Oman: MSM 30 Index Cos‐ Q4 2016 Earnings Preview

Transcription

1. MSM  30 Index Cos‐ Q4 2016 Earnings Preview Contents MSM 30 Index‐ FY 2016 Earnings Preview MSM 30 Index‐ Q4 2016 Earnings Preview Non MSM 30 Index Companies‐ Non‐ MSM 30 Index Companies FY 2016 / Q4 2016 ‐ FY 2016 / Q4 2016 Earnings Preview Earnings Preview Banking Sector‐ Q4 2016 Earnings Preview Industry Sector‐ Q4 2016 Earnings Preview Services Sector‐ Q4 2016 Earnings Preview MSM Outlook‐ Q1 2017E Q January 5, 2017 Omani Equities Foot Notes: Based on the new MSM 30 Index constituents ‐ effective July 2016 E i Earnings estimates ti t off the th Investment I t t holding h ldi companies i have h b been excluded l d d in i our estimates ti t due d to t market k t correlation l ti For companies with different year ending (Mar, June), we have taken the earnings data for the calendar period 1
2. FY2016  ‐ MSM 30 Index Earnings Preview GBCM Research FY 2016E‐ Earnings Preview‐ Adjusting to the new environment  For FY 2016, total revenue of the index companies (ex‐investment holding) is estimated to grow by 2.7% YoY RO 3.829 billion. For 2016, the earnings of index companies (ex‐Inv. holding) is estimated to increase by 22.9% YoY to RO 641.624 million. The estimated higher earnings growth on a YoY basis is mainly due to the prevailing low base.  The total revenue of MSM30 Index cos for 2016 is estimated to increase 4.7% YoY to RO 4.064 billion and the earnings is estimated to grow by 23.7% to RO 673.579 million.  We haven’t assumed any impairment charges pertaining to Q4 2016E in our earnings models. While the management of Renaissance Services had mentioned about asset impairment charges similar to last year (reported RO 27 million in Q4 2015) during their Q3 2016 earnings conference f call. ll Added, dd d Galfar G lf has h also l stated d a contract delay d l penalty l worth h RO O 3.1 3 million illi which hi h would ld be b booked b k d during d i Q4. Q  During Q3 2016 (about 50% of the companies reported below our estimates), we saw signs of earnings deterioration for most of the companies under our coverage with the slowdown in growth prospects (revenue decline) along with margin pressure (increase in operating costs). We see this impact to continue in the last quarter of 2016 also. Banking sector earnings to remain flat, Industrial and services sector earnings to grow from low base…  We estimate the 2016 Banking sector revenue growth to be c. 3% YoY amid continued stable credit growth, while the deposit growth to remain lower. The negative impact of higher funding costs to impact net interest margin (NIMs). Banking sector earnings for 2016 is anticipated to remain i flat fl YoY at RO O 343 3 3 million. illi Within i hi the h banking b ki sector, we see double d bl digit di i earnings i growth h in i HSBC S C Bankk Oman. O  Earnings of Investment holding companies for 2016 is estimated at RO 32 million, increasing by 41% YoY on low base. While for the financial sector, 2016 earnings is estimated to reveal marginal growth of 2% YoY to RO 380.4 million  FFor the th Industrial I d t i l sector, t the th total t t l revenue is i estimated ti t d to t decline d li by b 8% YoY Y Y amid id lower l commodity dit prices, i di dismal l performance f off construction t ti and building materials sectors. We saw lower project additions during 2016, which would have impact on visibility going forward. 2016 Industrial sector Earnings to grow by 63% YoY (on low base) to RO 51.8 million. We anticipate double digit earnings growth from Oman Cement  Services sector revenue for 2016 is estimated to increase 6.8% YoY led by growth across all the companies except Renaissance. The sector earnings is set to grow 70% YoY to RO 241 million. million We do expect double digit earnings growth from Ooredoo, Ooredoo Al Suwadi and Al Batinah Power. Power Omani Equities 2
