GCC corporate earnings plunge 60.7% in Q2

Combined profit of most GCC-listed companies plummeted 60.7 per cent year-on-year in the second quarter 2020 to $15.7 billion as compared to $39.9 billion in the same 2019 period, reflecting the impact of the Covid-19 lockdown, a study by Kamco Invest has revealed.

In terms of quarter-on-quarter performance, earnings of 55 per cent of the listed companies that reported their second-quarter performance declined by 38.8 per cent in the second quarter. "The decline in earnings was broad-based as all of the GCC exchanges reported a year-on-year decline," said Mohamed Ali Omar, analyst at Kamco Invest.

The International Monetary Fund said the economy of the six GCC member countries will shrink by 7.6 per cent in 2020 amid low oil prices and the coronavirus outbreak.

A recent report by S&P Global Ratings said the key focus for GCC corporates would be on preservation rather than growth. A sharp drop in oil prices and a negative impact from Covid-19 measures have been weighing on corporates in the region and worldwide. New investments are expected to take a back seat for most sectors, with the key priorities for businesses being cost optimisation, management of liquidity, and cash-flow preservation, the ratings agency said.

Saudi Arabian companies reported the biggest absolute decline in earnings. Their profits fell by $20.4 billion or 68.3 per cent year-on-year to $9.5 billion the second quarter. Excluding the quarterly net profit of Saudi Aramco that declined by 72.7 per cent, aggregate profits for Saudi Arabia declined by 47.4 per cent year-on-year during the quarter.

Companies in Dubai and Kuwait were next with declines in quarterly earnings of $1.41 billion and $1.37 billion, corresponding to y-o-y percentage declines of 50.6 per cent and 89.5 per cent, respectively. Companies listed in Abu Dhabi reported the smallest y-o-y decline in earnings during the quarter at 12.7 per cent reported at $2.29 billion.

In Dubai, the decline was primarily due to a steep drop in profits for the banking, real estate, transportation and telecom sectors that was partially offset by higher profits primarily for the diversified financial sector, said Omar.

Net profit of Dubai's banking sector declined by 55.6 per cent to $891.9 million, down from $2 billion in Q2-19. Emirates NBD incurred the largest Q2-20 decline among the banks declaring Q2-20 net profits of $546.9 million against $1.29 billion in Q2- 19. The decline in profit was mainly ascribed to adverse effects of the Covid-19 lockdowns, Kamco report said.

"Dubai Islamic Bank posted the second largest Q2-20 net profits among the banks with $274.7 million in Q2-20 against $376.5 million in Q2-19, while Emirates Islamic Bank was the only bank which declared a loss of $39 million in Q2-20," said the report.

Combined net profit of Dubai's real estate sector declined by 36 per cent in the second quarter to $346.1 million, down from $540.5 million in Q2-19. Damac Properties, which dragged down the sector's overall Q2-20 net profit, declared a $76.4 million loss in the quarter against a profit of $13.8 million in Q2-19.

"The company attributed the loss to the difficult conditions of the Covid-19 pandemic which has negatively impacted sales and business activity," Kamco said.

Emaar Properties posted the largest Q2-20 net profit in the real estate sector with $326.1 million compared with $372.7 million during the similar period in 2019.

In line with the rest of the GCC markets, the banking sector in Abu Dhabi reported the biggest drop in net profits with an aggregate sector profit of $1.1 billion as compared to $1.6 billion during Q2-19, a27.6 per cent year-on-year drop of $429 million.

The utilities sector was next with a profit decline of $112.4 million to report a loss of $55.8 million during Q2-2020.

Energy, materials, consumer services, capital goods and pharma were some of the other sectors in Abu Dhabi that reported losses during the quarter.

On the other hand, food & beverage, telecom, diversified financials and insurance sectors reported healthy growth in profits during the quarter. In the banking sector, of the ten banks that declared their Q2-20 net profits only Abu Dhabi Commercial Bank declared a year-on-year increase in Q2-20 earnings.

First Abu Dhabi Bank posted the largest Q2-20 profits among the banks that declined 25 per cent to reach $656.6 million in Q2-20 compared to $877 million during the same period of 2019.