(MENAFN - Muscat Daily) Last week the MSM30 index witnessed volatility on corporate news and results, which led the index to end the week nearly flat - inching down 0.02 per cent on a weekly basis to close at 5,463.43.
The Al Arabi Oman 20 index slipped 0.41 per cent as turnover amounted to RO8.89mn. The Al Arabi GCC 50 index rose 0.68 per cent to close at 963.47, while the Al Arabi MENA200 Index gained 0.62 per cent to close at 910.34.
The Financial index continued to support the index as it gained 1.25 per cent on a weekly basis to 6,170.57, supported by Ahlibank and investment companies.
Despite ONIC Holding's RO167,000 in investment losses in the second quarter, compared to gains of RO1.3mn in the previous quarter, and also despite a 16 per cent rise in general and administrative expenses, the strong and remarkable performance of net underwriting results (45 per cent quarter-on-quarter to RO1.6mn) and the absence of a provision for warranties, indemnities and legal claims in Q2 (RO1.3mn in Q1) led the company to register a nine per cent growth in net profits at RO1.1mn.
The company stock gained 1.7 per cent on a weekly basis and closed at 236bz per share.
Reflecting the healthy performance within a very competitive sector, leasing companies posted positive data for Q2'12:
- All six companies registered an increase in gross leases with a total of RO764mn in Q2'12, an increase of about six per cent q-o-q (20 per cent y-o-y)
- While total borrowings increased nearly four per cent q-o-q (18 per cent y-o-y) to almost RO408mn, total assets indicate an increase of six per cent q-o-q (22 per cent y-o-y) to RO667mn in Q2'12.
- Total impairment provision stood at around RO41mn, an increase of eight per cent on a yearly basis.
- Combined net finance income stood at around RO11.87mn, an increase of four per cent q-o-q (16 per cent y-o-y), with United Finance topping with a quarterly increase of 24 per cent.
- Combined net profit registered a notable increase on both quarterly and yearly basis, by 10 per cent and 15 per cent respectively, with Al Omaniya Financial Services topping the performance on a quarterly basis with a gain of about 22 per cent.
- On an average, leasing shares offered a dividend yield of around 7.6 per cent.
The Industrial Index remained flat at 6,663.51 on mixed performance from underlying companies.
However, the index was severely impacted at the beginning of the week on a drop in Al Hassan Engineering shares as the company unexpectedly announced disappointing results.
Revenues slumped 38 unexpected q-o-q to RO10.7mn in Q2'12, that led the company to register a gross loss of RO1.2mn against a gross profit of RO1.2mn in the previous quarter.
The company in an earlier note warned about a possible reversal of RO1.3mn in revenue (not achieved profits) due to certain developments on a contract with Petroleum Development Oman (PDO).
The company posted a net loss of RO2.1mn in Q2'12 compared with a net profit of RO285,000 in Q1'12.
The drop in revenue compared to the earlier disclosure raises questions about the clarity and accuracy of disclosures presented by the company and necessitates the need for more clarity regarding such major incidents as they impact the investors' ability to make rational investment decisions and lead to diminished investor confidence.
Within the sector, Raysut Cement Co announced H1'12 results. The group achieved consolidated profit before tax of RO6.85mn in Q2'12 (0.11 per cent q-o-q), up 75.2% up on yearly basis compared with RO3.9mn in Q2'11.
Raysut's local selling prices remained stable at around RO26.9 per tonne in Q2'12, indicating the ability to mitigate the negative impact of competition thanks to the company's key position in the south, better contribution from the subsidiary company, Pioneer Cement, and its role in strengthening the group's geographical distribution, in addition to ongoing government investments and spending strategy which created strong demand for the company's products.
Accordingly, the stability in prices and better sales (despite weak clinker sales) on a quarterly basis led the group to register revenue of around RO25mn, an increase of one per cent q-o-q (7.3 per cent y-o-y).
Out of this, 31 per cent is the contribution of Pioneer with RO7.7mn. The company shares ended the week gaining 0.9 per cent to close at RO1.34.
The Services index also closed flat, edging down 0.03 per cent on a weekly basis.
In line with our view for the sector, Oman Telecommunications Co's (Omantel) initial Q2'12 results positively impacted the market on the last trading day as the company managed to register notable increases in net profits on both quarterly and yearly basis at RO32.1mn, up 7.6 per cent and 10.8 per cent, respectively.
Cost-to-revenue ratio declined to 71 per cent in Q2'12 from 71.7 per cent in Q1'12. The company's stock ended the week with loss of 2.1 per cent at RO1.325 mainly due to the ex-dividend impact at the start of the week.
As expected, local institutions made their presence felt in the market capturing attractive investment opportunities with net purchase of RO1.57mn, absorbing selling pressure from local individuals. Weekly volumes increased 4.3 per cent, while turnover declined 9.5 per cent.
We expect trading volumes to remain at current levels - if not improve - backed by continued investments from fund and investment companies, which picked stocks that offered attractive opportunities, especially companies that did very well at the operational level and have historically done well.
Our analysis of second quarter corporate earnings shows that total net earnings increased three per cent q-o-q (55 per cent y-o-y, including BankDhofar's one-off legal item in Q2'11) to almost RO176.3mn in Q2'12 as against RO171.3mn and RO113.7mn in Q1'12 and Q2'11, respectively (on a like-to-like basis).
Excluding BankDhofar's legal expense, the increase on a yearly basis stood at 27.3 per cent.
The Industrial sector posted the highest quarterly increase in net earnings (18.5 per cent) at around RO33mn on strong quarterly performances by Oman Flour Mills, Oman Refreshment and Oman Cables Industry.
The Services sector posted a three per cent increase in net earnings to RO64mn supported by Omantel and the energy sector. However, the steep drop in Oman Holding International and OIFC quarterly net earnings prevented the sector from bettering its performance.
On the other hand, although the Financial sector was supported by gains in the performance of banks and leasing companies, which jumped eight per cent and ten per cent, respectively, the weak performance of investment as well as insurance companies resulted in total net earnings declining 2.4 per cent to around RO80mn in Q2'12.
The Tender Board awarded RO186mn worth of projects, taking the total worth of tenders awarded this year to RO1bn, which is 58 per cent of the total worth of tenders awarded in 2011.
Recommendation
We advise investors to focus on companies whose performance in the third and fourth quarters was strong, taking into consideration the ability of those companies to grasp investment projects in the local market especially in light of the increasing pace of tenders and projects assigned by the Tender Board.
We believe that local stocks will elicit more interest in the next few weeks, especially those that depend on local operations and revenues. This will alert investors to monitor those companies more deep and study the investment opportunities these companies provide.
