MSM: Earnings to remain subdued on industrial sector’s weakness

July 11, 2019

With expected decline in revenues and increase in operating costs of industrial sector firms, the total earnings of the MSM30 Index companies is expected to remain subdued for the first half of 2019.

Supported by the financial sector companies, the total earnings of the MSM30 Index companies (based on new index constituents effective July 1) for the first half of 2019 is estimated to marginally increase by 0.7 per cent year-on-year, according to Gulf Baader Capital Markets (GBCM).

GBCM, the sultanate’s largest brokerage firm, estimates banking sector earnings to increase 3.3 per cent year-on-year, while investment holding sector earnings to rise 1.6 per cent for the same period. Overall, financial sector earnings are seen to increase 2.7 per cent for the first half of this year, supported by select banks and investment holding companies.

‘Industrial sector’s first half of 2019 earnings are estimated to decline 19.2 per cent year-on-year amidst decline in revenues and increase in operating costs. Earnings of the services sector are estimated to decline by 0.2 per cent year-on-year during the period,’ GBCM said in its first half of 2019 earnings preview report on Wednesday.

The brokerage firm estimates non-index companies to report a mixed set of earnings for the first half of 2019. ‘We expect earnings improvement in Alizz Islamic Bank, Dhofar Cattle Feed, Al Jazeira Services and Salalah Mills. The impact of economic slowdown is expected to be reflected in lower earnings among sector majors.’

For the second quarter of 2019, total earnings of MSM30 Index companies are estimated to decline 0.5 per cent year-on-year and increase 21.5 per cent on quarter-on-quarter basis, according to GBCM.

During the second quarter, GBCM anticipates Oman’s banking sector credit growth to remain relatively lower amid slowdown and reduced risk appetite among certain banks. ‘The banking sector earnings for the quarter are estimated to increase 3.9 per cent on year-on-year basis to RO93.6mn,’ it said.

For the industrial sector, GBCM estimates the sector earnings to remain under pressure amid seasonality factor (due to the holy month of Ramadan and summer season) and increase in operating costs. It said, ‘We estimate revenue growth of the industrial sector companies to remain under pressure during the second quarter due to the slowdown and shift in consumer spending.

Industrial sector revenue for the quarter is estimated to decline 0.9 per cent on year-on-year basis. We anticipate sector majors to report increase in earnings during the quarter from a low base.’

Services sector is estimated to report a revenue growth of 18.4 per cent in the second quarter on year-on-year basis on the back of contribution from Omantel (Zain Group consolidation). On the other hand, the services sector earnings in the second quarter are estimated to decline 8.5 per cent year-on-year.

‘We do anticipate the ongoing positive structural developments in Oman, post the introduction of foreign investment promotion, private-public‐partnership, bankruptcy and privatisation laws to remain conducive to attract foreign investments in select sectors,’ GBCM said.

It further said that overall investor sentiments and investment climate are expected to improve during coming quarters amid measures taken towards creating economic stimulus.