ECONOMYNEXT – Sri Lankan listed company profits fell 10 percent in the September 2018 quarter from a year ago on lower consumer spending as the economy lost steam but banks and insurers maintained growth momentum, a brokerage said.
Despite the drop in overall earnings there was continued growth in banks and insurance sectors, First Capital Holdings said in an equities research report on the performance of 267 listed firms.
September 2018 quarter earnings dipped by 10 percent to 54.3 billion rupees from a year ago.
The dip was “primarily owing to sluggish performance in Food, Beverage and Tobacco, Telecommunication and Materials sectors which outweighed the positive momentum experienced by Banks and Insurance (+217%YoY) sectors,” the report said.
Food, Beverage and Tobacco sector profits fell 31 percent in the September 2018 qurater from the previous year, Telecommunication sector profits fell 36 percent and that of the Materials sector slumped 68 percent.
Profits of banks grew 14 percent and that of insurance firms shot up 217 percent during the period, First Capital Holdings said.
“Lackluster performance in Food, Beverage and Tobacco, Telecommunication and Materials sectors was mainly owing to lower consumer spending stemming from subdued economic growth,” the report said.
The profits dip in Carsons and Bukit Dahar was due to a loss of 943 million rupees as a result of a change in fair value of financial assets, deferred tax of 442 million rupees and a 821 million rupee foreign exchange loss.
The decline in volumes as a result of a new sugar tax saw earnings at Ceylon Cold Stores fall 31 percent.
“Amidst the heavy depreciation in the rupee, Dialog Axiata recorded a forex loss which led to a 54 percent year-on-year decline in earnings leading to a 36 percent YoY dip in Telecommunication sector earnings,” the report said.
The 68 percent dip YoY in the Material sector earnings was attributed to the 90 percent slump YoY in earnings of Tokyo Cement due to the slowdown in economic activities, First Capital said.
But they said the banking and insurance sector earnings continued to grow.
Banking sector earnings posted a 14 percent YoY growth to 17.7 billion rupees while continuing to be the largest contributor to overall earnings.
Commercial Bank, Hatton National Bank and Sampath Bank, being the largest banks in terms of the asset base, contributed 72 percent to total banking sector earnings.
“Improved earnings during the quarter was a result of higher interest rates that prevailed in the market, thereby improving margins and spreads which negated the effect of an increase in impairment provisioning under IFRS 9,” the report said.
The two-fold growth in insurance sector earnings was owing to phenomenal growth in earnings of Union Assurance Ltd. (1.6 billion rupees) and Softlogic Life Insurance (2.3 billion) resulting from the reversal in deferred tax assets in life insurance business.
(COLOMBO, December 6, 2018)