Al Omaniya Financial Services SAOG (AOFS) Earnings Call Transcript & Summary

Good morning, gentlemen. [indiscernible]

Yes, we can see your stuff. Good afternoon.

Good afternoon. And a warm welcome to all those who have joined in, those who are watching, analysts, all our representatives of shareholders who have joined. A warm welcome to all of you. And here we are again with our team. Our team is very well known. No changes have taken place in the last 12 months or in the last 15 years probably. We begin with the brief introduction to the company. For those who are not too familiar, we're licensed by the Central Bank of Oman. We commenced business in 1997 after we acquired the hire purchase and leasing auto finance business from Bank Muscat then. Our initial capital was OMR 3 million, 68% was contributed by the founder members and the balance was offered through IPO. Issue was subscribed 43x. And now we have a net worth of about OMR 70 million. It's been a long and faithful, an interesting and productive journey. I'll take you through our now -- to the members of our Board of Directors. We have Sheikh Khalid Said Al Wahaibi as our Chairman, he is the longest standing Chairman, he is also -- he represents Assarain Group, he is an independent director and the group also has a shareholding. We have a very respected banker and very experienced, Sheikh Khalid Ahmed Al Mashani, who is also the Chairman of Bank Muscat and he has been also on the board for more than 2 decades, bringing invaluable experience in the industry. Then we have Sheikh Zaki Hassan Ehsan Al Naseeb, who's also the Chairman of the Executive Committee and a respected banker. He is also on the board of several other public companies. This year, we have Mr. Nabil Hamed Zahran Al Mahrouqi, representing the social protection fund. Mr. Nabil is also on the Board of the other banks and other institutions. He brings immense amount of experience and knowledge to the Board. We have Mr. Ibrahim Said Salim. He is part of the -- he heads his family business [Assarain] Enterprises and has been on the board for more than 2 decades. Sheikh Tariq Salim Mustahil Al Mashani, also on the board for more than 2 decades. He heads his family business. He's also on the Board of Bank Dhofar. We have Mr. Shikar Bipin Dharamsey, who has been again on the board for more than 2 decades. We have Mr. Imad Salem Nasser Al Salmi. This is his second tenure. And we have this year, who have joined -- the young very well qualified Sheikh Awadh Salim Mustahil Al Maashani, who brings again his passion and energy and new thinking to the Board. Now in terms of our shareholders, as you see, the large institutional shareholders amount to 67%. We have disclosed the breakup in our report in the December 2024 [indiscernible] report. Other shareholders, amount to about 33%. We have a strong management base, and we are very proud that what we see on the table here is experience of more than probably 90 to 100 years. All of this management team has been from the very earliest period. And as you all know, I'm Aftab Patel. I have been the CEO of this company since inception, and I have a very, very able team, Mr. Salim Al Wahaibi, who's on -- joined online, who's our Deputy CEO. And then you have -- we can focus the camera a little bit. We have the Latha Ramakrishnan who is our General Manager of Risk who has been with the company again for more than 2 decades. We have Samia Al Hassani, a very passionate manager who heads the Human Resources Department of the company. And then Mr. Chandrasekar our Chief Manager Finance, CFO of the treasury; Mr. Ram, the head of the Retail; Mr. Viju, well-known person in the industry circle, Head of the Corporate; and we also have Mr. Manish, who heads the IT department and Mr. Chandrasekar, who is the secretary to the Board. Gentlemen, this is our short introduction of the management team. I will now take you to very briefly, so that we have a lot of time for the question and answer session. Our product segmentation, basically, we have a corporate, what we call as corporate credit. And it has working capital loans, asset management -- sorry, asset loans, bill discounting, debt factoring, project finance, bridge loans, construction loans to warehouses and factories. Basically, on the large corporate, we deal with the prime and prime plus, basically, which is large family businesses and listed companies. We also have a substantial amount of a number of customers who are large to medium SMEs. We support the SMEs in a very big, large manner. We have helped SMEs grow, both through supporting their financial needs as well as advising them on the business plan, cash flows, et cetera. On the retail side, gentleman, we do basically the car loans, equipment, both including some taxes, et cetera. This product is basically directed towards the salaried individuals, self-employee individuals and much smaller, small and medium enterprises. We also have consumer loans, which are basically we brand them as lifestyle. These loans are for acquiring the consumer durable goods or the black and white goods. And this is a very popular product. Now coming back to why Al Omaniya? The next slide, please. Why Al Omaniya? Now from the perspective of our stakeholders, we're grateful that our stakeholders especially the shareholders have stayed with us. A majority of our shareholders have been those who have been with the inception of the company. And the reason for that is as we see we continue to perform consistently and significantly in line or above the market. Yes, we are not -- we believe in sustainability, we believe in consistency and delivering results year after year and not one big growth and then a sudden fall. We have been fortunate because thanks to the -- we have the meeting of minds with the management as well as our Board and shareholders. And therefore, we are all together in it. We ensure that we lend only to prime and prime plus customers or we do also a much better credit assessment so that we keep our nonperforming loans lower. We have very highest asset quality. We have the highest provision cover. We have the highest amount of liquidity. We have paid the highest amount of cumulative dividend among all our peers. And we continue to perform -- paying highest -- or the second highest dividend in the banking and the nonbanking space. This is the history of the dividend paid since inception that is -- our first financial year of 1998, starting with 1998 to 2024 December, we have made a total dividend of 505.8% or say 506%. We are really humbled and at the same time, very proud of this achievement and we would like to assure our stakeholders that the company will continue on this well-established policies, procedures and the vision that the