MSM30 index closed on a positive note for the second consecutive week (October 23-27), gaining 0.57 per cent week-on-week - for the highest gain in eight weeks - to close at 5,563.43, supported by blue chips. SMN Power, which listed at the beginning of the last week, posted a 4.5 per cent w-o-w increase and closed at RO3.68 per share.
The Services Index was the biggest gainer among the subindices, posting a 1.75 per cent w-o-w rise at 2,452.43, with notable support from Al Maha Petroleum Marketing, Nawras, Omantel and Sohar Power.
Nawras announced quarterly results after trading on October 26, which positively impacted the stock price the next trading day, pushing it up by 1.78 per cent to 629bz. The company achieved a 0.8 per cent quarter-on-quarter increase in revenues in the third quarter of 2011 to almost RO49.2mn.
The company said that healthy growth in prepaid mobile data, including BlackBerry, supported overall growth. Net profit jumped 35 per cent q-o-q to RO13.5mn in Q3. Nawras witnessed an increase of 28.5 per cent and 1.5 per cent, respectively, in fixed and mobile postpaid services.
On the other hand, mobile prepaid witnessed a slight decline on a quarterly basis reflecting the new regulatory rules (The termination of inactive prepaid SIM cards changed from 12 to 6 months).
Shell Oman Marketing reported its lowest revenue for 2011 at RO85.5mn in Q3, posting an 8.5 per cent q-o-q decline (but up 3.2 per cent year-on-year). Consequently, profit was affected and the company attributed lower profits in 9M'11 to various factors, including the monthly fluctuation in aviation fuel and lubricant base oil prices.
Cost-to-income ratio went up to 90.2 per cent in Q3'11 compared with 89.48 per cent and 89.25 per cent in Q2'11 and Q3'10, respectively, driving gross profit down 14.8 per cent q-o-q (-5.8 per cent y-o-y) to RO8.4mn. Net profit margin was 3.1 per cent in Q3'11 compared with 4.2 per cent and 4.9 per cent in Q2'11 and Q3'10.
On the other hand, Al Maha Petroleum Products Marketing posted a better quarterly revenue in Q3'11 at RO68.9mn, up 2.6 per cent q-o-q. The company managed to maintain its gross profit margin within the same average range of 2011 - at 8.9 per cent in Q3'11.
Net profit increased by 9.5 per cent q-o-q (37% y-o-y) to RO 2.5mn in Q3'11. The stock reacted positively, recording its highest daily gain on the day of announcement (+4.3 per cent) since January 5.
The Financial Index came in second and rose 0.23 per cent w-o-w to 6,229.3 on the back of better performance by BankDhofar and BankMuscat. Oman International Bank reported an increase in net interest income of 6.1 per cent to RO8mn on improved spreads.
Staff costs as a percentage of other operating expenditure remained at its highest level, at 62 per cent. However, the drop in other operating costs, eased the overall impact and resulted in cost-to-income declining to 60 per cent in Q3'11 compared with 61.4 per cent in Q2'11, thus improving operating profit by 5.2 per cent q-o-q (down 6.9 per cent y-o-y) to RO4.1mn.
Net profit declined by 3.5 per cent q-o-q in Q3'11 at RO3.8mn, mainly on the back of lower loan recoveries and write backs.
The Industrial Index was the only subindice in the red, pressured by Raysut Cement and National Aluminum Products, losing 0.61 per cent on a weekly basis to 5,861.01. One of the key results was posted by Oman Cement.
Despite stability in volume sales on a quarterly basis (+0.04 per cent), lower selling price (at RO25.23 per tonne in Q3'11 compared with RO26.34 Q2'11) impacted Oman Cement's quarterly top-line performance with revenues at RO11.4mn in Q3'11 (-4.18 per cent q-o-q). The company said that in order to maintain its market share and competitive position, it had to lower its selling price. Seasonal impact due to the holy month of Ramadan and summer has to also be kept in consideration when analysing the results.
