MSM30 ends flat as investors remain cautious amid Q2 results
The benchmark index of the Muscat Securities Market (MSM) ended last week slightly up by 0.04 per cent at 5,121.38 points. A recovery was seen in the market performance during most of the past week despite regional challenges and investors’ overall cautious sentiment. Factors such as the announcement of the projects by the government and start of the earnings season have played role in this performance. As we stated in our previous report, stock prices have already reflected most of the negative factors leaving ample room for investors to catch opportunities, especially in companies that managed to sustain operational margins and will benefit from the upcoming projects. However, the market lost 0.95 per cent on Thursday pressurised by negative performances of some companies in second quarter results.
As per the companies’ disclosures to the MSM, total initial net earnings of 60 companies, which have so far announced second quarter results, grew by 13.2 per cent in the second quarter of 2017 on sequential basis. This improvement came on the back of better performance of power companies which were impacted by special deferred tax expenses in the first quarter.
Total net income of these listed firms was down by 17.9 per cent in the second quarter on year-on-year basis. Sector wise, financial sector results fell by 19 per cent on quarterly basis to RO79mn (banking sector constituted 89.4 per cent of the financial sector). Industrial sector’s total net earnings came at RO12.8mn in second quarter, a decline of 13.6 per cent on quarterly basis and 39.2 per cent fall on year-on-year basis. Services sector earnings grew which benefited from lesser-deferred tax expenses by many of power companies.
All sectoral indices closed in red territory last week led by the Industrial index which fell 2.98 per cent to 6,835.42 points. Financial index declined 0.85 per cent to 7,575.02 points and the Service index fell 0.78 per cent to 2,581.26 points. The MSM Shariah index closed down by 0.54 per cent at 759.67 points.
As we forecasted last week, the MSM30 index reached the level of 5,160 points. Currently, the MSM30 index is likely to continue to be volatile between the levels of 5,160 points and 5,040 points.
National Securities disclosed that its board of directors proposed to restructure the share capital of the company by writing off the accumulated losses, then increasing the capital to commensurate with the legal requirements. The board also approved the transformation of the legal status of the company from public joint stock company to closed joint stock company.
Alizz Islamic Bank disclosed that its board of directors decided not to pursue the possible merger with United Finance Co through a combination of a share swap and cash and stopped discussions after a recent decision of United Finance Co to decline the bank’s offer.
The undersecretary of the Ministry of Oil and Gas said that the trial production from the Khazzan gas field was successful and the actual productions will be starting in early September. He added that the first train has a capacity of 500mn cubic feet per day of gas, while the second train, which has a similar capacity, will be in operation in early 2018.
According to a media report, Oman Oil Co managed to secure and complete US$2bn loan financing and the company has signed a revolving credit facility of US$1.15bn, with a five year maturity, and has slightly amended the terms of an existing US$850mn revolving loan that matures in 2019. The report said that the US$850mn loan was part of a dual-tranche US$1.85bn financing the company raised in 2014. Oman Oil Co is targeting to develop the Duqm Refinery, other oil projects and Salalah LPG, a liquefied petroleum gas (LPG) extraction project.
Qatar Exchange posted the highest weekly gain of 6.13 per cent followed by Dubai Financial Market which ended the week 4.01 per cent higher.
In a move aimed to increase private sector contribution in Saudi Arabia’s healthcare sector, media reports said Saudi Arabia’s King Salman bin Abdulaziz al Saud agreed to a proposal by the Saudi Ministry of Health concerning the privatisation of health institutions and work on a comprehensive programme for citizens’ insurance. According to the Ministry of Health, hospitals and health centres will be separated from the ministry and they will be converted into public sector companies to compete with one another on the basis of quality and other factors. Fur- thermore, the establishment of a holding government company was approved which will control five companies currently owned by the Ministry of Health during the transitional period. These steps are part of Saudi Arabia’s ‘Vision 2030’ and the National Transformation Program 2020.
In the UAE, the Insurance Authority announced the approval of the Council of Ministers to increase the foreigners’ ownership in local insurance companies by modifying the minimum capital to become at least 51 per cent of the capital of the company. The approval covers companies that are established in the UAE and owned by citizens or GCC nationals or legal persons. Such move will be reflected positively on the insurance companies, especially in terms of improving the terms of reinsurance contracts and the introduction of new insurance products with the assistance of foreign expertise.
According to a Bloomberg report last week, Abu Dhabi National Oil Company (ADNOC) is looking to float some of its services businesses and enter tie-ups with global investors to help it create new revenue streams and secure more market access. ADNOC is reportedly planning an IPO of its retail unit, with a potential valuation of up to US$14bn, making it potentially the largest transaction on local equity markets since the DP World listing in 2007.
The American Petroleum Institute in its recent report stated that crude inventories dropped by 8.13mn barrels in the week ended July 7, reaching 495.6mn barrels, below than analysts’ expectations as they expected a decline of only 2.9mn barrels. Data collected by Bloomberg suggested that in June 2017 stockpiles have declined by 1.4 per cent on monthly basis to 502.9mn barrels.
Overall investors remain cautious which would be the best practice in the current circumstance as the markets are overshadowed by geopolitical tension, funds and foreign investor movement and financial results. Investors need to analyse the results taking into account the impact of taxes and higher operational cost.
Given the current scenario, we advise investor to wait for additional information and data on quarterly results as only initial figures have been announced. We advise to look for companies which managed to absorb pressures and were efficient in utilising the right tools.