The OER Top Twenty – Year 2007
Oman Economic Review presents its annual ranking of Oman’s Top 20 leading listed companies for the year 2007

For the fifth consecutive year, 2007 continued to be positive for Oman’s economy in general and for the Muscat Securities Market (MSM) in particular. The price of oil continued to increase during the year. Oman crude realised an average price of US$67.80 per barrel in 2007 compared with an average price of US$61.69 for 2006 and the budgeted price of US$40 per barrel for 2007. The original total appropriations for 2007 of RO3,016 million were substantially increased by a further RO2,357 million to implement a number of development and basic infrastructure projects. Due to higher oil prices, the actual budget was projected to close with a budgetary surplus of RO1,720 million as against a projected deficit of RO400 million.

Growth drivers
Due to the bursting of the ‘credit bubble’ in a year that was full of bad news for developed markets, emerging markets spent 2007 on another planet, with returns of 35 per cent to 40 per cent. The MSM continued to scale unprecedented heights during the year. The MSM ended the year as the best performing stock market in the GCC. 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 undoubtedly among the best in the region, and the continuous improvement in the profitability of listed companies.

 The only major IPO launched during the year was of Galfar Engineering & Contracting Company, which was oversubscribed more than 14 times. Trading volumes amounted to RO2,626 million in 2007 compared to RO1,113 million in 2006, an increase of 136 per cent. The benchmark MSM 30 index ended the year at 9,035.48 points, a gain of 61.88 per cent for the year. The top performer was the banking and investment sector, which was up 71.5 per cent, followed by services and insurance sector, which gained 52 per cent, and the industry sector ended with an increase of 60.4 per cent. Foreign participation in the capital of the listed joint stock companies also increased during the year to 27.55 per cent compared to 23.3 per cent last year, an increase of about 18 per cent.

The government’s continued emphasis on diversifying the economy away from dependence on oil gained further momentum during 2007. The implementation of the government’s privatisation programme is progressing well. In the tourism sector, the government is expecting a growth of about 8 per cent during 2008. The implementation of a number of major tourism projects has already commenced. These projects include the Wave, Salam Yetti, Shaá in Dhofar, tourism resort in Zighi in Musandam, tourism developments in Sifa and Salalah and a number of other projects. Some of the mega projects in Sohar are also planned to go into production in 2008. The government also acted swiftly in the aftermath of the cyclone Gonu by allocating RO285 million to repair the infrastructure affected by the cyclone.

The performance of western world financial markets was greatly affected by the bursting of the ‘credit bubble’ and problems related to the sub-prime mortgage backed securities. About 140 economies grew at more than 4 per cent in 2007. The rising middle class in China and India is creating millions of consumers of goods and services. In fact, as suggested by one of Merrill Lynch’s commentators, “We should probably stop thinking about ’emerging markets’ and ‘US markets’ and ‘European markets’, and just analyse all of them as markets, period.” The US markets showed single digit growth during the year. Around the world, China, India and Malaysia were the stars of the emerging markets. Gold continued to be a reliable hedge against the US dollar. The greenback continued to decline in 2007 against other currencies and gold continued to make all time highs.During 2007, the revenues of Oman’s 20 largest companies showed a handsome growth. Total revenues for the OER Top 20 went up by 32.75 per cent to RO2,606 million. Corporate performance of the year was also extremely positive. The profits for the year increased by 33 per cent to RO466 million from the figure of RO349 million last year. The total market cap of the OER Top 20 on December 31, 2007 was RO6,778 million, which was up by 70 per cent compared to 2006. On April 2, 2007, the market cap of the Top 20 has gone up to RO6,793 million. The OER Top 20 companies represent 66 per cent of the total market cap of the MSM of RO10,273 million at the end of 2007. The average P/E ratio of the OER Top 20 based on the profits of 2007 and the share price on April 2, 2008, is 14.58 times earnings.
Who is in and who is out
There are four newcomers on the list this year. Galfar comes straight into the number 2 spot, Areej Vegetable is back to the number 16 slot after missing out last year, Al Anwar is at 19 and Oman Refreshment at number 20. These companies have made it to the OER Top 20 this year at the expense of Oman Aviation, which was delisted, Al Hassan Engineering, Dhofar Insurance and ONIC Holding. The ranking of Oman’s 20 largest companies in order of revenue produces a list, which includes the four banks, eight companies from the services and the industrial sector each.

