FC Research - Sri Lanka Construction Sector Report - STRONG BUY - 20 09 16

[CSE.SAS]

“Construction back with a BOOM”

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FC Research expects a booming construction sector over next 2-3 years supported by rising affordability for housing, demand for skyscrapers and Government’s Mega infrastructure drive. Hence we expect our Construction & Building Material Sector universe to provide 46% average return (Annualized 29%) over 18-Month period well above the expected market return. STRONG BUY

Middle Income affordability to drive construction through housing market: SL’s GNI per capita is expected to cross to upper middle income status in 2017E improving affordability. Higher affordability coupled with the prevailing lower interest rate regime and accelerating urbanization has increased demand for housing and apartments driving the construction sector.

Skyscraper construction to continue domination in Tourism and Office Space arena: With the prevailing high tourist arrival figures converting into new hotels, supplementary establishments and shopping malls, skyscraper construction is expected to continue at a similar pace to the last 5 years. The shortage in office space is also likely to add to the future demand for more skyscrapers over the next 5 years.

Government reignites Infrastructure Drive: Government has taken the initiative to restart most of the stalled projects while also further adding large scale new projects which are been taken up by the contractors. On top of the normal infrastructure projects the Government has initiated USD 40Bn Mega project identified as the Western Region Megapolis which altogether provides huge boost to the overall construction sector.

Construction & Building Material Sector on a STRONG BUY with a Total Average Return of 46% over 18 months: The average sector annualized return at 29% and total return at 46%, is an attractive expected return despite the higher interest rates prevailing. We believe stocks across the board in the sector are attractive to accumulate at current market prices.

*Disclosure:

Relating to the Construction and Building Material Sector, First Capital Group and its affiliates holds 475,978 shares in ACL, 433,516 in LWL, 246,842 shares in RCL and 86,980 shares in TKYO.N. Neither First Capital Group nor its affiliates have traded in the shares of the Construction and Building Material Sector in the three trading days prior to this document, and will not trade in the shares of the Construction and Building Material Sector for three trading days following the issue of this document.

[HAL9000Top contributor]

Thanks for the report

[puliyanamTop contributor]

Thanks CSE

[BackstageTop contributor]

Thanks , Atch.