In spite of healthy fundamentals, the MSM30 index closed last week (May 6-10) in negative territory, losing two per cent on a weekly basis.
The index closed at 5,746.28, impacted mainly by global and regional concerns over the pace of the global recovery. The local index was affected by the declines in BankMuscat, Renaissance Services, Oman Qatari Telecommunication (Nawras) and Oman Cement Company.
The Al Arabi Oman 20 index dropped 2.81 per cent week-on-week to finish at 1,037.75 with a traded value of RO7.69mn. The Al Arabi GCC 50 index posted a weekly decline of 2.45 per cent.
Among the sectoral indices, the Financial index was the worst performer, slipping on foreign selling pressure in major counters like BankMuscat (which lost 4.5 per cent and closed the week at 591bz), Oman International Development and Investment Company (OMINVEST) and National Bank of Oman.
We noted increased activity on Oman & Emirates Investment Holding Company (second in terms of traded stocks) on the back of the company's sale of its stake in Oman Medical Projects Company to Saudi Medicare, for RO4.1mn. The company said that it will make a profit of RO3mn from this deal. The stock ended the week with a gain of 2.96 per cent at 139bz.
On the other hand, Oman International Bank at its extraordinary general meeting (EGM) approved the proposed incorporation of HSBC Middle East's Oman operations into the bank and increased the authorised capital from RO100mn to RO750mn. The stock ended the week with a 0.43 per cent decline at 232bz.
The Services index declined 1.22 per cent on weekly basis and closed at 2,633.22, weighed down by declines in Renaissance, Nawras and ACWA Power Barka.
Despite this drop, the sector fundamentals remain strong and companies continue to better their results. As a case in point, Al Jazeira Services posted a very impressive quarterly performance, registering a notable 89 per cent year-on-year increase (+52 per cent quarter-on-quarter) in net profit at RO1.4mn in Q1'12. Net profit margin stood at 46 per cent in Q1'12 compared with 30 per cent in the previous quarter.
The company benefited from the recovery in the market with its net investment income at RO382,000 in Q1'12 compared with just RO79,000 in the previous quarter and a net investment loss of RO247,000 in the same quarter in the previous year
On the other hand, Renaissance announced that its subsidiary Topaz Energy and Marine built two anchor
handling/offshore support/towing vessels for British Petroleum. Renaissance ended the week down 5.2 per cent at 585bz.
The Industrial index lost 1.17 per cent during the week and closed at 6,891.09 on weakness in National Aluminium Products Company (NAPCO), Oman Cement and Al Jazeera Steel Product Co.
In order to address queries relating to the drop in earnings, NAPCO held an investors' meeting and said that the main reasons for the drop in revenue were the oversupply situation in the region, the decline in London Metal Exchange (LME) prices and increase in costs. The stock lost 8.57 per cent and closed at 256bz.
During the week, Al Hassan Engineering posted weak Q1'12 results and the stock dropped 8.76 per cent on the day of the announcement, registering its highest daily drop in more than eight months.
An analysis of the results shows that despite Al Hassan's improved revenue performance - up 24 per cent y-o-y at RO17.3mn (+7.6 per cent q-o-q), higher cost of sales dragged gross profit margin down from 9.9 per cent in Q4'11 to 7.2 per cent in Q1'12.
Administration and general expenses remained at the same level on a quarterly basis causing more stress to the bottom line. The company's Q1 net profit came in at RO285,000. The stock closed the week with a 14.6 per cent drop to 233bz.
An analysis of the weekly trading shows that excluding specials deals on Oman Telecommunications Co (Omantel) and Al Maha Petroleum Marketing Co in the previous week, volumes and turnover last week declined 25 per cent and 44.2 per cent to 52.3mn shares and RO15mn, respectively.
Foreign institutional investments notably exited the market, pulling out a net of RO1.4mn, causing pressure on select blue-chip stocks. Local individuals also exited the market. Selling pressure was absorbed by local institutional investors who net bought RO1.9mn in shares.
Recommendation
It is clear that the market was affected by external factors: Foreign selling (19.3 per cent of the total sale value) on one side and weak global and regional market sentiments on the other.
These were accompanied by strong restructuring of portfolios and fund investment strategies to reflect decisions and plans announced by companies, either for rights issues or expansionary plans.
We believe the announced plans and market pressure will create opportunities to restructure portfolios and allocate liquidity according to companies' performances. We recommend that investors study the available investment opportunities individually before taking a decision.
© Muscat Daily 2012