There has been only one change in the top five companies in Oman. Galfar comes into the number two slot, replacing Renaissance from last year. Omantel continues to retain the number one spot from last year, as does Bank Muscat at the number three spot, Shell Oman slips two places to the number four spot and Oman Cables remains at the number five spot. Omantel continues to be the largest public company in Oman with a revenue growth of 12.78 per cent compared to last year.

The chairman of Omantel Eng. Sultan Bin Hamdoon Al Harthy, in his report to the shareholders explains that the robust growth of Oman’s economy in 2007 in all sectors contributed to the overall growth of the telecom industry. Al Harthy states that inspite of increasing competition, the Omantel group has achieved a double digit growth of revenue of around 13 per cent. Al Harthy outlines that the total group net profit after tax rose by 39 per cent to RO112.03 million, adding that the total subscriber base recorded a growth of 15 per cent. The total number of subscribers increased to 1.869 million, compared to 1.629 million last year.

Al Harthy cautions that during 2008 the sector liberalisation is likely to intensify. TRA has already requested applications for ‘resale of mobile calls offered by the country’s two mobile operators’. 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 more efforts towards international expansion.

Profit splits
Similar to 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 just one change: Raysut Cement, which was in fifth place last year, has moved up to the number four position, pushing OIB down from number four to five. Omantel continues to remain at the number one spot, BankMuscat at the number two spot and NBO at number three. BankMuscat is the second most profitable company in Oman as well as the third largest company in Oman based on turnover for 2007. BankMuscat has achieved this position by repeating its growth in profit for the year of about 39 per cent.
The Chairman Abdul Malik bin Abdullah Al Khalili states in his year-end report to the shareholders that 2007 was a memorable year for the Bank in many ways. The Bank not only celebrated its 25th anniversary but also decided to place 15 per cent of its capital with Dubai Financial Group, which helped raise RO283.3 million of additional capital to substantially enhance its net worth.

Khalili adds that during 2007, the bank continued to prosper by enhancing products, services and solutions standards across its operations in the consumer, corporate, wholesale, brokerage, financial institutions, treasury and capital markets asset management, and private banking as well as international operations. 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 42.7 per cent in terms of total assets, 43.3 per cent in terms of total credit and 38 per cent in terms of total customer deposits, as on November 30, 2007. The Board has proposed a higher percentage of cash dividend of 50 per cent as an exception considering the Bank’s 25th anniversary.

Khalili says that 2008 augurs well for the customer in Oman due to the gradual opening of domestic borders and increasing levels of competition from well-entrenched players in the domestic market. In many ways, one will see more and more players offering increasing and diverse range of value-added services. While this poses a major challenge to the domestic banking industry as a whole, he adds that BankMuscat is prepared for the future and continue to invest in technology, processes, people and infrastructure.

Breaking new ground
Al Anwar Holdings has shown the highest growth in profits by an enormous 450 per cent and has jumped to the number one spot. All the top five companies showing highest growth of profit from last year are new on the list. Oman Cables, Al Hassan Engineering, Oman Aviation, Raysut Cement and National Bank of Oman have all dropped off this list.

The Chairman of Al Anwar, Masoud Humaid Al Harthy, in his report to the shareholders for the year ended March 31, 2007, has stated that the company has installed a new management team and reviewed all investments of the company with a view to divest investments that have matured and nurture strategic investments. This resulted in the group achieving its highest ever net profit of RO2.185 million for the year ended March 31, 2007, an increase of 450 per cent. The Board has recommended a cash dividend of 5 per cent and a stock dividend of 15 per cent.

As last year, three of the top five companies that have the highest amount of equity employed are banks. Bank Muscat continues to remain number one in this category. All the other companies continue to remain in the same position as they were last year and there is no change in this table from 2006.

