Listed companies report a 29 per cent profit growth and revenue growth of 28 per cent in 2007. Analysis by BankMuscat Equity Research

The MSM index has gained 6.2 per cent for the year so far. After recovering strongly from a low of 8,916 it is up 8.3 per cent from the bottom. The 2007 full year results for MSM listed companies paint a rosy picture of corporate sector performance. The companies under coverage that represent RO5.5bn in market capitalisation have reported a 29 per cent profit growth and revenue growth of 28 per cent, as a result this set trades at 15x historical earnings. We briefly take stock of the declared results for major sectors below.


Banking
The banking sector in Oman continues to show an impressive growth in the loan book and customer deposits although declining spreads and increase in operating costs have reduced the margins which are offset by higher than expected growth in non-interest income and significant recoveries.

The credit to GDP ratio of the country has improved from 34 per cent in FY06 to 44.6 per cent in FY07 and the sector has witnessed a 27 per cent growth in lending during FY07 due to increased business opportunities offered by the development of new infrastructure projects.

The sector has reported 27.5 per cent growth in interest income and 28.9 per cent growth in net profits during FY07, despite the decline in spreads. BankMuscat continues to be the undisputed leader with a market share of 44 per cent in terms of net loans & advances while the three nearest competitors together constitute about 36 per cent of the market.


Oil marketing
The sector reported very strong results on the back of strong growth in retail as well as non-retail segment. Increasing vehicle population, traffic congestion and strong project activity were the key factors that enabled 21 per cent volume growth for the sector compared to 16 per cent growth in 2006.

The sector trades at 14.5x on historical earnings. Oman Oil has seen a strong run up after the results having appreciated by 27 per cent. Al Maha trades at a 14 per cent discount to the sector, the company has grown profits and revenues the fastest at 68 per cent and 42 per cent respectively compared to sector numbers of 39 per cent and 22 per cent. We feel the discount is unjustified considering that its share of sector profits has increased from 24 per cent to 29 per cent while its share of market cap is at 25 per cent. Ignoring the growth aspect (wherein we are bullish) and considering purely the historical numbers if the market cap falls in line with 2007 profit performance only Al Maha offers scope of repricing return in addition to growth. Shell Oman continued to under perform; the year saw its revenue share decline to 43 per cent from 48 per cent while profit share declined from 52 per cent to 47 per cent.

Ports and maritime
The sector also reported strong numbers for 2007. The sector profits grew 29 per cent while revenues grew 24 per cent. This was largely driven by Port Services, which grew profits by 46 per cent and accounted for 59 per cent of sector profits as against 52 per cent in 2006. Import volumes continue to improve at Port Sultan Qaboos led by increasing population. Salalah Port should improve numbers from 2008 due to full year impact of Berth 5 and Berth 6 that will be operational in Q2FY08.


Telecom
Omantel reported 7.4 per cent growth in service revenues to RO299mn for FY07. Total revenues grew 13 per cent. Both the wireline and wireless segments grew at a healthy pace; while mobile revenues were driven by higher subscriber base, fixed line was driven by higher interconnection income. EBITDA grew 20 per cent for the year to RO193mn aided mainly by reduction in royalty. As a result, EBITDA margins expanded to 52.9 per cent from 49.4 per cent. Before accounting for royalty, the margins shrunk 150bps. Earlier in 2007 the rate of royalty was reduced from 12 per cent of mobile and ten per cent of wireline revenues to a flat rate of seven per cent. The formalities for WorldCall, Pakistan acquisition should be completed by the end of Q2FY08. The proposed dividend of 100 per cent (67 per cent payout) would yield 5.3 per cent at current prices.

Engineering and contracting
The sector continues to show robust growth on the back of high oil prices and increase in government spending on infrastructure. Galfar Engineering and Contracting which came out with an IPO during FY07 has reported an impressive 64 per cent YoY increase in revenues and 35 per cent increase in PAT on the back of strong order flows. However the increase in cost of materials and wage inflation has adversely affected the margins and the contracting industry is also grappling with acute shortage of key materials like bitumen and quality manpower.


Cement
The sector results were in line with expectations. While Raysut benefited from higher volumes and improved realisations, Oman Cement suffered due to low volume growth and high clinker prices. Sector revenues grew 16 per cent while profits grew 18 per cent. Oman Cement saw an 11 per cent decline in profits to RO18.2mn. Raysut improved its revenue share to 54 per cent from 48 per cent and its profit share from 50 per cent to 62 per cent. We expect Raysut to benefit from full capacity utilisation in 2008 resulting in 25-30 per cent volume growth, while we have a flattish outlook for Oman Cement.


Industrials
Oman Cables reported sales of RO217.4mn, up 73 per cent. As result, EBITDA was 58 per cent higher at RO21.5mn. Profit grew 59 per cent to RO15.1mn. Renaissance Services saw a major acceleration in the fourth quarter wherein profits grew 47 per cent. For the full year it reported profits of RO17.3mn, up 22 per cent. The sale of United Media Services should be completed in the current quarter. Out of sales proceeds of RO3mn, 50 per cent will flow through the income statement as capital gain. While the bids have been received for the technology division, the education business is also on the block. We expect total proceeds of close to RO20mn from the sale of these three divisions. These are old businesses with fully depreciated assets. Therefore capital gain on these sell offs will be high which would shore up the intermediate reported profits. Al Anwar Holding has completed the sale of its 31 per cent stake in National Aluminium Products (NAPCO) at 382bz. We feel this ownership sort-out would facilitate the finalisation of NAPCO’s expansion plan thus enabling much required volume growth. Though 2008 numbers will be flat, the event is definitely a rating review point.