Sri Lanka Equity Analytics

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Wednesday, January 20, 2010

Lion Brewery (Ceylon ) PLC

l Lion Brewery (Ceylon) PLC, the 50.4% owned subsidiary of Ceylon Brewery [BREW: LKR120.00], controls approximately 86% of the Sri Lankan beer market. It brews, bottles and markets its own LION brand of beers and stouts, as well as Carlsberg beers (under the license of Carlsberg InternationalofDenmark).

l With the end of the military conflict, we expect strong revival in demand for soft alcohol/beer, underpinned by opening up of new markets in the northern and eastern provinces, a likely sharp increase in tourist arrivals, increase in demand for recreation activity and the rising in disposable incomes. In line with anticipated market growth, LION too is expanding its capacity by more than 50% in FY11E.

l LION has also begun to invest in a number of new breweries in India together with Carlsberg in order to exploit the vast untapped market in the sub-continent. LION has effective ownership of 22.5% of South Asian Breweries Limited, which has already constructed five breweries in India.

l We believe LION is on the course to a sharp revival in profitability with FY10E net profit forecast to to grow eight fold YoY to LKR437.0 mn (Vs LKR45.1 mn in FY09) and FY11E net earnings projected to grow by 30.1% YoY to LKR568.6 mn.

l The share is attractive on 13.7X forecast FY10E net profit and 10.6X projected FY11E earnings, trading at 1.4X PBV. BUY

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Friday, January 15, 2010

MBSL expects 30 percent profit growth

Despite the war, the global financial crisis and the instability of domestic financial institutions, the Merchant Bank of Sri Lanka PLC (MBSL)—which acquired or took over some of the ailing finance companies as management agents in a bid to restore public confidence—had a successful 2009 and expects its bottom line to grow 30 percent for the accounting year, the bank’s Chairman, Janaka Ratnayake, said.

"2009 was a difficult year. We had the last stages of the war against the LTTE being fought while the global economy was in recession, which did impact some sectors. The financial sector was also in turmoil at the beginning of the year (triggered by the Rs. 26 billion Golden Key scandal)," he said speaking to the Island Financial Review.

"But MBSL has been successful. We expect our profitability to record a 30 percent increase for 2009. Our accounts are being finalised and until approval is given by the Colombo Stock Exchange, specific figures cannot be given out now, but we have done well for ourselves during the year," Ratnayake said.

"The troubles we saw in the regulated financial institutions sector in 2009 would also subside and finance companies could see their growth prospects increase during the year," he said.

MBSL is a public quoted company listed on the Colombo Stock Exchange and is controlled by majority shareholder, state-owned Bank of Ceylon.

MBSL group’s after-tax-profits for the first nine months of 2009 grew by 121.9 percent to Rs. 277 million from Rs. 125 million for the corresponding period of 2008, according to financials filed with the stock exchange.

The group’s total net income for the period increased by 44.8 percent to Rs. 731 million from Rs. 504 million, while net expenses declined by 15.8 percent to Rs. 442 million from Rs. 382 million.

Meanwhile, Merchant Credit of Sri Lanka, an unlisted subsidiary of MBSL, has recorded an after-tax-profit of around Rs. 75 million for the 2009 financial year, a 15 percent growth over the previous year.

Rescue operations...

MBSL throughout 2009 took over the management of several regulated financial institutions that were facing liquidity problems as public confidence collapsed in the wake of the Golden Key Credit Card Company scandal.

It either acquired some of these companies or was appointed management agents by the Central Bank to clean-up operational processes, formulate deposit repayment and interest payment plans and ensure the institutions could continue in business.

"Our main concern was to restore public confidence in these financial institutions. We have been successful and during this year these institutions would grow to be much stronger financially and operationally," Ratnayake said.

MBSL Savings Bank and MBSL Insurance—formally known as Ceylinco Savings Bank and ABC Insurance which were on the brink of collapse—were acquired by MBSL in 2009.

"The savings bank has made a profit of Rs. 45 million for 2009 while we are confident the insurance company would reach a turnover figure exceeding Rs. 1 billion this year," Ratnayake said.

The Central Bank appointed MBSL as management agent for four finance companies during 2009: The Finance Company, Asian Finance, Finance and Guarantee Company and Ceylinco Investment and Realty.

"The deposit liabilities of all these companies totalled around Rs. 40 billion, with the Finance Company’s deposit liability alone amounting to Rs. 25 billion. All of these institutions are making steady recoveries and public confidence is strengthening," Ratnayake said.

The Finance Company...

Ratnayake said The Finance Company (TFC), the first and largest finance company in Sri Lanka, was performing well.

With a deposit liability of Rs. 25 billion and over half a million depositors, MBSL was able to restore order and stability at TFC. Interest payments amounting to Rs. 5 billion were met during 2009 and capital payments amounting to Rs. 7 billion were honoured as well.

"TFC has received new deposits amounting to approximately Rs. 500 million over the past six months alone and this is a good sign that things have improved," Ratnayake said.
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Monday, January 4, 2010

Central Finance maintains growth

Central Finance Company PLC continues its steady growth and with the 'A+' (lka) Fitch rating intact against challenging economic conditions.

"The outlook is Stable," Fitch Ratings noted reaffirming the CF national long-term rating as A+ (lka).

"CF's rating factors in its relatively good financial profile and its dominant market position in the Registered Finance Company (RFC) sector in Sri Lanka," Fitch Ratings announcement said. "CF management took a cautious approach to loan growth and further tightened stringent credit policies due to the challenging macroeconomic environment in FY09."

The six months ending September 30, 2009 saw the Company's income growing by 1.9 percent to Rs 3.4 billion. Interest income grew 3.6 percent to Rs. 2.8 billion while interest expenses were contained at Rs 1.6 billion, up 2.4 percent from expenses incurred during the same period the previous year.

Other income too improved from Rs.163.28 million to Rs 187.24 million.

However, profit after tax dropped 15.8 percent from Rs 511.2 million to Rs 430.6 million.

Deposits continued to increase and Rs 16 billion mark, up from Rs 13.46 billion at the end of the last financial year.
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