MSX index edges down as financial stocks drop
MSX30, the benchmark index of the Muscat Stock Exchange (MSX), last week recorded a marginal decline of 0.03 per cent. Financial sector index closed in red i.e. down by 0.34 per cent, while Industrial and Services indices rose by 2.9 per cent and 1.1 per cent, respectively. The MSX Shariah Index was higher by 0.61 per cent.
Many companies listed on the MSX announced their initial financial results for the first quarter of 2021 on Thursday.
At the time of preparation of this report only 63 companies with year-end in December announced the results.
As of the first quarter of 2021, total market profitability stood at RO92mn compared to RO26mn in the fourth quarter of 2020 and RO55.2mn in the first quarter of 2020. Financial sector’s net income stood at RO74.3mn, followed by industrial sector at RO15mn and services sector at RO2.6mn.
We have seen good recovery in industrial and service sector profitability compared to fourth quarter of 2020.
Local news
Oman implemented value added tax (VAT) last week on April 16, 2021. The VAT is expected to raise about RO400mn annually and generate approximately 1.5 per cent of the value of GDP. The 5 per cent tax will be imposed on most goods and services, with the exemption of a specific set of goods and services, rendered to consumers at outlets throughout the sultanate. It will also be imposed on imports of goods to the sultanate, except the ones exempted by law. The list of goods and services exempted from the VAT includes healthcare, education, financial services, and basic food items and supplies for persons with special needs, among other items and services. Al Hassan Engineering Company has announced an award of new project with Strategic and Precious Metals Processing Company, for services of C300 main works for approximately RO1.04mn.
The execution period will be 6 months starting from April 2021. The company expects reasonable profit from this project. ACWA Power announced that a steam turbine of its power plant was taken out of service for a planned outage up until April 9, 2021 to conduct routine maintenance and to identify the reason behind certain observations made on its generator during operation. Electrical tests of generator rotor and borescope inspection revealed the presence of open circuit in couple of its coils.
This situation required the generator rotor to be opened to assess the extent of problem and required remedial measures.
The repair is estimated to take ten weeks from now which will result a revenue loss of circa RO1.8mn in addition to the likely repair cost of RO0.5mn. Last week His Majesty Sultan
Haitham bin Tarik presided over a meeting of the principal committee of the National Program of Fiscal Balance.
At the outset of the meeting, His Majesty the Sultan reviewed financial and economic developments in the country as a result of efforts made in implementing programmes and initiatives of the Fiscal Balance Plan (2020-2024). His Majesty expressed his satisfaction over procedures carried out by the government in this regard. His Majesty gave his Royal directives to all officials of the government to follow up on livelihood conditions of citizens in order to secure fair standards of decent living for them. A new food processing cluster, anchored by a flour mill, is being established in the Salalah
Free Zone - the latest in a series of food hubs in various stages of planning and implementation across the sultanate. The food sector is one of the fastest growing industries in the sultanate - its growth powered partly by the government’s aggressive quest to secure the country’s basic food requirements, and partly by the development of a wider ecosystem that, along with agro, fish and livestock processing, is fueling new investments into this rapidly expanding segment of the Omani economy. Total number of guests in hotel properties of the 3 to 5 star category in the sultanate fell 47.2 per cent to 169,465 in February 2021, compared to 320,816 guests for the same period of 2020. Meanwhile, the occupancy rate slumped to 49.7 per cent, according to the latest monthly statistics released by the National Centre for Statistics and Information (NCSI). Total revenues of these hotels also fell to RO6.515mn in February compared to RO23.35mn during the same period of the previous year. Oman’s unemployment rate stood at 2.8 per cent in February 2021 compared to 3 per cent in January 2021.
Unemployment amongst women stood at 9.2 per cent while the same amongst males stood at 1.4 per cent in February 2021.
The age group 15-24, recorded the highest unemployment at 14.9 per cent, followed by 6.2 per cent for the age group 25-29 and 2.1 per cent for the age group 30-34. In terms of unemployment by educational status, highest was at 10.1 per cent for the people with a higher diploma. The inflation rate in the sultanate, measured by movement in the average consumer price index (CPI), fell by 0.37 per cent in March 2021 compared to the same month of 2020, according to the latest data released by the NCSI.
The inflation rate in March increased by 0.5 per cent compared to February 2021.
Global news
Total OPEC crude oil production averaged 25.04mn barrels per day (bpd) in March 2021, up by 0.20mn bpd compared to the previous month.
Crude oil output increased mainly in Iran, Angola, Libya and Iraq, while production decreased primarily in Saudi Arabia.
The share of OPEC crude oil in total global production was down by 0.1 per cent in March to 26.9 per cent compared with the previous month.
The annual inflation rate in the US jumped to 2.6 per cent in March of 2021 from 1.7 per cent in February, slightly above market forecasts of 2.5 per cent. It is the highest reading since August, 2018 with main upward pressure coming from energy (13.2 per cent in March vs 3.7 per cent in February), namely petrol (22.5 per cent in March vs 1.6 per cent in February) and utility gas service (9.8 per cent in March vs 6.7 in February).
The effects of the coronavirus pandemic are weighing on prices since in March 2020 many businesses closed and lockdowns were imposed, denting economic activity. Also, a jump in commodities and material costs, coupled with supply constraints, are pushing producer prices up and some companies are passing those costs to clients.
Recommendation
Earnings season has kicked-off internationally as well as regionally. Internationally, big banks are reporting better than expected earnings. Inflation numbers in US were not as high as expected which led the markets to further new highs.
Regionally, investors are geared up for a recovery in company earnings as economies rebound from the worst of the coronavirus pandemic.
We see petrochemical companies announcing good numbers and the same is expected by the banking and other sectors.
In Oman, we advise investors to go through initial financial results disclosures in order to vet their investment focus on sectors which are expected to perform better in the economic recovery phase.
Most banks have reported a drop in net expected credit losses, further solidifying the recovery theme. Industrial firms are also doing well on the back of the rise in commodity prices.