The world of commerce and industry believes strongly in time-tested traditions. OER Top 20 Ranking is one such tradition that has established, over the years, firm roots in Oman’s business community. Commemorating this annual event, we present the Top 20 Companies of Oman – with eminent industry expert Mukhtar Hasan analysing the ranking and KPMG verifying the data. The Top 20 Corporate Profiles are compiled by OER Principal Correspondent P. Aneel Kumar, with Gulf Investment Services and Vision Securities giving the stocks analyses.
 

For the fourth consecutive year, Oman’s economy continued to be positive and the Muscat Securities Market continued to be bullish. The price of oil continued to increase during the year and Oman crude realised an average price of US$61.69 per barrel in 2006 compared with an average price of US$48.73 for 2005 and the budgeted price of US$32 per barrel for 2006. This resulted in a reversal of the planned budgeted deficit to a surplus. The year closed with a budgetary surplus of RO1.058 billion as against a projected deficit of RO650 million.

The Muscat Securities Market also continued to perform well during 2006. Despite a sharp fall in the equities markets in the GCC region, MSM continued to show its resilience to buck the regional trend. This outstanding performance can be attributed to several factors: The performance of the economy, the growing confidence of investors in the market because of the outstanding efforts of the MSM and the Capital Market Authority to apply effective laws on disclosure, control, and corporate governance which is reputed to be among the best in the region and the continuous improvement in the profitability of listed companies. The market did not witness any significant IPO activity, with Sohar Bank IPO launched in December being the only major one during the year. Trading volumes amounted to RO1,128 million in 2006 compared to RO1,407 million in 2005, a decrease of 20 per cent. The benchmark MSM 30 index ended the year at 5581.57 points, a gain of 14.5 per cent for the year. The top performer was the Industry Sector, up 34.25 per cent, followed by Services & Insurance Sector which gained 17.63 per cent and the Banking & Investment Sector with an increase of 4.84 per cent. Foreign participation in the capital of the listed joint stock companies increased substantially during the year to 23.3 per cent compared to 16.2 per cent last year, an increase of about 44 per cent.

The Government’s continued emphasis on diversifying the economy away from dependence on oil gained momentum during 2006. Sohar alone has attracted investments in excess of US$14 billion. Almost 50 per cent of these investments have come from overseas. The Salalah Free Zone has announced a US$850 million methanol project. In the real estate and tourism sector, projects worth US$8 billion are already committed. The Government has announced a massive expansion project for the Seeb International Airport that will increase its handling capacity from the present 3 million passengers per year to 12 million when the first phase is completed in 2010.

Performance of world financial markets exceeded expectations during 2006. Equities substantially outperformed bonds and cash. On the equity side, emerging markets performed best. Around the world, Brazil, Russia, and China were the stars of the emerging markets, and Spain and Sweden were among the leaders. Japan was a laggard. High-yield and emerging market bonds outperformed Treasuries. Gold continued to be a reliable hedge against the US dollar. The greenback declined by more than 15 per cent in 2006 against the sterling and the euro, but gold was up by about 23 per cent. The S&P 500 showed a return for the year at 15.8 per cent, FTSE 100 at 14.8 per cent and TOPIX was up 2.8 per cent.

During 2006, the revenues of Oman’s 20 largest companies showed a handsome growth. Total revenues for the OER Top 20 went up by 28.48 per cent to RO1,927 million. Overall corporate performance was also extremely positive. The profits for the year 2006 increased by 28 per cent to RO347 million, up from RO271 million last year. The total market cap of the OER Top Twenty on December 31, 2006 was RO3,993 million, down by 1 per cent compared to 2005. On April 2, 2007, the market cap of the Top 20 once again went down to RO3,832 million. The OER Top 20 companies represented 62 per cent of the total market cap of the MSM of RO6.221 billion at the end of 2006. The average P/E ratio of the OER Top 20, based on the profits of the year 2006 and the share price on April 2, 2007, is 11.03 times the earnings.

There has been only one change in the top five companies in Oman. Oman Cables is on the number five slot, replacing Al Maha Petroleum from last year. Omantel continues to retain the number one spot as do Shell Oman Marketing at number two, Bank Muscat at number three and Renaissance Services at number four. Omantel continues to be the largest public company in Oman with a growth in revenue of 19.6 per cent compared to last year.