Board has set for us, and we'll continue to work on that regime. And I'm so glad to report to you that even in a difficult COVID year, Al Omaniya paid a cash dividend to our shareholders. Here on the fiscal policy and the fiscal -- we have presentation, which is quite clear here. And we don't want to -- I mean, this is -- these figures are in the public domain. You've seen that there was a marginal fall in the revenue compared to first quarter of '24 and '25. As a result of which, after a gap of 3 or 4 years, we had a marginal deficit of OMR 136 million. Having said that, I think we expect the year to end for the better. And hopefully, there will be some marginal surplus budget at the end of the year. So we have this year a little bit details for your gentlemen. And if any interested, we'll circulate this. We have seen that the uncertainties -- a bit of uncertainty, geopolitical situation continues to be challenging. We saw just a couple of months. I mean, the region was going through a difficult phase with the discrepancies around the closure of the air space for a few days here and there. And therefore, I think this is much better stabilized now. But the uncertainties on the exports to United States continues with tariff being here. And fortunately, Oman is not going to be impacted in any significant way by the -- those trade barriers that have been set up. But that could be an indirect impact because if it affects the GDP of other countries surrounding us, it could impact the tourism, it could -- for Oman and indirectly, it could also impact prices, et cetera. But I think the direct impact on Oman, fortunately with the freight trade agreement in place looks to be [indiscernible]. So we are confident about the economy. We are also confident that the GDP growth will be there. There will be a rebound in the oil production. And we don't see any significant volatility in the fossil fuels arena for the remaining part of the year. We'll take you briefly to the performance of Al Omaniya of 2020 to 2024. Now as you've seen here, 2020 was the COVID year. So we did see a very sharp decline in the profit because obviously, we created a much higher provision. There was impact on the new businesses, impact on the trade, business closure was very high, but we were still fortunate that we made profit, and we declared a dividend. And our asset size did fall and the economy went through a difficult period from about 2015 to 2016 onwards. We saw the bond yields going up. The prices rising -- the budget deficit was significantly higher and our borrowing cost also went up. But since then, I think we -- the economy has done reasonably well. The fiscal health has been managed extremely well by the government of Oman. The Central Bank of Oman has set in some very, very proactive and policies which help not only growth, but at the same time, keeping the credit quality on the -- as well as keeping the fiscal performance on track. So I think we are very fortunate in that aspect. You see the dividend that we declared of course, 2020 was a COVID year. And from '24, we have gone back to 12% -- 12 quarters, 13% -- and last year was 14%. We have the income statement has already been published in the [MSM] and also in the newspapers. June '24 years, we have seen some decline in the gross income, that was basically because of the lower rates of interest and some large corporate loans that got paid. However, we are happy to report that we showed a marginal growth in the profit after tax. And the net profit was about 2% higher than the previous quarter -- the previous H1 of the 2024. On the balance sheet side, gentleman, we are maintaining our deposit base and -- of about OMR 85 million [indiscernible] continue to hold the deposits. These deposits we have been able to leverage assets very well. Obviously, they are great asset, and they also produce certain revenue. So we are there. Our assets have grown to about OMR 120 million. The gross assets are OMR 135 million. And the total balance sheet size will be -- is about OMR 209 million. OMR 209 million for '24 and OMR 206 million for '25. There's no significant change in the liabilities excepting that the borrowings are lower by about OMR 5 million. And you can see the nonconvertible redeemable bonus bond, which has gone up. As a result, what we had issued as dividend part of the dividend in the years 2025, which was the dividend for 2024. And the interest is being serviced and they will be redeemed as per the terms of the issue on maturities. No significant change in the equity side. We see a -- retained earnings of OMR 16 million and the total equity without any revaluation reserves at OMR 65 million against the capital of OMR 31.5 million giving us almost 2.2 as our book value. This is probably one of the highest book values in the industry. Here -- there are some ratios that we are presenting to you here. Our yield -- gross yield on the asset is 7.56%. That's basically again because of the kind and quality of the business that we source and focus on. NPL as a percentage of assets are 3.55%. Our total NPA is 3.55% and the nonperforming loan coverage -- as a provision as a coverage currently in June '25 stands at 433.89%. Now on this -- so coming back to the prognosis of what we believe. We believe growing in line with the GDP or higher without compromising the quality of the assets. We are focused on maintaining the dividend payout to the shareholders who are the major stakeholders. We are focused on maintaining our liquidity. We are focused on maintaining our provisioning cover, so we are focused on maintaining the quality of the book. Now, obviously, our growth is not as high as of the -- some of our peers in the industry. But then the proof of the pudding is in the eating. We continue to pay the second highest dividend in the sphere. So merely increasing the book, we don't believe that, that is the way to go forward. We'll continue to work with our objectives. As I clearly said, the objectives are making sure that every single stakeholder is -- he gets his due share, he gets his due reward, which is the shareholders in terms of dividend, the shareholders again in terms of quality of book, provisioning levels, the liquidity, so on and so forth. So I think all these are the parameters that will be governed by. We believe that we are well positioned in 2025 to -- now to maintain the consistency in our earnings. And consistency in the dividend payment. So gentlemen, I think we've taken away -- I've kept a lot of time here to question and ask answer session. I would request, gentlemen, anybody who is asking the question, just to announce his name and the organization that he is representing. And please go ahead with asking your question. Thank you very much.

