MSM30 Index firms to see 2.4 pc revenue rise in Q1

SAMUEL KUTTY –
MUSCAT, APRIL 5  –
The first quarter revenue of MSM30 Index companies is estimated to increase 2.4 per cent year on year to reach RO 991 million in the first quarter of 2017.
On quarter on quarter, the revenue is expected to show a decline of 1.8 per cent.
The index earnings for the quarter, at the same time, is estimated to decline 20 per cent year on year and increase 47 per cent quarter on quarter to reach RO 134.1 million.
According to research report by Gulf Baader Capital Market, the MSM30 Index earnings, excluding investment holding, for the first quarter is estimated at RO 126.7 million, declining 18 per cent year on year and increasing 53 per cent quarter on quarter.
“We saw weak earnings during the last two quarters on current economic slowdown, while the full impact of the recent corporate tax increase and also higher royalty charges for telecom companies to reveal in earnings stress for the MSM listed companies during first quarter of 2017”, the report said.
The report estimates that a few banks will show margin pressure on higher funding costs and estimate relatively higher provisioning during the quarter.
Of late, the local banking system liquidity has shown improvement as compared to 2016 with the completion of government external borrowing programme worth $ 5 billion during Mar 2017.
“This could remain as cushion for the local banks in better liquidity management. We estimate further borrowing programme in the local market in form of development bonds to fund their budget deficit”, analysts at Gulf Baader pointed out.
The industrial sector earnings is also estimated to decline 36 per cent YoY amid margin pressure seen due to increase in the operating costs post removal of electricity subsidy. “This would impact electricity intensive industries. While the Services sector to report sharp decline in earnings on YoY basis due to higher royalty charges for telecom companies along with off season income for the power sector companies on year on year and declining 1.8 per cent quarter on quarter.  According to the report, the weak set of earnings from most of the industrial sector companies during the second half in 2016 which is expected to continue during the first half as well.
“We have seen slowdown in government project announcements across the GCC region which would impact the growth. We estimate the recent increase in the electricity charges (dynamic pricing model) to impact the operating margins of the industrial sector companies. We do anticipate decline in Q1 2017 earnings of the key industrial sector companies which includes building materials, cement and construction sectors”, says the report.
The austerity measures taken by various GCC governments amid low oil prices would impact the construction, commodity players and the building material sector companies.
The services sector earnings for the quarter is estimated to decline sharply by 43 per cent year on year on the back of lower earnings from telecom and utility sector companies. The seasonality factor would impact the local power companies.
“We estimate Omantel and Ooredoo to report sharp decline in the first quarter earnings of due to the increase in the royalty charges and corporate tax rates”, adds the report.