Acuity Stockbrokers Research | Sri Lanka Equities

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 22 May 2020

ASPI Gains 361 Points amid Heavy Local Buying th nd Interest… S&P Downgrades Credit Rating to 'B- Stable' Indices vs. Turnover (18 May – 22 May)

ASPI ^ 8.13% | S&P SL20 ^ 15.89% 5,000 ASPI 2,300 S&P SL20

4,900 2,200 S&P SL20

4,800 2,100 ASPI The Bourse ended the week… Cont. P2 4,700 2,000 4,600 1,900 Foreign investors closed the week... Cont. P3 4,500 1,800 18-Mar19-Mar20-Mar21-Mar22-Mar 2.50 Sri Lankan equities reversed ….… Cont. P4 2.00 1.50

1.00 LKR Bn) LKR

(Turnover 0.50 Economic Snapshot………… P5 0.00 18-Mar 19-Mar 20-Mar 21-Mar 22-Mar

KEY STATISTICS

Week ending 22-May 15-May +/- ASPI 4,799.89 4,439.04 8.13% S&P SL20 2,034.38 1,755.51 15.89%

Banks 507.01 435.44 16.44%

Capital Goods 613.52 528.92 15.99% Food, Beverage & Tobacco 704.89 667.23 5.64% Consumer Durables & Apparel 649.76 583.51 11.35% Materials 514.33 483.50 6.38% Diversified Financials 711.04 654.33 8.67% Turnover (LKR Bn) 8.05 9.61 -16.24% Foreign Buying (LKR Mn) 593.11 1,588.91 -62.67% Foreign Selling (LKR Mn) 3,996.15 5,098.28 -21.62% Daily Average Turnover (LKR Bn) 1.61 1.92 -16.24% Daily Average Foreign Buying (LKR Mn) 118.62 317.78 -62.67% Daily Average Foreign Selling (LKR Mn) 799.23 1,019.66 -21.62%

TOP 10 GAINERS TOP 10 LOSERS

Opening Closing WoW % Opening Closing WoW % Company Code Company Code Price Price Change Price Price Change TEA SMALLHOLDER TSMLN 20.0 32.5 62.5% INDUSTRIAL ASPH.* ASPHNN 388.4 0.2 -99.9% BROWNS INVSTMNTS BIL N 2.1 3.2 52.4% BLUE DIAMONDS[NV] BLUEX 0.3 0.2 -33.3% PRINTCARE PLC CAREN 20.0 29.8 49.0% S M B LEASING[NV] SEMBX 0.3 0.2 -33.3% MALWATTE MAL N 4.0 5.8 45.0% S M B LEASING SEMBN 0.4 0.3 -25.0% MADULSIMA MADUN 4.7 6.8 44.7% YORK ARCADE YORKN 68.0 57.0 -16.2% MALWATTE[NV] MAL X 2.5 3.6 44.0% EDEN HOTEL LANKA EDENN 14.0 12.0 -14.3% PEOPLE'S MERCH PMB N 7.0 9.9 41.4% SINHAPUTHRA FIN SFL N 8.2 7.1 -13.4% NATION LANKA CSF N 0.5 0.7 40.0% RENUKA HOLDINGS RHL N 15.0 13.3 -11.3% MULLERS MULLN 0.5 0.7 40.0% VIDULLANKA VLL N 4.5 4.0 -11.1% HATTON HPL N 4.0 5.6 40.0% BUKIT DARAH BUKIN 180.0 160.5 -10.8% *Note: Sub-division of shares

