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Sri Lanka Weekly

DNH MARKET WATCH

DNH Financial (Pvt) Ltd. www.dnhfinancial.com +94-11-5700777

10-14 Dec 2012


Market Performance
This Week ASPI MPI S&P SL 20 Turnover (bn) 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) Prv. Week WoW%

Market Indices

5,528 5,045 3,023 2.74 1381 1202 273 14.6 2,120 16.3 2.4 2.0

5,387 4,894 2,954 2.69 1791 816 270 14.3 2,069 15.9 2.4 1.9

2.6 3.1 2.3 1.7 -22.9 47.3 1.1 2.4 2.5 2.6 -1.2 4.2

Reversing the lackadaisical movement witnessed over the past few days, the bourse gained 2.6% to close the week at 5528 on the back of a 25 bps cut in policy rates by the Central Bank. Turnover increased to LKR2.7 bn during the week with trading in John Keells Holdings, Commercial Bank and Commercial Bank accounting for 32% of the weeks total. Gainers outpaced losers with Beruwela Walk Inn, Property Development and Tangerine Beach rising by 26.3%, 24.0% and 20.3% offsetting losses in Hunters & Company, SMB Leasing and Convenience Foods which declined by 10.9%, 10.0% and 9.1% respectively.

In global news, expectations that the Federal Reserve will announce a new stimulus plan to help bring life to a lethargic US economy boosted international markets during the week.

Gainers & Losers (%)


Mackwoods Energy Convenience Food SMB Leasing Hunters CFI Tangerine PDL Beruwela Walk Inn
-8.9 -9.1 -10.0 -10.9 18.8 20.3 24.0 26.3

Global Markets
14-Dec 7-Dec

Interest Rates & Currencies


WoW% 2.5 -0.6 0.1 0.7 2.0 1.9
14-Dec

Sri Lanka - ASPI India - Sensex Pakistan - KSE 100 Taiwan Weighted Singapore - Straits Times Hong Kong - Hang Seng

5,523 19,317 16,850 7,699 3,168 22,606

5,387 19,424 16,831 7,642 3,107 22,191

Prime Lending Rate (Avg. Weighted) Deposit Rate (Avg. Weighted) Treasury Bill Rate (360 Days) Dollar Denominated Bond Rate LKR/US$ (Selling Rate) LKR/EURO (Selling Rate)

14.3% 9.8% 12.4% 5.9% 130.0 170.8

Market Performance (Cont.)


In economic news, tax revenues grew by 6.6%YoY to LKR 629.5 bn during the first 9 months of 2012 while non-tax revenues grew by 16.2% to LKR81.8 bn during the period with grants rising by 48.5% to LKR14.4 bn. This in turn has resulted in total revenues and grants reaching LKR725.7 bn during the first 9 months, up 8.16% from a year earlier. Meanwhile, total expenditure rose by 14.9%YoY to LKR1208.7 bn during the first 9 months of 2012 with recurrent expenditure growing by 9.1% to LKR851.8 bn while capital expenditure increased by 31.84% to LKR356.9 bn. The budget deficit consequently rose by 26.9% to LKR483 bn during January to September 2012 resulting in the budget deficit as a percentage of GDP reaching 6.4%, as against 5.81% a year earlier.
0 -2 -4 -6 -8 -10 -12

Budget Deficit as a % of GDP


2006 2007 2008 2009 2010 2011 Jan-Sep 2012

Source - CBSL/ DNH Research

LKR Bn
Non-tax revenue Tax revenue Grants Total Revenue & Grants Recurrent Expenditure Net capital expenditure Total Expenditure Deficit Deficit as a % of GDP

Jan Sep 2011


70.4 590.8 9.7 670.9 780.9 270.7 1051.6 380.7 5.8%

JanSep 2012
81.8 629.5 14.4 725.7 851.8 356.9 1208.7 483.0 6.4%

Change
16% 7% 48% 8% 9% 32% 15% 27%

During the week, the Central Bank cut key policy rates by 25 bps while allowing the ceiling on rupee credit extended by banks to expire at end 2012. Accordingly, the Repurchase rate and the Reverse Repurchase rate of the Central Bank wasrevised down to 7.50% and 9.50% respectively. Consequently, the downward revision prompted treasury bill yields to fall across maturities with the 12 month yield declining as much as 41 bps to 12.45%, the 6 month yields falling by 32 bps to 11.78% while the 3 month yield fell by 35 bps to 10.44%.
Rates on Government Securities (T-Bills)
14.00 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00
02.12.2011 06.01.2012 03.02.2012 24.02.2012 15.03.2012 03.04.2012 25.04.2012 18.05.2012 08.06.2012 27.06.2012 18.07.2012 10.08.2012 28.08.2012 19.09.2012 10.10.2012 09.11.2012 28.11.2012

91 Days

182 Days

364 Days

Source - CBSL/ DNH Research

Sri Lanka Weekly

10-14 Dec 2012

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Market Performance (Cont.)


