CSC signs MoU on establishing Saudi-Greek Business Council    Eng. Al-Falih starts Greece visit with aim of strengthening investment relations    Photo exhibition on march of Saudi Arabia's kings, urban development opened    Tourism Ministry highlights investment opportunities in AHIC    EU calls for quick resumption of Iran nuclear talks    French ambassador to return to Washington after Macron-Biden talks    A peep into diverse manifestations of National Day festivities during 56 years    Afghanistan's healthcare system on brink of collapse, as hunger hits 95 percent of families    Saudis, expats mourn death of prominent Filipino preacher in Riyadh    The Crown Prince's keenness to develop citizens' capabilities    Joe Biden plays down chances of UK-US trade deal    Saudi Arabia observes Alzheimer's Day with rest of world    Sex and the City star Willie Garson dies aged 57    Saudi exports increase 79.6% in July    Workshop organized with investors from German companies in Riyadh    John Lennon stamps inspiring message of peace, on UN's big week    Al Burj, Chinar, CSG, Kashmir Stags, ARM, Pak Zalmi record big wins in Kanoo League    Four million Indians suffer from obstructive sleep apnea, conference told    Saudi International, Asian Tour confirm historic partnership    Boxer Pacquiao to run for Philippine president in 2022    Saudi Arabia to host Youth Weightlifting World Championships    Bollywood actor Sidharth Shukla dies at 40    Custodian of the Two Holy Mosques Directs KSrelief to Urgently Provide Malaysia with Medical, Preventive Equipment and Supplies to Address COVID-19 Pandemic    Custodian of the Two Holy Mosques Congratulates President of Maldives on Independence Day    Weather Forecast for Sunday    RSNF Commander Patronizes Ceremonial Launching of His Majesty's Ship "Jazan"    OIC Condemns Houthi Attempts to Target Civilians in Saudi Arabia    Philippines evacuates thousands as monsoon rains flood cities, provinces    Heavy rain in India triggers floods, landslides; at least 125 dead    U.S. Records 64,321 New Infections of Coronavirus    Without Fans, Tokyo Olympics Kicked Off    Pilgrims Perform Dhuhr and Asr Prayers at Arafat Holy Site    Dr. Mohammed Sulaiman Al-Jasser, Saudi Arabia's Pick to Chair IsDB Group for the next five years, unanimously approved by BoG Committee of Procedures    Saudi Press: Fitch affirms Saudi Credit Rating at "A" with a revised outlook to stable from negative    Handled Cargo at Saudi Ports Increases during June 2021    SDAIA, DARP & STC Launch Pilgrim's Smart Bracelet (NUSK)    Tabuk sculptor spends 8 years in carving entire Holy Qur'an on 30 marble slabs    2 Goals by Diaz Gives Colombia 3rd Place at Copa America    Legendary actor Dilip Kumar, 98, passes away, and with him an era    Saudi Cinema Night at Arab World Institute in Paris Kicks Off    KSU Leads Joint International Scientific Project for Early Detection of Breast Cancer    Saudi Arabia to Participate in Cannes Film Festival 2021    Arab Cup U-17 Championship Draw Saudi Arabia, Morocco, Palestine, Kuwait, in the 1st Group    AWI Hosts Saudi Cinema Nights in Paris    Brazil Beats Chile at Copa America Despite 2nd-Half Red Card    Council of Senior Scholars: Muslim Brothers' Group Don't Represent Method of Islam, rather only Follows its Partisan Objectives, Violating our Graceful Religion    Eid Al-Adha Prayer Performed at the Grand Holy Mosque    Pilgrims Perform Dhuhr and Asr Prayers in Arafat Holy Site    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Saudi corporate earnings growth set to jump before bourse opening
Published in The Saudi Gazette on 17 - 09 - 2014


* Profits seen up 17% in 2014, 11% in 2015
* New facilities, ethylene demand support petchems
* Some banks poised for rapid growth or recovery
* Food makers, retailers expected to perform well
* Foreign investor involvement may eventually boost profitability
JEDDAH – The opening of Saudi Arabia's stock market to direct foreign investment early next year is set to coincide with a pick-up in earnings growth in the Kingdom, which has lagged the region in the past few years.
The combined net profits of Saudi Arabia's leading companies are expected to rise 17 percent in 2014 and a further 11 percent in 2015, largely on the back of petrochemical producers and banks, although a number of companies in other sectors also promise strong growth.
Those figures are based on average forecasts from analysts surveyed by Reuters for 81 companies which accounted for 99 percent of the total profits of constituent companies in Saudi Arabia's main equities index last year.
The outlook puts Saudi Arabia roughly on a par with Qatar, where profit growth is set to average 13 percent this year and next, and Abu Dhabi, which is expected to average 17 percent.
It's a big improvement from Saudi Arabia's zero profit growth in 2012 and a 6 percent increase last year. That poor performance was almost entirely due to weak profits at petrochemical firms, which saw product prices sag because of the economic slump in Europe.
Strong earnings will not necessarily translate into further fast rises for Saudi stock prices, which are already up 28 percent year-to-date, having surged since the market opening plan was announced in July; many fund managers think the market is no longer cheaply valued.
But the earnings picture does ensure that the market opening is likely to attract heavy investor activity.