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 22 May 2020

Market Review

Indices | Liquidity (in Volume Terms) | The Bourse ended the week on a positive note as the The Banks Industry Group dominated the market in ASPI increased by 360.85 points (or 8.13%) to close at terms of share volume, accounting for 22.20% (or 4,799.89 points, while the S&P SL20 Index also 64.64Mn shares) of total volume, with a value increased by 278.87 points (or 15.89%) to close at contribution of LKR 5.31Bn. The Materials Industry 2,034.38 points. Group followed suit, adding 20.53% to total turnover volume as 59.79Mn shares were exchanged. The Turnover & Market Capitalization | Industry Group’s volume accounted for LKR 0.26Bn of HNB was the highest contributor to the week’s turnover total market turnover value. The Food, Beverage & value, contributing LKR 2.09Bn or 25.94% of total Tobacco Industry Group meanwhile, contributed turnover value. Commercial Bank followed suit, 54.22Mn shares (or 18.62%), amounting to LKR 0.30Bn. accounting for 20.61% of turnover (value of LKR 1.66Bn) while JKH contributed LKR 1.19Bn to account Top Gainers & Losers | for 14.79% of the week’s turnover. Total turnover value Tea Smallholder was the week’s highest price gainer; amounted to LKR 8.05Bn (cf. last week’s value of LKR increasing 62.5% W-o-W from LKR20.00 to LKR32.50 9.61), while daily average turnover value amounted to while Browns Investments (+52.4% W-o-W), Printcare LKR 1.61Bn (-16.24% W-o-W) compared to last week’s (+49.0% W-o-W) and Malwatte (+45.0% W-o-W) were average of LKR 1.92Bn. Market capitalization also amongst the top gainers. meanwhile, increased by 8.59% W-o-W (or LKR 177.54Mn) to LKR 2,244.08Bn cf. LKR 2,066.54Bn last Industrial Asphalts was the week’s highest price loser; week. declining 99.9% W-o-W to close at LKR0.20 due to a Subdivision of shares. Blue Diamonds [NV] (-33.3% W-o- Liquidity (in Value Terms) | W), SMB Leasing [NV](-33.3% W-o-W) and SMB Leasing The Banks Industry Group was the highest contributor (-25.0% W-o-W) were also amongst the top losers over to the week’s total turnover value, accounting for the week. 65.94% (or LKR 5.31Bn) of market turnover. Industry Group’s turnover was driven primarily by HNB, TOP 10 TURNOVERS Commercial Bank, Sampath Bank, HNB [NV] & Nations Opening Closing Value Trust Bank which accounted for 95.97% of the sector’s Company Code total turnover. The Capital Goods Industry Group Price Price (Rs. Mn) meanwhile accounted for 17.21% (or LKR 1.38Bn) of the HNB HNB N 95.0 107.2 2,088.1 COMMERCIAL BANK COMBN 54.8 68.1 1,658.7 total turnover value, with turnover driven primarily by JKH JKH N 80.5 104.4 1,190.3 JKH which accounted for 85.94% of the sector turnover. SAMPATH SAMPN 109.0 121.9 1,069.3 The Food, Beverage & Tobacco Industry Group was also DIALOG DIALN 8.8 9.5 203.9 amongst the top sectorial contributors, contributing HNB[NV] HNB X 78.0 85.4 156.1 3.75% (or LKR 0.30Bn) to the total turnover, with L O L C HOLDINGS LOLCN 94.2 114.8 140.0 turnover driven primarily by Browns Investments BROWNS INVSTMNTS BIL N 2.1 3.2 138.7 TEEJAY LANKA TJL N 22.2 26.0 123.3 accounting for 45.90% of the total turnover. NATIONS TRUST NTB N 58.2 57.2 121.1

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 22 May 2020

Market Review (Cont’d)

Net Foreign Sales (15 May-22 May) Net Foreign Purchases (15 May-22 May) KEELLS FOOD TOKYO CEMENT Volume Change ('000s) CEYLON GUARDIAN Volume Change ('000s) COMMERCIAL BANK[X] LANKA TILES NATIONS TRUST CENTRAL IND. HNB[X] LION BREWERY TEEJAY LANKA JKH R I L PROPERTY SEYLAN BANK[X.0000] SAMPATH COMMERCIAL BANK VALLIBEL ACCESS ENG SL HNB*

RICHARD PIERIS EXPOLANKA*

0 32 64 96 128 160 (8,000) (6,400) (4,800) (3,200) (1,600) -

*Volume change of Expolanka (22.18Mn Shares) & HNB (16.52Mn Shares) from 15th May – 22nd May not displayed.

