MSM posts highest gains this year
he MSM30 index ended last week (February 6-9) with the highest weekly gain this year, adding 1.04 per cent to 5,622.18, with all the sectoral indices in green territory.
The MSM30 index was supported by Renaissance Services, BankDhofar and Omantel. The Al Arabi Oman 20 index increased 1.07 per cent to finish at 1,006.45 with a traded value of RO8.43mn. The Al Arabi GCC 50 index rose 1.69 per cent to 972.07.
The market is still awaiting disclosures and financial results of many leading companies, especially in the services sector, and we expect the market to move in a linear fashion despite the disclosures of many leading companies which lacked their board of directors’ future strategy and mechanism of dividend distribution.
In addition, the risks associated with operations still stand, which require the board of directors of those companies to disclose their approach in minimising such risks. We can say that GCC markets are capable of reducing standing risks, but the weakness lies in the low turnover in these markets, as encountered in 2011.
However, the recent improvement in turnover in the region has been very impressive. But this has not rubbed off on the local market for reasons unclear to us. We are, however, sure that these reasons are not related to market fundamentals and might be attributed to investors awaiting more disclosures on companies’ future strategies, especially in the financial sector.
The Services index in the MSM continued to perform well for a third consecutive week adding 1.36 per cent with support from Renaissance Services, Omantel and Al Maha Petroleum Marketing Co.
The Renaissance stock gained 7.1 per cent week-on-week and closed at its highest in a month at 528bz. At the beginning of the week, the company announced that its subsidiary Topaz Energy & Marine was awarded a contract by GAC Group to provide completion services for two crew/cargo vessels.
During the week, Omantel announced its much awaited full-year 2011 results. The preliminary results indicate that revenue in the fourth quarter of 2011 rose on year as well as on a quarterly basis with increases of 8.5 per cent and 8.7 per cent, respectively, to RO119mn.
However, stability in the EBITDA margin at the same levels of the previous quarter at 53 per cent, pointed to an increase in operating expenses within the same range.
The bottom line increased by 7.7 per cent quarter-on-quarter (+10.4 per cent year-on-year) to RO30.2mn in Q4’11 mainly on the back of a strong operating performance. Although net margins remained stable at 25 per cent, in absolute terms the Q4’11 net profit was the best in two years. The stock posted its highest daily gains this year on the day of the announcement (+1.51 per cent).
SMN Power Holding’s first yearly financials since its IPO in October 2011 indicate a notable increase in net profits, by 222.4 per cent y-o-y for FY’11 to RO3.8mn. Lower finance costs, better other income as well as lower taxes played a significant role in supporting the bottom line.
At the operational level, the company registered a slight decline in operating margins from 25.2 per cent in FY’10 to 23.48 per cent in FY’11. Operating profit stood at RO19.1mn in 2011 compared with RO 19.7mn for the previous year.
The Industrial index came second in the MSM with a 0.82 per cent weekly gain, supported by Al Anwar Ceramics Tiles, Voltamp Energy and cement
companies. The Financial index with a support from BankDhofar and National Bank of Oman increased 0.49 per cent to 6,335.62.
In the leasing sector, Muscat Finance’s initial FY’11 results indicate a healthy improvement in net profit margins – from 36 per cent in 2010 to 38.4 per cent in 2011 – backed by lower total expenses (including interest expense, selling, general and administrative expenses, depreciation, provisions and taxes) for the same year. The company registered a gross income of RO 9.3mn for 2011. Net profit stood at RO3.6mn, an increase of 6.3 per cent on year.
This performance supports our positive view on the sector. The company recommended a 20 per cent stock dividend for FY’11, subject to the approval of the Central Bank of Oman and shareholders of the company.
As last week had only four working days due to the Holy Prophet’s birthday, a weekly comparison of volumes and turnover would be inaccurate. However, foreign institutions were seen entering the market, net buying RO34,000 worth of shares. On the other hand, Omani institutions exited the market registering a net sale of RO1.1mn.
Quarterly net corporate earnings announced, till date, for the quarter ending December 2011, have increased 2.5 per cent q-o-q to approximately RO141mn against the previous quarter (on a like-to-like basis) supported mainly by Financial and Industrial sectors
The Industrial sector has posted the highest quarterly increase in net earnings till date amongst the sub-sectors – gaining 18.7 per cent q-o-q to around RO14.8mn owing to the strong quarterly performance of Oman Cables Co., Oman Refreshment, A’Saffa Foods and Oman Cement.
Also, in line with our view, the Financial sector posted healthy results and registered a 8.8 per cent q-o-q rise in net earnings till date (on a like-to-like basis) to around RO72mn for the quarter mainly on the back of better performances by insurance, leasing and holding companies.
Although Omantel’s results were positive and mitigated the negative impact of lower profits affected by Nawras, the Services sector net earnings, till date, declined 8.2 per cent q-o-q to around RO54mn for the same quarter affected by the moderate performance of oil marketing companies, Sohar Power, Port Services and Oman Holding International.
In a related issue, 23 companies have so far announced their dividends, including 15 companies with the announcement of cash dividends only. While two companies declared stock dividend and six companies announced both cash and stock dividends.
As per our database, the total announced cash dividend distribution for 2011 till date stood at RO119.3mn compared with RO107.4mn for the same companies for 2010, an annual increase of 11.1 per cent.
On another front, our database shows that since the beginning of 2012, total allotted CBO certificates of deposit was around RO1.48bn, compared to RO1.73bn in the same period of the year 2010, a decline of 14.16 per cent year-on-year.
As we know, banks have initiated procedures to increase their paid-up capital, either for the purpose of establishing Islamic windows or to support financing sources to improve their financial indicators.
We advice investors to take into consideration the prospective companies’ capital increase, especially the leading ones, and build their portfolios accordingly, and to monitor and carefully study board of directors and management reports for strategies and future plans.