Expolanka’s roller coaster ride in CSE and common investor sense

Expolanka Holdings Plc (EXPO) – Sri Lanka’s premier logistics company with a global footprint in over 38 countries – early this month announced a voluntary delisting, with its holding company Japan-based SG Holdings Global Pte Ltd., offering to buy back shares at Rs. 185. No one would have foreseen this development three years ago when EXPO was gaining the attention of investors in the stock market with its share price increasing rapidly and giving lucrative returns. 

In the delisting announcement, the Japanese firm explained that going forward its Sri Lankan subsidiary would increasingly borrow funds in foreign currency from outside Sri Lanka, as it intends to grow its international operations, which could expose the local minority shareholders to high levels of risk in terms of gearing and foreign exchange. Therefore, it had been decided to end the company’s stint as a listed entity to safeguard the best interest of its minority investors based in Sri Lanka.

EXPO became a public quoted company in 2011 and three years later, its current owning firm acquired control by purchasing 51% of the shares. Subsequent to becoming a listed company, its management led by its CEO Hanif Yusoof took the bold decision to divest the then highly diversified establishment’s low-yielding business ventures in order to spend more attention and resources towards its core business – logistics. The decision to focus extensively on its core business paid rich dividends and within just a decade of becoming a public quoted company, EXPO became the most valuable listed corporate in August 2021. The share price of the firm soared to unprecedented highs from just Rs. 50 in June 2021 to about Rs. 377 in December 2021, thus offering whopping returns to those who were smart enough to exit at the correct time.

During the time the world was affected by the COVID-19 pandemic, EXPO’s profits increased tremendously, aided by high yield rates consequent to increased global air and sea freight rates, driven by the pandemic-induced capacity shortage and saturated ports. Further, as COVID stressed the predominantly utilised ocean freight segment, the shift of businesses worldwide towards the expensive air freight segment brought immense benefits to EXPO, which was well-poised to make use of the opportunity. Nevertheless, with the pandemic gradually fading away, both sea and air freight rates began to decline sharply while international trade too experienced a slowdown with the economies in the US and Europe going through downturns.

Such developments have caused an adverse impact on EXPO’s logistics segment – the main business line of the group. The conglomerate’s logistics sector suffered a net loss of Rs. 5.2 billion for the previous December quarter, reflecting a complete reversal of the financial performance within a relatively short span of time as the firm’s main business line recorded a profit of Rs. 23 billion during the 2021 December quarter. Meanwhile, EXPO’s share price, which reached its peak in December 2021, went through a market correction thereafter and dropped spectacularly to Rs. 160 four months later, representing a negative return of 58%.

When EXPO’s share price was going over the roof, some uninformed investors were holding onto their investments instead of disposing it to realise lucrative capital gains due to excessive greed as they hoped that the share price would reach even higher. There were also individuals who bought shares of the firm when the price was close to its all-time high level. Both those groups must be regretting about their serious miscalculation. The legendary investor Warren Buffett once said that when investing in the stock market, it is better to be fearful when others are greedy and be greedy when others are fearful. Unfortunately, such common sense thinking is vastly uncommon among the overwhelming majority of people who invest their money in the stock market.