Foreign investors closed the week in a net selling position, with the total net outflow amounting to LKR 3.40Bn relative to a net outflow of LKR 3.51Bn recorded last week. Total foreign purchases decreased to LKR 0.59Bn from a value of LKR 1.59Bn last week, while total foreign sales amounted to LKR 4.0Bn relative to LKR 5.10Bn recorded last week. In terms of volume, Richard Pieris & Access Engineering led foreign purchases while Expolanka & HNB led foreign sales. In terms of value, Lion Brewery & Richard Pieris led foreign purchases while HNB & 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 22/05/20 15/05/20 (LKR. Mn) 22/05/20 15/05/20 (LKR. Mn) LION BREWERY 37.42% 37.39% 24,559 12.23 HNB 29.51% 33.63% (16,516,813) (1,770.60) RICHARD PIERIS 74.31% 74.30% 151,608 1.44 SAMPATH 18.38% 19.60% (4,631,771) (564.61) SEYLAN BANK[X.0000] 5.89% 5.87% 53,629 1.42 COMMERCIAL BANK 19.82% 20.64% (7,884,656) (536.95) ACCESS ENG SL 3.41% 3.40% 88,300 1.31 JKH 44.41% 44.58% (2,288,174) (238.89) KEELLS FOOD 1.02% 0.98% 10,000 1.10 HNB[X.0000] 44.42% 45.70% (1,266,639) (108.17) CENTRAL IND. 2.46% 2.37% 18,578 0.76 EXPOLANKA 80.99% 82.12% (22,176,084) (55.44) CEYLON GUARDIAN 8.30% 8.29% 10,000 0.60 NATIONS TRUST 24.82% 25.21% (954,154) (54.58) LANKA TILES 1.41% 1.39% 10,000 0.60 TEEJAY LANKA 47.27% 47.56% (2,038,584) (53.00) VALLIBEL 1.29% 1.28% 70,054 0.39 COMMERCIAL BANK[X.0000] 17.99% 19.34% (895,261) (51.30) RENUKA CITY HOT. 0.65% 0.63% 1,485 0.31 L O L C HOLDINGS 4.10% 4.19% (434,655) (49.90)

Note: *Value based on closing price and not on actual traded price Please note that the foreign shares data displayed above include private transfers done outside of the market.

Foreign Purchases Vs. Sales Week Ending Net Position of Foreign Holdings 1,500 Foreign Purchases 0 Foreign Sales

1,200 -700

900 -1,400 LKR. Mn LKR. 600 -2,100Mn LKR.

300 -2,800

0 -3,500 18-Mar 19-Mar 20-Mar 21-Mar 22-Mar 13-Mar 20-Mar 15-May 22-May

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 22 May 2020 Announcements for the Week

Dividend Announcements

Company DPS (Rs.) Type XD Date COMMERCIAL DEVELOPMENT 4.00 Final 19/06/2020 AITKEN SPENCE 1.25 First and Final 01/07/2020

Point of View S&P Downgrades Credit Rating to 'B- Stable' Sri Lankan equities reversed last week's losses as the benchmark Ratings agency, Standard and Poor’s, downgraded Sri Lanka’s

sovereign rating to ‘B- Stable’ (from ‘B Negative’) citing concerns index surged this week with investors looking to positive signs of reopening the economy from the coronavirus lockdown, and over the country’s fiscal deterioration and debt repayment ability

picking up undervalued stocks after the benchmark index shed in the backdrop of a weaker economic environment due to the

th nearly 24% (until 15 May) since the onset of the pandemic on COVID -19 pandemic. However, the Agency kept the outlook 24 th of Feb. Heavy buying interest buoyed by renewed retail ‘stable’ at a lower rating level as the country still has access to

investor participation consequently led the ASPI to gain ~361 multilateral and bilateral resources to meet short-term debt

points or 8% W-o-W to close at 4,799.89 points. Index obligations. S&P noted that the rating downgrade reflects Sri

heavyweight JKH contributed 19% to this week’s gains as the Lanka’s i) modest income levels, ii) weak external profile, iii)

blue-chip stock rose ~30% W-o-W while Banking sector stocks sizeable fiscal deficit, iv) extremely high government

COMB, HNB and Sampath Bank contributed ~13% this indebtedness, and v) large interest payment burdens. According week, supported by their positive earnings releases for the March to S&P, Sri Lanka’s already limited fiscal space is set to widen due

quarter. Meanwhile, foreign investors continued to exit domestic to sweeping tax cuts and import restrictions which would lower equities to record a net foreign outflow of Rs. 3.4Bn this week (cf. government revenue to below 10% of GDP in 2020. A reduction in

