Muscat Gases Company SAOG (MGMC) Earnings Call Transcript & Summary

So now we'll start our presentation. It will be quick and fast. So you can -- if you have any questions, you can ask. So welcome to the MSX discussion 25 May 2025, which is the first MSX discussion for this year. We'll go to the next slide, please. So as you know, Muscat Gas made OMR 12,000 profit in Q1 2025. That was mainly due to the increase in the export business. Also, Muscat Power Pioneer, our subsidiary, did a profit with OMR 6,000. The plan, it was higher than that, but due to the delay of delivering the projects, they couldn't make more than OMR 6,000 in Q1 2025. Similarly, Muscat Power Solutions, our subsidiary in Saudi Arabia, it's for the first time after 1.5 years, they generated a profit, and they start going into the positive direction with an amount of OMR 3,000. Moreover, our United Marketing Solutions incurred a loss of OMR 6,000, which leads the group to a total profit of OMR 15,000 in Q1 2025. Also, one of the main provision was taken for a supplier, which is Dover. We submit -- we delivered the dispenser installation for our customer, OOMCO, the gas station, the biggest gas station in Oman. So for an amount of OMR 23,000 that was due from the emergency request coming from OOMCO, where 50% was covered by Dover and the other 50% covered by MGC, Muscat Gases Company. Also another provision of OMR 6,000 as per IFRS related to due from customers. Moreover, the sales of new product was new during Q1, and it's expected to generate good profitability for the company going forward. As the new products, we are talking about the #1 vending machine. For vending machine, we already sold 20 vending machines to our ADNOC company, to the big ADNOC company in U.A.E. We delivered 10 units, and there is remaining 10 units will be delivered in quarter 2 2025. So that will reflect in the profit and loss of the company. Also, we have the chance to sign for 3 units of the vending machine for the Emarat gas station in Oman -- in U.A.E. Also, we have now an order for the same vending machine to be dispatched to Egypt. So for vending machine business, we're already on the track. Borna, which is the membrane solution for decarbonization and flare recovery, we have in Q2 or Q3 big projects under the last stage to take the decision for H2S and CO2 capturing and flare recovery. Recently, we signed with IonClear, the membrane company from United States of America, Silicon Valley in California. We signed with them an MOU, and this will be side-by-side with Borna business, the flare capturing solutions as both a membrane solution. And with both of them, we are planning to open a -- start as an assembly factory in Oman and then we'll move to have a full production factory. Also, we signed last week the contract with one of the reputable gas station in Oman to selling through them, the EcoPill, the pills, which is saving the gas in the engines and reducing the carbon coming out of the engines. This is, in general, what we have for the new product, and I will leave the floor to Mr. Sami to go through the numbers. If you have any questions before we move to the numbers, please ask. Okay. So please, Sami, can you move on to the numbers?

So I'll move forward to the numbers for the trading result for the period ended 31st of March 2025. As a group, we have achieved the highest sales in the history of the company of OMR 6.7 million in Q1. And we are on track as per the positive trend of sales, so almost total of the sales were OMR 6,170,000. And the gross profit came at OMR 331,000, 13% of the sales, and we have other revenue of OMR 8,136. Operating cost OMR 567,000. Operating profit OMR 273,000 and operating profit percent is 4%. Our admin costs came at OMR 268,000; and the net profit before tax OMR 14,000. Net profit after tax OMR 12,000. For Al Aman, the sales came at OMR 153,000. There is almost no profitability for the company. And the total profit after tax is OMR 622,000. For MPP, the sales came at OMR 130,000. The gross profit OMR 88,000, and gross profit percent is 68%. Operating cost OMR 68,000. Operating profit OMR 20,000, 15% of the revenue. Admin costs OMR 13,000. Net profit before tax OMR 6,180, and net profit after tax OMR 5,763. For MPS, our company in Saudi Arabia, for the first time, it is coming in profits since its inception as fresh start-up. And total revenue came OMR 255,000, gross profit OMR 105,000, 41% of the total sales. Operating cost OMR 35,000. Operating profit, OMR 70,000, 28% of total sales. And total admin cost OMR 67,000. Net profit before tax was OMR 3,600, and after tax OMR 6,081. For UMS, the total sales is around OMR 20,000 with gross profit OMR 7,400, 38%; operating cost, OMR 8,800. Operating loss, OMR 1,400, minus 7% from revenue. And admin cost OMR 1,800. Net loss before tax, OMR 6,213. As for the group, the total sales OMR 6,700,000. OMR 1 million gross profit, 15% of the sales. Operating cost OMR 679,000. Operating profit, OMR 363,000, 5% of the total sales. And admin costs OMR 343,000. Net profit before tax OMR 19,000. And net profit after tax OMR 15,784. So these are the results for Q1. As mentioned, this is only from the LPG business. There was no transaction related to non-LPG business, which has the highest profitability usually, and we're expecting this to happen in Q2 also.

