Petrochemical earnings hit an all-time high in the third quarter and were up by 66 percent in year-on-year terms. This was largely due to higher product prices, supported by elevated production, particularly from Yanbu National Petrochemical Company (YANSAB) and Saudi International Petrochemical Co. (Sipchem). Despite the weakening of the global economy in the third quarter, there appears to have been little impact on volumes sold. SABIC's 9Saudi Basic Industries Corp.) profits were another record and the company accounted for 73 percent of total earnings for the sector, the Jadwa report said.
Outside of petrochemicals performance was much weaker, though this was distorted by the telecoms sector. Telecoms recorded the largest year-on-year decline in profits since the sector was liberalized. This was primarily the result of Saudi Telecoms (STC) posting a foreign exchange loss of SR789 million. STC has operations in India, Malaysia, Indonesia, Turkey, Kuwait and Bahrain and was affected by large exchange rate movements. Saudi Telecom Co. (STC) still recorded a profit, unlike Mobile Telecommunications Company Saudi Arabia (Zain KSA), where current liabilities exceeded current assets, and Etihad Atheeb Telecommunication Company, whose losses have absorbed most of its capital.
The report added, ten of the remaining thirteen sectors recorded year-on-year profit growth in the third quarter and 113 of the 147 listed companies posted positive growth, compared to 115 in the second quarter. Profit growth was fastest for the real estate sector, up by 81 percent.
Profits for the building and construction sector rose by over 30 percent, supported by strong demand and rising prices for building materials stemming from high construction spending.
Bank profits grew by 29 percent. Although lending continued to pick up, the main reason for the growth was lower provisioning for bad debts. Profit growth for the retail sector slowed, but remained healthy, at 21 percent. The impact of the bonus awarded to public-sector workers earlier in the year has faded, but it is still evident; earnings of small luxury retail company Fitaihi were up by 115 percent year-on-year, after a gain of 371 percent in the second quarter.
The Jadwa report said, insurance was the worst performing sector, with profits falling percent. The insurance sector has been hit by provisioning for bad debts in line with a SAMA (Saudi Arabian Monetary Agency) policy that was implemented at the start of the year. Transport was the second worst performer owing to a sharp drop in profits at National Shipping.
The report said an interesting development was the first indication that the Nitaqat program, a new labor market policy, is impacting on company profits. Under Nitaqat, companies are required by late November to achieve a certain level of Saudization, which varies from industry to industry, in order to avoid restrictions on their employment of foreigners. Building and construction company Al-Khodari noted that an increase in labor costs attributed to Nitaqat contributed to a near halving of its profits (in both year-on-year and quarterly terms).
