• Raise FV to OMR2.10 on resilient 1Q16 earnings… We raise our FV for Oman Cables (OC) to OMR2.10 as we increase our 2016 earnings estimates to account for the better-than-expected 1Q16 sales volumes and margin. Despite the recent share price rally (+18% since our last update), we maintain our Buy rating on OC as it still trading at an attractive 2016e P/E of 9.6x with a dividend yield of 5.1% versus sector averages of 17.7x and 2.8%, respectively. In addition, OC has a better ROE of 18.1% versus the sector average of 14.4%. The key negative risk to our estimates is a sharper-than-expected decline in sales volume.
• …but still expect demand to get softer in 2016 We maintain our conservative estimate of slow cable demand in 2H16 and through 2017 due to weak government spending plans, which is expected to weigh heavily on the sector. We estimate 2016 consolidated net profit of OMR16.6mn (-10% Y-o-Y) on revenue of OMR259mn (-9% Y-o-Y) and EBITDA margin of 9.5% (-40bps Y-o-Y). With a strong balance sheet (net debt/equity of 0.4x) and lack of any significant capex programme, we assume OC will marginally raise its dividend payout to 50% in the medium term from the past three-year average of 45%; hence, we expect a 2016 dividend of OMR0.09, which implies a dividend yield of 5.1%.
• 1Q16: Copper cable surprises positively; OAPIL weaker OC reported 1Q16 consolidated earnings of OMR4.7mn (-2% Y-o-Y, -15% Q-o-Q, 17% above our estimate) on revenue of OMR61.5mn (-16% Y-o-Y, -16% Q-o-Q, 4% below our estimate). Copper cables surprised positively with operating profit of OMR4.9mn (20% above estimate) on better-than-expected volume and margin, which was partially offset by weaker OAPIL operating earnings of OMR0.7mn (we expected OMR1.2mn) as product demand softened in international markets and margins retreated to 7.6% from 11.8% in 2015.

Sameer Kattiparambil