You've mentioned that you deal with Prime and Prime Plus customers only. And could you -- and at the same time, what we are seeing is there's a stagnation on your book. So could you please tell us what's the kind of growth -- asset growth that you're seeing from the segment that you are catering to?

See what we define ourselves as is that -- we -- what our philosophy is that we -- what you call the staying within the box. Now while when I say staying within the box, box defines what is our credit strategy. What is the kind of credit that is acceptable to us? And whatever is available, we will take it because there is no shortage of liquidity with us, whether it is OMR 5 million or OMR 50 million, we'll take it. Now having said that, [indiscernible], as I have said earlier and I've said in my presentation, what do we want to ensure. We want to ensure that the shareholders are adequately rewarded. Now that is one of the prime -- merely grow, and if you are not able to pay out the dividend does not make any sense. Growth for the sake of growth has no meaning, right? Now we do see some growth coming in from the other players, but has that growth translated into rewards for the shareholders, has it translated into better quality, has it translated into higher provisions, higher liquidity? No. For example, even the -- some of the insurance that are an interest that is paid by some of our peers on their borrowings, we are not sometimes even able to lend in that rates. We are aware that we are the only player who participates in what you call the syndication market. We do syndication with all the major banks. We have done in the past with Bank Muscat, Bank Sohar, National Bank of Oman, and we continue to focus on these areas, right? So if we are able to get the growth of between 8% to 10% this year, that's what our projections are and that's what where we want to live with.

