The overall third quarter corporate profitability of companies listed in the organized market (excluding companies with fiscal year not ending on December 31, 2008) dropped by 8.06 percent amounting to RO445.15mn for the period ending on September 30, 2009 compared to RO484.15mn reported in the corresponding period of 2008. Out of 53 companies (covered in our review), only 3 made losses, while 26 witnessed fall in their 9 months profits.
The largest profit growth was Al-Jaziera Services Company with RO5.53mn in earning compared to RO0.24mn. This jump of 2162.79 percent gain, was due to increase by 16 percent in revenue from catering and related services business to R.O 6.34mn against revenue of R.O5.46mn during the same period last year . Also, the company has been maintaining the position as long term investor rather than keeping short term positions in the current uncertain global economic environment, which resulted in a gain of RO 3.83mnfrom company’s trading investments during nine months ended 30th September 2009.
Chart 01: Sector’s composition of overall market’s third quarter profitability in 2009 versus 2008
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Source : Global Research
Sector-wise, Banking & Investment Sector and Industry Sector ended the nine months period with a negative performance, while Services & Insurance sector posted quarterly gains compard to the corresponding period of 2008.
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Faisal Hasan, CFA
Head of Research
Assistant Vice President
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Soha Adel El-Shaib
A. Financial Analyst
Industrial Sector was the biggest decliner as the consolidated net profit of the sector plunged 28.79 percent amounting to RO61.76mn in the nine month period of 2009 from RO86.73mn in th corresponding period in 2008. This was due to the massive decline in most of the sector’s components. Out of 20 comopanies among the sector, two companies incures losses , while 8 companies experienced a noticeable decline in their profits. Most of the industrial companies in the region have a high exposure to equity investments and real estate.
National Gas Company witnessed the highest profitability decline among the sector decreasing by 87.71% to reach RO0.70mn during the first nine months of the year compared to RO5.68mn in 2008. Heavy weight, Oman Cable Industry followed was among the biggest decliner in terms of ninme months profitability, as it posted 80.54 percent decline amounting to RO3.46mn on September 30, 2009 compared to 2008.
Despite recovery in copper prices during the third quarter of 2009, these massive losses were mainly attributed to the drop in copper prices and lower slaes volumes during the year 2009 due to subdued global demand.
Regarding the two heavy weighted cement companies, they suffered high equity erosion during the nine months of 2009 mainly because of losses in their investment portofolios.
Raysut Cement, the largest industrial company in Oman, was the major contributor to the total net profit of the industrial sector contributing 39.15% of the total net profit of the sector amounting to RO24.17mn during the nine months of 2009 compared to RO26.13mn in 2008, which is less by 7.84 percent. This was due to several factors. Raysut Cement’s revenues declined on account of lower production of cement due to planned maintenance and rehabilitation work done in grinding systems specially during the third quarter of 2009. Second reason can be attributed to the increase in competition from UAE cement manufactureres, as widening of gap in cement prices Oman and UAE attracted modest inflow of cement to Oman , which put pressure on realizations of cement companies in Oman. Also, the company witnessed hig operating costs due to heavy exposure to exports, which entails higher freight and transport charges.
On the other hand, Oman Cement posted 56.22 percent gain for the period ending on September 30, 2009 amounting to RO16.90mn in nine months of 2009 compared to RO10.82mn in 2008. Despite cement prices across the region getting softened and the volume dropped, the company continued higher utilisation and improved realization.
National Aluminum Products was the highest profit gainer among the sector as its net profit tremendously increased by 70.98 percent, reaching RO1.90mn during the first nine months of 2009 compared to RO1.11mn in 2008. Oman was the lowest to hit by the global economic slowdown and continued its spending in domestic housing and construction activities. Aluminium prices have recovered from its lowest level during early 2009 with emergence of early signs of revival in global economy along with improved demand for end products and enhanced demand in end user industries.
