Kuwait Financial Centre “Markaz” R E S E A R C H GCC Corporate Earnings-Q2 11 Earnings decline 7% during Q2 2011 As of first week of August 2011, we have 84% visibility in terms of market cap and 59% visibility in terms of number of companies to measure the performance of GCC corporate earnings. Saudi Arabia enjoys nearly 100% market capitalization visibility, followed by Oman with 77% visibility. Bahrain’s visibility at 49% is the lowest in GCC region. During 2Q11, GCC corporate earnings declined by 7% when compared to 2Q10. Total earnings, which came in at USD 12.8bn was less than the profits posted during the previous quarter (1Q11) by 7%. In 1H11, the GCC corporate earnings show an upswing of 5% compared to 1H10. Total earnings came at USD 26.5bn compared to USD 25.3bn in 1H10, mainly due to the improved performance in 1Q11. Corporate earnings declined due to weak performance by the Telecom sector in the region. Nevertheless, Banks and Commodity companies continued to perform strongly. The region’s continued dominance as a petrochemical hub, global recovery, and spikes in commodity prices supported the performance of companies across the region. Aggregate Net Profits from the Commodity sector were USD 3.4bn (+54% YoY, +4% QoQ). Amongst sectors, Banking continued to deliver the highest profits, at USD 5.0bn. Robust demand and access to low cost funds improved spreads in this quarter. Telecom sector registered 66% YoY decline in net income due to Zain’s one time profit from discontinued income reported in 2Q10. Excluding this one-time adjustment, the sector’s earnings fell by only 11% YoY. Real Estate sector recovered from the slump experienced last year and reported a profit of USD 386mn in 2Q11, up 127% YoY. Figure: 1 – Earnings trend – GCC August 2011 Research Highlights: Provides a review of corporate earnings across the GCC up to Q2 2011. Markaz Research is available on: Bloomberg - Type “MRKZ” <Go> Thomson Research, Reuters Knowledge Nooz Zawya Investor ISI Emerging markets M.R. Raghu CFA, FRM Head of Research +965 2224 8280 [email protected]Layla Al-Ammar Assistant Manager +965 2224 8000 ext. 1205 [email protected]Sanjay Chowdhary Analyst [email protected]+965 2224 8000 Ext: 4605 Kuwait Financial Centre S.A.K. “Markaz” P.O. Box 23444, Safat 13095, Kuwait Tel: +965 2224 8000 Fax: +965 2242 5828 markaz.com Source: Reuters Eikon, Markaz Research
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Kuwait Financial Centre “Markaz”
R E S E A R C H
GCC Corporate Earnings-Q2 11 Earnings decline 7% during Q2 2011
As of first week of August 2011, we have 84% visibility in terms of market
cap and 59% visibility in terms of number of companies to measure the
performance of GCC corporate earnings. Saudi Arabia enjoys nearly 100%
market capitalization visibility, followed by Oman with 77% visibility. Bahrain’s
visibility at 49% is the lowest in GCC region.
During 2Q11, GCC corporate earnings declined by 7% when compared to
2Q10. Total earnings, which came in at USD 12.8bn was less than the profits
posted during the previous quarter (1Q11) by 7%. In 1H11, the GCC
corporate earnings show an upswing of 5% compared to 1H10. Total earnings
came at USD 26.5bn compared to USD 25.3bn in 1H10, mainly due to the
improved performance in 1Q11.
Corporate earnings declined due to weak performance by the Telecom sector
in the region. Nevertheless, Banks and Commodity companies continued to
perform strongly. The region’s continued dominance as a petrochemical hub,
global recovery, and spikes in commodity prices supported the performance of
companies across the region.
Aggregate Net Profits from the Commodity sector were USD 3.4bn (+54%
YoY, +4% QoQ). Amongst sectors, Banking continued to deliver the highest
profits, at USD 5.0bn. Robust demand and access to low cost funds improved
spreads in this quarter. Telecom sector registered 66% YoY decline in net
income due to Zain’s one time profit from discontinued income reported in
2Q10. Excluding this one-time adjustment, the sector’s earnings fell by only
11% YoY. Real Estate sector recovered from the slump experienced last year
and reported a profit of USD 386mn in 2Q11, up 127% YoY.
