Earnings of GCC companies fell to five-year low of $91.3bln in 2020

Energy, banks, and real estate dragged net profits lower, says Kamco Invest

  
Stock market. Image used for illustrative purpose.

Stock market. Image used for illustrative purpose.

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Earnings reported by GCC-listed companies fell to a five-year low of $91.3 billion in 2020 compared to $150.5 billion during 2019, KAMCO Invest said in a new report.

The 39.3 percent or $59.2 billion drop came on the back of decline in profits for Aramco (by $38.9 billion or 44.1 percent y-o-y) followed by Banking, Real Estate and Materials sectors. The three sectors accounted for 85 percent of the decline in net profits for the year, when excluding net profits for Aramco.

Excluding Aramco’s numbers, the decline in GCC net profits was relatively lower at 32.6 percent.

Out of the 21 sectors traded, 12 sectors witnessed y-o-y decline in profits whereas gainers only reported marginal growth. At the stock exchanges level, Abu Dhabi reported the smallest decline in profits during the year at 7.4 percent followed by Oman and Qatar with declines of 18.6 percent and 20.5 percent, respectively.

In terms of quarterly performance, net profits during Q4-2020 declined by 21.6 percent y-o-y to $25 billion as compared to $31.9 billion during Q4-19. In terms of sequential performance, profits were down marginally by 1.3 percent as compared to Q3-2020. The y-o-y decline in profits during Q4-2020 came as companies on five out of seven exchanges in the region reported decline in profits whereas Abu Dhabi and Bahrain-listed companies reported 28.5 percent and 9.5 percent increase in profits, respectively.

The energy sector once again reported the biggest decline of $6.2 billion in net profits or 30.8 percent y-o-y, followed by banks and real estate sectors with profits declines of 23.8 percent and 94.9 percent, respectively.

Banking sector woes

The banking sector’s $11.8 billion fall in net profits was led by higher provisions booked by banks as bad loans increased during the year due to the pandemic. Loan loss provisions (LLP) booked during the year reached a record high of $20.3 billion with increase seen across the board in all the six countries.

Within the energy sector, the 44 percent drop in profits for Aramco was led by the historic decline in crude oil prices during H1-2020 in addition to decline in volumes sold as well as weak refining and chemical margins. The trend was similar for the bulk of the companies in the sector with 14 out of 21 companies in the GCC energy sector reporting a decline in net profits during 2020.

In the Real Estate sector, which reported the third biggest decline in profits during 2020, results were mainly affected by the loss in rental income due to the Covid-19 restrictions imposed by the governments across the region during the year. Profits for the sector declined by $3.1 billion to reach $1.9 billion in 2020 as compared to $5.0 billion during 2019 mainly led by $2.1 billion decline in profits for UAE-based real estate companies.

The only sectors that showed noticeable increase in net profits during the year were Utilities and Food, Beverage & Tobacco sectors that remained resilient during the pandemic due to their defensive nature.

(Reporting by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@refinitiv.com

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