Investment & Banking Sector
Regarding the Banking sector, all Omani banks witnessed significant profit decline in its nine months results except Ahli Bank, which experienced 17.94 percent gain and Bank Sohar, which managed to report RO4.44mn net profit in he nine months of 2009 compared to RO0.65mn loss in 2008, boosted by strong rise in net interest income , which grew by more than 123 percent. Heavy provisions remained the theme common to all Omani banks, which has its impact on its nine months profitabity. Banks profitability contributed 79.6 percent of the total sectors’ proftability. The aggregate profit of the banks shed by 14.62 percent amounting to RO147.56mn compared to RO172.82mn reported in 2008. While the overall sector’s profitability declined by 10.09 percent reaching to RO185.41mn in the nine months of 2009 compared to RO206.21mn reported in 2008.
National Bank of Oman was the highest decliner among the Omani banks as it massively declined by 43.78 percent. The bank nine months net profit amounted to RO19.57mn compared to RO34.81mn in 2008. This was mainly due to significant rise in the bank’s provisions for credit losses and investments which reached RO12.8mn in 2009 compared to RO2.6mn in 2008 as a result of factors relating to global financial crisis and consists of an impairment loss against the investment portofolio of RO3.1mn. However, the bank is making good progress in realigning its business strategies, risk management processes and customer value proposition as part of Commercial banks’ collaborative strategy.
Bank Muscat’s, largest Omani bank, was the major contributor to the aggregate net profit of the sector contributing 43.36% of the total net profit of the sector amounting to RO80.40mn on September 30, 2009 compared to RO90.10mn recorded in the previous year. The 10.77 percent decline in the banks’ nine months results, was mainly attributed to the RO17.22mn provisions for impairment credit losses, taking the total provisions during the period under review, to RO68.7mn, which is 268.8 percent higher than total provisions in 2008. This includes major provisions towards the bank’s exposure to Saudi based, Al Ghosaibi and Saad Group and necessary collective provisions. The bank’s non-interest income, excluding the gain on HDFC Bank investment, realised losses on Available-for-Sale investment, that was lower by 9 percent compared to the same period in 2008.
The consolidated net profit of the services sector registered a gain of 3.54 percent from RO191.21mn in the nine months of 2008 to RO197.98mn in the first nine months of 2009. Services sector contributed 44.47 percent of the total corporate nine months profitability of the market compared to 39.49 percent in 2008. Dhofar Insurance carried on its losses streak massively declining by 49.16 percent in net profits to reach RO1.69mn in the nine months of 2009 from RO3.33mn in the same period of 2008, due to decrease in the company’s investments income.
Oman Telecommunications Company (Omantel), was the major contributor to the aggregate net profit of the sector contributing 63.31 percent of the total net profit of the sector amounting to RO125.33mn on September 30, 2009 from RO110.21mn recorded in the corresponding period of 2008, posting 13.72 percent. The company’s first nine months net profit came below expectations as the impact of the economic recovery is yet to be seen in the consumer spending. Omantel reported 1.2 percent decline in the total revenues on account of the new super off-peak rates at 98bz to India, Pakistan, and bangladesh as well as the loss from the increased access to illegal VoIP services for international calls.
Table 01: Top 20 Companies in Terms Of Market Capitalization(excluding companies with fiscal year not ending on December 31, 2008)
Source : Companies’ financials and Global research
Overall, the corporate profitability of the Omani companies listed in Muscat Securities Market witnessed a modest decline. Looking forward, we are optimistic about the outlook of Oman’s fourth quarter results as we are expecting industry segment to experience better performance due to higher production capacities, huge expansions and cement demand will remain high. Regarding banking sector, we are expecting to remain negative, due to high provisions, but it may witness lesser decline by the end of 2009. While Services sector is expecting to remain positive.
Table 02 : Omani Companies Profitability for the year ending on December 2008 (excluding companies with fiscal year not ending on December 31, 2008)
** The companies with fiscal year not ending on December 31, 2008 , Source: Muscat Securities Market & Zawya