The company chairman Saud bin Nasser Al Shaikili, in his report to the shareholders, explains that the robust growth of Oman’s economy in 2006 in all sectors contributed to the overall growth of the telecom industry. Al Shaikili states that Omantel group has witnessed one of the most outstanding performances in the history of the company. The revenue growth of 20 per cent in all respects is commendable, especially in a competitive environment. Al Shaikili outlines that the total group revenue rose by 20 per cent to RO323.6 million. Operating expenses increased by 19 per cent. Al Shaikili explains the increase in operating expenditure is the result of increased business activities, adding that the total subscriber base has recorded a growth of 15 per cent. The total number of subscribers has increased to 1.629 million compared to 1.453 million last year. He cautions that during 2007 the sector liberalisation is likely to intensify. Internet and value added services would be opened up for competition and Omantel will continue to face challenges of competition in the local market. He adds that the company has already initiated steps to prepare for this evolving competitive scenario. The group has recognised the potential of broadband services in the years to come and is also focusing on international expansion.

Like last year, three of the top five most profitable companies in Oman are banks. It is encouraging to note that all of the five companies are showing healthy growth in profits for the year. There is one change in the top five companies by profit. Oman Cement, which was in fifth place last year is out. Omantel continues to remain at the number one spot and BankMuscat at the number two spot. NBO has moved one place up to number three, while OIB has slipped a spot to number four. Raysut Cement is on number five for the first time, replacing Oman Cement.

BankMuscat is the second-most profitable company in Oman as well as the third-largest in Oman based on turnover for the year 2006. It has achieved this position by repeating the growth in profit for the year of about 33 per cent.

BankMuscat Chairman Abdul Malik bin Abdullah Al Khalili states in his year-end report to the shareholders that while the bank continued on its path of measured growth during 2006, there were several measures taken to prepare for sustained growth in the future. Perhaps, the most significant amongst these was the Bank’s decision to implement the recommendations of global strategy firm, Booz Allen Hamilton, on the re-organisation of the bank in line with emerging customer segments. He further states that these changes will significantly help the Bank to anticipate and capitalise on opportunities that lie ahead. These changes also resulted in a number of senior management changes in the bank with the aim to ensure ‘right people’ in ‘right places’ as they plan for the future.

Khalili adds that also noteworthy in this regard was the bank’s decision to select and implement a new Core Banking System (CBS) and selecting Temenos T24, which is a web-based Universal Banking System that encompasses core functionalities such as retail banking, corporate banking, finance, branch operations and also a suite of specialised business functions like Treasury, Investments, Asset Management, Private Banking, Wealth Management, etc. The implementation of T24 is already in progress. The project is expected to be complete by March 2008. During 2006, the bank also continued to prosper by enhancing products, services and solutions standards across its operations. The bank was associated with the financial closure of two large petrochemical projects as a Mandated Lead Arranger – Aromatics Oman in Sohar and Octal Petrochemicals in Salalah. Four major re-financing programmes were also undertaken by the Bank – two in the oil & gas sector, one for a power & water project and another for an LNG tanker. The Bank also participated in structured transactions in the GCC, which saw several high profile financial closures for projects in the UAE, Qatar and Bahrain.

During the year all key rating agencies reviewed and upwardly revised the bank’s long-term and short-term financial ratings. Standard & Poors upgraded the bank’s credit ratings to ‘BBB+’ from ‘BBB’ and affirmed the ‘A-2’ short-term counter-party credit rating of the Bank.

Khalili goes on to say that BankMuscat commands a market share of 42 per cent in terms of total assets, 41.4 per cent in terms of total credit and 39.2 per cent in terms of total customer deposits as on December 31, 2006. The Board has proposed a cash dividend of 35 per cent and a stock dividend of 10 per cent for the year 2006.

Khalili says the banking landscape in the Sultanate is well poised for a sea change in 2007. With several new local and regional banks setting up or about to commence operations in the Sultanate, and many more waking up to the immense possibilities of the domestic market in Oman, the discerning consumer in the Sultanate will soon have more choice in terms of banking products, services and solutions. While this poses a major challenge to the domestic banking industry as a whole, he adds that BankMuscat is confident that it will reach newer heights.

Oman Cables Industry (OCI) has shown the highest growth in profits by an enormous 266 per cent and has jumped to the number one spot from being three last year. However, Oman Holdings International has moved out of the top five. Raysut Cement is the newcomer to the list. OCI has climbed two places to the number one spot while Al Hassan continues to remain number two; OAS has moved up to number three from the number five last year and NBO has slipped to the number five from being number one last year.

