Analysis of Sectoral Performance & Market Opportunities 15 AUGUST 2017 Candor Research By Ravi Abeysuriya, CFA Group Director, Candor President, Colombo Stock Brokers Association (CSBA) President, Association of Alternate Financial Institutions (AAFI)
Content All time high net foreign inflows in 1H2017 Possible reasons for foreign interest Sectoral analysis where foreign investors see value Foreign favorites net foreign purchases as of end July 2017 Are local investors missing out? How local investors can capitalize on market opportunities Licensed Candor Regulated Equities Limited 2 by the Securities & Exchange Commission of Sri Lanka
Disclaimer The information and opinions contained herein are based upon information obtained from sources believed to be reliable and made in good faith. Such information has not been independently verified and no guarantee, representation or warranty, express or implied is made as to their accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This is for information purposes only, and the description of any company or their securities mentioned herein is not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. 3
Net Foreign Inflow (Rs. Bn) Candor Research Market performance closely correlated with net foreign inflows 30 30% 25 20 15 10 5 0-5 -10 23.4% ASPI Performance 7.8% 4.8% 2013 2014 2015 2016 2017 (YTD - July) -5.5% -9.7% 25% 20% 15% 10% 5% 0% -5% -10% -15% Source: CSE Annual Report 2016, Bloomberg, Candor 4
Rs. Bn Candor Research Gradual growth in foreign turnover compared to domestic turnover 400 350 300 250 27.6% Foreign (Rs. Mn) Domestic (Rs. Mn) 200 150 100 50 0 34.4% 36.0% 42.0% 46.9% 64.0% 72.4% 65.6% 58.0% 53.1% 2013 2014 2015 2016 2017 (YTD - June) Source: CSE Annual Report 2016, Bloomberg, Candor Research 5
1.2% Sri Lanka attracted highest net foreign Inflow as a % of total market cap in 1H2017 1.0% 1.0% 0.8% 0.6% 0.4% 0.6% 0.4% 0.4% 0.2% 0.1% 0.0% -0.2% Malaysia Indonesia India Sri Lanka Pakistan Vietnam -0.4% -0.6% -0.4% PER* 16.53 23.26 19.70 11.80 10.45 15.50 Source: CSE Annual Report 2016, Bloomberg, Candor Research * PER as at January 2017 Bloomberg PE Values 6
SL is one of three Asian countries in the MSCI Frontier Markets Index 7
LKR Billion Candor Research Top countries that contributed to YTD net foreign inflows to SL 10.00 9.00 9.39 8.00 7.00 6.00 5.74 5.00 4.00 3.00 2.77 2.00 1.00 1.48 1.08 0.97 0.55 - Luxembourg United States Cayman Islands Ireland Virgin Islands (Br.) Norway Australia Source: CSE, Candor Research 8
LKR Million % Candor Research Three sectors with top YTD return had highest foreign inflows 30.0 25.0 20.0 15.0 10.0 5.0-16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Industrials 27.6 14,377 Financials 17.0 6,970 Sector Performance % (YTD - July) Consumer Staples 18.0 Consumer Discretionary 2.4 Materials 19.2 Telecommunication Services 5.5 Net Foreign Inflow (LKR Mn) 1,483 970 614 605 Source: CSE, Candor Research 9
Key stocks within the performing sectors Sector (GICS) Key Stocks Net Foreign Inflow (LKR Mn) YTD - Total Return (%)* PE(x) - Jan 2017 Current PE(x) Industrials 14,377.00 27.59 JOHN KEELLS HOLDINGS PLC 10,239.52 28.29 12.47 13.49 HEMAS HOLDINGS PLC 1,453.00 54.24 17.46 23.77 RICHARD PIERIS AND COMPANY PLC 312.17 69.94 6.22 7.72 EXPOLANKA HOLDINGS PLC 1,180.85 9.05 13.95 13.06 Financials 6,970.20 16.99 SAMPATH BANK PLC 1,145.89 10.67 4.85 4.89 HATTON NATIONAL BANK PLC 811.53 8.00 6.13 6.32 LB FINANCE PLC 210.46 17.67 4.20 4.67 Source: CSE, Bloomberg, Candor Research * Bloomberg Total Return Return with dividend Reinvested 10