• Market Capitalization-based coverage stood at 84% for all GCC countries.• Saudi Arabia topped with 99% coverage, followed by Oman at 77%, and UAE at 75%.• Earnings visibility (by number of companies) for the GCC region stood at 59% for 2Q11. • Saudi Arabia’s coverage stood at 98% and Oman at 76%. Kuwait’s coverage, was the lowest at
23%.
Source: Reuters Eikon, Markaz Research
3
GCC Corporate Earnings fell 7% YoY in 2Q11
• GCC corporate earnings were down 7% on a YoY and QoQ basis in 2Q11. • Kuwait, Qatar and Oman contributed to the earnings decline in GCC, due to slowing growth rates in all
the sectors. • Saudi Arabia, Bahrain and UAE saw their 2Q11 earnings escalate by 28%, 12% and 11% YoY,
respectively.
GCC Corporate Earnings (USD Mn)
GCC -7 -7
Source: Reuters Eikon, Markaz Research
YoY
(%)
12
QoQ
(%)
-10
-12
11
-73
28
-18
35
-21
-17
-57
20
11,615
13,778
11,429
5,654
13,792
12,794
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Bahrain
Oman
Qatar
UAE
Kuwait
Saudi Arabia
4
Telecom Affects GCC Earnings
• In 2Q11, the earnings decline was driven by Telecom companies. The Telecom sector registered a 66% YoY decline in net profit mainly due to decrease in profit reported by Zain. Zain had included USD 2.75bn in its reported net profit numbers in 2Q10 from discontinued operations. Excluding the one time gain from discontinued operations, the overall 2Q11 earnings increase by 16% YoY.
• Commodities, however, posted a steady set of numbers with earnings growing 54% YoY and 4% QoQ.
Saudi Earnings Get a Commodities Boost Yet Again..Quarterly Earnings Trend (USD Mn) Earnings Growth –YoY (%)
�Corporate profits rose 28% YoY in 2Q11 to USD 6.9bn.
�Commodity companies saw their earnings grow by 56%YoY and 7% QoQ led by SABIC which registered a 62%earnings growth over 2Q10. Bank earnings grew 11% andTelecom earnings saw 24% growth over 2Q10.
Source: Reuters Eikon, Markaz Research
4,702
5,410 5,609
5,261
5,779
6,911
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
69%
24%
19%
33%
23%
28%
0% 20% 40% 60% 80%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
7
Higher Petchem Prices Drive SABIC’s Earnings
�Commodities sector recorded earnings of USD 2.9bn in 2Q11, as against USD 1.8bn in 2Q10, led bySABIC’s strong performance. The company reported a net income of USD 2.2bn (2Q10: USD 1.3bn),as higher petrochemical prices boosted company’s performance.
�Bank earnings increased by 11% YoY to USD 1.7bn. Al Rajhi Bank reported a 4% YoY growth in itsnet income of USD 491mn. Telecom sector’s earnings grew 50% QoQ to USD 753mn, and was up24% on a YoY basis. Saudi Telecom’s earnings were up 43% QoQ and 9% YoY to USD 602mn.
� Corporate profits fell by 73% YoY in 2Q11, due to the onetime profit of USD 2.75 bn from discontinued operationsreported by Zain in 2Q2010. Excluding this one time gain,the profit was up 57% YoY, supported by recovery in thebanking and financial services.� On a QoQ basis aggregate net profit was down 57%
Source: Reuters Eikon, Markaz Research
1,109
3,309
1,002
-394
2,062
880
-1,000
-500
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
551%
113%
96%
N.M.
86%
-73%
-200% 0% 200% 400% 600%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
11
Financial Services and Real Estate - Back to Profits
�In 2Q11, Financial Services sector registered profits of USD 74mn, versus a loss of USD 334mn in2Q10. Real Estate also recovered from a USD 50mn loss in 2Q10 to post a profit of USD 30mn in2Q11.
�Banking sector earnings were at USD 496mn, a growth of 15% YoY but a decline of 13% QoQ.National Bank of Kuwait’s earnings came in at USD 240mn, up 2% YoY.
�UAE corporate profits (like-to-like basis) were up 22% YoYto USD 2.4bn, against a profit of USD 1.9bn in 2Q10.
�Banking sector recorded a growth of 65% YoY, due to AbuDhabi Commercial Bank which reported a profit of USD363mn compared to a loss of USD 84mn in 2Q10.Financial Services were up 40% YoY basis.
