• Cut FV to OMR1.830; Upgrade to Buy post price correction We upgrade our rating on Oman Cables to Buy (Neutral) given its valuation is now attractive at 2016e P/E of 9.0x and 2017e P/E of 9.5x versus global peers at 13.0x and 10.9x, as its share price correction was overdone. It also offers a healthy, above-peer dividend yield of 5.6%, solid balance sheet (0.4x debt/equity vs. sector of 1.6x) and returns (2016e ROE of 16.5% vs our COE of 12%). However, we cut our FV for Oman Cables (OC) by 14% to OMR1.830 as we: i) reduce our medium-term earnings estimates by 7% to reflect the cost escalation and potential slowness in project execution; and ii) raise our risk-free rate estimate by 50bps to 4.5%.
• 2016 earnings to decline on volume, margin pressure We expect demand to take a breather in 2016 at OC’s copper division (volume to decline 6% Y-o-Y) and subsidiary – OAPIL (- 9%) as we believe the slow investment cycle regionally could impact sales volume and margins. We estimate 2016 consolidated net profit of OMR15.0 million (-19% Y-o-Y), revenue of OMR264 million (-7% Y-o-Y) and EBITDA margin of 9.1% (-80bps Y-o-Y). We forecast a dividend payout of 50%, up from the three-year average of 45%, which implies a DPS of OMR0.085 and 5.6% yield. We expect earnings to continue to decline in 2017 (5% Y-o-Y) before a recovery starts in 2018.
• Prysmian stake rises to 51%, a potential long-term catalyst Prysmian group, the world’s largest cable manufacturer (through its fully owned Draka Holding) increased its stake in Oman Cable to 51% from 35% in December 2015 for a total value of OMR44.1 million (USD115 million) or OMR3.0/share (100% above the current market price). Even though we do not expect this move will lead to any operational changes in the short term, it could offer opportunities for OC in the longer-term such as: i) potential ventures into new niche products through technical cooperation; and ii) supplying Prysmian’s regional requirements.

Sameer Kattiparambil
Wafaa Baddour, CFA