3. FY2016  ‐ MSM 30 Index Earnings Preview In RO 000's  Financial Sector Financial Sector  Ahli Bank  Bank Dhofar  Bank Muscat  Bank Sohar  National Bank of Oman  HSBC Bank Oman  Bank Nizwa  Banking Sector ‐ Aggregate  Inv. Holding Sector ‐ Aggregate  Financial Sector ‐ Aggregate  Industry Sector  Al Anwar Ceramics  Al Maha Ceramics  Galfar Engineering  Oman Cables  O Oman Cement  C t Raysut Cement  Gulf International Chemicals  Industry Sector ‐ Aggregate  Services Sector  Oman Investment & Finance Oman Investment & Finance  Omantel  Ooredoo  Renaissance Services  Shell Oman Marketing  Al Maha Petroleum  Sembcorp Salalah  Al Suwadi Power  Al Batinah Power  Phoenix Power  Services Sector ‐ Aggregate  MSM 30 Index (Inc. Inv. Holding) ‐ Aggregate  MSM 30 Index (Ex. Inv. Holding) ‐ Aggregate  Omani Equities Source: Company Reports, GBCM Research Estimates  GBCM Research 2016E 53,100  127,051  421,200  66,478  136,600  , 76,469  17,489  898,387  235,534  1,162,797  21,334  9,020  337,516  230,326  55 700 55,700  94,556  3,093  751,545  22 681 22,681  539,086  271,355  206,626  390,080  396,178  76,515  69,081  70,835  107,891  2,150,328  4,064,670  3,829,136  3 Total Revenue  2015 55,973  115,226  407,736  70,910  , 135,718  73,500  11,913  870,976  151,161  1,049,896  YoY (%) YoY (%) ‐5.1% 10.3% 3.3% ‐6.3% 0.6% 4.0% 46.8% 3.1% 55.8% 10.8% 2016E 27,500  46,874  177,910  17,644  55,600  , 17,657  (40) 343,145  31,955  380,388  Net Profit  2015 27,727  46,765  175,451  27,746  60,106  , 12,930  (5,260) 345,465  22,724  371,348  YoY (%) YoY (%) ‐0.8% 0.2% 1.4% ‐36.4% ‐7.5% 36.6% NM ‐0.7% 40.6% 2.4% 27,551  9,785  345,234  283,470  52 182 52,182  94,676  3,973  816,872  ‐22.6% ‐7.8% ‐2.2% ‐18.7% 6 7% 6.7% ‐0.1% ‐22.1% ‐8.0% 2,972  2,152  (4,005) 15,556  12 982 12,982  21,561  623  51,842  6,537  2,401  (28,882) 18,507  11 703 11,703  20,954  652  31,872  ‐54.5% ‐10.4% NM ‐15.9% 10 9% 10.9% 2.9% ‐4.5% 62.7% 15 248 15,248  514,300  252,080  237,011  336,015  349,414  73,621  66,714  67,928  101,866  2,014,197  3,880,966  3,729,805  48.7% 48 7% 4.8% 7.6% ‐12.8% 16.1% 13.4% 3.9% 3.5% 4.3% 5.9% 6.8% 4.7% 2.7% 4 789 4,789  121,265  48,209  (8,251) 15,252  9,704  14,317  9,131  8,898  18,035  241,349  673,579  641,624  6 105 6,105  48,493  41,633  (34,833) 14,175  9,200  13,644  7,246  7,084  28,772  141,519  544,739  522,015  ‐21 21.6% 6% 150.1% 15.8% NM 7.6% 5.5% 4.9% 26.0% 25.6% ‐37.3% 70.5% 23.7% 22.9%
4. Q4  FY2016 ‐ MSM 30 Index Earnings Preview GBCM Research Q4 2016 Earnings Preview‐ Higher YoY growth seen on low base, still to remain an overall weak quarter…  Revenue of MSM30 Index companies (ex‐Investment Holding) for Q4 2016 is estimated to remain almost flat on a year over year (YoY) and to decline 4.2% quarter on quarter (QoQ) to RO 938.42 million. The sequential decline in the revenue is mainly due to the seasonality weakness in the services sector companies especially the Utilities.  Postt weakk Q3 earnings P i season, we do d anticipate ti i t the th prevailing ili economic i slowdown l d t imply to i l further f th pressure on the th upcoming i Q4 earnings. i Select Banks would continued to face margin pressure and also expect higher provisioning to impact the earnings during the quarter.  The Industrial sector earnings is estimated to report sequential decline of c. 10%. While the Services sector to report sharp decline in earnings on QoQ basis due to prevailing high base in the power sector companies (seasonality impact)  Index earnings (ex‐Investment Holding) for Q4 2016 is estimated at RO 130.9 million as compared to RO 32.7 million (extremely low due to non‐recurring items) in the same period.  