GCC bourses upbeat in May
May proved to be good for GCC stock exchanges, with all markets ending on a positive note. The overall growth was due to the excellent Q1 figures from companies writes Harikumar Varma

The MSM30 Index continued its upward momentum, gaining 3.78 per cent for the period from April 16 to May 15 . Heavyweights that contributed to the upward momentum were Omantel (+18.8 per cent), BankMuscat (+4.31 per cent) and Oman cable industry (+13.81 per cent).

The Muscat market was the best performing one in the GCC during this period. Market volumes also burgeoned on the back of strong Q1 earnings and improved foreign participation. In April, non-Omani participation in the Muscat market increased to approximately 29 per cent of the total turnover. Average daily turnover increased by 12.1 per cent to RO19 million in the same period.

In the sectoral indices, the services sector index was an outperformer mainly due to robust results from heavyweights like, Omantel, Shell Oman and Renaissance Services.

In corporate events, Topaz Energy and Marine Ltd., a subsidiary of Renaissance Services, acquired Qatar-based Doha Marine Service (DMS) for RO49 million. DMS owns 14 ships and is a debt-free company. DMS reported EBITDA of RO6.54 million in FY07. Also, the merger of National Finance and Muscat Finance did not receive the required approval from shareholders of Muscat Finance.

In results, BankMuscat’s net profit grew by 39.4 per cent to RO26.5 million in Q1 FY08 compared to RO19 million in the year-ago quarter. BankMuscat also announced receipt of approval for setting up a branch in Kuwait. Omantel’s Q1 net income soared by 60 per cent YoY to RO38.4 million in on the back of lower royalties, lower provisioning and better revenues.

GCC Market Commentary
The month ended May 15 was a bright month for the GCC stock exchanges, with all markets ending in positive territory. The Doha Securities Market was the ace gainer for the second consecutive month on the back of excellent first quarter numbers declared by companies. As a result, the general index closed 8.32 per cent higher as compared to month-ago levels. Buying was seen in almost all the counters on the exchange, with the services index taking the lead and closing up 12.38 per cent. . The DFM was the next best performer and grew by 3.88 per cent as compared to month-ago levels. Here, the insurance index was the top performer gaining 6.55 per cent followed by the investment and banking indices, which grew 4.24 per cent and 4.22 per cent, respectively.

The Abu Dhabi and the Saudi bourses too were in a bullish mode and their general index gained 3.37 per cent and 2.73 per cent respectively. The banking stocks dominated the Abu Dhabi exchange, with its banking index swelling by 5.95 per cent. The Kuwait stock exchange reported an increase of 1.20 per cent, with its major indices seeing a mixed trend. The Bahraini stock market ended almost flat: the general index gained just 0.52 per cent during the month. Here, the banking sector was among the ace performers and ended up 2.02 per cent, partially offsetting the drop seen in other major indices.

Research highlights
BankMuscat enjoys a market share of 42.7 per cent in terms of total assets, 42.9 per cent in terms of total credit and 39.6 per cent in terms of total customer deposits as at year-end 2007. Bank Muscat (BKM) delivered better first quarter result as compared to our expectations. Net interest income increased by 38 per cent growth YoY to RO38.8 million while other operating income grew by 102 per cent to RO18 million.

BankMuscat’s Q1 earnings grew by 39.2 per cent growth on increased volumes from core banking activity (rising interest and non-interest income). While net interest income grew by 38 per cent, non-interest income showed a sharper growth at 102 per cent. Though higher provisions and lower recoveries dampened the bottomline growth, we are satisfied to see the significant influence of the core income stream in the bank’s net profit, which appears to be sustainable.
At net levels, BKM added RO292 million in Q1 to its loan book, a growth of 46.4 per cent. Conducive macro-economic conditions and a fast expanding economy are believed to be the key growth drivers, and BKM being the market leader, is reflecting the systemic growth on its asset base. Sequentially, however, loan growth had peaked in the last quarter of fiscal 2007 (RO326 million).

Strong liquidity and a robust economic environment continue to provide opportunities to the banking sector and we think BankMuscat has consistently benefited from it , as demonstrated by its aggressive growth rates. The bank has now set its eyes on regional expansion, and is launching operations in the GCC’s largest market, Saudi Arabia. The management feels that Saudi operations should add positive numbers to BKM’s consolidated net profits in 2008. An ambitious growth plan has also been drawn up for its associate, BankMuscat International, in Bahrain, targeting offshore opportunities in the emerging markets in the African continent.

Given that the aggressive loan growth seen in 2007 and Q1 2008 could be repeated in the current fiscal, we have maintained our growth estimates for BKM at 25 per cent. Assuming a non-interest income growth of 35 per cent for the current year, we estimate an EPS of RO0.110 in 2008. Given its investment in India’s HDFC Bank, the book value is estimated to be RO0.781 by the end of 2008. The current market price discounts the EPS estimate by 19.2 times and the book value by 2.9 times. With the scope of a higher leverage on its buttressed net worth, one can expect positive earnings surprises from BKM in 2008. We maintain our HOLD rating.
The author is vice president of Vision Securities LLC.

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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