Market Trajectory Even though investors appear to be in a holiday mood, we expect the bourse to edge upwards (albeit moderately) as we approach the year end. We recommend investors to take advantage of the current market opportunity to clean their portfolios, maintain a selective approach and focus on stocks that are likely to benefit fully from the 2013 economic growth. Consequently, we advise investors to focus more closely on fundamentals and sectors such as banking, construction, diversified and hotels, which are expected to benefit fully from the macroeconomic upswing next year.

month in long-dated Treasury securities beginning in January. Eurozone The Christmas rally seems to have taken a brief pause and understandably so after US stocks suffered from profit taking. However, the Eurostoxx 50 rose by 1.3% to close at 2631 at the end of the week with a rise in a German investor sentiment index boosting confidence. In economic news, Greece will begin to receive 34 billion in bailout aid through the European Financial Stability Facility in the coming days. Eurozone finance ministers approved the release of long-awaited aid payments after Greece came close to its target in buying back 31.9 billion in bonds. Meanwhile, euro zone manufacturing PMI data missed market expectations, while the services PMI surprised to the upside. In the banking sector, Spanish banks cut their reliance on ECB funding for the 3rd straight month, a similar trend has been seen with Italian banks. Asia Asian equities rose for the week on the back of improved economic data released from China which showed new signs of a possible economic rebound. The MSCI Asia Pacific Index rose by 1.1% led by gains in Nikkei, Straits Times and Hang Seng. After a positive report on industrial output growth of 10.1% from a year earlier and rising electricity production, the preliminary manufacturingpurchasing managers index from HSBC rose to 50.9 indicating a second straight month ofgrowth in manufacturing activity. Meanwhile, Japan has officially entered a recession in thethird quarter, as its economy shrank for a second straight quarter. An initial report that Page 3

Global Outlook
US US equities recorded a modest decline with the Nasdaq, S&P 500 and Dow Jones shedding 0.2%, 0.3% and 0.2% to close at 2971, 1414 and 13135 at the end of the week. Initial jobless claims fell 29,000 to a seasonally adjusted 343,000 for the week ended 8 December. Meanwhile, the US inflation rate stayed within the Feds target zone; November data from the US Labor Department showed a 0.3% drop in overall consumer prices in November and a 0.1% increase in core prices (excluding food and energy). Overall, annual consumer prices rose 1.8% as of November, with core prices up 1.9%. The Fed has stated that interest rates would remain low as long as the unemployment rate stays above 6.5% and the one to twoyear outlook for inflation remains below 2.5%. The US Fed has further announced it would buy $45 billion per

Sri Lanka Weekly

10-14 Dec 2012

Global Outlook (Cont..)


Japans economy had grown 0.3% in the second quarter was revised to a 0.1% contraction. Japans current-account surplus fell in October from a year earlier as the countrys trade deficit grew. Japans exportdriven economy is being hurt by the territorial battle with China over unpopulated islands in the East China Sea as well as the global downturn. In commodity news, gold plunged the most for the week dropping $14 to just below the $1700 per ounce, while crude oil dropped 62 cents to $86.10/barrel.

Sri Lanka Weekly

10-14 Dec 2012

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DNH TOP 30
Company CSE CODE Share Price (LKR)
Sri Lanka Telecom Lanka ORIX Leasing AHOT Properties Dialog Axiata Softlogic Holdings Colombo Fort Land & Buildings Aitken Spence John Keells Holdings Commercial Bank Hemas Holdings Hayleys Hatton National Bank Distilleries Richard Pieris Eden Hotel Lanka Nawaloka Hospitals Kotagala Plantations Asiri Hospitals DIMO Kegalle Plantations Royal Ceramics Lanka WallTile Ceylon Glass Laugfs Gas VallibelOne National Development Bank DFCC Bank Sampath Bank Ceylon Leather Ceylon Grain Elevators Expolanka Holdings SLTL LOLC AHPL DIAL SHL CFLB SPEN JKH COMB HHL HAYL HNB DIST RICH EDEN NHL KOTA ASIR DIMO KGAL RCL LWL GLAS LGL VONE NDB DFCC SAMP CLPL GRAN EXPO 42.70 52.50 76.00 8.10 10.10 32.90 117.50 218.00 102.00 27.00 285.00 142.00 160.00 7.80 34.50 3.00 66.40 11.00 601.10 100.30 93.80 61.00 6.00 24.10 18.00 135.50 112.00 200.00 79.00 54.30 6.90