The Chairman of NBO Suhail Salim Bahwan in his report to the shareholders states that the bank’s net profit of RO44.6 million exceeds last year’s net profit of RO30.4 million by 46 per cent. Bahwan adds the profit from operations grew by 26 per cent from RO29 million to RO36 million, reflecting the robustness and positive outlook for the economy as well as the bank’s 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 33 per cent in 2006 to 40 per cent in 2007. Business efficiency remained an important focus and the improvement in cost to income ratio continues to improve.

Bahwan goes on to say there is clear evidence of continuing resilience and buoyancy in the domestic and regional economies. The year 2008 promises to be even more exciting as the country continues to reap the benefit of the high energy prices as well as sustained development. Bahwan states the bank is poised to embark on a period of rapid expansion and growth to the benefit of its customers. In particular, the bank will be expanding its consumer banking franchise with new products and services, together with modernisation and aggressive expansion of its branch network and ATMs throughout Oman to provide better access and service to customers.
 
Market returns
This year, only two of the top five companies that have the highest market capitalisation on the MSM are banks. BankMuscat has retained its first position and Omantel its number two spot. Raysut Cement, Galfar and Bank Dhofar are number three, four and five. NBO and OIB, which were number three and number five last year, are out.

The Chairman of Raysut Cement, Mohamed Bin Alawi bin Ali Muqaibal, in his annual report to the shareholders, states that domestic and regional cement industry witnessed high increase in demand during the year. Muqaibal says the economic development and boom in construction and mega construction projects, especially in real estate and tourism, has a direct impact on cement consumption. He adds the company continued breaking the previous best performance results and posted record results during the financial year. Muqaibal states the industrial, residential and other construction projects currently under implementation in Oman will continue driving local consumption to a high level. The company is expanding its operations in the neighbouring countries, especially in Yemen, where demand is expected to be strong in the short and long-term duration.

Promising show
Interestingly, none of the top five companies showing the best return on equity employed come from the banking sector. Only one of the companies in the top five is new. Oman Cables retains its first place showing a massive 54 per cent return on equity employed. Shell Oman Marketing retains the number two position. Al Hassan Engineering, which was number three last year, is out. AES Barka has climbed one place to number three this year from the number four position last year, and Raysut Cement remains at number five.

OCI’s Chairman Mustafa Mukhtar Ali Al Lawati, in his report to the shareholders, has stated that 2007 was a year of challenges and difficult tasks. The booming international environment offered OCI an opportunity to expand. Such massive growth had its share of unforeseen problems. The company continues to face unforeseen challenges with success, converting each challenge into an opportunity. Al Lawati adds that sales at RO217 million, compared to RO126 million in 2006, show a growth of 73 per cent. The net profit, amounted to RO15.134 million, compared to 2006 registering a growth of 58.7 per cent. The Board has recommended a cash dividend of 40 per cent. Al Lawati states that a fraction (35 per cent) of OCI-installed capacity can meet 100 per cent of Oman’s annual needs in any year and OCI will continue to maintain this level, planning well in advance and with timely investments to enhance cable production for local and global market needs.

All the top five earnings per share growth companies are newcomers on the list. Oman Cables Industry, Al Hassan Engineering, Oman Aviation, Raysut Cement and NBO are all out.

The Chairman of Al Jazeera Steel, Mohamed Abdulla Moosa, in his annual report states that during most of 2007 hot-rolled coil prices remained strong. This was due primarily to firm demand worldwide, and secondly due to increased cost of raw material, such as iron ore and coke, and thirdly due to a consolidation in the production of steel as a result of major mergers in the industry, such as Arcelor/Mittal and Tata/Corus. In addition, the changes in the export duty structure of China meant an increase in the prices of Chinese exports of steel products. All of the above points resulted in buoyancy in steel prices. Moosa goes on to say that the company was not able to increase sales tonnages due to the financial constraints faced in 2007, which caused difficulties in managing the working capital. Moosa states the new capital injection has improved substantially the company’s standing. This capital injection not only corrected the financial covenants but also has positive leverage on the borrowing costs of the company.

Four of the five companies on this list are newcomers with Al Anwar taking the top position. Al Hassan Engineering, Shell Oman, Al Maha Petroleum and AES Barka have all been knocked out. Only Oman Cables remains from the last year’s list and has moved up two places to the number three position.

