With the corporate sector poised for growth, investors need to take all factors into consideration before acting
Gulf Investment Services

Regional chaos made its impact felt in the Oman market during the period of study (mid April-Mid May) with the benchmark index nosediving 5.86 per cent. Panic stricken selling was seen in all frontline scrips, except Omantel. If one has to analyse the situation, on the macro front, the regional economic parameters remain intact. Oil prices have remained firm over US$68/brl coupled with peak production figures. Fuelled by oil revenues, money supply continues to be on the rise. Our outlook on Oman’s economy remains strong with encouraging first quarter performance from sectors like banking, cement, telecom, oil marketing and hotels.

Investment companies are bound to have a sober outlook for the medium term. The aggregate net profits for 94 listed companies, which have declared their first quarter result has grown by 11.5 per cent to RO96.350mn.

Banking on banks
Omani banks are among the biggest beneficiaries of growing domestic economic resilience. Strong evidence from 13.2 per cent YoY growth in aggregate credit of commercial banks amounting to RO4.011bn supports the argument of a strong economy. Further to this, five listed banks in Oman have reported 18.4 per cent growth in net interest income to RO46.78mn. Although the net interest margins are under pressure due to rise in interest rates, banks are able to realign the asset liability mix to improve performance levels. BankMuscat and NBO were outperformers with focus on the core portfolio, while earnings growth is further amplified by better asset performance contributed by healthy recoveries and lower provisions. As a result, the aggregate net profit of these banks has grown by 25.1 per cent to RO30.30mn.

Best bargainers on the block
With regional demand exceeding supply, cement companies are well placed with better bargaining power. This is evident from improvement in realisation witnessed by both cement companies. For Oman Cement, the realisations have gone up by 8.6 per cent while the same for Raysut Cement has inched up by 9.5 per cent. The aggregate revenues of both the companies have jumped by 26.1 per cent to RO21.74mn. Enhanced capacity of Raysut has contributed to 67.2 per cent rise in revenues for the quarter ended March 2006 to RO10.55mn. Strong demand for cement is bound to continue in the region supported by large infrastructure projects. On surge in demand and better realisations, the aggregate net profits have grown by 53.4 per cent.

GSM rings in growth
At the end of March 2006, the number of mobile subscribers increased by 67.5 per cent to 1.46mn. This is shared between Oman Mobile, the leader and Nawras, the other service provider. The prepaid segment has seen a healthy rise of 96 per cent (YoY) to 1.20mn subscribers, while the post paid segment has come down by 0.6 per cent to 256K. This growth has helped Omantel with 22.6 per cent growth in revenues to RO77.97mn for the quarter ended March 2006. The company has not disclosed market share for the period. As on December 31 2005, the company had 82 per cent market share with 1.09mn subscribers in the mobile segment. On the flip side, competition has put pressure on ARPUs. ARPU for the mobile segment (Oman Mobile) has come down from RO17.300 in 2004 to RO14.300 in 2005. The pressure is bound to remain on further opening up of fixed line and data services. For the quarter ended March 2006, Omantel posted nine per cent growth in net profits to RO21.295mn.

Flowing on track
Growth in sites and improvement in volumes have contributed to 33.2 per cent growth in aggregate revenue to RO102.755mn in the oil sector. At the same time, supply chain issues have affected the sector negatively. The outperformer was Shell Oman Marketing, which registered healthy growth of 40.9 per cent to RO52.13mn. The retail volumes for the company have grown by 14.5 per cent, while commercial and aviation business have also improved. Oman Oil Marketing Company has reported revenue growth of 25 per cent to RO24.814mn. Meanwhile, a memorandum of understanding has been signed by the joint venture company (in which the company has 50 per cent share with the Al Sarooj Group) with the Yemen Petroleum Company to explore opportunities for developing mutually beneficial devel-opments in the downstream fuels market in Yemen. The third company, Al Maha Petroleum, has reported 26.9 per cent growth in revenue to RO25.811mn. The company saw increase in retail sales by 30 per cent, due to increase in number of filling stations from 114 on March 31, 2005 to 126 at the end of March 2006. The aggregate net profits for these three companies have grown by 18.7 per cent to RO3.416mn. The sectoral outlook remains positive on buoyant economic activities.

Booked for growth
Bolstering economy always attracts resource movement, and this, along with growth in tourists, would contribute to the top line of the hotel industry. Improvement in room rates and occupancy took aggregate revenues of seven listed hotels in Oman up by 24.4 per cent to RO6.488mn. Hotel Management Company International leads the sector with 25.3 per cent revenue growth to RO2.479mn. The company manages The Chedi Muscat and a new beach restaurant is being built. Meanwhile, Gulf Hotels (Oman), which owns Crowne Plaza, has reported 27.8 per cent during the first quarter ended March 2006 to RO1.495mn. The other hotels include Oman Hotels and Tourism, Interior Hotels, Salalah Hilton, Al Batinah Hotels and Dhofar Tourism. The aggregate bottomline for these companies has jumped by 46.3 per cent to RO2.117mn. The long-term outlook for the sector remains positive while seasonal effects would remain.

Turnarounds and growth stories
Industrial expansions and economic performance have placed select manufacturing companies in a better position with demand for their products. The list includes Al Hassan Engineering and Majan Glass. Al Hassan Engineering, which takes up contracts primarily for the oil and gas sector, has seen doubling of its revenues to RO11.485mn for the first quarter ended March 2006. The company had record order book position of RO50mn during the start of the year. This includes 220kV powerline connection between Oman and the UAE, Oman Polypropylene Project, Qarn Alam Reverse Osmosis Plant, Lekhwair to Fahud 132kV overhead line, Mukahaizna & Qarn Alam Power stations and Shams Gas Condensate Facilities. The company has bid for many of the upcoming major projects in the power and oil and gas sectors. This includes Sohar Aromatics Project, Sohar Aluminium Power Plant Civil works and Siah Rawl Depletion Compression Project. The net profit for the first quarter has multiplied over eight times to RO802K. Majan Glass has reported 10.1 per cent revenue growth to RO1.499mn and the net profits have jumped by 38.6 per cent to RO463K.

With the corporate sector poised for good growth during the current year, investors need to take all factors into consideration before deciding the future course of action. It may be the regional negative sentiments that may affect the market in the short term. As per statistics from MSM, the GCC share holding in MSM listed companies, which had flared in the recent past, have been on the decline. This is primarily due to the margin calls in the respective market. This could temporarily affect the local market but in the long run the fundamentals would play a big role in bringing the market to reality.