Diesel & Motor Engineering PLC

Overview of the company

Diesel & Motor Engineering PLC was established in 1939 as apartnership and probably the oldest sole distributor for Mercedes-Benz Passenger and Commercial Vehicles, in the Asian Region. InSri Lanka, DIMO is colloquially known as the “Benz Company”.

The Company has a record of 68 years experience in theautomobile and engineering industry and over the years has made a major contribution towards the development of thetransportation sector in Sri Lanka. DIMO represents many prestigious principals such as Daimler, TATA, Chrysler, MTU,Bosh, Komatsu, Siemens, Michelin, Osram, and Mahindra &Mahindra. Dimo group has diversified its business segments intothe areas of Power Engineering, Building Technologies, PowerSystems, Agricultural Machinery, Lighting Systems and WaterManagement Solutions.

Read the Full Report

http://docs.google.com/gview?url=http://colombostockwatch.com/wp-content/uploads/2011/04/DIMO.pdf&hl=en_US&gdet=i&chrome=true

»»  read more

CHEMICAL INDUSTRIES: Impressive 58.7% YoY Growth in 3QFY11

Earnings Reach LKR759mn Posting an Impressive 58.7% YoY Growth

• Chemical industries (CIC.N.LKR154.70,CIC.X.LKR109.00), posted a net profit of LKR759.0mn for 1-3QFY11 (vs. a net profit of LKR485.3mn for 1-3QFY10), reflecting a growth of 56.4% YoY, where company achieved net earnings of LKR382.7mn for 3QFY11.
• Growth was supported primarily by strong growth in agricultural & livestock segment earnings ( 42.7% YoY growth). Further triggered by impressive performance from construction, consumer & pharmaceutical segments posting YoY growth rates of 46.8% and 37.6% respectively.
• With country’s agricultural sector showing significant growth with improved economic conditions (agricultural sector grew at an impressive 7.0% for the FY2010), where the growth is expected to continue(according to rice research & development institute, Sri Lankan Demand for rice for local consumption in 2020 expected to be 4.6mn tons. Production should increase by 50% in both dry & wet zone to meet this target), also with the improved performance of Poultry & Feed segments with the increasing consumption levels.
• Further with the boost in construction industry expected to continue with the rebuilding efforts and major undertakings in leisure industry, and with CIC’s plans expand overseas, counter is poised to benefit with the strong presence in Agricultural, Construction, consumer & pharmaceutical segments. Against this backdrop we expect CIC to record LKR935.2mn in FY11E (up by 56% YoY) and net earnings of LKR1, 143.4mn in FY12E (22% YoY growth).
• CIC (voting) currently trades at 15.7X forecasted FY11E net profit, 12.8X estimated FY12E net profit and 3.1X PBV. CIC non- voting currently trades at 11.4X forecasted FY11E net profit and 9.3X forecasted FY12E net profit, as opposed to a chemical & pharmaceutical sector PE of circa 17.7X and a current trailing market P/E of 18.7X. We believe counter holds strong upside.

Read the Full Report:

http://docs.google.com/gview?url=http://colombostockwatch.com/wp-content/uploads/2011/04/CIC-Interim-Update.pdf&hl=en_US&gdet=i&chrome=true

»»  read more

Banking Sector – Riding the Growth Wave

Upside to loan growth

We expect the listed licensed commercial banks (LCBs) to book anaverage loan growth of 25% in FY11, picking up from the average lending growth of 22.52% YOY recorded in FY10Q4.We believethe positive macro economic outlook will translate to higher demand for credit aided by the low interest rates.

We feel following sectors are likely to boost the loan growth; SME– construction, agriculture, Corporate – leisure, energy,construction, trade, Personal – pawning, housing and leasing.

NPLs – An unlikely cause for concern

Despite a high loan growth forecast, we anticipate the gross nonperforming loans (NPLs) to reside around 6% in FY11 due to the improving debt servicing capacity of borrowers. Exceptionallyhigh NPLs are expected to decline in FY11, which will contribute to lower overall NPLs.

Tax cuts to help the industry

The proposed tax cuts (Financial Services VAT (FS VAT) from20% to 12% and the Income Tax from 35% to 28%) are expected to boost industry lending and thereby resulting in higher profits.

Our picks

We recommend SAMP and NTB on the basis of low P/Es, PBVand attractive growth prospects over the next 12 months.

*Since NDB Bank PLC is the parent company, it is excluded from the recommendation analysis as a company policy.

Read the Full Report:

http://docs.google.com/gview?url=http://colombostockwatch.com/wp-content/uploads/2011/04/Banking-Sector-31.03.11.pdf&hl=en_US&gdet=i&chrome=true

»»  read more

Sri Lanka - Country Report 2011

The year 2010, when the thirty year civil war ended, generated much optimism regarding Sri Lanka’s economic prospects. The real GNP growth at this time seemed to bear this out. The first nine months of 2010 recorded a 7.9 percent real GDP growth, compared to 3.5 percent in 2009, and as against an expected growth rate of 7.5 percent in 2011. The business conglomerates that incurred losses in 2009 recorded nearly a 50 percent year over year growth in net earnings during the first three quarters of 2010. Having displayed this striking buoyancy the private sector is expected to do even better in 2011.

These signs of a turn-around have been widely attributed foremost to the ending of the prolonged civil war. With this presumption there is the hope that the next few years’ growth rate will increase further, having performed poorly during the war and because of the war. Yet, a comparison with Sri Lanka’s war time economy hardly provides ground for this optimism which the mere ending of war has generated. Respectable rates of growth were achieved even during the war years of 1983 to 2008. During this 26 year period the average annual growth of the real GDP averaged 5.8 percent, considerably higher than in the twenty one years preceding the war from 1961-1982, when the growth rate was only 3.8 percent (Table 1). In this connection it is also important to note that this commendable growth rate during conflict years was realized even without the tourist boom –the offspring of peace- which helped the economy to reach 7.9 percent growth in the immediate post-war year 2010.

The relatively high average annual increment in GDP during the war, suggests that growth was not adversely affected by the conflict if growth is measured in conventional terms. It might not be wrong to say that, the economy reaped what may be considered to be a ‘war dividend’ much larger until now than the ‘peace dividend’ which was expected to accrue once the war was over. On this reckoning, contrary to what is commonly supposed is borne out: the war had not unduly depressed economic growth, with the economy waiting to take off when peace and political stability returned. The war seemed in fact to have enhanced growth rather than curtailed it.

Further, the growth of 7.9 percent in 2010 – the immediate post conflict year – is only marginally above the average growth rate of 7.3 percent during 2006/2007, the years of intensified fighting (Table 2) and escalating defense expenditure. The GDP growth of 7.3 percent in these two years was all the more notable since it took place after a high-base output growth of 6.2 percent in 2005, as opposed to 2010 in which year the growth performance occurred from a low base of 3.5 percent. Hence, even the average growth rate achieved during the severely war ravaged years of 2006/07, proved to be more robust than that during the post-conflict year – 2010, allowing for a clear twelve months period.

Read the Full Report:

http://docs.google.com/gview?url=http://colombostockwatch.com/wp-content/uploads/2011/04/CountryReport.pdf&hl=en_US&gdet=i&chrome=true&pli=1

»»  read more