So if there is any question, please feel free. So we can answer your questions before the end of the session.

Yes. Yes, George. Yes, Mr. George. Go ahead.

Thank you for the record revenue. Congratulations. Thank you for the presentation, and congratulations on the record revenue. See, I have 1 question on the slide that you're showing here. Your slide is showing a gross profit of OMR 1 million, but at the same time, the financial statements that you have published shows gross profit at OMR 350,000. So could you please tell us what's the reason for this difference?

Sure. So for the slide that are mentioned under MSX, usually the operating cost is being entered in terms of the cost of goods sold, and the gross profit is coming after the operating profit. Here, we are detailing it more to show only from the gross profit and then the operating cost separately and the result after operating cost.

Okay. But before the gross profit itself, there's a difference in the revenue as well. OMR 6.7 million, OMR 6.8 million, you're showing and the revenue was showing only OMR 6.5 million.

Mr. George, as you know, in terms of consolidation, there is intercompany transaction. For the intercompany transaction, they are removed usually under MSX. Here, we are showing it company by company. So we can give you a detailed overview for each company.

Okay. So this presentation, do you mean that this presentation doesn't include the intercompany transactions?

This presentation includes all the intercompany transaction. On MSX, it does not include the intercompany transactions.

It's eliminated.

They are eliminated.

Yes. Okay. And could you please tell us what were the reasons for achieving this record-breaking revenue? And how do you see the company's performance going forward?

Yes. So we had a lot of hiccups with the export sales during the last 2 years. Based on the efforts the team did it at the end of 2024, we get succeeded to win a tender in Emirates for one of the reputable gas company, and we are now the sole supplier for them with gas. So that's why we have a very secured and effective sales for export gas and the amount it jump up highly due to the international sales price of the LPG.

Okay. But Imad, when you talk about the export sales, compared to last year, your margins, your gross profit margin, as you reported in MSX, is lower, and it's lower than the historical average. So does it mean that this export sales and the new business that you are generating is not margin accretive for the company as a whole?

I will explain it to you. Usually, the margin for the export sales, it goes from the premium. And from the premium, the margin is so small comparing to the total international price. So when I'm delivering, for example, 7 loads a day, and I have 6 trucks working, the cost and -- the fixed cost for that was one is not the same if I'm delivering and selling 11 loads a day or if I'm selling 13 loads a day. So when you are selling more with the same fixed expenses you have, this is where you are enhancing the profit as you know. And I know you know that very well. So this is what we depend on for 2025. We increased our sales in a systematic way and to have it sustainable during the last 5 months, which give us this opportunity. Before it was not sustained. It was like 2 loads a day, 3 loads a day, 5 loads a day, sometimes 11, sometime 3. So it was up and -- ups and downs and now we have a very secure level of business.

But if your margin is getting reduced from the premium that you're generating from the domestic sales, for the export sales, why are you doing it? It's just for the sake of doing it because there is no incremental margin from this, right?

Yes, sometimes you have a strategical decisions because when you are dealing with an export sales, the size of the company, it shows how much it's powerful. Also because you are working on an opportunity to reduce your cost, so you can maximize your profit, and this is what's happened this year. And we believe by the next quarter and the third quarter, you will recognize the profit, how it's much better and you would recognize the enhancing of the profit within the sales of it.

So what are the factors that will contribute to the profitability growth in next quarters?

Source of gas, number of sold quantity on a daily basis; at the same time, enhancing the expenses of our operation for the export.

Okay. Okay. Could you just tell me about the latest developments that's happening in the LPG bottling market regarding the cylinder branding? And how much of cylinders do you own? And a general overview of the market and how is it panning out right now?

