MSM30 declines as investors await more details on Q3 results

The weekly performance of the benchmark index of the Muscat Securities Market (MSM) was a prey of both fundamental and psychological factors. The ‘wait and see’ strategy regarding any updates on new Omantel acquisition deal in Zain Group and rumours surrounding it, news related to other companies and weak quarterly results performance by some firms, are some of the factors that affected the market performance during the previous week. Moreover, we witnessed some profit booking activities on shares that saw gains in last couple of weeks.

The MSM30 index closed down by 1.63 per cent to 5,128.48 points with all the subindices ended the week on negative note. While Industrial index fell 2.45 per cent, Services and Financial indices dropped by 2.2 per cent and 1.34 per cent, respectively. The MSM Shariah index also closed down by 1.92 per cent at 747.39 points.

Local news

Omantel continued to surprise investors as it announced about signing of a non-binding letter of intent with Al Khair group (one of Zain Group’s top shareholders) regarding the purchase of all Al Khair shares and the shares of its subsidiaries/affiliates in the share capital of Zain Group. This is equal to 12 per cent of Zain share capital. Omantel added that Al Khair is studying the offer.

Omantel earlier acquired 9.84 per cent of Zain Group. Thus, if this deal goes through, Omantel will hold about 21.8 per cent of Zain Group shares, placing it as the second largest shareholder after Kuwait Investment Authority (KIA) which currently holds 24.6 per cent of Zain Group share capital. So far, no information were published about the earlier acquisition cost of funding or current possible acquisition offer price. As per Bloomberg, Omantel is talking to banks to raise a facility of about US$1.5bn to fund the purchase of a stake in Zain Group. The deal comes out to KWD0.863 per share as per Bloomberg, which means an upside of 68 per cent to the latest closing price of Zain Group of KWD0.509 per share.

Oman Qatar Insurance Company’s (OQIC) IPO received overwhelming response. The IPO was 1.4 times oversubscribed on the whole. At institutional level, the IPO was subscribed 2.8 times.

National Life and General Insurance Company’s initial public offering will be the fourth IPO to hit the market in 2017. It has received the Capital Market Authority’s nod and the IPO will start subscription by the end of this month.

Until the date of this report, around 43 companies have reported their first nine months/third quarter 2017 results as per the MSM website.

On nine months basis, the financial sector’s total net earnings posted a yearly decline of four per cent at RO151.3mn. The industrial sector net earnings stood at RO45.7mn, down by 22 per cent and the service sector (excluding Renaissance Services) net profit went down by 20 per cent to RO18.4mn.

Therefore, total market net earnings saw a decline of ten per cent on yearly basis for the nine months of 2017 to RO215.6mn (excluding Renaissance Services). Overall, the market’s net earnings so far for the third quarter of 2017 stood at RO76.8mn, excluding Renaissance Services is one per cent.

Oman’s state-owned Electricity Holding Company (EHC) is set to complete the syndication of a US$165mn loan for one of its distribution companies, and has started marketing a loan of around US$200mn for a second subsidiary. The loans, part of a US$2bn capital expenditure programme for the country’s distribution and trans- mission network, are the latest international fundraising exercises by Oman. The US$165mn loan, with a maturity of just over ten years, is being raised for the Majan Electricity Company. The second facility, for the Muscat Electricity Distribution Company, will be in the region of US$200mn and has just been launched to syndication.

Inflation in Oman for the month of September was reported at 1.6 per cent year-onyear compared to one per cent year-on-year in August.

GCC markets

Within the GCC markets, Qatar Exchange topped the gainers as it closed up by 2.58 per cent while Saudi Stock Exchange posted the highest decline as it closed down by 3.74 per cent on weekly basis.

The International Monetary Fund (IMF) revised the estimates of GCC countries last week. The IMF estimated that real GDP growth in Saudi Arabia for 2017 and 2018 will be 0.13 per cent and 1.13 per cent compared to 0.1 per cent and 1.1 per cent earlier, respectively. It raised Kuwait real GDP contraction from minus 0.25 per cent to minus 2.08 per cent for 2017. Oman’s real GDP, which was earlier expected to grow by 0.38 per cent in 2017, is expected to contract by 0.016 per cent in 2017. While for Qatar, despite reduction of expectations regarding GDP real growth, the IMF expects it to post highest real GDP growth in 2017 amongst GCC countries at 2.52 per cent followed by 2.48 per cent in Bahrain.

Global news

The IMF last week raised its global growth forecasts, saying an upswing in the world economy would likely gather pace into next year. Global economic output should increase by 3.6 per cent in 2017, up marginally from forecasts published three months ago but well above growth seen in 2016.

Citing strong market confidence, the IMF said the US economy is now expected to grow by 2.2 per cent in 2017, a tenth of a percentage point higher than a forecast published in July. It expects China’s economy to expand by 6.8 per cent this year, up from its previous estimate of 6.7 per cent, due to stronger recorded growth in the first half. If realised, the growth rate will outdo last year’s 6.7 per cent, which was China’s slowest pace of expansion since 1990. The growth in China will be higher than India, mainly because of demonetisation in India. The IMF said that the Indian economy will grow at 6.7 per cent in 2017 against its April forecast of 7.2 per cent.

OPEC issued its October report last week. Overall OPEC production rose by 0.3 per cent in September on monthly basis, while the countries who agreed for output cut witnessed a production drop of 0.1 per cent. Output cut compliance improved to 97 per cent in September compared to 95 per cent in August. Production drops in Venezuela, Algeria and UAE contributed to drop in output.

Recommendation

Still many financial results have not been issued, especially some blue chip scrips in financial and services sector. We believe the investors are awaiting further disclosure on the Omantel and Zain Group deal. We believe the results in financial and services sector will set the direction of the market next week. On the volume and value front we believe, they will pick up next week in light of trading in the IPO of OQIC, corporate disclosures and further result announcements.

Given the current scenario, we advise investor to stay in the market and to look for companies who managed to absorb operating pressures.