I thought the idea that you're trying to convey that rewarding the shareholders. But rewarding the shareholders can come from 2 ways. One, of course, is the dividend. But at the same time, there is a capital appreciation for their investments, which will result in wealth creation, right? But at the same time, when we look at Al Omaniya Financial Services share price performance, we think the stock is down 23% this year. Then the dividend yield is only 10% -- hardly 10%. So there is a wealth distraction that has happened primarily because maybe the market is not appreciating your view [indiscernible] you're looking at...

Okay. I got your point Mr. [indiscernible]. The thing is that market is not necessarily a function -- a direct relationship between the performance of the company and the function. The market functions on so many things. The demand supply perspective, economy, broader economy, availability of liquidity, so on and so forth. And if you look at us as a group, our share price is probably among one of the highest in the peers, right? Now we have one of the highest book value. What do shareholders look at? If you're a -- speculator might look at a short-term gain. We are not in the business of speculation here, and also we are not in the business of managing our share prices. We are in the business of managing this business very well. Managing this business ethically, efficiently and producing a reasonable return for all the stakeholder. And mind you, I'm talking about consistency. It's not about just growth one year and then you have another problem. How many of our peers are able to match what we are doing? So I'm saying merely growth does not equal to increase in the share price. We are seeing companies growing by 30% and 40%. The share price has probably even fallen even then. So [indiscernible], I think there's no -- in my opinion, there is no direct correlation between your growth and share price. I hope you take my point.

Yes. But -- I definitely take your point. But it's not about the speculation and probably this year, it's 23%. But at the same time, if you look at a longer horizon, also 5 years, 10 years -- 10 years, your average wealth is almost 8%, and that's a dividend yield that is created -- that is provided by the company. So the point is on a longer-term horizon or on a midterm or on short term, there is no build creation that has happened.

I agree with that because you trade 5,000 shares and the price can come up and down. You know how skewed the markets are, and there's very little liquidity all going all around, right? So don't go merely by -- like I said, we are not in the business of speculation. We don't look here, sit down here and say, oh, my share price should grow by 25%. That's never there on our drawing board at all, 0, right?

But don't you to see the need for it because -- as a management.

I don't see the need for it. I see the need for very clear, efficient, ethical management, reasonable growth in line with the GDP or higher, maintaining your framework of quality and making sure that the ultimate stakeholder, the shareholders are rewarded properly. At the end of the day, 30% our shareholding is by the pension fund and I think the regular income flow is certainly important for a lot of people. Now last year, for example, we paid 14% dividend. Do you think that dividend was adequate -- how many -- okay, let's look at the other players share. Say the banks, how many banks managed to pay 14% dividend last year, Mr. Matthew? Excepting Bank Muscat, nobody else. So we have -- if you take the banks in Al Omaniya, we are the second highest dividend payer and consistently, it's not just one time. What do you have to say about that?

My point is about the total return that the company is...

Total return in this market, you cannot simply say that I'll buy and share and then I'll make some profit on selling. We are not into the business of speculation here.

Okay. Okay. I mean, I am not going to argue that even though I have a different point of view on that. But just another aspect that I would like to get an idea about is -- about the first question, how do you see the demand for credit from the prime and prime-plus segment that you are catering to?

Demand is quite good. Demand is there. It is a subdued demand. Also, if you see in that segment, the competition is very high, right? And in that segment also demand gets driven by the price. And unless you are very, very competitive, like I said, we are something -- we lend sometimes at a very lower than what our peers in the leasing industry borrow, and that's a public figure. You see at what rate of interest they're borrowing on their bonds, perpetual bonds, et cetera, right? In my presentation, I talked about our yield is about 7.7%. I'm sure some of them pay maybe even higher rate or around that rate for borrowing, right? So the demand is subdued. Demand is there. We have logged in some more new customers. We are focusing now mostly on oil and gas and tourism, these are the 2 growth areas that we have seen. Oil and gas is another growth area that we are seeing. Alternate energy investments, and we are looking at that, right? We are also focusing a little bit on the mining sector now. We believe that the mining sector will soon come off the age, and it looks quite promising. But our bottom line is that we will continue to safeguard the shareholders' money because we are merely custodians.