Samir Fancy, Chairman of Renaissance, in his report to the shareholders states that 2007 was another record year for Renaissance. The company continued to deliver value to all stakeholders and to make strategic investments that will drive sustained, superior performance over the long term. For the sixth successive year, the 2007 financial results show the highest revenue and profits in the history of the company. The results also show strong growth in comparison to the previous record set in the last fiscal year with revenue up 39.4 per cent, operating profit up 26.68 per cent, EBITDA up 27.9 per cent, and net profit up 21.7 per cent.

Fancy adds that these results show a compounded annual growth of 44.2 per cent in revenue and 33.8 per cent in operating profit over the last five years period (2003-2007). The return on shareholder funds has increased to 17.2 per cent compared to 16.4 per cent in the previous year. EPS has improved to 78 baizas per share against 66 baizas in 2006. For the current fiscal year the Board has recommended a cash dividend of 15 per cent and a stock dividend of 10 per cent.

Looking ahead, Fancy states, the company is committed to its strategy to strengthen and grow its primary oil & gas services focus. This shall be achieved through divestment of non-core businesses; capital investment in oil & gas services businesses, onshore and offshore; strategic acquisitions in the oil & gas services sector; and, widening and strengthening geographical presence, including formation of strategically important joint ventures to attract quality local content ownership to add value in key markets.
Three new companies have entered the ranking of the best five dividend yield companies. Oman Telecommunications, Raysut Cement and OHI are the new comers in the number two, four and five slots, respectively, replacing AES Barka, Oman Aviation and Oman Cement. Shell has taken the number one position and OIB has jumped from number four spot last year to the number three spot.

Dr Andrew Wood, Chairman of Shell Oman Marketing, in his report to the shareholders states that overall the company remained the market leader amongst oil marketing companies operating in Oman. He adds the company achieved historically highest ever net profit of RO11.06 million, compared to previous year’s net profit of RO8.92 million. Dr Wood explains the retail business remains the most important segment for the company. Total volume sold in retail again broke the one billion litres milestone. The commercial and aviation business achieved respectable result despite the withdrawal of Gulf Air from Oman. The market penetration in the lubricants market also registered record level of sales volume. The board has recommended a final dividend of 110 per cent for the year.

Overall the listing reflects the bouyancy and confidence of the corporate sector in the Sultanates economy.

METHODOLOGY
The figures and the lead analysis for the listing was done by Mukhtar Hasan. Hasan is a Fellow of the Institute of Chartered Accountants in England and Wales and holds a Corporate Finance Qualification issued jointly by this Institute together with the Securities Investment Institute and the Chartered Accountants of Canada. Currently, he is on the board of several public companies, including Gulf Investment Services, Gulf Mushroom and Muscat Thread Mills in Oman.

EXPLANATIONS
Revenues
All companies on the list are derived from the published accounts submitted to the Muscat Securities Market (MSM). Therefore, closed Joint Stock Companies and private companies and establishments are excluded from this list. These companies are, in the first instance, ranked by Revenue. All the other rankings shown on the table do not consider any other companies that do not make the list on the basis of Revenue. In the case of banks, the Gross Interest Income as well as Other Operating Income together is considered as their Revenue for this purpose. In the case of Insurance companies, the Gross Premium Written as well as Investment Income together is considered as their Revenue for this purpose. All figures are for the year ended December 31, 2007, unless otherwise stated.

Profits
Profits are shown after taxes and all charges including extra-ordinary charges. Figures in brackets indicate a loss. All losses and negative growth are also ranked where possible.

Assets
Assets shown are as per the balance sheet at the end of the year. It is the total of Fixed as well as the current assets.

Shareholders’ Equity
Shareholders Equity is the paid up capital of the company, retained earnings, and statutory and all other reserves as well as share premium.
 
Earnings per share
The earnings per share are as declared by the company in its published financial statements.

Market Cap
Market Capitalisation figure has been arrived at by multiplying the total number of outstanding shares of the company by the price per share as of close of business on April 2, 2008.

Dividend Yield
The dividend yield figure is calculated on the basis of dividend declared in the financial statements for 2007 against the share price at close of business on December 31, 2007.

Price Earnings ratio
This ratio has been calculated by dividing the earnings per share for the year 2007 by the share price on April 2, 2008.

                                            
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