‘Telecommunications gains during troubled times’

Telecommunication sector made gains during troubled times says First Capital Research on their report, ‘Covid-19 impact on CSE sectors‘.

“There is a surge in the usage particularly in the post-paid segment while limitations due to curfew may reduce usage in the prepaid segment. However, its affects are going to be short-term.”

“In the post COVID-19 era, Telco’s are expected to perform well as the world will be more connected and businesses are better prepared for such calamities.”

In the long-run the outlook remains positive, as reliable connectivity becomes a critical commodity.

“Once the situation begins to normalize out of home consumption will pick-up again and the FMCG sector is expected to witness a relatively faster recovery compared to other sectors.”

Commenting on the Insurance segment the report says that granting an extension period of 3 months for policy holders to pay their outstanding premium will adversely affect the sector in the short term.

“In addition, car imports are restricted for a 3 month period.”

Beyond the 3 month period, and with the relaxation of import regulations we expect a gradual recovery in the General Insurance business

Due to the adverse economic situation, higher number of withdrawals from finance companies would be witnessed.

“However, major concerns lie over asset quality which may further deteriorate amidst the stressed macro environment which may result in higher NPLs due to lower asset quality.”

Tough macro conditions will result in lesser number of recoveries while the low interest rate environment will result in margin compression.”

“Debt moratoriums may reduce stress on businesses, but causes a bane for diversified financials as the increase in number of restructuring/ rescheduling facilities due to credit relief schemes increases credit risk.”

“Vehicle import restrictions may affect the leasing business as well.’

Transportation sector performance has a strong connection with the manufacturing and leisure industries and the knock-on effect of both these subsectors will be strongly transmitted to the sector.

“Consumer, Durables and Apparel sector earnings will be impacted by fall in global demand and the mid to long term impact is quite high.”

“Automobile segment it is already highly exposed because of their reliance on international supply chains we expect the recovery to phase between 12-18 months.”

Wholesale and retail trade will face significant challenges due to import restrictions, worsening exchange rate and declines in real income

Tourism is expected to take a major blow due to social distancing requirements, travel disruptions/restrictions, and quarantine requirements.

 The consumer service segment was undergoing gradual recovery from the aftermath of Easter Sunday attacks in Apr 2019, which resulted in the industry suffering a loss of USD 1.5Bn of tourism revenue.

The number of tourist arrivals since Apr 2019 recorded a YoY dip each month, however, towards November 2019 the YoY decline was narrowing, thereafter, with the outbreak of Covid-19 and travel restrictions imposed all over the world, has presented the tourism sector with a major and evolving challenge.

 The first three months have already seen a decrease of 32% in the number of tourists as compared to 2019, and a literal standstill on the travel of non-essential passengers after April is expected to show a decline in tourism revenue of about USD 107Mn to only reach USD 319Mn according to the Asian Development Bank.

 The CBSL has taken measures to reduce the impact, with measures such as a six-month debt suspension to establishments in the tourism sector.

Construction sector faces immediate impact due to absence of workers invariably resulting in delays in construction activities. Volumes of Sales are likely to get impacted due to lower consumption and restrictions on vehicles.

Marginal improvement in margins is possible due to lower crude oil prices.

The delays in project-executions will have a negative impact on the real-estate developers.

Moreover, with the overall slowdown in the economy, this sector will experience a decline in sales, in addition to the stretched cash collections from the pre-sold property.

Covid-19 takes a surprising toll on economic activities of Banks which unvaryingly results in lesser demand for credit.

“The initial expectation of a low interest rate regime to contribute to credit growth has virtually diminished due to the weak sentiment.”

The low interest rate environment is expected to virtually shrink NIMs while the lower activity is estimated to reduce fee and income. “However, in the short-term major concerns lie over banks’ asset quality which may further deteriorate amidst the stressed macro environment. Debt moratoriums may reduce stress on businesses, but causes a bane for banks as the increase in number of restructuring/ rescheduling facilities due to credit relief schemes increases credit risk.” CBSL introduced a series of short term measures such as capital & liquidity relief, operational relief and relaxation of NPL classifications and impairment computation rules, however, these measures may provide some breathing space for banks to stay afloat, as profitability takes a massive beating.

 As there is no restriction in the importation of pharmaceutical products it will not create any shortage in the supply of medicine required, however, without the free mobility for the consumer it will primarily depend on a sound supply chain of deliveries which is relatively new to the Sri Lankan market and is facing a bottleneck.

With the increase in number of Covid-19 cases in the island, it is a matter of time before the government will need the co-operation of the private sector hospitals, at present the private hospitals are allowed to carry out PCR tests at a cost of LKR 6,000 (as per Health ministry regulations). Health sector will face minimal impact in terms of ongoing business and is expected to recover in the short term, furthermore, if the situation persists and escalates there is a higher potential of benefitting.