Okay. Got it. And how do you see the quality of those credits? Because this quarter, I'm seeing a little uptick in your NPL ratios. So is it one of the reason that your growth also has been installed? Are you very much afraid about resurgence of delinquency in the system?

No, I don't really see that because many times what happens is that, there's some restructuring has to be done. Reporting has to be done based on the regulations -- based on the regulations. And so those accounts that have been performing well. But if they have been restructured because they have been as a syndicate of lenders that have been sold to a new company, though it is performing well. It appears as restructured. So I -- we don't have any concern on that. Currently, as I said, we have 433% provision cover. So that's something that would not really bother me at all because we are constantly focused on that. Do you have any other questions, Mr. Matthew?

No, I'm done with this.

Well, if there are no other questions, I think maybe we need to just remind the people we still have a little bit of time if somebody wants to ask a question. Yes, somebody raised the hand. [Mr. Mohammed]?

Yes. Can you guys hear me?

Yes, go ahead.

My first question is, can we perhaps get some more insight on your provision coverage ratio? And the fact that it's substantially higher than your peers?

Currently, as of June 2025, our provision cover is 434%, right? Now it's 434% because what our provisions are made under IFRS [indiscernible] those provisions continue to remain in the books, only the new provisions don't get created. Since our NPLs are, as of now, it is only about OMR 4 million as of June, they were OMR 4.7 million. Now the provision cover is high because our NPL is OMR 4 million, you have our peers, their NPL is OMR 85 million, OMR 63 million, OMR 43 million, OMR 18 million and so on. So because of the historical low bad loans that we have, we don't -- and the original provisions that were there to continue. So there's no need to make substantially make new provisions. I hope that throws some light on it.

Yes. And then my second question is, provided the consolidation that is happening in the banking sector, do you guys expect a similar trend in the leasing sector as well?

You see I think there is a lot of rationale for mergers and acquisitions because they bring what you call more efficiency, they bring what you call the size -- advantage of size, cost rationalization and so on and so forth. If there is any such thing, I'm sure our board is quite positioned in to have a look at and consider and take a view. And if any such thing comes to we'll also disclose it to market. But I can certainly feel that, yes, there is a way forward on the mergers. There is no question. Okay, gentlemen, I see here Mr. Pankaj, do you have any questions, Mr. Pankaj [indiscernible]?

No.

Okay. And we also have somebody here as [indiscernible]. So gentlemen, if you don't have any further questions, anybody coming up with any questions or with your kind permission, we would like to close this session.

Thank you for your presentation. So there is some chat is there. [Foreign Language].Thank you for this presentation. This is [indiscernible] Capital. My question -- there's one question. The net profit of H1 2025 increased marginally to OMR 1.689 million from OMR 1.653 million. What are the primary factors contributing to this modest growth?

So basically, I think the modest growth has come from 2 factors. Number one, there's been a marginal growth in the assets as well as I think our provisioning level has been lower because provisioning level depends upon the quality of the books and its performance. So the first H1 provisioning level assets have -- by about OMR 2 million. Expenses are -- it's a -- expenses are a little lower. That's why we're able to post a modest growth of 2%.

And sir, there is one more question there. Was the decrease in finance costs from OMR 3.62 to OMR 5.052 due to lower borrowing levels, reduced rates or refinancing?

I think it's a multiple thing. One thing, of course, we have been able to negotiate better and we have seen some softening of the interest rates as well as our borrowings have reduced by about OMR 4 million.

So there is one more question asked by one of the shareholders. Are there plans to extend into -- expand into new asset classes or financing products beyond the current portfolio?

Yes. That really depends upon the permissions that are granted by Central Bank of Oman. We have to operate within the license that is granted by them. We will certainly look at things like housing finance, et cetera, and then we'll explore the possibilities with our regulators Central Bank of Oman. Any other questions on the chat, Manish?

No, sir.

All right, gentlemen. Thank you very much, and we'll now with your kind permission close this session. Thank you.

Thank you, everybody.

Thank you.