Muscat shares edge lower

THE MSM 30 index closed 0.93 per cent lower for the week ended November 17, 2011 at 5,521. All the sector indices ended lower led by the industrial sector which declined 2.08 per cent.

Market turnover during the week was 10.57 per cent higher than in the previous week at RO13.0 million. Key factors that influenced market movement in the previous week include:

Italian and Spanish sovereign bond yields rose significantly raising concerns that euro zone's credit crisis may spread to larger economies. The contagion effect of a credit event in Europe can derail the global economy as liquidity tightens.

Omantel reported a net profit of RO82.7 million in the first nine months of 2011, 0.3 per cent lower year-on-year owing to higher operating expenses. Total revenue during the period was RO333.2 million, 5.5 per cent higher year-on-year. Revenue and net profit during third quarter of 2011 was spectacular at RO109.9 million (13 per cent higher year-on-year) and RO28.0 million (25 per cent higher year-on-year) respectively.

Renaissance Services reported a net profit of RO3.4 million for the first nine months of 2011, 80.6 per cent lower year-on-year owing to higher expenses and lower utilisation rates in its key marine segment, coupled with operating losses in its engineering segment.

Total revenue during the period was RO205.3 million, 10.0 per cent higher year-on-year. During third quarter of 2011, revenue and net profit were RO72.9 million (5.4 per cent higher year-on-year) and RO1.1 million (85.2 per cent lower year-on-year)
Omantel delivered a better-than-expected performance in third quarter 2011 driven by market share gain and margin improvement.

While the overall mobile subscribers in the Sultanate grew 3.6 per cent year on year during the first nine months of 2011, Oman Mobile achieved a growth rate of eight per cent. Interestingly, it grabbed all the net subscriber adds in third quarter of 2011 over third quarter of 2010. Blended ARPU in the mobile segment held steady while internet ARPU rose compared to the previous year.

Omantel trades at an attractive valuation of eight times its 2011E earnings and offers a dividend yield of close to 8.3 per cent. We recommend buying this stock on a pullback given its growing market share and improving cash flows.

Another high dividend yielding stock is Majan College which carriers a dividend yield of 10 per cent. The college reported a net profit growth of 11 per cent in FY 2010-11 at RO877,000 while total income grew 13 per cent year on year. This is another defensive stock with a low correlation to the MSM 30 index and trades at a P/E of 10.4 times.

Despite oil crossing $100 per barrel, the MSM continues to trade at a low valuation of 5,521 which is an anamoly given its high correlation to oil prices. Except for industrial companies which have been affected at the top-line as well as higher material and staff costs, third quarter earnings of the MSM listed companies have been encouraging led by banks and telecom companies.

Banks and telecom companies have been benefitting from higher retail spending attributable to general wage increase in the economy and employment growth while industrial companies are facing a difficult time as their costs climb.

GCC market outlook
GCC markets ended the week on a mixed note led by Qatar and Bahrain while MSM and Kuwait trailed. The near-term outlook for Muscat and Kuwait has turned bearish and both of them may end this year at the bottom of the GCC markets. Only the Qatar market has the strength to withstand global volatility driven by strong earnings of its banking and industry sectors.

Disclaimer: This column expresses only the views of the contributor and investing in stocks carries risk of financial loss for which the contributor is in no way liable.

(Follow timesofoman.com on Facebook and on Twitter for updates that you can share with your friends.)