We estimate a steep increase in YoY earnings growth mainly due to several one‐off provisions reported in the same period last year. Galfar (receivable impairment of RO 30 million), million) Renaissance (asset impairment of RO 27 million) and Omantel (WorldCall Telecom investment impairment of RO 72 million) reported significant losses during Q4 2015. While on a QoQ basis, the earnings is estimated to decline by 23% due to overall weakness in the economic environment which would reflect in the corporate performance.  Q4 Revenue of MSM Index companies (Inc. Inv. Holding) is estimated at RO 995.1 million, remaining flat YoY and declining 3.6% QoQ mainly owing to seasonality factor. factor While the Index Earnings for the quarter is estimated to increase sharply YoY and decline ‐21% 21% QoQ to RO 136.7 million. Overall view before the upcoming earnings season,  Expect Q4 2016 Earnings Positive on Bank Nizwa (higher profits), Oman United Ins, Select Inv. Holding companies, Al Jazeera Steel, Voltamp Energy and Al Maha Petro  Anticipate Q4 2016 Earnings negative from the banking sector players (higher provisioning estimated), Building materials and construction sector companies, Al Anwar Ceramics, Galfar and Renaissance Services Omani Equities 4
5. Q4  FY2016 ‐ MSM 30 Index Earnings Preview GBCM Research MSM30 Cos (In RO 000s)  Total Revenue  Financial Sector Financial Sector  Q4 2016E  Q4 2016E Q4 Q4 2015  2015 YoY (%) YoY (%) Q3 2016  Q3 2016 QoQ (%) QoQ (%) Subsector ‐ Banking  Ahli Bank  13,700  12,973  5.6% 13,307  3.0% Bank Dhofar  30,000  30,589  ‐1.9% 29,759  0.8% Bank Muscat  107,000  105,187  1.7% 103,440  3.4% Bank Sohar  , 18,469  , ‐5.8% 16,785  , 3.7% 17,400  National Bank of Oman  34,300  38,218  ‐10.3% 34,490  ‐0.6% HSBC Bank Oman  20,200  19,700  2.5% 18,836  7.2% Bank Nizwa  5,000  3,633  37.6% 4,614  8.4% Banking Sector ‐ Aggregate  227,600  228,769  ‐0.5% 221,231  2.9% Inv. Holding Sector ‐ Aggregate  56,700  52,009  9.0% 53,034  6.9% Financial Sector ‐ Aggregate  291,300  287,577  1.3% 280,566  3.8% Industry Sector  Al Anwar Ceramics  4,600  6,060  ‐24.1% 4,531  1.5% Al Maha Ceramics  2,100  2,283  ‐8.0% 1,998  5.1% Galfar Engineering  80,000  103,991  ‐23.1% 83,347  ‐4.0% Oman Cables Oman Cables  57 500 57,500  72 824 ‐21.0% 72,824  ‐21 0% 48 882 17.6% 48,882  17 6% Oman Cement  13,400  14,474  ‐7.4% 12,166  10.1% Raysut Cement  24,000  25,297  ‐5.1% 20,629  16.3% Gulf International Chemicals  720  937  ‐23.2% 644  11.8% Industry Sector ‐ Aggregate  182,320  225,867  ‐19.3% 172,196  5.9% Services Sector  Oman Investment & Finance  6,100  4,120  48.1% 6,597  ‐7.5% Omantel  139,300  131,021  6.3% 128,161  8.7% Ooredoo  69,500  65,233  6.5% 69,083  0.6% Renaissance Services  49,700  57,768  ‐14.0% 49,315  0.8% Shell Oman Marketing  103,500  83,249  24.3% 103,217  0.3% Al M h P t l Al Maha Petroleum  101 300 101,300  87 059 16.4% 87,059  16 4% 108 350 ‐6.5% 108,350  6 5% Sembcorp Salalah  18,000  18,588  ‐3.2% 19,219  ‐6.3% Al Suwadi Power  11,000  11,125  ‐1.1% 25,239  ‐56.4% Al Batinah Power  10,800  10,927  ‐1.2% 25,672  ‐57.9% Phoenix Power  12,300  12,031  2.2% 44,819  ‐72.6% Services Sector ‐ Aggregate  Services Sector  Aggregate 521,500 521,500  481,121 8.4% 481,121  579,672 ‐10.0% 579,672  10.0% MSM 30 Index (Inc. Inv. Holding) ‐ Aggregate  995,120  994,564  0.1% 1,032,434  ‐3.6% MSM 30 Index (Ex. Inv. Holding) ‐ Aggregate  938,420  942,555  ‐0.4% 979,400  ‐4.2% Omani Equities Source: Company Reports, GBCM Research Estimates  5 Net Profit  Q4 2016E Q4 2015  Q4 2016E  Q4 2015 YoY YoY (%) (%) Q3 2016  Q3 2016 QoQ (%) QoQ (%) 6,500  10,000  41,000  4,700  , 13,500  4,200  500  80,400  5,830  87,230  5,927  13,370  39,251  6,454  , 17,106  4,830  (1,032) 85,906  516  86,421  9.7% ‐25.2% 4.5% ‐27.2% ‐21.1% ‐13.0% 148.4% ‐6.4% NM 0.9% 6,777  10,707  46,440  4,131  , 12,705  5,602  187  86,549  2,503  89,825  ‐4.1% ‐6.6% ‐11.7% 13.8% 6.3% ‐25.0% 167.3% ‐7.1% 132.9% ‐2.9% 450  450  (4,200) 3 700 3,700  3,300  4,900  90  8,690  1,207  512  (25,576) 5 456 5,456  4,709  5,144  (56) (8,603) ‐62.7% ‐12.2% NM ‐32 