Sri Lanka Stocks up 122-pct. Market Re-rating by Retail Stock Buyers are High Net Worth Investors

28th December 2009, www.lankabusinessonline.com

Sri Lankan retail stock buyers are focusing on mid capitalised firms while high net worth investors are chasing blue chips up in a fresh re-rating of the market, which is up 122-pct so far this year, analysts said.

"The traders will be slowly shifting towards midcap stocks expecting prices to follow the blue-chips," Thakshila Hulangamuwa, vice president at stock brokering firm, Asha Phillip Securities said.

"There can be a slowdown in the retail buying frenzy on the blue-chip stocks. However the high net worth and institutional investors will still go after high valued stocks."

JKH which traded at a trailing market price to earnings ratio (PER) of 12.1 on May 19, 2009 is now trading at a 22.43, SC Stockbrokers said.

Sri Lanka's largest listed bank, Commercial Bank of Ceylon traded at a multiple of 5.71 on May 18, 2009, and is now trading at 10.8 times.

Trailing market price to earnings is the current price of a stock divided by last year's four quarters earnings per share.

The market PE multiple has moved up to 16.1 percent by December 24 up from 13.6 in September. The multiple was 7.0 times in May when the leadership of the Tamil Tiger separatists was wiped out.

On Monday the Colombo all share price index ended at 3,344.89, up 1.58 percent (52.13 points) while the more liquid Milanka closed at 3,809.02, up 0.84 percent (31.78 points).

Turnover was 563.2 million rupees.

Confifi Hotels closed at 154.00 rupees, up 4.00, John Keells Hotel closed at 22.25 rupees, up 1.50 and Mahaweli Reach Hotels closed at 19.50 rupees, up 1.00.

Sigiriya Village Hotels closed at 38.25 rupees, down 25 cents and Aitken Spence Hotels closed at 265.00 rupees, up 50 cents.

JKH closed at 170.50 rupees, up 25 cents, and Distilleries Company of Sri Lanka, an alcohol manufacturer closed at 105.50 rupees, down 1.50.

Commercial Bank closed at 189.00 rupees, up 2.00.

Central Finance closed at 310.00 rupees, up 4.00 rupees, and Nation Lanka Finance, a former unit of troubled Ceylinco Group closed flat at 15.25 rupees.

"Some retail investors may seem uncomfortable with the present soaring prices of the Colombo Stock Exchange (CSE), for the simple fact that they haven’t seen such high share prices in the recent past," Nikita Tissera, research manager at SC Securities said.

"It must be noted that the war has come to a definite halt, thus removing a huge uncertainty away from the CSE’s investment equation. In such situations the markets usually warrant a significant re-rating of the trading multiples.

"Colombo’s ASI still trades at a significantly lower market (PER) compared to the trading multiples of Taiwan, Malaysia and Hong Kong."

By end June 2009, Singapore's market multiples were at 12 times, India 15, Malaysia 18, Taiwan 60 and China at 29.

Hemas Power closed at 19.50 rupees, and Haycarb, a unit of diversified Hayleys closed at 140.75 rupees, up 1.75.

Retailer favorite Lanka Cement closed flat at 24.00 rupees.