Jan 07 2013
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Great earnings expectations
While regional corporates are expected to post strong earnings, major real estate related companies such as Emaar, Taiba, Galfar, Arabtec and DSI are expected to report a year-on-year profit decline in the fourth quarter, according to SICO.
Regional markets are up in anticipation of strong fourth quarter results for listed companies.
The fourth quarter capped a strong year for most Gulf economies which benefited from strong crude prices and expansive spending policies of regional governments.
And the growth was across the board. Most regional banks, real estate, construction and consumer companies enjoyed relatively strong growth compared to previous years, instilling investors with the confidence that the region's corporate bottomlines are going to show strong growth.
However, Manama-based SICO expects real estate and construction companies to lag behind other corporates.
"Strong profit growth is expected across sectors in 4Q12, with the exception of real estate and construction, mainly driven by lower provisioning and one-off losses - with revenue growth forecast at 2% YoY," said SICO in a fourth-quarter preview report.
"Majority of real estate and construction companies including Emaar, DAAR, Taiba, Akaria, Galfar, Arabtec and DSI are expected to report a YoY profit decline in 4Q12. However, quarter-on-quarter growth is expected among RE companies led by healthy performance of hospitality operations,' said the investment bank.
Saudi corporates, always the first among regional companies to announce results, are expected to collectively post a 10% rise in net income compared to the same period last year, according to NCB Capital.
However, on a quarter-on-quarter basis, total net income for the covered stocks is expected to be down 10.9%.
"Assuming our stocks under coverage amount to 90% of the TASI net income, this indicates an estimated total of SR23.5bn net income for the Saudi market for 4Q12," said NCB. "This is up 9.2% YoY but down 12.4% QoQ."
Analysts disagree on the performance of Saudi banks. NCB Capital expects a 12.8% YoY increase expected in the banking sector's earnings to an estimated SR6.7bn, due to strong growth in lending and lower provisioning.
However, SICO notes that higher provisioning would see more subdued profits. "We expect Saudi banks to book higher precautionary provisioning in 4Q12, which would partially offset healthy pre-provisioning profits," said SICO. "We expect SAMBA, SABB and ANB to report stronger YoY profits driven by balance sheet growth."
Bank Audi analysts tend to side with SICO's more provisioning forecast, expecting loan growth momentum to continue in Q4-12, while net interest margins are likely to remain relatively stable, with a modest uptick in provisioning costs.
Among major Saudi banks, SICO expects Al Rajhi's margins to come under pressure, despite strong lending growth, as net profit is estimated to fall 4% year-on-year.
However, Samba is forecast to post a 16% growth in net profits on the back of rising net interest income, while SAAB will post 13% net profit growth year-on-year as lending rise.
NCB Capital expects much higher net income for Al Rajhi Bank (+5.8%), Samba (up 11.1%) and SABB (20.3%).
Meanwhile, NCB expects SABIC, the region's largest listed company, to report net income of SR6.1bn in the fourth quarter, up 16.0% year-on-year and down 3.8% quarter on quarter.
However, petrochemical producers are unlikely to have a stellar quarter as feedstock prices soared.
"The soft pick-up in petchem selling prices (average increase of around 2% Q-o-Q) was countered by an increase in oil-based feedstock prices (mainly around 6% rise Q-o-Q), contracting margins for petchem producers," says Bank Audi.
While the Kingdom's retail and food sector benefitted from strong consumption from rising Saudi population, it may not translate into bottomlines of major retailers, primarily due to the impact of one one-off events, and seasonal declines.
"We highlight the SR160mn impairment charge Almarai took in 4Q11; this will support reported YoY gains in 4Q12. Conversely for Savola, it recorded one-off gains of SR153mn in 4Q11 which will lead to pressure on the YoY percentage change which is reported in 4Q12."
Combined, Saudi food companies net income is expected to rise 17.5% year-on-year, but fall 14.3% quarter-on-quarter.
"Etisalat's profits are expected to triple YoY; due to a low base in 4Q11 driven by impairment on Indian operations. Zain's earnings are likely to decline YoY impacted by Sudan's currency devaluation, while we expect one-offs to boost Batelco's earnings," said SICO.
Regional corporations appear to have seen the back of the worst of the global financial crisis and their results are showing signs of improvement with each quarter. While doubts still persist on a number of fronts, such as the UAE banking sector's exposure to real estate sector, Bahrain's anaemic growth, Kuwait's dysfunctional government setup, along with regional political tensions, investors appear to believe that the worst is behind them.
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