• Maintain FV of OMR2.100 and Buy rating We maintain our fair value (FV) of OMR2.100 for Oman Cables Industry (OC), given that we retain our conservative earnings estimates beyond 2016, as the low oil price environment has affects spending, and despite strong 2Q16 earnings and margins. We maintain our Buy rating, as its valuation is undemanding; the stock trades at a 2017e P/E of 10x, a discount to the peer group average of 13x and its parent company’s 15x. Our FV provides 17% upside potential. Weaker-than-expected sales volume beyond 2016 would be a major downside risk to our estimates.
• Copper cables to take a breather in 2017; OAPIL to stabilise We increase our 2016 earnings estimates 3% to OMR17.0mn (-8% Y-o-Y), on the back of better-than-estimated 2Q results, supported by strong copper cables performance, which was partly overshadowed by weak OAPIL; however, we broadly maintain our earnings estimates beyond 2016, as we expect demand to take a breather in 2017 before a recovery phase starts in 2018. We expect the copper cables division to report 2017 operating margin of 7.9% vs. 9.1% expected in 2016. Better aluminium prices and growth in volumes, after dismal performance in 2016, would marginally improve operating margin of OAPIL to 4.1% in 2017 vs. 4.0% in 2016e, in our view. We maintain our dividend payout estimate of 50% over the medium term, which implies a 2016 DPS of OMR0.09 and yield of 5.0%.
• Assume corporate tax rate at 15%, yet to be enacted Our earnings estimates conservatively assume that Oman government would implement 15% corporate tax rate from 2016 - retroactive from Jan. this year; however, OC’s effective tax rate during 1H16 was at 12%, citing the reason that the law is not yet enacted. Oman government has revealed its strong intention to raise non-oil revenue by reducing subsidies, cutting government employees benefits and increasing various fees; hence, we believe it is a matter of time before the tax rate hikes to 15%.

Sameer Kattiparambil