OCI Chairman Mustafa Mukhtar Ali Al Lawati in his report to the shareholders has stated that the company’s performance has been unique and owes its success to the strong foundation base laid by the founders way back by in 1984. OCI is today contributing greatly to country’s non-oil exports and to the national economy. The massive investments in capacity expansion, initiated in early 2005, were successfully completed as originally planned and have contributed greatly in terms of exceptionally high production through out 2006, leading to record market share and sales revenue. The sales growth of OCI cables met the growing energy needs in all AGCC countries and in the international global market, including of course, the expanded power needs of Oman – the mother country.

Al Lawati adds that sales at RO125.71 million, compared to RO60.58 million in 2005, shows a growth of 107 per cent. The net profit, amounted to RO9.53 million, compared to RO2.60 million in 2005, a growth of 266 per cent. The return on the capital, as on December 31, 2006 (prior to the increase of share capital) has been 319 per cent.

Al Lawati tells that the company achieved in the first nine months, sales of RO85.203 million. A resolution was passed at the Extra Ordinary General Meeting on December 2, 2006, to increase the paid-up capital by distributing the ploughed back profits in the company by offering 2 bonus shares of RO1 par value for every one ordinary equity share (of RO1 par value) held by each shareholder – a mid term dividend of 200 per cent.

Al Lawati cautions that while continuing to look for further growth in revenue terms, the near future may be conditioned by movement of highly volatile and unpredictable metal prices – particularly copper – the main cost element in cable manufacturing. As last year three of the top five companies that have the highest amount of equity employed, are banks. BankMuscat continues to remain number one in this category and all the other companies continue to remain in the same position as they were last year.

National Bank of Oman (NBO) Chairman Suhail Salim Bahwan in his report to the shareholders states the Bank has recorded a net profit of RO30.4 million, which surpasses the record net profit of RO20.3 million reported for 2005 by 50 per cent. Bahwan adds the profit from operations grew by 40 per cent, from RO21 million to RO29 million reflecting the positive energy within the Bank with a clear emphasis on sustainable growth. He explains the Bank has diversified its income as reflected in ratio of other operating income to total income, which increased from 26 per cent in 2005 to 33 per cent in 2006. Business efficiency remained an important focus and the improvement in cost to income ratio from 49.5 per cent in 2005 to 44.9 per cent in 2006 is a testimony to this effort. During the year, additional provisions of RO10.6 million were established which are lower than the RO16.7 million established in 2005. The recoveries and releases against the provisions for 2006 were at RO16.4 million. Growth in Total Assets during the year saw the Bank crossing the RO1 billion mark for the first time in its 32-year history. This growth was linked to the growth in Deposits by RO200 million (32 per cent) and growth in Net advances by RO162 million (30 per cent). These increases reflect a growth trend and are consistent with the strategy of the Bank to grow quality loans and deposits. The Bank’s net worth has increased to RO185 million.

Bahwan goes on to say that there is clear evidence of continuing resilience and buoyancy in the domestic and regional economies. The year 2007 promises to be even more exciting as the country continues to reap the benefit of high energy prices as well as other developments, including the implementation of Basel II at the national level. As the second-largest Bank in the country, NBO is well-positioned to cater to the changing needs of the market. While the Bank will have to continue to grow its net interest income, the reliance on such income must reduce. The bank thus will continue to improve its share of fee-based income on a recurring basis as a percentage of the total income. Bahwan is confident the Bank will continue to grow by targeting the quality assets in Oman and UAE with the overall objective of enhancing shareholder value.

Once again, three of the top five companies that have the highest market capitalisation on the MSM are banks. BankMuscat has this year regained its first position after being number two last year; Omantel has slipped one place to the number two spot in this category. NBO retains its number three position while Raysut Cement is the newcomer on the block entering the list straightaway at number 4. OIB has slipped one place to the number five spot. Oman Cement, which was number five last year, is out.

Chairman of Raysut Cement Mohamed Bin Alawi bin Ali Muqaibal in his annual report to the shareholders states the past year has been good one for the Omani cement industry. Domestic cement industry saw a sharp increase in demand during the year. Consumption of cement climbed to 2.7 million tonnes, an increase of 12.5 per cent over previous year. Also, consumption in GCC states increased substantially while price realisation remained robust. Muqaibal explains that the growing construction sector has had a direct impact on cement consumption and that long-dormant Omani real estate market (including the industrial, residential and tourism sectors) offers big demand potential. Key drivers that could push for a real estate boom include a young, growing population, low interest rates and easy financing options, abundant liquidity and legislation recently enacted to allow foreign ownership. These, in addition to the government’s more aggressive investment plans, have triggered several mega-construction projects, especially in real estate and tourism. Oman has announced construction projects estimated at over US$20 billion in value. This is in line with the rest of the GCC countries where a total investment in projects of US$1.2 trillion is in the pipeline for the next 5 years or so.

