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Al Maha Petroleum Products Marketing Co. (MHAS.MSM) Country: Oman Current Market Price (OMR) 18.345 Exchange: Muscat Securities Market YTD Stock Performance (%) 57.7 Outstanding Shares (In million) 6.90 Sector: Oil and Gas/ Distribution and Marketing Market Cap (OMR Million) 126.58 Annualized EPS (1Q Local Ticker: MHAS 1.273 P/E 14.41 2008) (OMR) Reuters Code: MHAS.MSM BVPS (1Q 2008) (OMR) 3.25 P/B 5.64 Investment Opinion: OVERWEIGHT Adj. DPS (OMR) 0.35 Dividend Yield (%) 1.9 Last traded Price: OMR 18.345 (as on July 08, 2008) 52-week High (OMR) 19.200 52-week Low (OMR) 8.174 Fair Value: OMR 22.925 Source: Muscat Securities Market, Zawya.com Products & Services: Ownership and operation of fuel filling stations, distribution of marine and aviation fuel, lubricants, and other petroleum products. Share Price Movement Al Maha vs. MSM Index Al Maha Petroleum Products Marketing Co. (Al Maha) is the second largest oil distribution and marketing company in Oman, with has a market share of 30%. The country’s stimulating macro economic environment together with accelerating industrialization, infrastructure development and tourism activities provides abundant opportunities for Al Maha. In 1Q 2008, the company’s top and bottom- line soared 43.2% and 78.2% to OMR 51.76 million and OMR 2.20 million, respectively. In line with the robust results, on March 30, 2008, the company distributed 40% cash dividend and 15% stock dividend for the year 2007. On the other hand, rising cost of sales along with intensifying competitive heat is a cause for concern. Offsetting Al Maha’s growth opportunities with underlying risks, we raise our 12-month price target to OMR 22.925 from OMR 12.935, while reiterating our OVERWEIGHT recommendation on the stock. Call us on +973 17549485 or email us at [email protected] Background Established in June 1993, Al Maha Petroleum Products Marketing Co. (Al Maha) is the second largest petroleum marketing and distribution firm in the Sultanate of Oman. Prior to its incorporation, Al Maha operated as the marketing division of the Government-owned Oman Refinery Company. However, in Oman’s second largest September 1999, the company’s marketing division was formally separated and established as a petroleum products separate entity - ‘Al Maha Petroleum Products Marketing Company SAOG’, to exclusively distribute marketer. petroleum products to meet the escalating domestic demand for fuel. As on December 31, 2007, the company’s market share stood at 30.4% as compared to 26.2% in 2006. In December 1999, Al Maha officially entered into a partnership deal with Abu Dhabi based ABS Lubricants to manage the newly established company. The Government of Oman continued to hold 65% stake in the company, while ABS Lubricants controlled 35%. In March 2004, the Ministry of Oil & Gas and the Central Bank of Oman (CBO) divested their 65% stake in the company by offering 60% to the public and 5% to ABS Lubricants. With this move, Al Maha was converted into a joint stock company from a limited liability company. Al Maha primarily owns and operates gas stations and retail stores, distributes marine and aviation fuel, lubricants and other petroleum products. The company receives its petroleum supply from Oman Refinery Company. Largely, a domestic company, Al Maha is focused on creating new systems and processes to provide superior quality of customer services. It has an extensive retail network (145 filling stations as at end of December 2007) throughout the country that caters to the fuel needs of even the remotest areas in Oman. In 2002, Al Maha entered into an operational joint venture with Talal Zawawi Enterprises LLC (TZE) to set up 24-hour convenience stores, “Souks”, at most of its filling stations. These convenience stores were the first-of-its-kind in Oman and a masterstroke in Al Maha’s strategy to enhance its net worth. The Souks provide quick meals, soft drinks and other domestic necessities to motorists. In addition to being in the retail business, Al Maha has become a prominent supplier of fuel and lubricants to a number of government bodies, and local and international companies operating in Oman. The Extensive retail network. company’s clientele includes the Ministry of Electricity and Water, Royal Air Force of Oman, the Ministry of Defence, the Royal Oman Police and the Petroleum Development Oman (PDO). Within a short span of eight years, it has also achieved a significant position in the aviation-fuel segment. Further, the company has opened a number of marina fuel stations and launched its own brand of outboard lubricants known as ‘Al Bahaar’ to cater to the needs of the local fishing industry. Sensitive to its corporate social responsibility, Al Maha donated OMR 100,000 to the Gonu Cyclone Relief Fund and participated in rehabilitation work in the aftermath of the cyclone. It also contributed OMR 500 