Financial sector stocks gain



Muscat: The MSM closed 0.39 per cent higher for the week ended December 13, at 5,647. All the three sector indices closed with gains, led by a 1.7 per cent advance in the financial sector. There is a fresh rally, which has started this week in investment sector stocks such as Gulf Investment and Oman United Insurance.  These stocks are likely to move higher in the near term.  The overall market has also recovered from its recent lows and volumes have also improved.

Gulf Investment Service reported a consolidated net profit of RO396,000 in the third quarter of 2012 against a net loss of RO786,000 in the second quarter of 2012. EPS for the nine months of 2012 amounts to 5 baisas against a loss of 4 baisas in the nine months of 2011. The stock trades at 0.78x its latest reported book value of RO0.121. We expect this stock to move higher in the near term. Volume has been high in this stock and more upside is expected.

Oman United Insurance reported a net profit of RO2.23 million in the nine months of 2012 against a loss of RO56,000 in the nine months of 2011. Gross written premiums grew 25.3 per cent year-on-year to RO30.21 million in the nine months of 2012 led by a 29 per cent year-on-year increase in non-motor premium income while motor insurance premiums grew 32 per cent year-on-year. The company owns a large investment portfolio which made a significant contribution to its bottom-line.

Mixed trend in GCC
UAE benchmark indices fell sharply in the previous week due to increase in royalty payable to its government by its two telecom operators. Qatar market saw a minor decline while the other Gulf Cooperation Coulcil (GCC) bourses ended higher. Etisalat and Du are expected to pay higher fees to the government going forward as the UAE Ministry of Finance revised the royalty scheme applicable to both firms for the next five years.

Etisalat, which has so far been paying 50 per cent fee on net profit, will now pay 15 per cent fee on revenue and 35 per cent on net profit. The rate on net profit will drop to 30 per cent in 2016.  On the other hand, Du, which last year paid 5 per cent of revenue and 15 per cent of net profit, will now pay 5 per cent of revenue and 17.5 per cent of net profit. In addition, the fee on revenues for Du will increase by 2.5 per cent each year to reach 15 per cent by 2016 and fee on profits will increase to 20 per cent in 2013, 25 per cent in 2014 and 30 per cent in 2015 and 2016.

Saudi Chemical, a Saudi-based manufacturer and distributor of explosives and derivatives for civil and military uses, reported net profit of 226 million Saudi riyals for the nine months of 2012, growing 7.9 per cent year-on-year, supported by sales growth of 13.2 per cent year-on-year to 1.35 billion riyals. Profitability growth during the period was slightly muted by lower operating margins and a slight increase in financing charges. The stock trades at 9.7x its trailing 12 months EPS of 4.49 tiyals. We have a bullish view on this stock.

Gulf International Services reported a net profit of 122 million Qatari riyals in the thrid quarter of 2012, growing 162 per cent year-on-year and 17 per cent quarter-on-quarter, while revenues rose 67 per cent year-on-year to 602 million riyals . While the company has been seeing revenue and margin improvement this year on healthy demand for drilling rigs in the region, the sequential boost in revenues and profits also reflects the first full quarter impact of its acquisition.  

Disclaimer: This column expresses only the views of the contributor and investing in stocks carries risk of financial loss for which the contributor is in no way liable.

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