At the cost level, imported clinker increased by 8.56 per cent q-o-q to RO835,000 in Q3'11 on the back of lower production from kilns 1 and 2 due to maintenance. Despite lower fuel, gas and electricity costs, higher stores, spares and consumable costs in addition to inventory adjustment resulted in higher cost of sales for the period.
Gross profit margin declined to 32.3 per cent in Q3'11 from 36.9 per cent in Q2'11. Other income declined by 12.7 per cent q-o-q to RO376,000 mainly affected by loss on available-for-sale investments. The bottom line dropped by 25.3 per cent q-o-q to RO2.37mn in Q3'11. The stock dropped 2.62 per cent on the day of the announcement of the results. It's worth mentioning that the company is planning to increase its cement grinding capacity, allowing it to utilise its kilns more efficiently.
The Galfar stock attracted investor attention and ended the week with a 4.1 per cent w-o-w rise to close at 355bz. The company announced that Petroleum Development Oman (PDO) has communicated its intention to extend one of the contracts with the company. The company also stated that it is going to begin its operations in Libya soon.
It's worth mentioning that the stock has seen steady interest over the past week. During the last week foreign institutional investors shifted back to their typical trend and exited the market with net selling of RO1.51mn. Volumes declined by 10.6 per cent while turnover went up 24 per cent on a weekly basis.
Our analysis for the quarterly net corporate earnings announced till date for the quarter ending Sept 2011, shows that the net earnings have slightly increased (after excluding Bank Dhofar legal case in
Q2'11) by 1.8% q-o-q to almost RO 98mn against the previous quarter (on a like-to-like basis), due to the better performance of Service sector which goes in sync with our positive view on the sector.
The Services sector posted the highest quarterly increase in net earnings till date amongst the sub-sectors and gained 11.6 per cent q-o-q to RO26mn for the calendar quarter ending September 2011 on the strong performance of Nawras.
In line with our view, the Financial sector (after excluding the loss by BankDhofar), posted healthy results and registered a 1.6 per cent q-o-q rise in net earnings till date on a like-to-like basis) to RO65.6mn for the quarter ending September, mainly on the back of better quarterly performance of most banks.
Reflecting our cautiousness on the Industrial sector, the sub-sector declined both quarterly and yearly (-23.4 per cent and -36.4 per cent, respectively) mainly due to the moderate performance of Oman Cement, A'Saffa Foods and Oman Cables.
During the week, His Majesty Sultan Qaboos bin Said issued several royal decrees, which include the establishment of an authority for the Special Economic Zone in Duqm and the promulgation of its system. The decree stipulates that the authority shall be affiliated to the Council of Ministers, headquartered in the wilayat of Duqm.
The decree states that cargo imported to the zone and exported from the zone shall be exempt from customs tax. Projects licensed within the zone shall not be nationalised except by law and with fair compensation. We believe that such decrees by His Majesty will further boost investor confidence and play an important role in giving incentive to local and foreign investors.
On the international front, European leaders struck a deal with private sector banks and insurers to accept a 50 per cent loss on their Greek debt holdings. Eurozone leaders also announced that the European Financial Stability Facility would be scaled up to €1tn which could be used for credit enhancement for sovereign bonds or for setting up special purpose vehicles to finance operations, or both. These moves have been broadly accepted by investors with major world indices moving up smartly on the back of these announcements.
Recommendation
The encouraging macro and micro economic news in addition to the healthy performance by many listed companies leads us to expect increase in market activity in the coming period, especially with the anticipated results announcement of companies such as Galfar, Omantel and Renaissance Services. We advise investors to read financial statements and seek assistance from market experts.
We recommend the investors invest about 80 per cent of their portfolios in Financial and Services sectors. We also advice them avoid rumours that might lead to unfounded investment decisions and add unfavourable pressure to the market.
© Muscat Daily 2011