Valuation Guide
Net Profit (LKR mn)

2009
778 2,385 689 -12208 155 50 2987 5552 4304 935 2581 4352 2136 712 498 97 323 318 278 376 711 766 -61 528 N/A 2085 1713 2098 36

2010
3,943 7,023 2148 5047 971 2139 3428 9063 5524 1355 1128 4464 8308 2141 101 1071 668 262 2122 883 1374 990 579 853 N/A 2176 7137 3520 107 475 1768

2011
4,781 8,937 2,507 5,354 1022 2087 4711 11069 8048 1315 3845 5570 6138 2561 146 271 439 842 2697 682 1970 1135 686.4 930 3645 2941 2973 4173 44 455 1230

134 518

DNH Top 30 stock list does not indicate BUY recommendation

Sri Lanka Weekly

10-14 Dec 2012

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DNH TOP 30
EPS EPS Growth (%) PE (X)

Valuation Guide
Price to Growth (X) 2011 2011 Dividend Yield (%) Shares in issue (mn) Market Cap (LKR bn)

2009

2010

2011

2009

2010

2011

2009

2010

SLTL LOLC AHPL DIAL SHL CFLB SPEN JKH COMB HHL HAYL HNB DIST RICH EDEN NHL KOTA ASIR DIMO KGAL RCL LWL GLAS LGL VONE NDB DFCC SAMP CLPL GRAN EXPO

0.43 8.32 9.71 -1.50 0.20 0.36 5.07 6.19 5.48 1.75 23.08 12.17 7.12 0.30 0.06 0.07 10.09 0.21 31.32 15.04 6.42 5.12 -0.06 1.36 N/A 12.70 9.73 13.21 1.05 2.23 0.26

2.18 8.08 8.02 0.62 1.06 6.37 8.44 9.81 7.20 2.35 9.03 12.49 27.08 0.87 1.92 0.76 20.88 0.21 239.06 35.32 12.40 8.87 0.61 2.20 N/A 12.81 19.20 22.21 3.12 7.92 0.79

2.65 13.17 9.71 0.64 0.62 7.15 9.14 11.63 10.58 2.35 33.60 15.58 18.92 1.21 2.76 0.19 13.71 0.67 303.87 27.28 17.78 13.77 0.72 2.40 3.35 16.48 10.94 26.46 2.68 6.46 0.54

-89% 275% 305% 324% 124% 82% 1% 5% 2% 16% 457% 35% -37% -276% -108% -189% 89% 137% 170% 112% 245% -23% -77% 131% N/A 74% 19% 39% -250% 355% N/A

407% -3% -17% -141% 438% 1653% 66% 59% 31% 34% -61% 3% 280% 190% 3261% 1004% 107% 3% 663% 135% 93% 73% -1049% 61% N/A 1% 97% 68% 197% 255% 199%

21% 63% 21% 3% -42% 12% 8% 19% 47% -0.1% 272% 24.8% -30% 39.2% 44% -74.7% -34% 214.6% 27% -22.8% 43% 55% 19% 9% N/A 29% -43% 19% -14% -18% -32%

99.1 6.3 7.8 N/A 51.1 90.5 23.2 35.2 18.6 15.4 12.3 11.7 22.5 26.0 603.5 43.6 6.6 53.0 19.2 6.7 14.6 11.9 N/A 17.7 N/A 10.7 11.5 15.1 75.1 24.3 26.0

19.5 6.5 9.5 13.1 9.5 5.2 13.9 22.2 14.2 11.5 31.6 11.4 5.9 9.0 18.0 3.9 3.2 51.3 2.5 2.8 7.6 6.9 9.8 10.9 N/A 10.6 5.8 9.0 25.3 6.9 9

16.1 4.0 7.8 12.7 16.3 4.6 12.9 18.7 9.6 11.5 8.5 9.1 8.5 6.5 12.5 15.6 4.8 16.3 2.0 3.7 5.3 4.4 8.3 10.0 5.4 8.2 10.2 7.6 29.4 8.4 12.8

0.76 0.06 0.37 4.14 -0.39 0.38 1.57 1.01 0.21 -126.48 0.03 0.37 -0.28 0.16 0.28 -0.21 -0.14 0.08 0.07 -0.16 0.12 0.08 0.45 1.10 N/A 0.29 -0.24 0.40 -2.09 -0.46 -0.40

2.0% N/A 1.3% 3.1% 1.3% 0.9% 1.2% 1.4% 2.6% 1.9% 1.4% 5.3% 1.9% 10.3% N/A 1.7% 3.0% 2.3% 6.7% 7.5% 4.3% 1.6% 6.0% 6.2% 1.7% 2.6% 8.9% 4.5% N/A N/A 1.7%