Estimates for 45 stocks in MSCI's Saudi Arabia index suggest the country's earnings performance will outpace most of the emerging market universe, which the country could eventually join after the market opens up, depending on the decisions of international equity index compilers such as MSCI.
Saudi Arabia's “earnings per share growth, at 13.5 percent compound annual growth rate for 2013-16, is above all other Eastern Europe, Middle East and Africa markets, other than Egypt,” Morgan Stanley said in a report last month, citing its own estimates.
In the petrochemical sector, earnings are expected to jump 25 percent this year and then rise 9 percent in 2015, thanks in part to companies swinging to profitability after years of losses, including National Petrochemical Co , which launched a polypropelene plant in 2010, and Saudi Kayan Petrochemical Co , which started commercial production of specialised chemicals in 2011.
Companies such as Saudi Kayan and its parent Saudi Basic Industries (SABIC) which produce ethylene, the feedstock for most common plastics, are in especially favourable positions, analysts say. SABIC is one of the world's biggest petrochemical firms.
“The ethylene market is very tight - since 2008 growth in demand has outpaced supply, and this should continue until 2017-2018, when new capacity comes online,” said Ahmed Shams El Din, director of equity research at EFG Hermes in Cairo.
Analysts expect SABIC's earnings, which account for about a quarter of the combined profit of all listed Saudi companies, to rise 12 percent this year after shrinking in 2012 and increasing just 2 percent in 2013.
On the other hand, the outlook is not very favorable for fertilizer producers such as Saudi Arabian Fertilizer Co (SAFCO) , another SABIC affiliate; prices for their products are under pressure.
The fertilizer market “is oversupplied, China has flooded the market,” said Shams El Din. Analysts on average expect SAFCO's profit to rise 7 percent this year and 2 percent in 2015 after dropping 18 percent last year.
Meanwhile, earnings in the banking sector are forecast to rise 9 percent this year and 12 percent in 2015. Banque Saudi Fransi is seen as one of the key contributors, with its profit expected to jump by a third this year after dropping 20 percent last year.
“Saudi Fransi is showing a strong recovery in the first half, after recording very heavy loan loss provisions in the fourth quarter of 2013,” said Jaap Meijer, head of equity research at Arqaam Capital in Dubai.
Two other lenders expected to outperform the sector are Alinma Bank and Al Jazira Bank , whose earnings are seen jumping 25 and 21 percent respectively this year. Alinma has been growing rapidly and has the highest capital adequacy ratio among listed banks, which will allow it to continue expanding.
“Al Jazira has a much tighter capital base than Alinma,” Meijer said. “However, we do see the bank benefiting from increasing brokerage fees due to the opening of the Saudi market to qualified foreign investors. Going forward we do see potential for the bank to improve its net interest margin, as opposed to Alinma.”
Islamic deposits bearing no interest make up more than 60 percent of Saudi banks' total deposits, according to Morgan Stanley, and this could provide a short-term boost to margins across the sector when the U.S. Federal Reserve hikes interest rates - a process which most analysts expect to begin next year.
Saudi Arabia's riyal is pegged to the dollar so its central bank usually matches interest rate moves by the Fed.
The Saudi stock market is attractive to foreign fund managers partly because it is more diverse than other Gulf markets, and includes companies ranging from real estate developers to retailers and food producers. Some firms in these sectors are booming.
Analysts expect Dar Al Arkan, one of the leading property developers, to post profit growth of 34 percent this year, recovering from a 31 percent drop in 2013.
“Dar Al Arkan stands to benefit from the growing real estate market in Saudi Arabia, driven by favorable demographics, government support to real estate and infrastructure, an undersupplied property market, and, most importantly, introduction of the new mortgage law” last year, Naeem Brokerage said in a report in July.
Saudi retailers and food producers enjoy access to the biggest market in the region: the kingdom's population of about 30 million makes up 60 percent of the total population of the six Gulf Cooperation Council member countries.
Analysts expect the profits of top food producers Savola Group and Almarai to rise 18 and 16 percent respectively this year. Retailer Fawaz Abdulaziz Alhokair Co is expected to lead its sector with earnings growth of 30 percent.
Earnings at many Saudi companies have been dampened since 2013 by national labor reforms designed to reduce the country's dependence on foreign workers and push more Saudi citizens, who are paid higher salaries, into private sector jobs. A million foreigners are estimated to have left Saudi Arabia last year because of a crackdown on illegal workers.
The impact of the reforms may last for years, but it could start to fade next year as companies adjust and the government takes steps to cushion the impact on the private sector and improve the training and stability of Saudi workers.
Overall, Saudi companies' profits still depend heavily on state spending, as they do elsewhere in the Gulf. One of the ideas behind opening the stock market is that activist foreign shareholders will press companies to become more efficient, and thus help to improve the quality of their profits.
“Profit margins in Saudi Arabia are propped up by the lack of competition in certain sectors, some of which also benefit from government support, either directly or indirectly,” Riyadh-based Jadwa Investment said in a report.
“In the longer term, as foreign investors take up stakes in Saudi companies, and hold management accountable for strategic decisions, this will, in turn, promote improvements in efficiency, including an improvement in the use of assets in generating sales and ultimately increasing return on equity.” — Reuters


Clic here to read the story from its source.