Nothing new. We received the list for the new law of the gas cylinders and the gas list in June last year, and they give us like 6 months to start applying. Every company must have their own logo and their own color for branding their cylinders. And we set with the ministry many meetings. We tried with them to reach to a level of understanding to see how we can start applying the list. We sent many letters to them, but unfortunately, we didn't receive the answers yet. And we are ready to apply that. As a Muscat gas, we have reserved our color, our logo, our brand. And when this will happen, it will make the liability very clear on each company selling the cylinders. So before the cylinder, it was with no name and with one single color for everyone. So if there is for an explosion or something, no one can recognize this cylinder came from whom and who is responsible and who did the maintenance or not. But by the new rule, that will give a higher liability on the companies, and that will make everything will be so clear based on the branding of each cylinder.

Could you please tell us how this will impact your financials? How many cylinders do you own right now?

This information, it's -- if you allow me, I prefer to keep it inside for the sales team because even the competitors, they can check the numbers and they can see the session, so this is not right. We can't disclose this kind of information. But I can tell you that Muscat Gas having the majority of the gas cylinder business. At the same time, if we have the branding in the right way and we can apply our logo and our color, that means we are not in needs to make a lot of maintenance for the cylinders. Today, we are spending a huge amount on doing the maintenance for the cylinders coming from the wholesalers. At the same time, we don't know if the cylinders comes to us or they are just collecting it from the market and send it to us so we can enhance it. And because Muscat Gas are very committed to the rules, are very committed to the rule, are very committed to the safety, any kind of cylinders we receive, we do the enhancements, we do the maintenance, and we send it back in a very safe shape and situation to the market. Once we have the branding, we have our logo, we have our color, we will be eligible just to work with our cylinders and the remaining companies and competitors, they will work on their cylinders, which will give more liability on each company and will give us the time to save a lot of money we are spending it on expenses to fix the others -- cylinder for the other competitors.

I appreciate that. Could you please -- I appreciate that you cannot give you a number, but will it be possible for you to give me some color on what the number of total number of cylinders that is circulating within the market?

Like you mean the total market size?

Yes.

In general, there is no company did this analysis. There is no company calculated how much the size of the market. So I don't want to give any wrong information or wrong direction because it's not accurate at all. So I prefer that you allow me not to dispatch any wrong numbers.

Okay. Okay. So when you say that you are waiting for the government's decision, but right now, the government has given you the direction to brand these cylinders, right?

The direction is there, but they give you the list, but they need to tell us how the process will be? What's the closing good of the process? How is the steps it's going to be? Which kind of format we need to work on to prove because we are not -- we don't have any right, anymore based on the new list to sell the cylinders. We give the cylinder as, what you call, we give the cylinder as loan. So if you are an end user, you come, you take the cylinder, you pay me X amount and you take your receipt. Once you've done with this cylinder, you need to bring it back to us and we pay you back what you pay to us already. So why this way, we don't have any cells for the cylinder anymore. That's why we are waiting from them the clarification of the process, how to apply the list in the right way.

Okay. Okay. And when you say that you are ready with your branding plans and everything, could you please give me an idea of what the per unit cost that is likely to be incurred for rebranding of these existing cylinders?

There is variances numbers here. If they allowed us to do it in-house, it will be a cost. If they didn't allow us to do it in-house, they want to do it with a third party, the price will go up to sometimes OMR 6, OMR 7, probably to reach OMR 10 based on the process, based on the company will do it for you as a third party. We prefer and we ask them to have our rights to do this in-house because by this way, I -- we have a liability -- I have a liability on my product, so I don't want a third party to do any maintenance or do anything. I need this to have it through my team, through my company, so I can be sure I'm doing the right for the safety of the cylinders. So that's why we are waiting to see what's the final decision and then we can define the prices.

Okay. So when you say maybe OMR 10 if it is outside parties. So in-house, how much of cost savings that you are envisaging probably?

Definitely, it will be more than 50% less if I'm doing it inside.

Okay. And this cost is expected to be borne by the company, right?

Sorry?

This cost, the company is expected to incur this cost, this onetime initial cost, right?

Yes. Definitely, definitely.

Okay. And is there any discussions with the authorities on increasing the bottling charges, borrowing fees?

This is something related to the government. We have no clue about it, and we have no information about it. Zero.

So Mr. Imad, the reason why I'm asking this is you are asked to bear the cost of this cylinder rebranding. At the same time, you're asked to work with a similar margin, which, right now itself, is very much pressurizing on your profitability. So I just wanted to figure out how much of cost will you be able to incur? And will you be able to absorb for branding of these cylinders? So if you can throw some color on that, that would be much appreciated.

