Profit-booking pulls MSM30 down

After achieving gains in last couple of weeks, the Muscat Securities Market (MSM) witnessed a correction in the previous week, which we believe was largely due to profit-taking as some stocks witnessed sizable rally in last couple of weeks.

The MSM30 index went down by 1.39 per cent on weekly basis to close at 4,495.31 points on Thursday. Except Services index, all the sub-indices decreased on weekly basis. Financial index closed down by 1.3 per cent and Industrial index went down by 0.24 per cent, while Services index rose 0.07 per cent. The MSM Shariah index closed down by 0.63 per cent week-on-week basis.

Local news

Bank Muscat board approved the appointment of Jeyaretna Sunderlal George as provisional director as a proxy for Oman National Investment Corporation (ONIC) to fill the vacant seat in the board until the next annual general meeting of the shareholders of the bank. The board’s approval was effective on the date of announcement.

Meanwhile, Ominvest disclosed that Bank Muscat has appointed Jeyaretna Sunderlal George, a director of ONIC, a subsidiary of Ominvest, as a director representing ONIC. This appointment will change ONIC’s accounting treatment of Bank Muscat in its books from ‘investment at fair value through other comprehensive income’ to ‘investment in associate’. As per MCD, ONIC has 8.93 per cent stake (263.2mn shares) in Bank Muscat. As per our calculation, the 8.93 per cent stake in Bank Muscat will add between RO16mn-RO22mn per year to Ominvest’s bottomline. However, since Bank Muscat pays out dividend, the net effect would be in the range of RO8mn-RO14mn per year over the next five years.

The MSM published its quarterly list of Sharia’a compliant companies based on the second quarter of 2018 results. The list showed the exit of Oman Oil Marketing Co and Voltamp Energy and entry of Oman Education in the index. The list included a higher number of companies at 32 compared with 31 companies in the first quarter of 2018.

National Bank of Oman (NBO) is selling US$500mn of five-year bonds. The bank’s senior, unsecured notes offer investors a spread of 270 basis points over mid-swaps, which comes out to be around 5.6 per cent compared to Oman government’s five-year dollar bond which offers yield of around 4.9 per cent as of September 19, 2018.

The Ministry of Housing announced last week that the real estate transactions will be registered through the brokerage offices licensed by the ministry from October 1, 2018. These transactions will include residential, commercial, industrial, tourist, residential plots, mortgaging, apartments, villas and shops (subject to their classifications), both buying and selling transactions for GCC nationals and all sales and purchase transactions for expatriates and foreign nationals in integrated tourist complexes.

Last week, almost all oil marketing companies announced their views on the challenges being faced by the oil marketing companies. Many of them were of the view that due to reduced margins offered on motor fuels supplied from the new fuel logistics terminal at Al Jifnain there is a significant dent in the profitability of all three marketing companies. In their quarterly reports presented to the Capital Market Authority (CMA), Oman’s all three fuel marketing companies – Oman Oil Marketing, Shell Oman Marketing, and Al Maha Petroleum Products – have warned that the new price structure has begun to eat into their profitability.

However, the Undersecretary of the Ministry of Oil and Gas said to WAF that the decline in the revenues of oil marketing companies is not due to changes in pricing structure, but rather because of decrease in fuel sales in general and that the government will not lease the facilities owned by these companies at Mina Al Fahal Refinery as it used to.

The last week witnessed the start of operation of the third integrated airport in the sultanate with all its operational facilities, namely Duqm Airport, after the completion of all the construction packages of the airport, which cost around RO90mn. The importance of this logistical addition lies in several elements, including supporting tourism, attracting direct investments, new airlines, providing jobs and increasing the contribution to support the ‘ Tanfeedh’ programme by supporting non-oil projects and putting the Duqm region on the regional and international map. The new airport will also increase the contribution of the logistics and tourism sector in the GDP and by facilitating the expected increase in the investments to US$20bn in the Duqm Special Economic Zone.

GCC markets

Within the GCC financial markets, Saudi Arabia’s Tadawul index topped the gainers of the week with weekly gain of 2.28 per cent while Qatar Exchange was the worst performer with a 2.55 per cent decline.

Our analysis of Bloomberg’s international bond data indicates that 145 bonds have been issued by corporations within the GCC so far in 2018, as compared to 104 for the entire year 2017. The UAE corporates take the lion’s share of the GCC international bond issuances in 2018, maintaining its lead position from 2017.

Oman’s corporates increased market share of international bond issuances, primarily on account of Bank Muscat and NBO’s EMTN issuances in 2018. Kuwait has so far seen fewer issuances and of lesser amount in 2018 as compared to overall 2017. Bahrain and Saudi Arabia’s corporates have not tapped international bond market so far in 2018.

Recommendation

We witnessed a mild correction in the local market last week, which we believe was largely due to some share witnessing run-up in prices previously. We expect positive momentum this week based on announcement by some blue-chip stocks along with investor preparation for the upcoming results.

Investors will be monitoring the upcoming initial nine month results especially cost control and margins performances. Despite seasonality factor that will impact some of the companies top earnings, we advise investors to take into account the stability of the business and ability to benefit from government moves especially towards economic diversification.

While, globally this week we will witness US Fed meeting. The probability of a rate hike this time is high. In case the rate hike materialises, we will see positive movements in banking scrips.