Muqaibal adds that the company continued breaking the previous best performance results and posted record results during fiscal 2006. The net sales increased to RO47.974 million against RO27.993 million, showing a growth of 71.4 per cent. Net profit shot up by 105.9 per cent to RO20.658 million, against RO10.033 million recorded in the corresponding period of previous year.

Muqaibal states the positive industry outlook encouraged further expansion. A decision was taken to add a fourth production line which is currently under construction and expected to be operational by June 2007 taking the total cement capacity to 3.0 million tons per annum. The industrial, residential and other construction projects currently under implementation in Oman will be driving local consumption at least up to 2010. The company is expanding its operations in the neighbouring countries too, especially in Yemen where demand is expected to continue being strong in the short and long-term duration.

Interestingly, none of the top five companies showing the best return on equity employed come from the banking sector. Three of the five companies in the top five are new. Oman Cables, a new comer to the list this year, roars onto the first place showing a massive 69 per cent return on equity employed. Shell Oman Marketing, which was at number three last year, has moved up to number two while Al Hassan engineering, another new comer to the list, is at number three. AES Barka has slipped to number four from the number two position last year while Raysut Cement is the third new comer at number five. ONIC Holding and Omantel, which were on this list last year, have been ousted.

Hassan Bin Ali Salman, Chairman of Al Hassan Engineering (AHEC), in his annual report to the shareholders states that 2006 has been a remarkable year for the company and, in the history of AHEC, the most successful in terms of turnover achieved and profit realised. While one of the factors for the excellent performance has no doubt been the buoyant economic conditions, the company has also focused on streamlining its operations so as to provide required thrust on selected business areas. This has proved beneficial to the operations and the excellent results are also a reflection of these significant steps. Driven by the vision of His Majesty Sultan Qaboos Bin Said, the Government of Oman has made major investments in downstream oil & gas and petrochemical projects through joint ventures with world-renowned companies. This has resulted in many opportunities for local contracting companies like Al Hassan to benefit.

Salman says 2006 saw the successful completion of some of the most prestigious projects executed by AHEC. These included Oman Polypropylene Project (OPP), Shams Condensate Facilities project, the first 220 kv Powerline Connection between Oman and UAE, the Fahud–Lekhwair Overhead line project of PDO and the construction and installation of Qarn Alam Reverse Osmosis Plant of PDO. Salman also remarked the company was currently working on several large-value projects.

He went on to explain that the company is well-placed to bid for large-value projects, which are expected to come up for bidding in the coming years. AHEC, in 2006, also established Abu Dhabi operations. Business opportunities exist in the traditional oil & gas upstream, power & water projects and, in addition, major investments in downstream hydrocarbon and petrochemical projects will also throw up new opportunities. This will ensure availability of large market size for AHEC for the foreseeable future.

Two new companies have entered the ranking of the top five earnings per share growth companies. Oman Cables Industry has jumped from being number three in this list last year to the number one spot. Al Hassan Engineering continues to remain at number two; Oman Aviation Services is a newcomer at number three as is Raysut Cement at number four. National Bank of Oman has slipped to the number five position from being number one last year. Oman Holdings International and Oman International Bank are out.

Said Bin Hamdoon Bin Said Al Harthy, Chairman of Oman Aviation Services (OAS), in his report to the shareholders states that OAS has completed 25 years of operation. He adds that for the third year in a row, OAS has shown impressive results and reported a profit of RO2.893 million, compared to RO1.006 million during the year 2005. During the year under review, Oman Air recorded an all-round performance in all operational segments of its business. It carried 1.226 million passengers, an increase of 91,000 passengers or 8 per cent over the year 2005. The capacity growth at Oman Air is at a measured pace of 2 per cent, which matched traffic growth of 2 per cent during 2006. The average seat factor across the network remained at a healthy 76 per cent. The average aircraft utilisation remained high at 12.6 block hours per day per aircraft, one of the highest in the industry. Al Harthy cautions that escalating fuel cost is one of the impediments to delivering a year-on-year improvement in earnings; however, Oman Air posted an improved performance in 2006 against the increase in fuel price, which was higher by 19 per cent in comparison to 2005.

Al Harthy adds that the Middle-East continues to be the fastest-growing region with the passenger and cargo recording an annual growth of 15.4 per cent and 16.1 per cent, respectively. With Asian economies and the Middle-East riding on good economic growth, it is expected that Oman Air will continue to improve its market share further and consolidate its presence in the region.