2% ‐32.2% ‐29.9% ‐4.7% NM NM 368  450  (345) 2 461 2,461  2,883  3,747  121  9,685  22.2% 0.0% 1117.4% 50 3% 50.3% 14.5% 30.8% ‐25.3% ‐10.3% 1,000  544  26,200  (42,185) 10,600  9,296  (3,100) (29,088) 3,200  3,354  2 000 2,000  1 249 1,249  3,000  3,029  (2,600) (2,734) (2,100) (2,911) 2,600  14,864  40,800 (44,582) 40,800  136,720  33,236  130,890  32,720  83.8% NM 14.0% NM ‐4.6% 60 1% 60.1% ‐1.0% ‐4.9% ‐27.9% ‐82.5% NM 311.4% 300.0% 924  28,311  12,680  (3,667) 3,242  3 164 3,164  3,404  7,291  6,804  10,944  73,097 73,097  172,607  170,104  8.2% ‐7.5% ‐16.4% ‐15.5% ‐1.3% ‐36.8% 36 8% ‐11.9% ‐135.7% ‐130.9% ‐76.2% ‐44.2% 44.2% ‐20.8% ‐23.1%
6. FY  2016/ Q4 FY2016 ‐ Non‐ MSM 30 Index Companies‐ Earnings Preview GBCM Research Total Revenue  Net Profit  In RO 000'ss  In RO 000 2016 19,576  16,060  84,713  9 142 9,142  68,263  78,762  28,360  413,018  31 441 31,441  45,723  38,665  National Alum. Products  DIDIHC  Al Hassan Engineering  Al Jazeira Services Al Jazeira Services  Al Jazeera Steel  Oman Refreshment  Oman Fisheries  Oman Oil Marketing  Asaffa Foods Asaffa Foods  Dhofar Cattle Feed  Voltamp Energy  Non‐MSM30 Cos (In RO 000s)  National Alum. Products  DIDIHC  Al Hassan Engineering  Al Jazeira Services Al Jazeira Services  Al Jazeera Steel  Oman Refreshment  Oman Fisheries  Oman Oil Marketing  Asaffa Foods  Dhofar Cattle Feed  Voltamp Energy  Q4 2016E  5,450  4,100  15,000  2 200 2,200  17,784  19,690  8,000  101,000  8,300  11,900  9,500  2015 24,780  22,735  102,444  11 109 11,109  68,862  77,064  25,886  368,148  31 953 31,953  43,871  35,833  Total Revenue  Q4 2015  YoY (%)  Q3 2016  6,245  ‐12.7% 5,010  9,444  ‐56.6% 448  23,220  ‐35.4% 15,781  2 757 ‐20 2,757  2 148 2,148  20.2% 2% 12,599  41.1% 15,520  18,782  4.8% 23,027  8,416  ‐4.9% 7,106  90,179  12.0% 112,552  7,732  7.3% 7,277  11,161  6.6% 10,814  10,764  ‐11.7% 9,736  YoY (%) ‐21.0% ‐29.4% ‐17.3% ‐17.7% 17 7% ‐0.9% 2.2% 9.6% 12.2% ‐1.6% 1 6% 4.2% 7.9% QoQ (%)  8.8% 815.6% ‐4.9% 2 4% 2.4% 14.6% ‐14.5% 12.6% ‐10.3% 14.1% 10.0% ‐2.4% 2016 (339) 9,779  (7,784) 2 128 2,128  3,417  10,012  (348) 10,364  5 464 5,464  375  3,462  2015 779  12,367  (7,857) 3 829 3,829  1,715  9,600  (732) 12,214  5 979 5,979  1,330  3,305  Net Profit  Q4 2016E  Q4 2015  YoY (%)  (150) 197  NM 2,500  3,114  ‐19.7% (1,000) (6,662) NM 550 550  918 918  ‐40 40.1% 1% 350  150  133.0% 2,200  2,547  ‐13.6% 50  243  NM 2,800  3,338  ‐16.1% 1,450  1,166  24.4% 100  (168) NM 950  953  ‐0.3% Q3 2016  (192) 204  (6,883) 472 472  359  3,712  (4) 2,713  1,227  (785) 839  Among the non Index companies, we expect Al Jazeera Steel, Voltamp and Oman Refreshment to report resilient 2016 earnings Omani Equities Source: Company Reports, GBCM Research Estimates  6 YoY (%) NM ‐20.9% ‐0.9% ‐44.4% 44 4% 99.3% 4.3% ‐52.4% ‐15.1% ‐8.6% 8 6% ‐71.8% 4.7% QoQ (%)  ‐21.9% 1127.7% ‐85.5% 16 6% 16.6% ‐2.6% ‐40.7% ‐1264.7% 3.2% 18.2% ‐112.7% 13.3%
7. Q4  FY2016 ‐ MSM 30 Index Earnings Preview GBCM Research Banking Sector Banking Sector Company  Closing (RO) Current Rating Net Profit (In RO 000s) 12 M Fair Value Q4 2016E  Q4 2015  YoY (%) Q3 2016  QoQ(%) Ahli Bank 0.190 Neutral 0.186 6,500  5,927  9.7% 6,777  ‐4.1% Bank Dhofar 0.230 Neutral 0.234 10,000  13,370  ‐25.2% 10,707  ‐6.6% Bank Muscat 0.486 Accumulate 0.534 41,000  39,251  4.5% 46,440  ‐11.7% Bank Sohar  0.164 Neutral 0.166 4,700  6,454  ‐27.2% 4,131  13.8% National Bank of Oman  0.242 Accumulate 0.274 13,500  17,106  ‐21.1% 12,705  6.3% HSBC Bank Oman 0.130 Neutral 0.133 4,200  4,830  ‐13.0% 5,602  ‐25.0% Bank Nizwa 0.089 Not Rated Under Review 500  (1,032) 148.4% 187  NM 80,400 80,400  85,906 85,906  ‐6.4% 6.4% 86,549 86,549  ‐7.1% 7.1% Banking Sector ‐ Aggregate Banking Sector Source: Company Reports, GBCM Research Estimates, closing as on 5th Jan 2017 Preview on Banking Sector… For Jan‐Oct Jan Oct 2016, 2016 Oman Banking sector credit (conventional and Islamic combined) grew by RO 1.8 1 8 billion in absolute terms, terms an increase of 10.2% 10 2% YoY and 9% YTD lead by increase in private sector and retail credit demand. For Q4 2016E, we anticipate banking sector credit addition (combined book) to be at c. RO 300 million, an increase of 1.4% on a QoQ basis. For 2016E, we estimated the sector credit growth to be c. 10% levels. While 2017E credit growth rate to lower to c. 6‐8% levels. As p per the CBO data,, overall credit ggrowth in the bankingg system y remains stable,, while lower ggrowth seen in the customer deposits p ((Jan‐Oct 2016 addition at RO 1 billion, +5% YoY and +5.6% YTD). Overall credit to deposit ratio for the conventional banks is at 107% levels (End Oct 2016) Amid growth in credit demand, the banks are looking to diversify funding base. On back of tight liquidity we estimate the impact in higher funding costs to lower NIMs. Added, we do see the non‐interest income to be under pressure during the quarter. The sector earnings for Q4 2016 is estimated to decline by 6.4% YoY and ‐7.1% QoQ to RO 80.4 million. We are anticipating higher provisioning charges during Q4 for most of the banks under our coverage. We would b keenly be k l watching h out for f the h increase in cost off riskk for f the h local l l banks. b k Omani Equities 7
8. Q4  FY2016 ‐ MSM 30 Index Earnings Preview C Company N Name GBCM Research B ki S t Q4 2016 Banking Sector‐ Q4 2016 Earnings Preview Comment E i P i C t Ahli Bank The bank to continue it conservative policy towards credit growth. The increase in funding costs to put pressure on the net interest margins. Lower fee income to impact. Q4 PAT to increase 9.7% YoY and ‐4.1% QoQ. Bank Dhofar Credit growth to lower, while the impact on higher funding costs to lower the margins. Incremental cost of risk to impact the earnings. We estimate Q4 PAT to decline 25% YoY and ‐6.6% QoQ. Bank Muscat Projects credit demand to drive growth. The bank has relatively a good capital position and also a diversified funding mix. Despite higher funding costs, margins to remain stable on increase in asset yield. We anticipate higher provisioning levels during the quarter. Q4 PAT to increase 4.5% YoY and decline ‐11.7% QoQ Bank Sohar Post weak 9M results, we see the credit growth to see moderation. While the increase in funding costs to impact margins. We do see normal level of provisioning during the quarter. Q4 net profit seen at RO 4.7 million, a decline of 27% YoY and gaining 13.8% QoQ National Bank of Oman Credit growth to remain at normal levels amid emphasis on quality. quality The cost of funding to impact the margins. margins Post weak Q3 results, results we anticipate Q4 PAT to decline 21% YoY and increase 6.3% QoQ. We would closely watch out for cost of risk trend in this quarter. HSBC Bank Oman HSBC Oman remain as the most liquid and a well capitalized bank in Oman. We do see better operating performance on improvement in asset yield with the deployment into productive assets. On a conservative basis, we estimate higher provisioning levels for the quarter. Q4 PAT is estimated to decline by 13% YoY and ‐25% QoQ Bank Nizwa The first dedicated Islamic bank in Oman is expected to report net profit for the second consecutive quarter. We estimate the bank to report profit of RO 500K for the quarter. While for the FY 2016E, the bank is estimated to report breakeven number. Omani Equities 8
