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| 22 August, 2017

Kuwait corporate earnings up on strong investment gains

Kuwaiti dinar banknote in hand. Kuwaiti dinar is the national currency of Kuwait.

Kuwaiti dinar banknote in hand. Kuwaiti dinar is the national currency of Kuwait.

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Kuwait's financial sector was the main contributor to growth as investment gains, especially earlier in the year, boosted companies’ bottom lines.



KUWAIT: Listed Kuwaiti companies saw a notable rise in profits in the first half of 2017; however, weak revenue growth continued to indicate softness in business activity. The financial sector was the main contributor to growth as investment gains, especially earlier in the year, boosted companies’ bottom lines.

Meanwhile, results in other sectors, including consumer companies, reflected a more lackluster operating environment. Profit announcements seemed to have a positive impact on market sentiment, with the general index up 6.4 percent during the reporting period. Earnings of listed corporates were up 16 percent y/y during the first half of the year. The aggregate profits of 150 reporting companies, out of 158 Kuwaiti companies listed on Boursa Kuwait, rose to KD 883 million.

There was also a significant drop in aggregate losses, declining by 50 percent y/y to KD 25 million; the number of loss-making companies fell from 38 in 1H16 to 34. The financial services sector benefited from the stock market rally earlier in the year. Boursa Kuwait has since given up some of these gains but the value-weighted index was still up 5 percent in 1H17.

Non-bank financial service companies with large exposures to the local market made strong gains on their investment portfolios. Total profits for this sector tripled compared to 1H16 to KD 93 million. The strong results of the sector were broad-based. The number of loss-making companies dropped notably compared to 1H16 with 70 percent of reporting companies seeing an improvement in earnings. Banks were the second largest contributor to profit growth in 1H17.

Profits for the sector rose a good 8.4 percent to KD 375 million. Most banks contributed to the growth, with only two banks seeing declines in earnings. While growth came primarily from investment gains, net interest income also supported the sector’s profitability. Industrial companies were another main contributor to profit growth.

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The sector’s profits were up 18 percent in 1H17. Gains from the sector were also broad-based with 65 percent of the companies seeing positive growth in earnings. Results were mostly mixed across the remaining sectors, with weakness stemming from the consumer sector.

Profits for the consumer sector were down 15 percent y/y, with more than half of the companies seeing declines in earnings. The weakness seen in the sector’s profitability serves as further confirmation of a moderating trend in the sector, something seen in other data such as consumer spending, imports of consumer goods, confidence indicators and household debt. The strength of investment income masked continued weakness in revenues.

A sample of 73 non-bank listed companies saw an increase of just 1 percent y/y in total revenues. Subdued revenue growth is a reflection of a challenging business environment still faced by some sectors represented in the bourse. Profit announcements seemed to have a positive impact on equity prices. The value-weighted index advanced 6.4 percent during the reporting period. NBK ECONOMIC REPORT

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