The share price growth of all the top five companies exceeded the average growth of the MSM index of 14.5 per cent. Two companies on this list are new comers, with Al Hassan taking the top position and Oman Oil Marketing Company taking the fifth position. Shell has moved up two places to number two position, AES Barka has slipped to number three from being number one last year, and Oman Cables took one step forward to number four compared to last year.

Dr Andrew Wood, Chairman of Shell Oman Marketing, in his report to the shareholders, states the company achieved unprecedented financial results for 2006 recording a historically highest ever net profit of RO8.92 million compared to previous year’s net profit of RO7.46 million. Dr Wood adds the retail business remains the most important segment for the company. Total volume sold in retail broke new record levels crossing the one billion-litres milestone a few days before the year end. The commercial and aviation business continued to achieve significant growth during the year. The market penetration in the lubricants market also registered record level of sales volume. Dr Wood adds, the fuels market normally follows the economic trend of the country and is thus expected to be stable growing in tandem with the economic activities. Three new companies have entered the ranking of the best five dividend yield companies – Oman Aviation, OIB and Oman Cement at number two, four and five, respectively, slots replacing Oman Oil, Ominvest and Al Maha Petroleum. AES Barka continues to be number one and Shell has jumped from number four spot last year to the number three spot.

Venu Nambiar, Chairman of AES Barka, in his report to the shareholders states that 2006 has been a truly remarkable year. In this fourth year of plant commercial operations, results from previous years have been met or surpassed once again. Reliability and efficiency continue to be at world class standards and all of this is accomplished at costs maintained well within the predicted norms. In cases of power and water, AES Barka has again achieved greater than 99 per cent availability and this is directly reflected by the customer’s satisfaction and the continued shareholder value. Nambiar explains that during the year, AES Barka was committed to improve operational performance and also to take the safety and environmental programmes to new heights. AES Barka obtained ISO 14001 and OHSAS 18001 certification for its exemplary environmental and safety programmes.

Nambair goes on to say that the record profit of RO10.474 million for the year 2006 is a clear reflection of the exceptional performance of AES Barka. Another significant achievement for the year was that AES Barka completed the refinancing of its long-term loan to realise the value created by the successful completion and operations of the plant. The benefits of this refinancing included reduction in interest rate margins on its long-term loan (between 40 to 60 basis points reduction throughout the tenure of the loan) and generation of additional funds for distribution to shareholders. The proceeds of the refinancing and re-levering were used for distribution of dividends to the extent of the retained earnings and the balance was applied towards reduction of capital of AES Barka. As a result, AES Barka SAOG distributed a total dividend of 25 per cent, which translates into RO8 million, while RO16 million shall be distributed on account of reduction of capital.

KPMG, a global network of professional firms providing Audit, Tax and Advisory services operating in 144 countries and having more than 103,000 staff, has verified OER Top 20 ranking of the listed companies based on 2006 MSM data.


Disclaimer: Stock analysis has been prepared and issued by Gulf Investment Services Co. SAOG and Vision Securities Co. LLC on the basis of publicly available information, internally developed data and other sources believed to be reliable. OER does not take any responsibility for the contents in these analyses. While all care has been taken to ensure that the facts stated are accurate and the opinions given are reasonable, neither GIS nor Vision shall be in anyway responsible for the rest of the contents of this report. The date for graphs showing stock performance has been taken from MSM website.

Other Headlines
√ THE OER TOP 20 OMANI COMPANIES FOR 2006
√ DEFINITIONS AND EXPLANATIONS

OER TOP 20 Companies
√ Omantel - Ringing in the glory
√ Shell Oman Marketing Company SAOG - Shell outsells
√ BankMuscat - Banking on a boom
√ Renaissance Services - Vibrancy in growth
√ Oman Cables Industry - A cable of profits
√ Al Maha Petroleum Products - Revving up on aviation
√ Oman Oil Marketing Company - Consistency pays
√ Oman Aviation - Flying higher
√ National Bank of Oman - Profits on the high
√ Oman International Bank - Loan book is key

√ BANK DHOFAR
√ OMAN CEMENT
√ OMAN HOLDINGS INTERNATIONAL
√ RAYSUT CEMENT
√ AL HASSAN ENGINEERING
√ AES BARKA SAOG
√ DHOFAR INSURANCE
√ OMINVEST
√ AL JAZEERA TUBE MILLS
√ ONIC HOLDING

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