9. Q4  FY2016 ‐ MSM 30 Index Earnings Preview GBCM Research Industry Sector y Company  Closing (RO) Current Rating 12 M Fair Value Net Profit (In RO 000s) Q4 2016E  Q4 2015  YoY (%) Q3 2016  QoQ(%) Al Anwar Ceramics  0.182 Neutral 0.192 450  1,207  , ‐62.7% 368  22.2% Al Maha Ceramics 0.500 Neutral 0.490 450  512  ‐12.2% 450  0.0% Galfar Engineering  0.095 Neutral Under Review (4,200) (25,576) NM (345) NM Oman Cables  1.575 Accumulate 1.740 3,700  5,456  ‐32.2% 2,461  50.3% Oman Cement  0.486 Neutral 0.480 3,300  4,709  ‐29.9% 2,883  14.5% Raysut Cement  1.450 Neutral 1.470 4,900  5,144  ‐4.7% 3,747  30.8% Gulf Int. Chemicals  0.290 Not Rated Under Review 90  (56) NM 121  ‐25.3% 8,690  (8,603) NM 9,685  ‐10.3% Industry ‐ Aggregate Source: Company Reports, GBCM Research Estimates; closing as on 5th Jan 2017 Preview on Industry Sector… Post weak Q3 earnings season, we do anticipate the Industry sector to reveal further underperformance during Q4 2016 amid demand slowdown seen across the GCC region with reduced order visibility. We do estimate lower Q4 performance from the commodity and also construction/ building materials sector companies. As per Industry sources, local cement demand remained stable, while the visibility for 2017 would depend upon the new project allocations. Till Q3 2016, b th the both th cementt companies i revealed l d comparatively ti l stable t bl performance. f The spending cuts by the GCC governments on the back low oil price environment would impact the construction and building material sector companies. Earnings of Al Anwar Ceramics to remain under pressure. Galfar has also stated a delay penalty worth RO 3.1 million which would be booked during Q4. Industry sector earnings for Q4 2016 is estimated to increase strongly YoY (on low base) and decline 10% on a sequential basis. During Q4 2015, Galfar has booked impairment on receivables worth RO 30 million, this in turn lead to overall lower numbers for the sector. Omani Equities 9
10. Q4  FY2016 ‐ MSM 30 Index Earnings Preview Company Name GBCM Research Industry Sector‐ Q4 2016 Earnings Preview Comment Industry Sector Q4 2016 Earnings Preview Comment Al Anwar Ceramics  We see the demand slowdown in the GCC region to impact sales volume. While the recent liquidity injection in Saudi Arabia to lead to improvement in receivables cycle, which we see as a positive trend for the company. Q4 PAT is estimated to decline 62.7% 62 7% on YoY basis and increase 22% QoQ on low base Al Maha Ceramics To expect weakness in the sales growth amid prevailing macro economic environment. Export market demand slowdown to continue and impact the performance. Q4 PAT estimated to decline 12% YoY and remain flat sequentially Galfar Engineering  Galfar has stated that it would provide RO 3.1 million towards the Arbitration proceedings with Muscat City Desalination, which would weigh Q4 earnings (estimated loss of RO 4 million). We estimate the higher consultancy charges (strategic and financial restructuring) to impact. impact Added, Added the delay in the Government payments to impact the working capital cycle. cycle Oman Cables  The cable demand to stay subdued during the quarter, the surge in the copper prices would help to improve the margins due to which the parent earnings will remain stable. While OAPIL (subsidiary) would continue to witness pressure in its performance. Q4 earnings p g to decline byy 32.2% YoY and to improve p sharply p y byy 50.3% QoQ Oman Cement  Production as well as demand is likely to improve which in turn will boost sales during Q4. Margins to remain stable Earnings to decline by 29.9% YoY and to increase by 14.5% QoQ. Raysut Cement  Both the Parent and the subsidiary to report steady sales volumes during Q4 2016 in their respective domestic and export markets. Earnings to drop modestly by 4.7% YoY and to increase by 30.8% QoQ Omani Equities 10
