Saudi 9M-2009 Result Review
Global Investment House – Kuwait – Saudi corporates were affected by the downturn in the global economy which negatively impacted their profitability. Aggregate profits reported by Saudi companies fell by 24.9 percent in the third quarter of the year 2009 compared to the corresponding period of last year, as they stood at SR17.6bn in 3Q2009, down from SR23.4bn in 3Q2008. Nonetheless, third quarter’s results showed improvement when compared to the first and second quarters of the current year, up 62 percent and 11.3 percent respectively.
Overall profitability for 9M2009 decreased by 37.1 percent in comparison to results reported a year earlier. Saudi corporations registered SR44.2bn in net profits in the first nine months of the year 2009, compared to SR70.3bn in the corresponding period of 2008.
Among the sectors, banking and petrochemical sector amounted to 56 percent of the total corporate profitability reported in 3Q2009 as compared to 66 percent in 3Q2008. The sector which witnessed the highest profitability drop was heavy-weight petrochemical industries sector as it felt the burn of deteriorating oil prices and decline in the demand of petrochemical products as a direct result of the global economic slump during the first half of the year 2009. Meanwhile the sector which witnessed the most increase was Hotel & Tourism sector followed by Insurance sector. Out of the 122 companies that reported their financial results by the end of September 2009, 33 firms incurred losses. Additionally, 59 companies witnessed a decline in their 9M2009 results, on a year over year basis.
The consolidated net profits of the banking sector declined marginally by 2.61 percent in 9M2009. Out of the 11 listed banks on the Saudi bourse, we excluded the results of Inmaa Bank, due to lack of comparative values in 2008. However, if the results of Inmaa Bank were taken into account, the Saudi banks’ profits for 9M2009 would increase by 0.49 percent compared to 9M2008. As for the banking sector’s performance for the third quarter of the current year, QoQ profitability declined by 5 percent, while 3Q2009 was 0.98 percent more profitable than 3Q2008. About 50 percent of the listed banks reported increase of their 9M2009 profits, while 60 percent maintained growth during the 3Q2009. Saudi banks booked more provisions for bad loans during the third quarter, however, none of them came forward with the exact level of exposure to troubled private firms. Five Saudi banks booked more provisions for loan losses in the quarter, raising their total amount this year by at least 183 percent compared to the first nine months of 2008. The provisions had been widely expected amid concerns over the solvency levels of heavily indebted Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Brothers which have an estimated debt of US$22bn.
Despite heavy provisions, profitability for the first nine months of the year for the biggest three banks in terms of market capitalization namely Al Rajhi Banking & Investment Corporation, Samba Financial Group, and Riyad Bank grew by 3.86 percent, 2.67 percent and 0.38 percent respectively.
Al Rajhi Banking & Investment Corp. (RJHI) improved core banking performance led to quarterly (YoY) net income increase of 2.2 percent and nine-monthly rise of 3.9 percent (from SR5.1bn in 9M2008 to SR53bn in 9M2009). Overall, the bank’s profitable performance can largely be attributed to its diversified revenue stream and significant customer base. RJHI posted SR594mn in provisions for loan losses in the third quarter of 2009. The lender booked SR421.6mn in provisions for loan losses in the second quarter and SR288.4mn in the first quarter.
SAMBA Financial Group (Samba) recording (YoY) quarterly net income increase of 0.7 percent (from SR1.21bn in 3Q2008 to SR1.2b4n in 3Q2009), on nine-monthly basis Samba posted the profitability increase of 2.7 percent (from SR3.63bn in 9M2008 to SR3.73bn in 9M2009). Overall, the bank’s improved core banking performance was also supported by the non-interest income categories. Samba posted SR76.9mn in provisions for loan losses in the third quarter of 2009. The lender booked SR97.3mn in provisions for loan losses in the second quarter and SR202.97mn in the first quarter
Riyad Bank (RIBL) in 3Q2009 financial results posted an encouraging (YoY) net income increase of 48.0 percent (from SR513mn in 3Q2008 to SR759mn in 3Q2009), while on nine-monthly basis the profitability results showed marginal rise of 0.4 percent to SR2.1bn (9M2009). The bank’s improved performance can broadly be attributed to both higher core banking and non-interest income performance. Riyad bank booked SR88.6mn in provisions for loan losses in the third quarter. The lender booked SR45.5mn in provisions for loan losses in the second quarter and SR467.7mn in the first quarter.
