MSM: Cautious sentiments prevail as earnings season kicks off

Modest trading and cautious sentiment prevailed at the Muscat Securities Market (MSM) during the last week despite positive announcements from the government and by some companies on their financial performance for the year 2018.

The benchmark MSM30 index closed the week up by 0.82 per cent at 4,310.56 points. Financial index was the only gainer which closed up by 1.97 per cent on weekly basis, while Services and Industrial indices closed down by 0.48 per cent and 0.18 per cent, respectively. The MSM Shariah index also closed up by 0.18 per cent on weekly basis.

The listed companies have started disclosing their initial results for the year 2018.

Local news

Galfar Engineering and Contracting Co announced that Omantel has awarded it a project related to some of Omantel’ exchanges. The contract value is RO2.87mn. Galfar’ board of director’s report for the first nine months of 2018 stated that the company’s order book is about RO456mn as at the end of September 2018.

Dhofar Fisheries & Food Industries Co disclosed that the economic zone authority has signed an agreement with the company for the construction of a fish packaging and fish oil production plant at an investment cost of RO10mn.

The Ministry of Transport and Communications (MoTC) announced the establishment of Omani Information Technology and Communications Group, an entity owned by State General Reserve Fund (SGRF). The new entity includes Oman Broadband Company, Oman Towers Company, Blockchain Company, Space Communication Technologies Company and other IT and communications firms that may be established by the government in partnership with the private sector. With this, MoTC has established three groups: Omani Information Technology and Communications Group, Oman Global Logistic Group (Asyad), and Oman Aviation Group.

The World Bank raised its forecasts for Oman's real GDP growth in 2019 to 3.4 per cent compared with earlier estimates of 2.5 per cent. This comes in its recent report about global economy, which is a semi-annual report. Earlier estimates were issued in June 2018. The World Bank projects Oman's GDP growth to be 2.8 per cent both in 2020 and 2021. For the GCC region, the report predicts a growth of 2.6 per cent for 2019 versus two per cent in 2018.

Oman's foreign trade data indicated a trade surplus of RO3.87bn during the first eight months of 2018, up by 126 per cent year-on-year. The healthy surplus came on the back of strong merchandise exports growth as it increased by 30 per cent compared with recorded merchandise imports growth of four per cent during the same period. Export segments include oil and gas and non-oil were up by 39.8 per cent and 25.7 per cent, respectively, while re-exports went down by two per cent. Oil and gas forms 64 per cent of total merchandise exports in the first eight months of 2018 followed by non-oil (25 per cent) and re-exports (11 per cent).

GCC markets

All the GCC financial markets ended the week up lead by the Saudi stock exchange which closed up by 4.83 per cent on weekly basis.

In a key move towards supporting Qatar economy, the country issued a new law on non-Qatari capital investment, which opens the way for foreign investors to own 100 per cent ownership in all sectors, as well as support for investors’ entry into the Qatari market. NonQataris will also be able to invest up to 49 per cent of the share capital of listed companies on the Qatar Stock Exchange.

Local cement sales in Saudi Arabia dropped by 13 per cent to 40.9mn tons during 2018 compared to 2017, largely due to lower demand for cement. Out of 17 listed companies, based on the data available, only three saw increase in their cement sales mainly Hail Cement Co (up 53.7 per cent), Tabuk Cement Co (up 7.1 per cent) and Southern Province Cement Co (up 3.5 per cent). Export sales on the other hand saw better performance after lifting the ban on export as many companies benefited from that specially Saudi Cement, Yanbu Cement, Eastern Province Cement Co, Najran Cement, Al Jouf Cement and Al Safwa Cement.

However, clinker inventories in Saudi Arabia remained high and increased by 18.8 per cent during the same period at 42.3mn tons (higher than the sales of cement). Out of this 36 per cent belongs to three companies – Yamama Cement, Saudi Cement and Yanbu Cement. The analysis also showed that the five companies out of seventeen companies saw drop in their clinker inventory stock led by Northern Region Cement Co (-40.8 per cent).

Global news

The World Bank issued its semiannual report titled 'Global Economic Prospects' projecting slower growth of the global economy. The bank projected global economic growth to soften from a downwardly revised three per cent in 2018 to 2.9 per cent in 2019 on soften international trade and manufacturing activity in addition to increasing trade tensions. The World Bank predicted that the US economy would be adversely affected by its trade war with China, which would be reflected in a slowdown in growth, with growth this year at 2.5 per cent compared to previous forecasts of 2.6 per cent and 2.9 per cent for 2018. Best forecasts were given to Latin American and the Caribbean as their real GDP growth for 2019 is expected at 1.7 per cent versus 0.6 per cent for 2018.

Recommendation

Annual results season has started. So far, we have seen mixed results but tend to be generally better than 2017 performance. We are also seeing encouraging government moves in many directions, such as the establishment of specialized government companies and the start-up of projects, which were targeted by Tanfeedh.

We expect many companies to have better results because of the ' non-recurrent' factors that were seen in 2017, including tax adjustments, higher energy prices and some operational challenges.

Despite encouraging announcements, the values and volumes of trading are still below the required level, which indicates a state of caution and lack of institutional presence. We believe that trading will improve during the coming period with the increasing frequency of disclosures, whether related to results or dividend distributions.