11. Q4  FY2016 ‐ MSM 30 Index Earnings Preview GBCM Research Services Sector Company  Closing (RO) Current Rating 12 M Fair Value Net Profit (In RO 000s) Q4 2016E  Q4 2015  YoY (%) Q3 2016  QoQ(%) OIFC 0.209 Accumulate 0.230 1,000  544  83.8% 924  8.2% Omantel  Ooredoo  1.450 0.632 Neutral Neutral 1.520 0.670 26,200  10,600  (42,185) 9,296  NM 14.0% 28,311  12,680  ‐7.5% ‐16.4% Renaissance Services  0.235 Neutral 0.240 (3,100) (29,088) NM (3,667) ‐15.5% Shell Oman Marketing  2.000 Neutral 2.050 3,200  3,354  ‐4.6% 3,242  ‐1.3% Al Maha Petroleum  1.595 Neutral 1.600 2,000  1,249  60.1% 3,164  ‐36.8% Sembcorp Salalah  0.233 Neutral 0.250 3,000  3,029  ‐1.0% 3,404  ‐11.9% Al Suwadi Power  Al Batinah Power  Phoenix Power 0.184 0.180 0.150 Neutral Neutral Neutral Under Review Under Review Under Review (2,600) (2,100) 2,600  (2,734) (2,911) 14,864  ‐4.9% ‐27.9% ‐82.5% 7,291  6,804  10,944  ‐135.7% ‐130.9% ‐76.2% 40,800  (44,582) NM 73,097  ‐44.2% Services Aggregate Source: Company Reports, GBCM Research Estimates, closing as of 5th Jan 2017 Preview on Services Sector… The services sector earnings for Q4 2016 is estimated to increase strongly YoY (on low base) and decline ‐44% YoY amid weakness in utility sector earnings on the back of seasonality. We estimate Omantel and Ooredoo to report lower earnings on a sequential basis during the quarter. The impact on the royalty charges increase to reflect in 2017 numbers. The prevailing higher dividend yield to protect the downside for the telecom stocks. The lower level of economic activity to impact the earnings of Oil marketing companies during the quarter. Shell Oman earnings to report earnings decline of 4.6% YoY, while Al Maha Petro to report stronger growth of 60% YoY on a low base. Renaissance earnings is estimated to remain under pressure for the quarter. We estimate losses of RO 3.1 million for Q4. The management of Renaissance h d mentioned had ti d about b t assett impairment i i t charges h similar i il to t last l t year during d i their th i Q3 2016 earnings i con. call. ll This Thi is i nott included i l d d in i our estimates. ti t Omani Equities 11
12. Q4  FY2016 ‐ MSM 30 Index Earnings Preview Company Name GBCM Research Service Sector‐ Q4 2016 Earnings Preview Comment OIFC Core business growth to remain stable. The lower contribution from the associates and the losses from the subsidiaries to i impact. t Q4 PAT is i estimated ti t d to t increase i b 84% YoY by Y Y basis b i and d +8.2% 8 2% QoQ. Q Q Omantel The diversified revenue stream to benefit. Data continue to remain as key driver; The early signs of economic slowdown may reveal negative impact. Q4 PAT to see sequential decline of 7.5%. WorldCall Telecom, Pakistan sale process is still going on, the company p y is not consolidatingg this subsidiaryy startingg Q Q2 2016. The impact p of royalty y y charge g increase to be seen from Q Q1 2017. Ooredoo Ooredoo Oman continued to reveal steady growth driven by growth in data segment. We estimate the impact on Ooredoo group brand license fee payable to the parent (starting Q4 2016) to impact. Q4 PAT to increase 14% YoY and decline 16% QoQ. Renaissance Services We do see the company continue to report losses during the quarter amid challenging market environment in both OSV and CSG divisions. We do anticipate the margin pressure to prevail. Higher depreciation and financial charges to impact. The management of Renaissance had mentioned about asset impairment charges similar to last year during their Q3 2016 earnings con. call. We haven’t assumed this to our earnings. Al Maha Petroleum To witness stable growth in revenue during Q4 2016. However the provision of additional admin expenses (seasonal/ yearend factor) to weigh on the earnings during Q4. Earnings estimated to surge by 60% YoY on low base and decline by 36.8% QoQ. Shell Oman Marketing The stable retail segment growth along with the higher margins in lubricants division and estimated higher other income to benefit. On the other hand, the increasing competition in aviation and commercial segments to weigh on margins. Q4 earnings to decline by 4.6% YoY and 1.3% QoQ. Omani Equities 12
