyright for this report and the views herein cannot be reproduced and/or distributed in any form without the explicit (written or otherwise) permission from Research Institution.