Mustafa Ahmed Salman, CEO of United Securities is confident about the Muscat Securities Market’s potential to yield high returns in FY2014.
Equities in 2014 to achieve strategic balance between opportunity and risk
We see robust growth in Omani economy and expect equity markets to remain sanguine for 2014. We saw 2013 as a year of action-packed events in the geopolitical arena as well as equity markets. The geopolitical situation in the region is stabilising following Iran-US deal and Syria peace measures, which could lead to lower volatility in the oil market. On the other hand, equity markets cheerfully welcomed the entry of Dubai and Qatar in the MSCI EM Index and the recent successful bid of Dubai for ‘Expo 2020’. These developments were deemed to be more fundamental and believed to re-boost confidence among investors. We see the positive impact on equity markets extending into 2014 as investors relook strategies, between opportunity and risk.
The increasing correlations between regional and global markets have gathered pace in 2013 and the trend is likely to continue in 2014. We see Omani equities in 2014 as a growth-and-yield story rather than a yield-only theme, though Omani equities remain the best in yields regionally. From a micro perspective, we see some fabulous performances in a handful of stocks, while the top-down approach suggests that investment holding companies will rebound after the 2008 crash and utility companies will ride the yield wave, which was largely a result of a realigned strategy for value-based investment.
2014 draft budget emphasises higher spending and additional spending on civil ministries
The Omani economy continues to show robust growth in oil sectors but its main focus is gradually shifting to non-oil sectors aligning with the government’s Vision 2020 which aims to diversify away from hydrocarbon dependence. The government has addressed most of the issues spanning from employment generation, infrastructure spending and regulation coupled with strong governance. On the economic growth front, IMF and EIU have predicted a GDP growth of 4 – 4.2 per cent for Oman’s economy, which witnessed a positive stride all through the previous years. We expect 2014E to be a year of stability, coupled with a fundamental shift in economic growth. The country’s 2014 draft budget has outlined a spending of RO13.5bn and revenue of RO11.7bn leading to a deficit of RO1.8 bn with a budgeted oil price of $85/bbl.
However Oman would be able to achieve a surplus in 2014 considering the stable oil prices though over the short term it may witness slight pressure, while there would be no compromise on spending. The underlying drivers of Oman economy’s growth remains the robust infrastructure spending and its efforts on employment generation. Interestingly, infrastructure spending has seen a growth of 26 per cent in 2013 with RO1.9bn worth of tenders awarded in 2013 from RO1.5bn in 2012. Additionally, the government has emphasised additional spending in civil ministries leading to a morale boost for citizens and local employees; acting as a support to employment generation efforts.
Omani equities rally sustainable; rebound in turnover is a sign of confidence
The strong economic drivers are reflected in Omani equities with market volumes doubling in 2013, a scenario witnessed for the first time after 2009. The regulators have stressed on strong governance and have adopted initiatives to open up the capital market, with a host of IPOs expected in 2014 and divestment of government-owned entities on the cards. Investor enthusiasm was reflected in improved market activity where market turnover has crossed RO2bn and is expected to close the year with RO2.2bn in 2013 nearing 2009 highs. We feel that such record numbers has removed the skepticism of lower retail participation, which Omani equities faced during 2010-12, marking another year of positive stride since 2009. The flurry of IPOs in 2014 is likely to add flair to retail participation which we see as a healthy proposition in any equity market. The strong governance is earmarked as a significant step on the part of regulators to boost confidence in local equities. Our market has improved in terms of its efficiency and this is a key rationale behind any value proposition for long term investment.
Economic drivers on the forefront to support earnings
The thrust to create jobs has boosted domestic spending and such impending demand has resulted in companies either expanding organically or inorganically. The altered growth is being felt across consumer oriented sectors, which have benefited from strong domestic spending patterns. Alternatively, the result of such heightened activities has created comfortable cash flows either to capture the best Internal Rate of Returns (IRRs) domestically or internationally. Omani corporates are likely to see a reasonable growth across industrial and services sector companies. We believe companies are focusing on export markets like UAE, Qatar and Saudi mainly to leverage on spending growth in the region.
