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Market continues to remain cautious

Muscat - 

The market is still awaiting more disclosures for clarity on corporate results. In general, the lack of local triggers last week (January 20-23) kept investors cautious and opting for selective buying.

Investments in good dividend-yielding shares were observed, as mentioned in the previous report. Pressure was seen on a number of stocks, especially telecom. Foreign institutional investors were also active in the market. The previous week had only four working days due to the occasion of the Holy Prophet’s birthday. 

In spite of the pressures on leading shares, especially on the last trading day of the week, the MSM30 index managed to end the week marginally higher, up 0.23 per cent week-on-week at 5,819.63, thanks to most bank shares, Oman Cables Industry and Ominvest.

Last week, the Al Arabi Oman20 index fell 1.35 per cent to finish at 1,113.15 as turnover amounted to RO12.69mn. While the Al Arabi GCC 50 index dropped 0.45 per cent to close at 1,017 points, the Al Arabi MENA200 index slipped 0.34 per cent to close at 952.81.

Analysis of the subindices indicates the continued positive performance of Industrial sector stocks, which added 0.88 per cent w-o-w on support from Oman Cables and A'Saffa Foods.

Oman Cement's FY’12 initial results came in sync with our estimates, reiterating our positive view on the sector and the company. The company's total revenues, which include revenue, interest income, other investment income and share of profit from its associate, matched our estimates at RO59.3mn (+17 per cent year-on-year), thus supporting our view on better sales volumes and realisations.

Despite the increase in annual reported total expenditure (+9 per cent y-o-y at RO39.6mn), the company's net profit at RO17.5mn for FY’12 was marginally above the consensus and 37 per cent higher than FY’11. On a quarterly basis, Oman Cement registered a net profit of RO4.65mn in Q4’12 (+21 per cent q-o-q, +50.3 per cent y-o-y), a signal of the company’s return to improved profitability. We remain positive on cement demand in Oman and the performance of local players.

Also, Oman Chlorine reported full-year profits, which improved 15 per cent y-o-y from RO2.65mn to RO3.06mn. However, Q4’12 net profit fell five per cent q-o-q and 28.4 per cent y-o-y to RO0.64mn.

National Aluminium Products also declared full-year results for 2012. Net income fell on a y-o-y basis by 75 per cent to RO351,000 from RO1,409,000 but improved on a quarterly basis from RO4,000 in Q3’12 to RO175,000 in Q4’12. The improvement in quarterly results

could mark the beginning of a trend of improving profitability given profits in absolute terms and net margins in Q4’12 are the highest reported in a year marked by low profit margins relative to 2011. Net margin as a percentage of total income, improved to 3.66 per cent in Q4’12 from 0.10 per cent in Q3’12; however on a y-o-y basis it was down to 1.96 per cent in FY12 from 6.64 per cent in FY’11.

The Financial index posted a 0.81 per cent w-o-w gain supported by banks like Bank Sohar, Ahlibank and National Bank of Oman (NBO) in addition to the positive returns of Ominvest.

NBO reported another year of growth, with operating profit and net income coming in at RO52mn and RO40.7mn, up seven per cent and 19 per cent, respectively, over 2011 levels. Further, loans and advances improved 14 per cent and deposits increased 18 per cent over the previous year.

Operating margins increased only marginally relative to 2011 levels, which, in our view, is commendable as most companies have faced cost pressures. On a quarterly basis the bank reported a three per cent decline in net profit, even as operating profit grew nine per cent q-o-q, probably due to higher provisioning expenses and/or a higher tax rate. We remain positive on loan growth in Oman and believe NBO is well positioned to leverage this growth in 2013.

Bank Nizwa, the nation’s first Islamic bank to be granted a banking licence, reported a net loss of RO4.8mn for the quarter ended December 31, 2012, largely representing pre-operating expenses incurred prior to its official opening on January 10. Total assets stood at RO148.37mn at the end of 2012 largely represented by shareholder equity.

The Services index declined 0.33 per cent last week to close at 2,950.41. Pressure on telecom shares as well Renaissance Services played a big role in this decline.

Omani Qatari Telecommunications Co (Nawras) signed a new financing agreement for RO70mn with a consortium of banks with a five-year tenure, for capital expenditure and working capital requirements. The company shares faced pressure following the announcement and ended the week down 2.75 per cent at 459bz. 

Oman National Engineering & Investment reported its initial unaudited results for FY2012. Its total revenue increased five per cent from RO33.6mn in 2011 to RO35.4mn in 2012, while its Q4’12 revenues jumped 43 per cent q-o-q and 51 per cent y-o-y at RO10.9mn. As for the bottom line, net profits decreased six per cent from RO2.1mn in 2011 to RO2.0mn in 2012, mainly due to a six per cent y-o-y increase in total expenses. 

Upon analysis of market activity, we found that trades in general were modest, yet daily average turnover during the week was slightly better than the previous one. The week witnessed a special deal on bank muscat for RO1.36mn. 

Foreign institutional investors were clearly buyers, ending the week with a net purchase of RO1.42mn worth of shares, and offsetting  selling pressure from both local institutions and individuals.

In the GCC, markets were volatile with regional markets posting mixed returns over last week. Corporate result announcements and expectations of more results of 4Q’12, dominated trading across the region. 

In Saudi Arabia, the index was impacted by the results of Saudi Telecom Corp which posted an annual decline in net profits, due to extraordinary losses pertaining to revaluation of investments in overseas subsidiaries and deferred tax charges.  

In UAE, the central bank governor said that it will not impose limits on mortgage lending without consulting commercial banks, after having issued a draft paper recommending the same a week ago. The governor's statement caused real-estate stocks to marginally recoup losses posted last week, to some extent on the initial news of caps on mortgage lending.

The boards of Aldar Properties and Sorouh approved a plan to form a single company Aldar Sorouh Properties with around $13bn in assets. Post-merger, Sorouh will be delisted from the Abu Dhabi Securities Exchange and will cease to exist. Sorouh shareholders will receive 1.288 Aldar shares for each share of Sorouh held.

Recommendation

We advise investors to keep a close eye on results. We recommend that investors stay away from rumours and ambiguous news. We maintain our stand on increasing investments in the market especially in good yielding stocks.

We expect numerous results this week, including those of the remaining banks, which will support activity on the market.

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