Key stocks within the performing sectors Sector (GICS) Key Stocks Net Foreign Inflow (LKR Mn) YTD - Total Return (%)* Consumer Staples 1,483.06 18.00 PE(x) - Jan 2017 Current PE(x) SUNSHINE HOLDINGS PLC 757.86 30.98 12.24 13.58 CEYLON TOBACCO COMPANY 230.87 21.17 12.13 14.16 CEYLON COLD STORES PLC 261.37 15.41 19.03 22.68 Materials 614 19.2 TOKYO CEMENT PLC 1,137 53.0% 6.19 9.00 CHEVRON LUBRICANTS PLC -607-6.8% 11.6 12.5 Source: CSE, Bloomberg, Candor Research * Bloomberg Total Return Return with dividend Reinvested 11
Foreign favorites net foreign inflow YTD July 2017 Company Name Net Foreign Inflow - Rs. M YTD - Price Return PE(X) Jan 2017 PE(X) Aug 2017 1 John Keells Holdings plc 10,239.5 24.1% 12.56 14.33 2 Commercial Bank of Ceylon plc 5,284.7-0.5% 8.79 8.10 3 Hemas Holdings plc 1,453.0 47.0% 18.15 24.10 4 Expolanka Holdings plc 1,180.9 4.9% 14.19 13.06 5 Sampath Bank plc 1,145.9 8.1% 4.87 4.54 6 Tokyo Cement company (Lanka) plc - (NV) 1,137.5 53.0% 6.19 9.00 7 Sunshine Holdings plc 757.9 22.4% 12.83 13.93 8 Hatton National Bank plc 658.6 4.9% 6.13 6.31 9 Access Engineering plc 656.3 7.7% 9.88 9.64 10 Dialog Axiata plc 605.1 9.5% 9.48 11.76 11 Teejay Lanka plc 462.9-3.5% 12.80 16.14 12 Royal Ceramics Lanka plc 351.8 12.6% 4.02 4.53 13 Richard Pieris and company plc 312.2 50.6% 6.22 7.73 14 The Kandy Hotels company plc 285.1-8.8% 13.08 14.42 15 Ceylon Cold Stores plc 261.4 12.3% 19.03 23.41 16 DFCC Bank plc 231.1 2.2% 9.46 7.15 17 Ceylon Tobacco Company plc 230.9 16.9% 12.13 14.01 18 Lb Finance plc 210.5 7.3% 4.29 4.77 19 Tokyo Cement company (Lanka) plc 182.5 55.2% 6.19 9.00 20 Hatton National Bank plc (NV) 152.9 1.8% 6.13 6.31 21 Commercial Bank of Ceylon plc (NV) 147.8-4.6% 8.79 8.10 22 Lanka IOC plc 133.2 7.9% 3.18 19.37 23 Lanka Tiles plc 97.1 19.9% 4.84 5.00 24 Hayleys plc 72.8 9.3% 7.00 9.72 25 Piramal Glass Ceylon plc 67.0 14.8% 10.80 12.16 26 Renuka holdings plc 66.9 20.0% 2.32 3.61 27 Cargills (Ceylon) plc 56.8 6.9% 18.39 21.57 12
Increasing % foreign holdings of performing stocks JOHN KEELLS HOLDINGS PLC EXPOLANKA HOLDINGS PLC SAMPATH BANK PLC 19% 50.92% 16.84% 57% 70.72% 82% HEMAS HOLDINGS PLC TOKYO CEMENT PLC SUNSHINE HOLDINGS PLC 32% 31% 29.89% 37.65% 26.11% 49% Source: CSE, Candor Research Foreign Holding % August 2017 Foreign Holding % Jan 2017 13
Foreign & Domestic Participation (%) PE(x) Candor Research Declining market PE levels resulted in increased foreign participation while domestic participation decreased 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2013 2014 2015 2016 2017 (YTD - June) Average PE(x) Foreign (%) Domestic (%) 18 16 14 12 10 8 6 4 2 0 Source: CSE Annual Report 2016, Bloomberg, Candor Research 14
Are local investors missing out? Behavioral aspects explain Source: The 4 Psychological Phases of Asset Bubbles 15
How local investors can capitalize on market opportunities 16
