Dec. quarter corporate earnings hit all-time high defying virus scare

• Cumulative earnings surge to Rs.85bn, up 33% YoY and 16% QoQ
• Softlogic Stockbrokers says pent-up demand powered up earnings
• Banking sector leads with Rs.18.7bn in earnings

Sri Lanka’s listed entities reported their best-ever earnings in the three months ended in December 2020, defying the pandemic-triggered disruptions and the worst predictions by certain rating agencies and other analysts who painted a gloomy outlook. 

According to Softlogic Stockbrokers, who parsed the October-December interim results, the corporates have reported a cumulative Rs.85 billion in earnings, recording what was termed as a “phenomenal increase” in the bottom lines, which ended up as the highest in the quarterly earnings history.

This was a robust 33 percent increase from the same three months in 2019 and a 16 percent growth from the previous quarter ended in September 2020. 

The cumulative earnings for the July-September quarter were at Rs.73.6 billion, which was also the highest in two years. 

The back-to-back earnings records were a result of the robust pent-up demand that kicked in from June onwards, after nearly a lockdown of two months. 

“The earnings momentum continued beyond the pent-up demand cycle witnessed in 3Q 2020, to record a 16 percent QoQ growth for 4Q 2020, in testament to the favourable climate for local companies during the post-lockdown period,” Softlogic Securities said. 

Strong earnings, improved business and consumer confidence and lower interest rates fuelled the recent stock market rally, which sent market indices into their all-time highs in January 2021.

As usual, the banking sector led the earnings during the December quarter, recording cumulative earnings of Rs.18.7 billion, which was up by a robust 42 percent from the September quarter, albeit 19 percent down from the same period in 2019.

This demonstrates how well the banking sector navigated the challenges thrown in by the pandemic as the sector showed mostly resilient earnings, despite higher impairments and margin contraction. 

Meanwhile, the import restrictions and the revival in activities in the economy drove the earnings in the capital goods sector, of which the earnings soared by 66 percent YoY and 62 percent from the September quarter. 

The food and beverage and tobacco sector earnings surged 75 percent in the quarter from the same period in 2019, due to the consumer demand holding up from the September highs and the spike in palm oil prices. But the earnings slipped by 3 percent from the September quarter, due to some slowdown in consumer spending caused by the new wave of lockdowns. 

Meanwhile, the healthcare equipment and services sector emerged as a clear winner with YoY earnings surging by 105 percent and QoQ earnings rising by 68 percent, due to the surge in demand for healthcare in the final quarter in the 2020 calendar year. 

Further, the retail sector witnessed a dramatic bounce back in the three months under review, logging a 401 percent growth in earnings from the same period in 2019, due to the strong pent-up demand continued through the December quarter. 

Meanwhile, the telecommunication sector earnings surged 21 percent YoY on the back of improved data consumption, cost savings and reduced operational expenses. The transportation sector saw a pandemic-induced growth story led by Expolanka PLC, as the prolonged travel restrictions in usual sea freight led to a spike in air freight rates, causing the sector earnings to soar 1,930 percent YoY to Rs.4.6 billion. Corporates and investors remain sanguine of the earnings of the ongoing quarter too, supported by the recovery in economic activities led by the vaccination drive and the continued lower interest rates, which the Central Bank says would be maintained till the end of this year.