We initiate coverage on four Omani utility companies – Phoenix Power (PHPC), Sembcorp Salalah Power & Water (SSPW), Sharqiyah Desalination (SHRQ), and Musandam Power (MSPW). SSPW is an electricity and desalinated water producer, PHPC and MSPW only generate electricity while SHRQ is a pure play water producer. We have used two valuation methodologies (DDM, and relative valuation – Dividend Yield), and applied equal weightage to both methods to arrive at the target price. • Oman’s power & water demand are to grow, but at a slower pace than estimated earlier. Oman’s electricity production grew over 9% YoY in 2021 (2020: -0.8% YoY), with the economy reverting to growth (real GDP: +2.0% YoY in 2021 vs. -2.8% YoY in 2020). As the IMF forecasts real GDP growth to accelerate further (+5.6% YoY in 2022, and +2.7% YoY in 2023), Sultanate’s average annual electricity demand is estimated to rise in the 2-5% range in the different power systems, except Duqm where it is forecasted to grow by over 20% till 2027 driven by the development of industrial projects in SEZAD. Average water demand is expected to increase in the 3% to 8% range, according to OPWP’s estimates. However, a downward revision in these forecasts by OPWP over the last two years implies economic activities are likely to remain well below what was expected before COVID. • Several ongoing strategic initiatives to benefit all stakeholders. Oman is implementing various strategies in the utility sector. Electricity Spot Market and Direct Sales Framework are expected to benefit uncontracted power generators and enhance capacity utilization. Renewable energy (RE) projects will aid in freeing up the gas for use by other industries, supporting economic development. Nort-South Transmission network will result in better resource management. Other initiatives like subsidy rationalization and digital transformation should benefit all the stakeholders of the utility sector, in our opinion. • The current environment is not conducive for conventional power producers. Listed utility companies, particularly conventional power players whose contracts with OPWP have expired recently are finding it difficult to keep afloat. Current Spot Market conditions also do not provide a viable alternative as it is oversupplied. Under such circumstances, among the existing listed utility players, we prefer SHRQ (long WPA remaining, high dividend payout), MSPW (one of the longest PPA terms remaining among existing listed power players, locational advantage, no cash sweep), SSPW (superior financial metrics, high dividend yield, the lowest term remaining among the four but better contract renewal chance, in our view). We are cautiously optimistic about PHPC (relatively long-term PPA remaining, good dividend yield, but operating in the crowded MIS system, where OPWP is focusing more on RE and non-firm contracts for supplementing shortfall in supply).