13. Q4  FY2016 ‐ MSM 30 Index Earnings Preview GBCM Research 2017E Outlook‐ Gain in oil price to improve sentiments, Diversification efforts to remain critical…   We estimate Oman Economy to grow 2% in 2017E (in real terms), while 2017 nominal GDP to increase 6%, Inflation estimated at 2% • Priority Projects are expected to continue amid strong focus on diversification (Outcomes from Tanfeedh Labs). • Rationalization of subsidies and other austerity measures to impact the economic growth for the short to medium term • Concern continued to remain on higher fiscal deficit (2016 provisional Oman budget deficit at RO 5.3 billion) Government Foreign borrowing program has improved liquidity in the local market to an extent • Oman Government has completed USD 4 billion foreign borrowings during 2016 and further USD 2 billion estimated in 2017 • PDO has raised USD 4 billion borrowing (on behalf of Government) internationally • Banks to face pressure on margins amid higher funding costs. We do expect the yield improvement (on US Fed rate increase) with a lag. We estimate deterioration of asset quality to impact especially in Retail, Retail SME, SME Contracting, Contracting Real Estate etc., etc during Q4 2016 and H1 2017 •  While the recent production cut agreement by OPEC and non‐OPEC members would support the oil price with an upward bias (USD 60 barrel). We do see the improvement in oil prices and the Govt. external borrowing program to assist in better liquidity during the coming quarters.  We anticipate the 2017 earnings season to reflect the economic slowdown to an extent. We would continue to recommend bottom up approach and look for select stock specific opportunities in Oman. We do expect the volumes and investor to improve during H1 2017E with the triggers to come from the stability in oil prices, the upcoming dividend season and pipeline of IPOs.  We remain neutral on the Omani equities on upcoming weak earnings amid fiscal consolidation and subsidy rationalization efforts. Overall p with higher g dividends. investor focus to shift from low beta to distressed stocks coupled  Select Financials, Industrial, Consumer Staples and Food companies to outperform during Q1 2017 ahead of dividends. Select Banks to outperform on attractive valuations and the expected improvement in operating environment.  MSM trades at PE of 10X of 2017E Earnings; g ; Historical tradingg PE Band of MSM is between 8X and 12X.      Recommend Marketweight rating on Oman Banking Sector; Bank Muscat, HSBC Oman and NBO remain our picks Advise Underweight rating on the Industrial sector especially construction, building materials and commodity plays Positive Outlook on Oman Food Sector players; Oman Flour Mills remain our pick Recommend Marketweight rating on Services Sector; Utility sector companies provide stable dividends; Sembcorp remain our pick post recent correction;; Ooredoo Oman remain our p pick Telecom sector remain attractive p Omani Equities 13
14. Q4  FY2016 ‐ MSM 30 Index Earnings Preview GBCM Research | Institutional Sales ‐ Hunaina Banatwala, (+968) 2235 0717 |Institutional Brokerage – Talal Al Balushi, (+968) 2235 0725| | Equity E it Research R h ‐ Kanaga K S d (+968) Sundar, ( 968) 2235 0727 | Vijay Vij Sridharan, S idh ( 968) 2235 0728 | (+968) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Disclaimer: This document has been prepared and issued by Gulf Baader Capital Markets SAOC ("the Company") on the basis of publicly available information, internally developed data and other sources believed to be reliable. While all care has been taken to ensure that the facts stated are accurate and the opinions given are reasonable, neither Gulf Baader Capital Markets SAOC nor any employee shall be in anyway responsible for the contents of this report. report The Company may have a position and may perform buying/selling for itself or its clients in any security mentioned in this report. This is not an offer to buy or sell the investments referred therein. Omani Equities 14