to the Directorate General of Civil Defence. Achievements Number of Full service Stations 145 (as of December 2007) Number of Products 10 and increasing Number of ‘Souks’ Over 70 Number of Convenience Stores Over 60 Number of Staff 120 (as of December 2007) Level of Automation 100% Omanization Level More than 85% For the quarter ended March 2008, Al Maha posted a net profit of OMR 2.20 million compared to OMR Spectacular financial 1.23 million for 1Q 2007, up 78.2%. Consequently, earnings per share (EPS) increased to OMR 0.318 performance. as against OMR 0.205. Board of Directors Al Maha’s board of directors consists of eight members. The Chairman is Mr. Rashed Bin Saif Al Chaired by Mr. Rashed Bin Suwaidi and Mr. Noor Bin Mohamed Bin Abdul Rahman is the Vice Chairman. The rest of the board Saif Al Suwaidi. members are as follows. Name Designation Mr. Ibrahim Bin Salem Abdulla Member Mr. Munir Abdulnabi Makki Member Mr. Rashed Bin Saif Bin Mohamed Al Member Mr. Mardoof Al Saadi Member Mr. Johar Jamal Al Johar Member Mr. Omer Mohamed El Baqir Khalifa Member Major Shareholders and Affiliates Currently, 60% of the Al Maha’s stake is owned by the public, while rest of the 40% is controlled by Abu Dhabi-based ABS Lubricants. Foreign ownership is restricted to 70% of the share capital; Majority share with the however, it is open to both GCC as well as foreign investors. While Al Maha has no subsidiaries, it has public. an agreement with Talal Zawawi Enterprises for managing the “Souks”. The agreement entitles it to receive fixed annual fee payments until 2009 (starting 2007) instead of a share in profits. Shareholding Pattern 40% 60% ABS Lubricants Public The Industry Scenario On the back of higher oil revenues, increasing per capita income, amplifying surpluses in fiscal and balance of payments accounts, modest domestic inflation, increasing public and private sector investments, the Omani economy continued its double digit growth momentum in 2007. For the year, the country registered a 13.1% year-on-year nominal GDP growth to OMR 15.5 billion. Historically, Favourable macro- Oman’s oil distribution and marketing industry has been the mainstay of the country’s economy; it was economic environment. estimated to account for 70% of the Government’s revenues in 2007, as the industry witnessed demand led growth. Divided into retail fuel marketing, aviation fuel marketing and the bulk fuel business, the oil marketing sector is poised on the threshold of spiraling expansion. According to experts, the Omani economy is set to realize a growth rate of about 11.6% in 2008, thanks to surging world oil prices and improvement in non-petroleum exports. In addition, Oman’s total population stood at 3,204,897 in July 2007, and is projected to grow at 3.234% for the current year. The expansion in the economy and the population growth, supported by strong consumer spending, is expected to strengthen the industrial sector substantially. The Omani government has forecast that the budget for the year 2008 would register a deficit of 6.9% as spending is expected to increase by 20% to more than USD 15.06 billion. While total expenses is estimated to reach OMR 5.8 billion, revenue is set to rise to only OMR 5.4 billion, thereby leaving a shortfall of OMR 0.4 billon. On January 06, 2008, the government sanctioned additional allocations to the budget amounting to OMR 2.36 billion. The expansion is aimed at financing several economic and development projects in various sectors, such as roads, harbor, gas, housing, airports, health, city planning, education, and municipality services. However, the projected deficit may well turn into a surplus as the price of oil, which accounts for most of the country’s revenue, is calculated at only USD 45 per barrel at an average daily production of 790,000 barrels. At present, the Omani oil and marketing industry consists of three major domestic players namely - Al Maha Petroleum Products Marketing Company, Shell Oman Marketing, and Oman Oil Marketing Company. Together, in 2007, the three companies accounted for 372 retail pumps in the country, with Three major players in the Al Maha owning the largest network of 145 filling stations. However, in terms of volume in the retail market. segment, Shell Oman enjoys the leadership position. Other than the retail segment, all the three companies actively participate and compete in the commercial and aviation fuel and lubricant sectors. Number of Retail Fuel Stations in Oman Companies 2004 2005 2006 2007 Al Maha Petroleum Marketing Company 113 123 138 145 Shell Oman Marketing Company 125 124 121 124 Oman Oil Marketing Company 81 82 96 103 Total 319 329 355 372 Source: Gulf Baader Capital Markets Over the past few years, all the business segments of the industry, including retail, aviation and lubricants have been experiencing a positive economic climate.

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