According to First Capital Research, Colombo Stock Exchange-listed companies recorded a 22% increase in cumulative earnings in the December 2024 quarter compared to the previous year, reaching Rs227 billion. However, the year-on-year growth rate slowed to 65.5% in the September 2024 quarter, 50.7% in the June 2024 quarter, and 55.8% in the March 2024 quarter after peaking at 89.7% in the December 2023 quarter.
Banking stocks were a key contributor to overall earnings growth, with the sector reporting a 207% increase, mainly due to reversals of provisions for restructured international sovereign bonds. Without these reversals, banking sector earnings would have declined by 21.2%, and overall listed company earnings would have fallen by approximately 5%. The sector contributed Rs72.8 billion to total market earnings, with Commercial Bank, Hatton National Bank, Sampath Bank, Nations Trust Bank, NDB Bank, and Seylan Bank collectively recording a 223.5% increase in earnings. While the reversal of sovereign bond impairments contributed to higher reported profits, banks with exposure to sovereign bonds also recorded full recognition of net losses from the restructuring, resulting in lower gross income on both a year-on-year and quarter-on-quarter basis. Lower interest rates led to a decline in interest income across all 13 listed banks. However, reduced interest expenses partially offset the decrease in interest income, which supported net interest income growth, except for SMB Finance. Operating expenses increased across the sector, affecting overall profitability. Banks without exposure to sovereign bonds, including DFCC Bank, Sanasa Development Bank, and Housing Development Finance Corporation, reported earnings declines.
The telecommunications sector reported a 125% increase in earnings for the December 2024 quarter, reaching Rs9 billion. Sri Lanka Telecom saw a 292.7% year-on-year profit increase, recovering from the previous year’s losses. Higher gross profit, lower interest expenses, increased other income, and foreign exchange gains supported this improvement. Dialog Axiata also recorded earnings growth of 28.5%, attributed to topline revenue expansion, which strengthened gross profit. The company’s gross profit margin benefited from a shift away from its low-margin international wholesale business.
Meanwhile, the capital goods sector recorded a 16.7% decline in quarterly earnings to Rs21.7 billion, with companies such as Lanka Tiles, Lanka Walltiles, Brown & Company, Royal Ceramics Lanka, Vallibel One, and Aitken Spence collectively posting a 54.3% drop in earnings from the previous year. The earnings decline of Lanka Tiles, Lanka Walltiles, and Royal Ceramics Lanka came off a 20.5% revenue contraction, driven by increased competition from low-cost imported products. Brown & Company’s earnings decline reflected a high base in the December 2023 quarter, including a gain from a bargain purchase. Aitken Spence recorded a 26.8% decline in earnings, as lower occupancy rates in its hotel segment offset cost reductions and an earnings increase from the previous quarter. Vallibel One also reported a 27% drop in earnings year-on-year despite an increase in tourism and consumer demand. Higher pre-opening and operational costs of the Cinnamon Life Hotel, a property of John Keells Holdings, further pressured the sector’s overall performance.
The materials sector reported a 21% decline in earnings to Rs9.4 billion, primarily due to a 65% earnings drop in CIC. First Capital attributed the company’s earnings decrease to a high base in the December 2023 quarter, including a one-time gain from a bargain purchase. However, its recurring profits increased by 19.8% year-on-year, supported by steady topline performance. Haycarb’s performance was affected by a contraction in its gross profit margin of approximately 280 basis points, alongside higher operational expenses. These declines offset earnings growth in Tokyo Cement and Alumex, which reported 411.9% and 750.5% year-on-year increases, respectively.