Leading from the front
The MSM30 has not only gained in a period of global meltdown but also exhibited high liquidity


MSM30 Index’s performance was an indication of the insulation of domestic markets from the sub-prime crisis in the US. MSM30’s year to date (YTD) gain of almost 19 per cent, during the global market meltdown last month stood out and was the best performing index in the world (source: Reuters). MSM30 index gained 11.5 per cent between February 16 and March 15, on the back of strong results and high dividend payout by companies.
 
High liquidity in the market was well reflected in the average daily turnover, up by 35 per cent to RO18 million per day during this period. Some of the top performers were ONIC Holding (+34.5 per cent), Al Anwar Ceramics (+30.5 per cent), Al Jazeera Steel (+27.8 per cent) and OIFC (+22.2 per cent). Strong results and robust cash and stock dividend announcements by companies pulled up the index. High dividend paying companies were Omantel, Shell Oman and Raysut Cements, all paying dividend of 100 per cent.

In corporate developments, Oman Telecommunications Company (Omantel) and Oman Mobile Telecommunications Company (Oman Mobile) announced the integration of both the businesses, a process expected to be completed by the end of FY08. The company expects to capitalise on the synergies of both the businesses through building internal capabilities and improvement of operational efficiencies. In other corporate events, the boards of directors of Muscat Finance and National Finance approved the merger of both the companies. Based on E&Y valuation, shareholders of Muscat Finance would own 57.83 per cent of the merged entity while those of National Finance would own 42.17 per cent.

In result announcements, Galfar announced a 62 per cent year over year (yoy) revenue growth and 39 per cent yoy increase in profit for FY07.

GCC MARKET COMMENTARY
Most of the GCC bourses ended on a positive note for the month ended March 15. The Saudi stock exchange grew by 5.56 per cent during the period, primarily on the back of buying seen in industrial counters, with the industrial index rising by 11.08 per cent. The Qatari bourse ended up 4.46 per cent, primarily due to a rise in banking and services’ stocks, which increased by 6.91 per cent and 2.96 per cent, respectively. The Kuwaiti index was up 4.07 per cent during the period, with most of its sub-indices ending in green. Its banking and services indices were among the ace performers, gaining 6.48 per cent and 6.02 per cent, respectively, during the period.

The Dubai and Bahrain stock exchanges ended almost flat, with the general indices increasing by 0.32 per cent and 0.27 per cent, respectively. While real estate companies topped the Dubai bourse, banks were among the chief gainers in the Bahraini market. The Abu Dhabi market, however, was the only negative performer during the month, with its general index shedding 0.87 per cent. The banking sector was among the worst performers on the exchange, with the banking index down 1.55 per cent.

RESEARCH HIGHLIGHTS
Oman Investment and Finance Company
Oman Investment and Finance Company’s (OIFC) business model provides good revenue visibility, with existing contract periods averaging at about two-and-a-half years. OIFC has also illustrated its ability to retain existing clients without too many negotiations. A strong network in Oman amidst growing economic activity further strengthens the company’s bid for future client additions. Its major source of revenue (approximately 56 per cent) comes from the factoring business for Omantel. The company is involved in bill printing and bill collection from fixed line telephone, global system for mobile (GSM) communications and internet consumers on behalf of Oman Telecommunications Company and Oman Mobile Company. In recent times, OIFC has been able to diversify its client base, adding Oman Mobile for selling Hayyak starter kits and prepaid cards and Oman Qatari Insurance Company for marketing insurance products. For the nine months ended FY08, OIFC reported operational revenues of RO6.30 million, up 6.9 per cent yoy while net income (excluding non operating income) grew 14.1 per cent yoy to RO1.85 million.
 

OIFC’s contract with Oman Mobile to market Hayyak starter kits and prepaid card enhances its revenue streams. The market for prepaid cards is expected to be around RO5.5 million per month. Apart from OIFC, there are three more players in the Oman Mobile prepaid card marketing business. A single competitor owns approximately 60 per cent of the market share while the other three, including OIFC, are new entrants. OIFC expects to sell approximately RO1.5 million worth of cards per month, utilising its existing infrastructure, with virtually no additional costs. Hence, the revenue generated from this business is expected to add to the bottomline. Though the business is lucrative, but given the unorganised nature of the market; OIFC faces intense discount rate competition. Hence, OIFC is targeting the organised retail sector, including retail chains and smaller shopping malls, by extending credit days. The business also generates positive free cash flow for the company.

OIFC has been able to expand its operating margins from 21 per cent in FY05 to 33 per cent in the first nine months of FY08. The company’s growth in billing from Omantel and MHEW has been a major driver in this. Ongoing infrastructure development projects, economic growth and increased population in the Muscat region are all indicative of a further rise in consumption of water and electricity. Water distribution was badly affected during cyclone period in June and July 2007; hence, there was a slight drop in distribution of water in 2007 compared to 2006. However, monthly figures show a significant uptrend.

Trading at a 15 per cent discount to our target price of 688 Bz, and with approximately 5 per cent (expected) dividend yield, the shares of OIFC seems to be a good investment opportunity. We believe the company has the wherewithal to add more clients to further leverage its reach and strategic position in the debt factoring business. Our estimates may prove to be conservative, if the company opens any fresh channels or adds new clientele.

Data and analysis by Vision Securities Co. LLC (Vision). While utmost care has been taken in preparing the above report, neither Vision nor Oman Economic Review makes any guarantee, representation or warranty, whether express or implied, and accepts no responsibility or liability as to its accuracy or completeness of the data being provided.

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