In the insurance sector, despite increased competition after enjoying years of monopoly in the Saudi market, National Company for Cooperative Insurance (NCCI) has shown signs of recovery this year after its net profit fell by 87.2 percent in 2008 to SR67.5mn after the global market turmoil cost it investment losses of SR545.3mn. The company’s net profit in the third quarter stood at SR125.6mn, the highest quarterly net profit since the second quarter of 2007 and up 275 percent from a year earlier.
Profitability of the Multi-Investment Sector was affected heavily by declining 9M2009 profits of Saudi Arabia Refineries Company and Kingdom Holding Company, which dropped by 99 percent and 77 percent respectively. Saudi Arabia Refineries Company had a non-recurrent profit in 2008 as it sold its 25 percent stake in the Jeddah Oil Refinery to Saudi Aramco for SR102mn. Meanwhile, Kingdom Holding Company attributed the fall in profit to the decline in dividend payments on the company's local and international investment portfolio and the lower operating profits from the hotels it owns and manages.
Energy & Petrochemical Sector
Crude oil prices have shown an improvement during 3Q2009 with West Texas Intermediate (WTI) crude oil prices averaging out at US$68.2 per barrel, which is 14.7 percent and 16.9 percent higher from 2Q2009 and 4Q2008 respectively. The crude oil prices rise benefited Petrochemical Companies.
Petrochemical giant Saudi Basic Industries Corporation (SABIC) doubled earnings in the third quarter against 2Q2009 as the global economy bottomed out and its product prices surged on higher oil prices. SABIC has seen a growth of 100.0 percent in the bottom line of the company during 3Q2009 as compared to the profitability recorded in 2Q2009. The major reason for growth in the profitability during the quarter under review is mainly due to improvement prices of petrochemical products. Meanwhile, the company announced 9M2009 net profit of SR4.5bn (EPS: SR1.5) as compared to the net profit of SR21.7bn (EPS: SR7.2) in 9M2008. The company’s 3Q2009 profitability has shown a decline of 50.0 percent compared to the profitability recorded in 3Q2008. The decline in the bottom line over the corresponding quarter last year is mainly attributed to lower capacity utilization and massive fall in prices of petrochemical, fertilizer and metal products.
Energy & Utilities sector witnessed a 7.26 percent increase in its 9M2009 profitability. Despite a 43.2 percent drop in profits reported by National Gas & Industrialization Company, Saudi Electricity Company (SEC) managed to balance this out by increasing profits for this period by 10.9 percent. SEC’s third-quarter net profit rose 15 percent year-on-year to SR1.73bn from a year ago due to a 7 percent increase in operating revenues. The largest utility company in the GCC by market value which has a monopoly over electric power generation, transmission and distribution in the kingdom, said that the reason for the rise in operating profit was due to lower operating and maintenance costs.
Cement & Building Materials Sectors
Cement sector witnessed a decline in profitability by 11.5 percent in 9M2009 mainly due to a ban on exports which was imposed since June 2008 to cater for strong local demand. Additionally, the slow-down of the real estate sector added to the sector’s pains.
All eight listed companies within this sector saw their profitability decline in 9M2009, except Qassim Cement Company which witnessed a marginal increase of 0.7 percent in its 9M2009 bottom line figures. On a quarterly basis, the company registered earnings of SR128.7mn (SR2.86 EPS) in 3Q2009 which is up 13.4 percent YoY but down 13.2 percent QoQ. Revenues were up 26.1 percent YoY but down 18.1 percent QoQ. Qassim Cement sales revenues increased in the 9M2009 due to a 30.5 percent YoY increase in volumes sold to 3.2mn tons. However, the gross margins fell to 59.4 percent in 9M2009 from 65.2 percent due to fall in average realization price by 12.4 percent to SR233 per ton from SR266 per ton in the corresponding period last year.
