GCC corporate earnings wanes
A decline of one per cent in the first half with an expected turnaround of 8.1 per cent by the end of the year.
GCC corporates posted a negative one per cent growth compared to the same period last year. Saudi Arabia, Bahrain and Kuwait were three countries to put up positive earnings performance growing by seven per cent, six per cent and two per cent respectively, according to a report by Markaz. Saudi Arabia’s earnings growth was mainly assisted by the positive momentum in its non-oil private sector while Kuwait was supported by the positive performance in commodities and its real estate.
Lower oil prices continue to persist, in spite of the efforts taken by OPEC to reduce the supply glut. Brent crude declined by 9.3 per cent in Q2 2017 closing at $47.92 compared to $52.83 at the end of Q1 2017. Lower oil prices result in lower deposits being made into the banks and as result lowers credit being pumped into the economy. As a result of this, banking sector earnings have declined by one per cent during H1 2017 compared to the same period last year. Corporate earnings across the GCC is expected to increase by 8.1 per cent for the full year in 2017 on the back of stabilizing oil prices and resilience in margins.
Saudi Arabia witnessed a seven per cent increase in its overall earnings during in the first half of the year, buoyed by the earnings increase in the commodities and telecommunications sector. Saudi Arabia’s commodities and telecom sector witnessed 13 per cent and 12 per cent increase in its earnings respectively. Surprisingly, the banking sector witnessed a two per cent decline in earnings. Al Rajhi Bank and Alinma Bank were the only banks in the country to witness positive earnings growth at eight per cent and 14 per cent respectively. Construction related sector was the most affected and has been plagued by delayed cash cycle leading to significant losses as a result the earnings fell by 61 per cent.
Kuwait’s banking sector suffered a two per cent decline in its earnings during H1 2017 owing to difficult credit situations and subdued growth in its local market. National Bank of Kuwait, Boubyan Bank and Burgan Bank posted double positive earnings growth of nine per cent, 15 per cent and 23 per cent respectively. Among the telecom players, Zain posted a negative growth of eight per cent owing to one-off extraordinary currency devaluation in Sudan. Ooredoo Kuwait witnessed a 21 per cent increase in earnings driven by customer addition and cost-cutting efforts. Kuwait’s commodities sector performed well driven by increasing commodity prices and posted a 20 per cent increase in its earnings.
UAE’s overall earnings declined by two per cent during the first half of 2017. Banks managed to increased their earnings by one per cent during H1 2017 while the other two major sectors of the economy—telecom and real estate posted seven per cent and 37 per cent decline in earnings.
All of the Qatar’s sectors with the exception of banking saw declines in their earnings during H1 2017. Telecom, commodities and financials witnessed a decline of 26 per cent, 32 per cent and 17 per cent respectively. The banking sector witnessed a one% increase in earnings driven by good performances in Qatar National Bank and Qatar Islamic Bank. Qatar’s telecom sector was the worst performing sector as Ooredoo witnessed a 26 per cent decline in net profits while Vodafone Qatar is yet to turn profit since its inception.