Investment strategy aimed to identify value investment; valuation re-rating imminent in Omani equities
Investors have taken a pursuit of value in Omani equities with an investment strategy focused on finding value investment opportunities. A classic example would be identifying the value proposition in holding companies and key industrial stocks, very rightly expressed in terms of returns with holding companies’ performance growing at higher double digits. Interestingly, some of the regional equity indices grew at a phenomenal rate with Dubai Index leading the way; though there are base impacts on some of the regional indices. Omani equities continued the momentum in 2013 with 17.5 per cent YTD and it is likely to see a carryover effect at a similar pace in 2014.
Interestingly the combined market cap of MSM listed companies grew by 19 per cent in 2013 and parallel market stocks grew by 159 per cent, while regular market stocks mainly blue-chips grew by a meagre three per cent, thanks to the rally witnessed in a host of investment holding and industrial companies. Oman’s MSM index trades at 12-month trailing price earnings ratio (PER) of 11x and remains one of the lowest among GCC peers. Nevertheless, we see 2014 to be a year for smart investors who can capitalise on a strategic balance between opportunity and risk.
Infrastructure led growth
Bhaskar Dutta, CEO, Al Jazeera Steel Products Company feels that it is imperative to groom national talent for senior managerial positions
We must firstly thank His Majesty Sultan Qaboos bin Said and his team who have chalked out a plan for the development of non-oil related businesses and provided several opportunities for all of us in the industrial sector. Presently the entire MENA region is going through a very tough time and suffering from the after-shocks of the Arab Spring upheaval. Luckily, the GCC is in a better situation and thus several projects are being planned by all the local governments and this is helping in providing employment to the nationals.
The Sohar Industrial Estate (SIE) and the Sohar Free Zone (SFZ) have been the forerunners in providing the basic infrastructure for industrial and business opportunities in Oman. While we are seeing a substantial allocation of funds in the development of infrastructure, we find fewer industrial projects envisaged in the immediate future. Several projects which were conceptualised on the drawing boards are yet to take shape for construction and commissioning. The existing units surely benefit from the investment in infrastructure projects and we do not foresee any reduction in the GDP growth in 2014 of around four per cent, while inflation will stay under control at less than three per cent. The government is spending substantial money in the development of ports, industrial estates and free zones. However, issues related to availability of gas, water and power needs to be addressed urgently so that more industries can be established and growth occurs.
More industrial growth will lead to more employment for the locals. The locals need to be developed for specific trades; attitudinal changes need to be incorporated into the younger generations from the primary level; and the school curriculum needs to be restructured. The wage structure needs to be modified so that those with more experience are taken care of and not just the new comers to the industry.
It is imperative that for senior positions there nees to be proper grooming of the locals. We expect to see more refinement in the curriculum for graduate studies and more importantly the opening up of more vocational training institutes. In these courses, it is expected, that the focus needs to be on understanding job skills and imbibing the attitude to take up tough jobs in not so conducive working environments.
In 2014, more State-owned companies will be privatised in numerous sectors expanding the private sector. The oil sector in Oman contributes nearly 50 per cent to the GDP. It is expected that the government will invest heavily on the non-hydrocarbon sector, so as to diversify the economy from its large dependency on the oil sector.
With an ever increasing need for energy for industry, household and power, an investment drive towards increasing the LNG output and also trying to tap unconventional reserves of gas is anticipated. The investment in the Khazzan Field tight gas project was initiated in 2013 and thus investment in its project related work will continue with the target date of 2016 for recovery and commercialisation. This gas recovery is expected to increase Oman’s total gas capacity by another 30 per cent.
Maurice De Rooij, General Manager, The Millennium Resort, Mussanah feels that better facilities and customised offerings will attract more guests to the property in 2014
The Millennium Resort and Spa experienced a double digit growth in occupancy and activity levels during 2013, moving from a macro to micro strategic hotel development and repositioning the property as an all-purpose leisure resort destination for both international tourists, and domestic and resident expatriates.
There are several key strategies for continued growth in 2014 with an emphasis on creating innovative services, increasing communication and identifying niche markets.