Financial Year Latest Quarter 3 YR Avg High P/E 3 YR Avg Low P/E 2016/03 /02 2017/03 /02 Forward PER 3 YR Avg High P/B 3 YR Avg Low P/B PBV BVPS (LKR) Candor Research Use screens to identify bargains & Invest based on fundamentals Bloomberg Code Forec asted EPS Earnings Growth (%) P/E Analysis (1x) PBV Analysis (1x) Dividend Analysis Dividen d Yield DPS % JKH 11.26-1.9% 16.9% 20.07 14.26 13.40 12.25 12.59 2.19 1.47 1.17 120.91 6.13 4.32 TKYO 9.95 17.8% 130.6% 12.03 5.73 6.47 6.50 6.23 2.10 1.10 1.54 40.19 1.56 2.51 HEMS 5.60 37.7% 0.6% 18.19 10.85 16.23 19.69 19.36 2.70 1.53 2.61 41.51 1.50 1.38 CLND LGL 4.16 761.9% -1656.0% 68.16 18.08-7.94 6.02 2.49 1.49 1.01 24.76 - - 0.38-11.3% -169.9% 12.63 9.06 9.54 16.68 79.46 2.22 1.59 1.39 21.58 0.75 2.50 Source: Candor Stock Tracker 31 Mar 2017, (based on Bloomberg data) 17
Financial Year Latest Quarter 3 YR Avg High P/E 3 YR Avg Low P/E 2016/03 /02 2017/03 /02 Forward PER 3 YR Avg High P/B 3 YR Avg Low P/B PBV BVPS (LKR) Candor Research Use screens to identify bargains & Invest based on fundamentals Bloomberg Code Forec asted EPS Earnings Growth (%) P/E Analysis (1x) PBV Analysis (1x) Dividend Analysis Dividen d Yield DPS % Return YTD (%) - July JKH 11.26-1.9% 16.9% 20.07 14.26 13.40 12.25 12.59 2.19 1.47 1.17 120.91 6.13 4.32 24.14 TKYO 9.95 17.8% 130.6% 12.03 5.73 6.47 6.50 6.23 2.10 1.10 1.54 40.19 1.56 2.51 55.19 HEMS 5.60 37.7% 0.6% 18.19 10.85 16.23 19.69 19.36 2.70 1.53 2.61 41.51 1.50 1.38 47.00 CLND LGL 4.16 761.9% -1656.0% 68.16 18.08-7.94 6.02 2.49 1.49 1.01 24.76 - - 0.38-11.3% -169.9% 12.63 9.06 9.54 16.68 79.46 2.22 1.59 1.39 21.58 0.75 2.50-5.88-18.24 Source: Candor Stock Tracker 31 Mar 2017, (based on Bloomberg data) 18
Regularly review portfolio returns Portfolio A Stock Quantity Avg Cost Total Cost Market Value as at 31st July 2017 Portfolio Value as at 31st July 2017 Unrealized Gain/Loss Total Return% Annualize Return % JOHN KEELLS HOLDINGS PLC 100 140 14,000.00 173.80 17,380.00 3,380.00 24.14% 45.63% HEMAS HOLDINGS PLC 100 100 10,000.00 147.00 14,700.00 4,700.00 47.00% 95.35% RICHARD PIERIS & CO PLC 100 8.1 810.00 12.20 1,220.00 410.00 50.62% 103.78% SUNSHINE HOLDINGS PLC 100 49.41 4,941.00 60.50 6,050.00 1,109.00 22.44% 42.20% CEYLON COLD STORES PLC 100 740 74,000.00 831.00 83,100.00 9,100.00 12.30% 22.33% SAMPATH BANK PLC 100 248.38 24,838.00 268.50 26,850.00 2,012.00 8.10% 14.50% Total Portfolio Return 27.43% 53.97% ASPI Return 7.80% 12.80% S&P SL20 Return 9.74% 17.54% Portfolio Btfolio B Stock Quantity Avg Cost Total Cost Market Value as at 31st July 2017 Portfolio Value as at 31st July 2017 Unrealized Gain/Loss Total Return% Annualize Return % COLOMBO LAND & DVLP CO PLC 100 25.5 2,550.00 24.00 2,400.00 (150.00) -5.88% -10.00% BLUE DIAMONDS JEWELLERY WORL 100 1.4 140.00 1.30 130.00 (10.00) -7.14% -12.09% ADAM INVESTMENTS PLC 100 0.95 95.00 0.60 60.00 (35.00) -36.84% -55.00% LANKEM DEVELOPMENTS PLC 100 3.9 390.00 3.00 300.00 (90.00) -23.08% -36.62% ADAM CAPITAL PLC 100 1.3 130.00 1.00 100.00 (30.00) -23.08% -36.61% Total Portfolio Return -19.20% -30.06% ASPI Return 7.80% 12.80% S&P SL20 Return 9.74% 17.54% 19
Do not make these amateur mistakes 1. Investing based on Rumors or Gossip (unproven facts) 2. Believing that the stock market is inherently risky 20
Educate yourself & gain experience on investing before you start It takes a lot of hard work to be a successful investor Invest in your financial education before you invest The goal of enlightened stock analysis is to identify underpriced securities relative to their true intrinsic value Take time to learn about the company before you buy, to be sure it meets your criteria for achieving your goal(s) If you don't have the time, or interest in following individual stocks, unit trust funds are a more efficient way to invest 21
THANK YOU 22