• Adjusted fair values, RCC is our top pick We cut our fair value (FV) for Raysut Cement Company (RCC) by 10% to OMR1.166 as we reduce our earnings estimate and increase our risk free rate (RFR) estimate by 50bps. We increase our FV for Oman Cement Company by 6% to OMR0.490 despite upping RFR, as we increase earnings estimate on improved productivity. We maintain our Buy rating for RCC as it trades at an attractive 2016e P/E of 9.4x versus regional peers average of 11.7x, despite boasting stronger ROE of 12.9%. We also maintain our Neutral rating for OCC, despite the FV upgrade, as the stock trades close to the regional peer average and our FV.
• Limited volume growth and stable cement price outlook We expect cement volume will see medium-term growth but at a low level. The prevailing low oil price environment has put significant pressure on government finances. Nevertheless, we believe the planned infrastructure activities which are in the implementation phase will continue, but at a slower pace. Moreover, personal housing project activities are expected to continue in the short term due to demographic reasons. We expect cement prices to remain stable in Oman at OMR25.0/tonne over the medium term as the cost addition from gas price hike, tax rate rise and maximum truck load factor limits any downward price negotiation, in our view. We believe the impact from any significant increase in imports from neighbouring countries would be limited.
• RCC trades at a discount to peers; maintain Buy We expect RCC’s 2016 earnings to decline marginally to OMR20.5 million (- 2%) on lower capacity utilisation as home and export markets face significant pressure from prevailing weak oil prices and political disputes. However, we maintain our Buy rating as RCC trades at a discounted 2016e P/E of 9.4x and our FV offers 21% potential upside. We expect RCC’s dividend pay-out to increase to 65% in 2016 (versus 48% in 2015), implying a dividend yield of 6.7%.
• OCC’s earnings growth priced in; stay Neutral We expect OCC’s 2016 sales volume to improve by 6% as the company returns to normal operations post production disruption in 2015 due to technical issues at Kiln-3 (which resulted in importing costly clinker). We forecast 2016 net profit of OMR13.3 million (+14%) on revenue of OMR55.3 million and an EBITDA margin of 36.7% (+40bps). We assume OCC will maintain a dividend pay-out of 75% over the medium term, which implies a 6.7% dividend yield for 2016. OCC currently trades above its local peers; hence, we maintain our Neutral rating.

Sameer Kattiparambil
Wafaa Baddour, CFA