The markets, after languishing at low levels through the summer, witnessed fresh buying, lifting the index
Gulf Investment Services

The ceasefire in Lebanon brought life to the regional markets and wooed foreign investors to enter the region at lower levels. For the period under review, MSM 30 Index jumped by a whopping 12.53 per cent to close at 5314.92. Volumes have supported the momentum in the market that has gained RO452mn in terms of market cap during the period.

The analysis of corporate performance among the MSM listed companies for the first half of the current year reveals that 99 companies have registered revenue growth of 17.6 per cent to RO1.069bn. The dampness of the market investments has hit earnings growth resulting in an aggregate net profit decline of 7.3 per cent to RO191mn. Barring the investment companies from this aggregate figure, revenues show a healthy 24.1 per cent growth, coupled with a net profit growth of 9.8 per cent to RO178mn.

BankMuscat outperforms
The banking sector, that includes five listed banks, has shown bottomline growth of 34.3 per cent for the half year ended June 2006 to RO64.685mn. In terms of gross loan book growth, BankMuscat has been able to register 25.4 per cent growth to RO1.670bn, thus holding on to its leadership position in the country. The bank has reported 33 per cent earnings growth to RO28.031mn. The second largest bank, NBO, was blessed by its restructuring efforts resulting in its net profits jumping up by 96.7 per cent to RO13.124mn. However, gross loan books have not grown for the said period. OIB, with a growth of 5.7 per cent in gross loan book to RO586mn, has reported 19.2 per cent growth in earnings to RO511mn. The bank has seen lower recoveries and provisions during the period.

The liability structure has been in favour of the bank that is driving the growth. Bank Dhofar was able to report 9.9 per cent growth in its net profits to RO7.785mn with 10.4 per cent growth in loan books. The niche player in the housing mortgage sector, Alliance Housing Bank (AHB), has reported 19 per cent growth in gross loan books to RO142mn. However, net profit registered a modest growth of 12.2 per cent to RO2.297mn.

Raysut benefits
Real estate developments and infrastructure spending in the region have resulted in strong demand for cement. Aggregate revenue for two companies in Oman has grown by 34.4 per cent to RO48.074mn. This was supported by increase in capacities from Raysut during late last year coupled with jump in realisations. Oman Cement primarily caters to the local demand while Raysut has improved its domestic sales from 38.8 per cent in Q1 2006 to 43.3 per cent in Q2 2006. Oman Cement, with an annual cement grinding capacity of 1.5 MTPA, has reported revenue growth of 7.2 per cent to RO23.707mn. During Q1 of 2006, the company had seen supply chain issues due to rains in Oman. However, this was a temporary effect which has been resolved.

Rise in realisations augmented by strong demand has improved the margins for both the players. Given the kind of capacity additions coming in Saudi, UAE, Yemen and other parts of the region, competition is expected to bring in pressure on cement prices by the end of next year.

Margins improve
Oil marketing companies have been affected by refinery constraints in Q1 of 2006. However, this situation has improved and companies have been able to report improvement in gross profit margins.

Despite constraints in supply chain, Shell Oman Marketing has witnessed an overall revenue growth of 37.2 per cent for the six months ended June 2006 to RO112.856mn. This materialised on the back of healthy growth in retail fuel sales and inland lubricants. Constraints in the supply chain are still putting pressure on the margins. YoY for the half year ended June 2006 the gross profit margins have come down to 10.1 per cent from 11.3 per cent for the corresponding previous period. At the same time this has recovered during the second quarter of current year (2006 Q2) to 10.5 per cent from 9.8 per cent in first quarter of current year (2006Q1). The refinery constraints during the year were resolved by imports during the second quarter. Healthy topline growth has augmented net profit growth of 27.3 per cent to RO4.773mn.

For Oman Oil Marketing, the year started off with a capacity shortfall that affected the company during the first quarter of current year. As per the company, the situation has improved during the last one and half months of the second quarter. Also, the company was able to add seven new filling stations and seven new quick shops resulting in 93 filling stations and 26 quick shops. As a result, revenues for the half year ended June 2006 have gone up by 32.9 per cent to RO53.979mn. During the second quarter of current year, the company has registered 40.4 per cent revenue growth (against 25 per cent in Q1 2006). Restoration of supplies has improved the margins during Q2 2006. The net profits have improved by 21.9 per cent to RO1.775mn for the half year ended June 2006.

Al Maha Petroleum Marketing Company on YoY basis has added 17 filling stations to a total of 133 which took retail sales for the half year ended June 2006 up by 26 per cent to RO32.381mn. Meanwhile, during the second quarter of the current year, the company has added seven filling stations. This resulted in topline growth of 33 per cent to RO56.351mn for the half year ended June 2006. At the same time, margins have shown improvement after which net profit has grown by 25.2 per cent to RO1.993mn.

Leasing sector
With ongoing industrial capacity additions and improvement in economic environment, the leasing sector has started showing signs of high growth period. Aggregate topline has grown by 8.3 per cent while on better provisioning and healthy books, the bottomline has jumped by 18.6 per cent. The companies in the sector which have outperformed during the first half of the current year include Oman Orix Leasing and Al Omaniya Financial Services. Al Omaniya Financial Services has reported a 11.7 per cent rise in net installment finance income to RO1.989mn.

However, net profit has grown by a modest 8.1 per cent to RO966,000. In terms of gross lease contract receivables, the company has shown excellent growth of 30 per cent to RO50.476mn. For Oman Orix Leasing, the same is up by 28.4 per cent to RO39.304mn. The net installment finance income for the company has grown by 12.7 per cent to RO1.064mn after which net profit has jumped by 46.3 per cent to RO515,000. Muscat Finance also managed to grow its lease contract receivables by 16.9 per cent to RO42.319mn during the period. However, due to increase in cost of funds, the net interest income has shown margi-nal growth of 1.5 per cent to RO1.926mn.

The growth in lease contracts is expected to be healthy with improvement in capital goods sector and SME sector. The automobile sales this year is expected to show a significant improvement backed by the economic prospects. We believe this will fuel earnings growth in future, blessing the sector with clea-ner books in a booming economic cycle.

The growth story continues
If we talk about other corporate stories in the pipeline, focus shifts to the industrial sector which is expected to show excellent performance in the coming years. Our favourites include Oman Cables, Majan Glass, Al Anwar Ceramics, Al Hassan Engineering, Nabil, Oman Ceramics etc. In the services sector, Salalah Port Services and all hotels are expected to perform well. The year is expected to end positively with emerging corporate stories attracting not only regional, but also international funds dedicated to the region.

Disclaimer: This report has been prepared on the basis of publicly available information, internally developed data and other reliable sources. While all care has been taken to ensure that the facts stated are accurate, neither GIS nor any employee shall be responsible for the contents of this report.

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