JEDDAH, 20 August 2007 — The Saudi listed companies showed profit growth in the first half of this year. The total profit increased by 3.2 percent to SR39.51 billion as compared to SR38.29 billion in the first half of 2006.
According to Al-Rajhi Bank quarterly update, profits for the second quarter rose almost 7 percent to SR21.14 billion, as compared to SR19.78 billion for the same quarter last year.
The industrial sector showed a remarkable performance as the bellwether Saudi Basic Industries Corp. (SABIC), the world’s largest chemical company by market value, posted its fourth straight record profit in the second quarter.
SABIC’s net income in the three months to June 30 surged 42.2 percent to SR6.5 billion ($1.7 billion).
The industrial sector’s second quarter profits surged 42 percent to SR8.82 billion compared to SR6.21 billion in the same period of last year and in the first half it soared 41 percent to SR16.61 billion as compared to SR11.74 billion in the first half of 2006.
Also during the same quarter, SABIC unveiled its plan to acquire GE Plastics for $11.6 billion.
The industrial sector has replaced the banking sector as the most profitable sector. The report said that based on the closing price of July 31 and the annualized second quarter earnings, the market is quoting at a price to earnings of around 14. Looking at the historical valuations, the market offers reasonable value.
Banking sector’s second-quarter profits declined 17 percent to SR6.48 billion as compared to SR7.82 billion in the same period of last year, mostly owing to the fall in the brokerage income.
The report said the worst to be affected were the smaller banks and the banks, which highly rely on the brokerage income such as the Saudi Investment Bank and Bank AlJazira. Riyad Bank and the Saudi Hollandi Bank bucked the negative trend. Riyad Bank reported a jump of 24 percent in its second quarter profit while the Saudi Hollandi Bank’s profit was up 226 percent for the quarter.
In the first half, the banking sector profits fell 20 percent to SR12.77 billion as compared to SR16.00 billion in the corresponding period of last year.
The banking sector contributed 30.6 percent to the second quarter results, as compared to 39.5 percent in second quarter of 2006.
The telecom profit declined 3 percent in the second quarter, led by an 8.6 percent fall in the profit of Saudi Telecom Co. (STC).
A divergence was observed in the performance of both the companies listed, where Etihad Etisalat posted magnificent numbers on back of gaining the market share from STC.
The telecom sector profit fell to SR3.41 billion as compared to SR3.51 billion for the same period last year. The first-half profits slumped by 8 percent to SR6.38 billion as compared to SR6.96 billion in the same period of 2006.
STC also acquired a stake of 25 percent in Malaysia’s Maxis for $3 billion, which gives the telecom major an exposure to India and Indonesia, two of the fastest growing telecom markets in the world.
However, the services sector ended in the red. Profits of the companies listed in this sector dropped 9 percent to SR609 million for the second quarter as compared to SR669 million in the same period of 2006. In the insurance sector, only two insurance companies, the National Company for Cooperative Insurance (NCCI) and Malath Cooperative Insurance and Reinsurance Co., published their results for the quarter under consideration. NCCI recorded a second-quarter profit of SR265 million, thus showing a whooping 100.8 percent rise when compared to figures for 2006 (SR132 million). The half-yearly results (SR386 million) showed a relatively better performance over that of 2006 (SR263 million), thus consolidating its profits at 47 percent. Eight insurance companies (out of the 13 licensed to provide insurance services) got listed on the bourse in the last few months.
Alahli Takaful Company (ATC) started trading on Saturday.
The only company in the electricity sector, Saudi Electricity Co. (SEC), posted a 15 percent fall in its second quarter profit from SR225 million in 2006 to SR191 million in 2007.
In the first half also it suffered 15 percent loss of SR243 million compared to SR211 million in the same period of last year.
The construction and infrastructure boom in the region supported the cement sector. For the second quarter, profits increased by 21.6 percent to SR1.39 billion as compared to SR1.10 billion for the same period of 2006. The first halves of 2006 and 2007 reported profits of SR2.02 billion and SR2.36 billion, respectively, thereby, ascending the half-yearly profits for 2007 by 17 percent. Qassim Cement, Yanbu Cement and Eastern Cement posted higher than average profit growth.
The agriculture was the worst performing sector in the second quarter. The profit fell sharply to SR34 million compared to SR105 million in the same quarter last year. For the first half, the sector posted a total profit of SR68 million, a decline of 69 percent over the first half of 2006 at SR219 million.
The Al-Rajhi Bank report said for the third quarter, the direction of the market would largely depend on the factors like, oil price, government spending and corporate numbers.
Oil price remains to be buoyant and the same should have a positive impact on the fund inflows in the market. The supply of stocks impending from the new initial public offerings (IPOs) could easily be absorbed by the liquidity in the market, as has been observed in case of Saudi Kayan and Kingdom Holding Co. IPOs. Furthermore, it would be interesting to observe the performance of the newly listed insurance companies.
The government is expected to speed up its spending in the forthcoming quarters. As Saudi Arabia embarked on mega projects, it should also provide a boost to the corporate earnings.