GoSL revenue and CBSL rate cuts by 150bps points is expected to Rs. 3.5Bn last week) amid i) a downgrade in Sri Lanka’s credit rating by Standard and Poor’s this week, ii) a new low in the widen the fiscal deficit to 8% in 2020 from 6.8% in 2019. With a country’s Purchasing Manager’s Index and iii) a 64% drop in weak fiscal position, the Agency expects net government debt to

exceed 90% of GDP in 2020 and interest payment to reach 67.2% merchandise exports for the month of April. Heavy foreign selling was recorded across several key banking stocks ahead of weaker of revenues in 2020 (the 2nd highest ratio among sovereigns earnings anticipated in the upcoming quarters due to the strain of currently rates by S&P). Meanwhile, S&P expects the outbreak to the COVID-19 pandemic on the sector. Consequently, the YTD push Sri Lanka’s economy into a recession this year (-0.3% in outflow reached Rs. 12.1Bn this week. Meanwhile, activity levels 2020) against earlier expectations of a rebound. However, the continued to remain relatively strong (above the YTD average Agency expect growth to recover to 4.6% in 2021 supported by turnover of Rs. 1.2Bn) as the Colombo Bourse recorded an expansionary fiscal and monetary policies, recovering external average daily turnover of Rs. 1.6Bn for the week (cf. Rs. 1.9Bn last conditions, and the resolution of political uncertainty following week). However, local HNI and Institutional investor participation parliamentary elections later this year. S&P further estimates per contributed only 15% to total turnover this week cf. 33% last capita income to reach $4,000 in 2021 and real GDP growth to week. Banking sector stocks COMB, HNB and Sampath collectively average 3.3% in 2020 – 23. contributed 63% to this week’s crossings while JKH contributed

35% this week. Investor buying interest was also visible in EXPO.

Markets in the week ahead are likely to take cues from economic Source: Standard & Poor’s, economynext.com impact of the pandemic and continuing earnings releases while monitoring developments regarding the COVID-19 outbreak in Sri Lanka.

ACUITY STOCKBROKERS RESEARCH | SRI LANKA EQUITIES

Weekly Market Review 22 May 2020

Economic Snapshot

Sep’19 Oct’19 Nov’19 Dec’19 Jan’20 Feb’20 Mar’20 Apr’20 Interest Rates Prime Lending Rate 10.57 10.42 10.21 10.00 9.68 9.51 9.35 9.38 Ave. Wtd. Deposit Rates 8.51 8.37 8.27 8.20 8.14 8.06 7.90 7.77 Ave. Wtd. Fixed Dep. Rates 10.46 10.27 10.14 10.05 9.97 9.83 9.65 9.51 CCPI Inflation Y-o-Y % (Base 2013) 5.0 5.4 4.4 4.8 5.7 6.2 5.4 5.2

2012 2013 2014 2015 2016 2017 2018 GDP Growth (Base 2010) 9.1% 3.4% 5.0% 5.0% 4.5% 3.4% 3.2% Source Central Bank

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

10.0 220.0

8.0 200.0

180.0 6.0 CCPI

Rs /USD Rs 160.0 4.0

140.0 2.0

120.0 0.0 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Nov-16 Jul-17 Mar-18 Nov-18 Jul-19 Mar-20

Source: Central Bank Source: Central Bank

6 Month T-Bill Yield Tea Prices

12 760

11 700

10 640 580 9

Bill (6M ) Rate (%) Rate ) (6M Bill 520 - T 8

Rs. Per kilo(Average ) kilo(AveragePer Rs. 460

7 400 Sep-16 Jun-17 Mar-18 Dec-18 Sep-19 Apr-17 Jan-18 Oct-18 Jul-19 Apr-20

Source: Central Bank Source: Sri Lanka Tea Board

Export & Trade Balance Trends in Tourist Arrivals

2000 600 Trade Balance (USD Mn 300,000 70%

1600 200

240,000 40% Y

o - 1200 -200 180,000 10% Y Growth

800 -600 120,000 -20% Total Arrivals Total

400 -1000 ) 60,000 -50% Exports /Imports (USD Mn) (USD /Imports Exports 0 -1400 0 -80% Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Mar-17 Dec-17 Sep-18 Jun-19 Mar-20 Exports (LHS) Imports (LHS) Trade Balance (RHS) Source: Central Bank Source: Sri Lanka Tourism Development Authority

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