1,805 475 221 8,144 779 180 406 840 765 515 75 358 300 1,937 53 1,410 32 889 9 25 111 55 950 387 1,087 164 265 157 34 60 1,955

77.1 24.9 16.8 66.0 7.9 5.9 47.7 183.2 78.0 13.9 21.4 50.8 48.0 15.1 1.8 4.2 2.1 9.8 5.3 2.5 10.4 3.3 5.7 9.3 19.6 22.2 29.7 31.4 2.7 3.3 13.5

DNH Top 30 stock list does not indicate BUY recommendation

Sri Lanka Weekly

10-14 Dec 2012

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Key Economic Indicators


2004 Nominal GDP (LKR bn) % YoY Nominal GDP (US$ bn) % YoY Real GDP Growth (%) GDP per Capita (US$) % YoY Population (mn) % YoY Inflation (%) M2 (LKR bn) % YoY Average Oil Prices (US$ / barrel) % YoY Exports (US$ bn) % YoY Imports (US$ bn) % YoY Trade Balance (US$ bn) % YoY Current Account Balance (US$ bn) % YoY Balance of Payments (US$ bn) % YoY Budget Deficit (US$ bn) % YoY Budget Deficit as % of GDP Exchange Rate (LKR/US$) 2,091 15 21 9 5.4 1,062 8 19.5 1 9 688 18 36.1 28 5.8 14 8 19 -2.2 47 -0.6 813 -0.2 -140 -1.5 12 -7.5 101.2 2005 2006 2007 2008 2009 2010 2011 2,453 2,939 17 24 18 6.2 20 28 16 7.7 3,579 4,411 4,835 5,602 6,543 22 32 14 6.8 23 41 26 6 10 42 3 3.5 16 50 18 8 17 59 18 8.3

1,241 1,421 17 19.7 1 11 823 20 50.6 40 6.3 9 8.9 11 -2.5 14 -0.7 0 0.5 -350 -1.7 11 -7.0 100.5 15 19.9 1 10 993 21 61.1 21 6.9 10 10.2 15 -3.4 36 -1.5 130 0.2 -60 -2 15 -7.0 104

1,617 2,014 2,057 2,399 2,836 14 20 1 15.8 25 20.2 1 22.6 2 20.5 1 3.4 17 20.7 1 5.9 18 20.9 1 6.7

1,148 1,282 1,537 1,813 2,193 16 69.1 13 7.6 10 11.3 11 -3.7 9 -1.4 -6 0.5 150 -2.2 12 -6.9 12 94.5 37 8.1 7 14.1 25 -6 62 -3.9 177 -1.4 -380 -2.9 29 -7.0 20 61.1 -35 7.1 -12 10.2 -28 -3.1 -48 -0.2 -94 2.7 -293 -4.1 45 -9.9 18 77.5 27 8.6 17 13.5 32 -4.8 67 -1.1 563 0.9 -67 -3.9 -5 -8.0 21 109 41 10.6 23 20.3 50 -9.7 -102 -4.6 318 -1.1 -222 -4.1 -4 -6.9

110.6 108.3 114.9 113.1 110.6 Page 7

Sri Lanka Weekly

10-14 Dec 2012

Key Economic Charts


Nominal GDP
8,000 6,000 4,000 2,000 0 2004 2005 2006 2007 2008 2009 2010 2011 Nominal GDP Real GDP 3000 2500 2000 1500 1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 GDP Per Capita

GDP per Capita

10 8 6 4 2 0

GDP Growth
GDP Growth

21.5 21 20.5 20 19.5 19 18.5

Population (mn)
Population

2004 2005 2006 2007 2008 2009 2010 2011

2004 2005 2006 2007 2008 2009 2010 2011

Exports (US$ bn)


11 10 9 8 7 6 5 4 2004 2005 2006 2007 2008 2009 2010 2011 Exports (US$ bn) 19 14 9 24

Imports (US$ bn)

Imports (US$ bn) 4 2004 2005 2006 2007 2008 2009 2010 2011

BOP(US$ bn)
3 2 1 0 -1 -2 2004 2005 2006 2007 2008 2009 2010 2011 Balance of payment 120 115 110 105 100 95 90

Exchange Rate (LKR/USD)

LKR/US$

2004 2005 2006 2007 2008 2009 2010 2011

Sri Lanka Weekly

10-14 Dec 2012

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Disclaimer
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. No part of this document may be reproduced, distributed or published in whole or in part by any means to any other person for any purpose without prior permission.DNH Financial (Pvt) Ltd is a fully owned subsidiary of Environmental Resources Investment PLC (ERI).

Contacts
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Sri Lanka Weekly

10-14 Dec 2012

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