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Financial earnings of Saudi Arabia’s listed companies are expected to be mixed with large cap stocks expected to lead the profit decline.
“We expect consumer staples, healthcare, and education sectors to be the most profitable sectors in 2019. Energy stocks are expected to post growth in profits in 2019. The financial sector is also expected to post profits in 2019, with some variance in performance between institutions,” Iyad Abu Hweij, Managing Partner, at the Abu Dhabi-based Allied Investment Partners PJSC, told Zawya on email.
The stock market is heavily skewed towards the energy and banking sectors, with Saudi Basic Industries Corporation (SABIC), Saudi Telecom and Al Rajhi Bank dominating.
Below are a few estimates by three top Saudi brokerages, Al Rajhi Capital, Riyad Capital and NCB Capital.
Petrochemicals
The combined fourth quarter earnings of petrochemical companies are expected to halve to 2.01 billion Saudi riyals y-o-y, according to Al Rajhi Capital.
Lower product prices--especially of polyethylene and polypropylene which saw some historic lows in the past quarter—will weigh on the sector.
SABIC, the world’s fourth-biggest petrochemicals company, is expected to post a 38 percent profit drop year-on-year (YoY) to 1.99 billion riyals for fourth quarter of 2019, according to estimates by NCB Capital. Riyad Capital pegs the drop at 30 percent to 2.26 billion riyals, while Al Rajhi Capital sees a whopping 68 percent decline.
Banks
The impact of decline in net interest margins (NIM) ensuing from falling interest rates globally is likely to pressure profitability of the banking sector, despite stronger loan growth. Monthly data from the Saudi Arabian Monetary Agency (SAMA), the kingdom’s central bank, showed a slight decline in bank profit for October and November 2019 before zakat and tax.
However, analysts at Riyad Capital said their forecast shows a modest improvement y-o-y in terms of profits after zakat, “since the fourth quarter of 2018 saw a high zakat charge after the changes in zakat calculation method, which dampened its results.”
National Commercial Bank, Saudi’s biggest by assets, will see net profit slip by 5 percent y-o-y to 2.54 billion riyals, according to Riyad Capital’s estimates, mainly due to an estimated 5 percent drop in net commission income.
For Samba Financial Group, NCB Capital expects an 18 percent drop in net profit to 1 billion riyals, while Riyad Capital expects only an 8 percent decline.
However, for Al Rajhi Bank, the kingdom’s largest retail lender, NCB Capital has estimated a 42 percent net profit growth to 2.85 billion riyal while Riyad Capital has penciled in a 40 percent rise.
“We expect Albilad, Samba and Alinma to have the biggest annual incline in net advances, while Albilad, Alinma and NCB will grow the most in terms of deposits,” Riyad Capital added.
Cement
The push by Saudi government to build both affordable housing and mega projects has led to higher cement sale volumes. In addition, the current higher selling prices of 200 riyals per ton, which is 30 percent higher compared to the 153 riyals per ton in 2018, is a positive for the sector.
According to Al Rajhi Capital, the combined profits of Arabian, Yamama, Saudi, Qassim, Yanbu and Southern cement companies is likely to nearly double on year to 540 million riyals.
Riyad Capital noted that Yamama’s Q4 net profit is estimated to grow at a whopping 929 percent to 72 million riyals, while NCB Capital estimated it at 844 percent.
Telecom
While revenue growth is expected to continue for the telecoms sector, the bottom-line is likely to remain under pressure, mostly due to higher operating and financial costs.
Saudi Telecom, the largest provider in the kingdom, is expected to see a 12 percent drop in net profit to between 2.7 and 2.8 billion riyals by all three brokerages.
Food & Beverages
The sector is expected to continue its positive performance in the fourth quarter as well.
For Almarai, NCB Capital estimates a 9 percent rise in net profit to 403 million riyals, while Riyad Capital pegs it at 13 percent to 416 million riyals.
Savola is expected to swing to a profit compared to the year-ago loss. Al Rajhi Capital has estimated a net profit of 138 million riyal, while NCB Capital has 121 million.
Retail
Al Rajhi Capital expects non-discretionary retailers to have an edge over discretionary retailers increased consumer spending on entertainment reduce people’s disposable income.
For Al Othaim, the brokerage has penciled in a 64 percent rise in net profit y-o-y to 175 million riyals. “Store expansion strategy to continue double digit growth for Al Othaim, the increased revenue should flow to the bottom-line and enhance net margins,” it noted.
NCB Capital estimates Al Othaim’s Q4 net profit to rise 25 percent to 134 million riyals.
According to Riyad Capital, Jarir Marketing will post a 6 percent rise in profit to 309 million riyals, while NCB Capital sees a more modest 2.5 percent increase.
However, according to Al Rajhi Capital, Jarir will see a slight slip in net profit to 289 million riyals.
Healthcare
Among healthcare, Mouwasat Medical Services is looking at a net profit rise of 29 percent y-o-y to 110 million riyals, according to Al Rajhi Capital, which notes that “better seasonality along with ramping-up of the Khobar hospital is expected to increase the utilization rate.” But NCB Capital expects a modest rise of 2 percent to 87 million.
Al Rajhi Capital sees Hammadi’s Q4 net profit rising over 30 percent to 23 million riyals; NCB Capital pegs the profit rise at 26 percent.
(Reporting by Brinda Darasha, editing by Seban Scaria)
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