The Stock Market in Sri Lanka an Investment Opportunity Outlook for 2009 and Beyond

8/3/2019 The Stock Market in Sri Lanka an Investment Opportunity Outlook for 2009 and Beyond

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The Colombo Stock MarketAn Investment Opportunity Outlook For

2009 & Beyond


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Coverage

WhytheCSE?Whynow? Macroupdate Sectors&riskexposure Investmentstrategy Tools,resources&analysis


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Why the CSE? Why Now?

Empirically equities outperform othermeans of investment

Gains made from the CSE are TAX

FREE Prices have significantly reduced from

the 2007 highs


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What is likely however is that the market willmove higher perhaps substantially so, wellbefore the sentiment or the economy, turnsup. So if you wait for the Robins, spring will beover

W ar r en Bu f f e t

I cant predict the

short term movementof the Stock Market. Ihavent the faintest

idea as to whetherstocks will be higheror lower a month

or a year from now.


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Investment Horizon Investors

Traders Speculators

We believe that according the name'investors' to institutions that trade

actively is like calling someone whorepeatedly engages in one-nightstands a 'romantic.'


6/22

Timing of Investments Entry & Exit

0

20

40

60

80

100

120

Informed

Rectionary

Bandwagon

Informed

Rectionary

Bandwagon

Participant

Entry

&

Exit

Behaviour

Market

W e a r e

over

h e r e


7/22

Dj Vu CSE & Cessation of Hostilities

500

1,000

1,500

2,000

2,500

3,000

3,500

2Jan

85

2Jan

86

2Jan

87

2Jan

88

2Jan

89

2Jan

90

2Jan

91

2Jan

92

2Jan

93

2Jan

94

2Jan

95

2Jan

96

2Jan

97

2Jan

98

2Jan

99

2Jan

00

2Jan

01

2Jan

02

2Jan

03

2Jan

04

2Jan

05

2Jan

06

2Jan

07

2Jan

08

ASI&CFA's

1991CeaseFire

1994CeaseFire 2009

EndinSight?

2002CeaseFire


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ASI Return Vs. T Bill Return

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

ASI

TBR


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Where does

the CSE

stand?


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CSE Sectors by Market Capitalization

20,000

40,000

60,000

80,000

100,000

120,000

Tele

communications

Banks&Finance

Diversifieds

F

&BandTobacco

Hotels

Manufacturing

HealthCare

OilPalms

Motors

Land&Property

Plantations

Power&Energy

Chem

icals&Pharma.

Trading

In

vestmentTrusts

Con

struction&Eng.

Foo

twear&Textiles

S

tores&Supplies

Services

IT

SectorsbyMCAP(InMillions)


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Significant Macro Events

Civil strife expected to be resolved

Global recession

Foreign exchange situation High interest rates

Inflationary economy

Commodity price slump

Construction stagnant

Tourist arrivals declining Telecoms - Airtel

Corporate earnings outlook


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Scenario AnalysisScenario Effect Impact

Endtocivilwar Sharpincreaseinforeignandinvestmentinflows AcrosstheboardMarkettradingsentimentturnssignificantlypositive.(Paralell2004)Interestpicksuponallfronts(HNI,Institutionsandretailinvestors)

Globalrecession Exportsdecline.Exports/Remittances/Other(Commercial)external Hotels,Plantations&otherflowsdecline.Commoditypricesdecline direct/indirect exporters

Forexcrisis USDdepreciationmakesimportsexpensive ConsumerdiscretionarysegmentsAutos,Electronics

Highinterestrates Highcostoffunds AcrosstheboardCommoditiesslump Tea,rubber,oilpalm,oilpricesdeclinedramatically Plantations(P&EandF&B)Constructionstagnant Declineintheconstructionboom.Apartmentsalesandhousing BFI,L&P,C&E

slowingdownTouristarrivalsdeclining 32%reductioninJanuaryarrivals.(Globalrecession.Forexcrisis.) Hotels Airtel 5thPlayer.Inasaturatedmarket? TelcosEarningsoutlook Short tomediumtermoutlooknegative.Volumes,pricesand Acrosstheboard

demandworriestogetherwithfinancing,forexissuesindicateearningsmaysuffer.Longtermoutlookverybrightonpeaceprospects


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Strategy What Should an Investor Look

For?

Company wise Trading wise

Low gearing Liquidity

Sound prospects Holding power

Macro changes Profit targets

Underlying economics Diversify

Assets Due DiligencePrice history

(HiLo)


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Tools & Resources

Fundamental Analysis(EPS,PER,DER,DPS,ROE,ROA,Asset:TO)

Technical Analysis (Prices & Chart

Patterns)


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Fundamental AnalysisRatios: 2004A 2005A 2006A 2007A 2008F 2009F

Revenue growth 71.0% 23.8% 22.5% 18.4% 21.7% 22.4%

Earnings growth 61.5% 732.0% 76.4% 29.0% 28.0%Gross Profit Margin 14.9% 11.8% 20.9% 24.8% 26.0% 27.0%

Operating Margin 4.4% 1.9% 12.1% 15.0% 16.5% 17.5%

PreTax Margin 4.2% 1.0% 11.4% 14.9% 15.5% 16.2%

Net Profit Margin 4.0% 1.2% 8.3% 12.4% 13.0% 13.8%

Fixed asset turnover 4.4 4.5 4.7 4.8 4.9 5.5

Returnon Assets 4.4% 1.4% 10.4% 13.8% 14.5% 14.1%ReturnonEquity 10.7% 4.2% 26.6% 33.8% 32.2% 30.9%Net Debt to Equity 5.27% 68.97% 20.77% 15.18% 6.90% 6.44%

Earnings Per Share * 2.85 1.10 9.12 16.09 20.75 26.56

Book Value Per Share * 26.59 25.85 34.27 47.65 64.40 85.96


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Du Pont

ROE = NP/Equity

Asset: Turnover*NPM*Leverage = ROE

I f a b u siness does w e l l.. Th e st ock

eve n t u a l l y f o l l ow s

Turnover Net Profit Assets NetProfit Assets Turnover Equity Equity* * =


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Technical Analysis - MACD


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Tech. - Fibonacci Retracement


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Summary

End to strife brings significant up side

potential

Broad macro indicators bear watching

Diligence, research, clear & plannedinvestment strategies

Diversify


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Uncertainty? I don't look to jump over 7-foot bars: I look

around for 1-foot bars that I can step over. If past history was all there was to the game,

the richest people would be librarians. In the business world, the rearview mirror is

always clearer than the windshield. Look at market fluctuations as your friend

rather than your enemy; profit from folly ratherthan participate in it. It's far better to buy a wonderful company at a

fair price than a fair company at a wonderful

price. Risk comes from not knowing what you'redoing.

We simply attempt to be fearful when others are

greedy and to be greedy only when others arefearful.


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Rule #1 NEVER LOSE MONEY

Rule #2 NEVER FORGET RULE

#1


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Happy

Investing!

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The Stock Market in Sri Lanka an Investment Opportunity Outlook for 2009 and Beyond