Saudi companies’ earnings up 1% YoY in Q3 2018: Al Rajhi Capital

Cumulative earnings of listed Saudi companies in Q3 2018 grew around 1 percent year-on-year (YoY) compared to Q3 last year. However excluding mainstay sectors, namely banks and petrochemicals, Q3 earnings declined by about 13 percent YoY, Al Rajhi Capital said in its quarterly earnings round-up on Monday.

In the banking sector, growth in loan book still remained weak, the brokerage firm noted, with around 26 percent YoY increase in interest costs as depositors were taking advantage of higher interest rates.

However, thanks to low interest bearing deposit base, the costs did not impact profit by much, the report added.

In Petchem, product prices already have seen a drop of 10-15 percent from mid-2018. Unless cost structure changes dramatically lower the prices are unlikely to drop meaningfully, the report noted.

Noting that most petchem firms have improved their efficiencies over time, the report added plants of petchems such as Kayan, Tasnee, Hadeed, Ibn Rushd, SAMAPCO etc. have seen their manufacturing capabilities improve significantly in the last year and hence the impairments and write-offs across most lines are much lower now.

In consumer sector (including food, retail and telecom), a decline in expat population was expected to show up in the results, Al Rajhi Capital said.

While telecom companies reported around 6 percent YoY top-line growth, looking closer into the mix, two of the three telecom firms benefited from business contracts without which the revenue would have declined slightly.

Among dairy companies, Almarai witnessed a slight decline (-4.9 percent YoY) in Q3 earnings, which would have been much lower had it not been for the turnaround in poultry, the report by Al Rajhi Capital noted.

Almarai had also gained market share across 11 of its 18 categories. SADAFCO too witnessed a pressure in its earnings (-28 percent YoY), due to higher raw material costs. Nadec was an exception, showing an doubling in net profit, driven by robust top-line (+12.5 percent YoY) and improved production efficiencies.

Electronics retailers, such as Jarir, Extra etc. showed stand-out performances purely by their market share gains as smaller competitors continued to lose market share, Al Rajhi Capital noted.

As regards cement sector, the report said the sector registered losses of SAR 1.1 million during Q3 2018, compared to profits of SAR 300.3 million in Q3 2017. Seven companies out of 14 listed cement companies reported losses this quarter, it added.

As for healthcare, given the recent commercial opening of hospitals, the financial performance was weak and may remain so in the near to medium term, Al Rajhi Capital noted.

And lastly, for insurance sector, Al Rajhi Capital said there could be weakness expected for motor segment due to ‘No Claim Discounts’.

“We believe the sector may become attractive after a few more quarters as the discounts fade and companies improve their efficiencies and as market consolidation starts. Healthcare and insurance are more exposed to expats as compared to the retailers discussed above”.