Innovation is essential to keep an advantage in the competitive tourism industry and to meet the needs of changing customer demands. For example, a recent trend in Eastern Europe that is spreading to other markets is an all-inclusive prepaid family vacation to control a budget without unexpected add-ons. We have anticipated this and are responding to this trend by offering all-inclusive packages, especially for families with children, which incorporate Omani history, urban and eco-tourism, meals and stay, into one easy price.
Further growth in services to be operational for 2014 is the Beach Club featuring a full-fledged spa and wellness centre, fitness club, signature restaurant Azur with an idyllic Compass Bar, an al fresco shisha lounge, and a fully equipped educational kids club to exceed guest expectations with offers for the entire family. Communication is another tool that we plan to increase in response to the booming online sphere. Online travel booking for Millennium Mussanah increased by 125 per cent in 2013 and we intend to follow that trend by increasing our online services and integrating social media into our communication strategy. As a hotel, we need to understand what our customers need, and providing them with a platform to engage them is helpful to us, and a service to them.
Expanding to niche markets is a major focus for the resort as Oman witnesses a sustained rise in the number of tourists. International sports events are one market that we have begun developing and plan to continue. Several high profile events have taken place at Millennium Mussanah that put the resort on the map including the successful Asian Beach Games in 2010 and the Men and Women Beach Handball and Volleyball World Championships in 2012. At present, the resort is hosting the Oman World Laser Championships 2013, attracting over 52 nations and 500 participants. These international sports events are a strategic market for the future of the resort as they showcase the destination and expand the entertainment services for guests.
Another niche market is the tourists that travel the world for diving, and the resort is meeting that interest with a dive centre fully equipped with the latest Nitrox technology, a 54 berth marina and a variety of watersport activities, including Oman’s first ladies-only swimming pool. The local and international golf community is another strategic choice of diversifying the source markets for the hotel with three leading golf courses in Muscat all within one hour drive from the resort. With these goals set for 2014, Millennium Resort Mussanah aims to be the leading lifestyle destination in the Sultanate inviting local and international visitors to an oasis of entertainment, escape and relaxation.
A discerning audience
Hassan Mahboob Hashimani, Managing Director, Hashimani Group sees changing lifestyle choices as an opportunity area of the future
The year 2013 saw the the boom in the overall retail demand continue. We have seen a positive shift in people’s tastes as they are now more conscious about brands and standards of quality. This along with the increase in spending power and willingness to spend has helped us to widen our target segment of catering to the middle to high-end income individuals.
We believe that this pattern will continue in 2014, albeit with increased competition from the existing large established furniture brands as well as recently from new locally built names, due to the strong government support to the SME sector considering it as one of the main pillars of economic growth. We are also aiming to diversify our business and gain an international market share either by exporting to other markets or by expanding our physical presence.
What has distinguished Oman’s economy from other neighbouring or regional states is the consistent and stable growth over the last few years, least affected by global crisis. This is due to the prudent regulations and guidance of the government. The recent changes in certain economic and social policies have been supportive of the private sector and helped in driving the growth of the economy. The year 2014 should witness the launch of some large projects in the country, which will provide employment opportunities and open up the economy for local and international investors. This year will be crucial for Oman as it embarks on chalking out Oman’s Vision 2040, as per the directives of His Majesty Sultan Qaboos bin Said, by involving all levels of the society in the planning process.
We are facing strong competition in the market and expect that new international names will enter the market. The main reason for this being the general shift in the demands of people who are now looking at factors like brand name, high quality and interior designing services while furnishing their homes. On the other hand, the large projects currently underway in the tourism and hospitality sectors and the new head offices of large Omani corporates provide opportunities to cater to this segment.
I always believe that for a business to succeed it should adapt to the demands of the market. Change is best achieved when there is a balance between the new and what is existing in the business. Our concept is to offer customers with different brands and price ranges so that we could best suit their requirement without them requiring to go to any other place. I want us to be the first brand name that comes to the customer’s mind when thinking of furnishing their home or project.
Since we started diversifying in our business we came across some barriers and difficulties. I hope that more flexible rules and regulations would come in to support the opening of new businesses. Last but not least, I hope that each individual Omani becomes an ambassador to promote our beautiful country outside.