As you know, the price for gas and online, it was subsidized by the government since long time. And they didn't increase any prices regarding the company. So there is no positive income coming out of the cylinders out today. And when we are looking at the branding, we look at it from a positive prospect for 2 reasons. The first reason, safety reason, which increased the safety level. Second, when we have our own brand, that mean we are giving our own services fully to our brand, not for everything in the market. By this way, I would have the chance not to give a lot of discount compared to the other competitors because now I'm serving my cylinders directly. I'm saving a lot of the maintenance money. So therefore, we will be first from a safety perspective. It will support the country. So we are with it 100%. Second, it will enhance the profitability in a way or another by eliminating part of the competition with other competitors by giving better services, more secured cylinders, and we will be serving it in a different.

Okay. So this is about the cylinders. So -- and when it comes to the bulk supply, do you see any shift, any major shift from the cylinders to bulk supply because especially...

A lot of companies, our competitors, they are trying to move from cylinders to the tanks at the billers or at the building, which is, I believe, needs to be more focused on the civil defense and from the Ministry of Commerce and the industry because this is very important business. But at the same time, it must be under a high restriction from a safety perspective. I believe in a way or another, that will be happened sooner or later. Part of the cylinders will be moved to the tanks business. But I cannot judge how much time we need to be in an official business like that or not.

So are you into bulk business?

Yes, yes, we are in bulk business, but we are mainly focusing today on the cylinder, gas cylinder. We are focusing on the non-gas product, which is related to the power, where we believe the margin can be much higher than the gas business.

Okay. And where do you see the other revenue growth opportunities that are coming from? You mentioned power, could you please elaborate on this?

See, today -- we're today working with the gas generator system, so we are generating electricity by using the gas. And we have our own relation -- business relation with FMT, the European group. We're also dealing with Borna, the Canadian who are responsible about flare recovery and carbon capturing. At the same time, we are now working with the [ airline ], the water membrane system for water power. So this is where we believe -- and there is also EcoPill and there is the vending machine. So there is many items. We are working with them to enhance the sales and to enhance the profitability; at the same time, we are trying to convince those big companies to come and produce in Oman to support the Omani economy and to support the Omani carriers so we can enhance the positions for the Omani people and bring more businesses from outside to inside. That's why we get an agreement with Borna to have their factory, with [ Icon ] to have their factory, also with Pegoraro, the Italian, who is manufacturing the vaporizers, the gas vaporizers, and they are also preparing everything to open the factory in Oman. So this is what we are looking for right now.

So how much of revenue contribution do you expect from these non-cylinder or non-domestic gas operations?

Let's wait the second quarter and then third quarter and see how much contracts we'll sign. And after we're signing the contract, we will announce it, and you will see the differences.

Okay. So these partnerships with the foreign players, does it involve any investment requirement from Muscat Gas? Or how -- or are they just the trading partnership agreements?

We are building our relations with them in a way. We don't put any load on Muscat Gas for financials, and we are letting them invest, and we are partnering with them from the sales, marketing and business perspective.

Okay. And as I understand from your presentations, your MPP, MPS and UMS are the businesses that you are right now focusing on. And they are generating revenue -- quarterly revenue of, let's say, maybe around OMR 400,000. So are you looking at a multiplier impact on this or just some secular opportunities?

MPP and then MPS, they are our engineering arms. They are the company who is doing all the engineering parts. They are doing the designing, installation, testing, commissioning, turnkey projects, mega projects for all kinds of power businesses. And yes, sooner, and I believe before the end of this year, you will see the numbers. It's going bigger, Insha'Allah, and it will show how much those subsidiaries will act in the market.

Okay. And what kind of margins should we expect from these businesses, the typical margin?

What type of...

What's the typical margin that we should be expecting in these kind of businesses?

Our target to start between 12% to 15%.

Net profit margin?

Yes.

Okay. And you're looking at bigger revenue. Could you please quantify will it be multiple times or maybe 20%, 30%? What kind of growth are you looking at?

For this year, we are looking for at least 30%. Okay. Any other questions? Thank you, everyone. There is no more questions, so we can end our session. Appreciate your attendance with us. And hopefully, we'll meet together after quarter 2. Have a great day, everyone, and bye-bye.