COVID-19 travel restrictions in Saudi Arabia result in higher domestic activity

RIYADH: Saudi Arabia’s travel restrictions during the coronavirus (COVID-19) pandemic have resulted in higher local market activity and more money spent domestically, according to the latest quarterly equities forecast issued by Riyadh-based financial services company Al Rajhi Capital.

“We expect the overall outlook for Q4 2020 to be positive given the improvement in economic activities,” the report said.

For the petrochemical sector, aggregate earnings are likely to improve, both on an annual and quarterly basis, “on the back of sharp improvement in product prices and better product demand,” it said.

In addition, tight supply conditions, mainly due to several planned plant shutdowns, coupled with rising container prices and increased upstream costs, kept the product prices (mostly polymer) at elevated levels during the quarter, ensuring a sharp recovery in profitability of the sector.

Al-Rajhi Capital said it expects all the petchem companies under its review to report strong growth in earnings, except for SABIC Agri-Nutrients, which could witness pressure on its earnings due to a 32-day shutdown at one of its plants.

For the healthcare sector, profitability among hospitals will be helped by growth in inpatient revenue and the steady improvement in outpatient flow, post-COVID-19.

For the banking sector, retail-focused lenders are likely to continue seeing healthy mortgage volumes.

In the cement sector, volumes are expected to continue to remain robust in the quarter, though both revenue and profitability growths are predicted to be under pressure.

Within the lucrative retail and consumer sectors, the report has forecast a mixed bag of results among Saudi retailers, with higher value-added tax (VAT) likely to have an impact, as is the loss of revenue due to the delay in schools reopening. Saudi Arabia tripled the VAT rate to 15 percent effective from July 1, 2020.

Jarir and Al-Othaim is expected to be affected the most; BinDawood may be less affected as Danube, which caters to the high-end segment, is better protected from any adverse impact of incremental VAT, the report said.

For the telecom sector Q4 is predicted to report a moderate top-line growth, but the volume of local travel and business activity is expected to boost demand for voice and data services.