April-June quarter corporate earnings slump 58% as virus bites

• Total earnings of 267 listed entities down 58% to Rs.17.7bn 
• April-June quarter recorded 52% decline in earnings to Rs.33.6bn
• Only firms in transportation and materials sectors record higher earnings 

The earnings of listed companies plunged 58 percent year-on-year (YoY) in the quarter ended in June 2020 as businesses suffered the worst-ever disruption caused by the coronavirus pandemic while only a few in sectors such as transportation and materials recorded growth, as there was increased demand for seamless logistical services to power the country’s exports.

According to First Capital Research (FCR), the total earnings reported by 267 listed entities for the April-June quarter was Rs.17.7 billion after falling 51.9 percent to Rs.33.6 billon in the January-March quarter. 

While the worst earnings for the June quarter came as no surprise as nearly half of the second quarter was in lockdown, analysts are of the view that earnings did bottom out in June. 

Both investors and analysts believe that corporate earnings turned a corner in the September quarter. 

They opine that if the June quarter represented a manufacturing recovery, the September quarter should entail recovery in consumer demand with restrictions on mobility lifted during the period, encouraging consumers to venture out of their homes and open up their wallets.

The June quarter earnings were weighed down significantly by the diversified financials, capital goods, consumer services and real estate sectors, where their earnings dipped 97 percent, 471 percent, 108 percent and 84 percent respectively over the same period last year. 

However, if the earnings are adjusted for the one-off gain from the 70 percent stake sale in PRASAC— Cambodia’s largest micro-finance company by the LOLC group in April this year, the decline in earnings somewhat softens to 36.5 percent, while the 97 percent slump in recurring diversified financial sector earnings turns to a gain of 55 percent, FCR said. 

Results of the diversified financial sector were hurt the most by the rise in credit costs in Central Finance Company PLC and LOLC Finance PLC, the research firm said. 

The Rs.1.6 billion loss in John Keells Holdings PLC predominantly caused by the leisure sector performance and Rs.2.4 billion loss incurred by the upmarket retail juggernaut, Softlogic Holdings PLC, which also has interests in leisure and property, weighed on overall market earnings the most. 

Meanwhile, the transportation and material sectors stood to benefit from the pandemic with their earnings outperforming year earlier levels.

Transportation sector earnings surged 1,043 percent to Rs.1.7 billion with Expolanka Holdings PLC, “thriving in its freight forwarding business with logistics solution for PPE skyrocketing in demand amidst the COVID-19 pandemic,” FCR said.  Further the material sector performance was supported by the improved performance in Dipped Product PLC, due to higher demand for rubber gloves in both industrial and medical sectors. 

Meanwhile, earnings outperformed in other export-oriented, agricultural and construction related counters, such as Hayleys PLC, CIC Holdings PLC and Tokyo Cement Company Lanka PLC, pointing to the quick rebound in those sectors.