Meanwhile, Southern Cement Company, the largest listed cement company in terms of market capitalization, saw its net profit for the third quarter fall by 5.4 percent to SR141mn from the corresponding period of 2008 due to cement export ban and maintenance expenses. Earnings per share for the first nine months of the year stood at SR3.95, compared to SR4.39 a year earlier. Net profit for the first nine months of 2009 also fell, declining by 10.1 percent to SR553mn.
Building and Construction Sector profitability fell by 48.3 percent in the same period. Out of the 13 construction companies listed within the sector, 11 companies reported a decreased 9M2009 profitability, one company reported losses and only one reported a marginal increase in its 9M2009 net profits. Mohammad Al Mojil Group Company was hit the hardest with its third-quarter net profit plunging 93.2 percent to SR13.9mn, from SR203.8mn in the same quarter a year earlier, mainly due to higher costs and lower revenues. The company posted a 94.8 percent decline in net income in the first nine months of 2009. Earnings per share for the first nine months of the year fell to SR0.25, from SR4.27 a year earlier.
In the meantime, Saudi Industrial Development Company (SIDC) managed to narrow its losses to SR1.65mn in 9M2009, from SR9.24mn in the corresponding period of last year. It is worth noting that SIDC's results for second and third quarters of the year 2009 witnessed a significant recovery as the company posted SR0.97mn and SR0.13mn in net profits for those respective periods. However a loss of SR2.8mn in the first quarter of 2009 had negatively affected the overall performance of the nine months of the current year.
STC saw its 2009 third-quarter net profit fall by 20.2 percent to SR2.4bn from a year ago due to rising capital expenditure on its foreign ventures. The company’s net profit for 9M2009 stood at SR7.9bn, down 20.2 percent when compared to the corresponding figures of 2008. Earnings per share for the first nine months of 2009 fell to SR3.9, from SR4.94 a year earlier. STC also said it will distribute a quarterly dividend of SR0.75 per share. Third-quarter operating profit fell 32 percent to SR3.1bn from SR4.6bn a year ago. STC which had a domestic monopoly until 2005, is facing increasing competition in its home market as new players chip away at its subscriber base.
Etihad Etisalat Company (Mobily), Saudi's second mobile operator, announced that its net profits for the third quarter of 2009 jumped by 49.7 percent compared to the same period of 2008. 3Q2009 net profits were at SR807mn, beating the SR539mn in net profits for the same quarter in 2008. Third quarter’s net profits also saw a 19.6 percent increase over those of 2Q2009, the net profits of which had reached SR675mn. In November 2009, Mobily garnered the Arabian Technology Award for 2009 in the field of telecommunications projects after its National Fiberoptic Network project won ahead of nominations by other Middle Eastern telecom companies at the annual ITP event in Dubai.
Saudi Zain posted a 26 percent rise in its net loss for the third-quarter of 2009 due to growing costs of depreciation, operations and marketing. Net losses for 3Q2009 stood at SR820mn, compared to SR649mn in 3Q2008. In the meantime, the company’s losses for 9M2009 stood at SR2.4bn, up 81 percent from the SR1.35bn loss reported in 9M2008. With just over a year since commercial operations commenced in the Kingdom, Zain Saudi announced revenues for the third quarter of 2009 of SR825mn, up 18 percent compared to 2Q2009 when the company achieved revenues of SR702mn.
Most notably, Zain Saudi's market share of active mobile users within the Kingdom currently exceeds 15 percent. The third quarter witnessed growth rates in gross profit of 84 percent to reach SR243mn, compared to 2Q2009 where the company achieved a total profit of SR133mn indicating a gross profit margin of 29 percent, a significant improvement from the 19 percent attained in the previous quarter. The period also saw an operating loss of SR668mn, a reduction of 5 percent compared to 2Q2009. This reflects a net loss of SR820mn, a 4 percent reduction for the same period.