2,415
1,923 2,041
1,911
2,421 2,354
-
500
1,000
1,500
2,000
2,500
3,000
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
-6%
-48%
-9%
72%
0%
22%
-100% -50% 0% 50% 100%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
15
Banking and Real Estate Lead the GrowthLike-to-Like Earnings Analysis
�In 2Q11, Banking profits grew 65% YoY to USD 1.5bn. Though, on QoQ basis, Bank profits were up byonly 3%. Abu Dhabi Commercial Bank led the growth in 2Q11 with positive earnings of USD 363mn.
�Telecoms were a drag on earnings, declining 10% on YoY basis and 11% QoQ. Emirates Telecom’s(Etisalat) net profit this quarter was USD 434mn (2Q10:USD 510mn, 1Q11:USD 495mn).
�Construction sector also showed a slow down with earnings of USD 37mn, a 28% YoY decline.
�Total profits augmented 18% YoY to USD 1.9bn, due topositive performance across majority of the sectors. Netprofit of Industries Qatar grew 46% over the year toUSD 570mn.
�On a QoQ basis net profit increased by 8% due toconsistent performance by all the sectors in the region.
1,485 1,615 1,566 1,568
1,767 1,907
-
500
1,000
1,500
2,000
2,500
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
10%
33%
44%
51%
19%
18%
0% 20% 40% 60%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
19
Commodities, Banks Drive Earnings in 2Q11
Quarterly Sectoral Earnings Trend (USD Mn)
�Banking sector profits grew 25% YoY to USD 944mn as all major Qatari banks saw earnings growth. Qatar National Bank was up 26% YoY and 6% QoQ to USD 497mn in 2Q11.
�Profit of Commodity companies grew 46% YoY but declined by 1% when compared on QoQ basis. Industries Qatar grew by 46% YoY.
�Oman’s corporate earnings declined 10% YoY to USD472mn. However, earnings were up 35% on QoQbasis, as the markets started recovering during thequarter.
�Financial Services sector was up 845% YoY as AlSharqiya Investment Holding reported a profit of USD271mn during the quarter compared to a loss of USD0.25mn in 2Q10.
�Bank earnings declined to USD 94mn, a fall of 28% over the year and 38% over the quarter, due to loss reported by Bank Dhofar during the current quarter. Though Bank Muscat’s earnings grew by 30% YoY to USD 76mn and 6% on QoQ basis.
�Constructed-related sectors also posted negative growth of 57% on YoY basis, as profits of Raysut Cement and Oman Cement declined 43% and 72% respectively.
�Bahrain’s corporate earnings were up by 28% YoY in2Q11 and 13% on QoQ basis.
�Banking sector registered profit of USD 190mn up 63%YoY, and 16% on a QoQ basis.
Source: Reuters Eikon, Markaz Research
260
212 202
139
239
270
-
50
100
150
200
250
300
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Like-to-Like Earnings Analysis
-20%
-12%
-6%
48%
-8%
28%
-40% -20% 0% 20% 40% 60%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
27
Telecom continues to be a Drag on Profit
�Telecom sector, represented mainly by Bahrain Telecommunications, continue to drag Bahrain’s earnings. The company’s net income was USD 56mn in 2Q11, a drop of 5% YoY.
�On a like-to-like basis, Financial services sector earnings were down 32% YoY and 42% QoQ.
Arab Banking Corporation (B.S.C.) 1,431 34 68 100%
National Bank of Bahrain BSC 1,339 27 28 4%
Al Baraka Banking Group BSC 1,009 NA NA NM
United Gulf Bank B.S.C. 840 NA NA NM
BBK B.S.C. 944 NA NA NM
Ithmaar Bank B.S.C. 215 NA NA NM
Al Salam Bank BSC 199 3 4 5%
Bahrain Islamic Bank B.S.C. 257 -18 4 NM
Khaleeji Commercial Bank B.S.C. 138 NA NA NM
The Bahraini Saudi Bank BSC 86 1 2 156%
Industry Total 10,069 117 190 63%Top Companies – Bahrain – Telecom
Company Name
Market Cap
(USD mn) 2Q10 2Q11 Growth
Bahrain Telecommunications Company 1,597 59 56 -5%
Industry Total 1,597 59 56 -5%
Top Companies – Bahrain – Financial Services
Company Name
Market Cap
(USD mn) 2Q10 2Q11 Growth
TAIB Bank B.S.C. 307 NA NA NM
Gulf Finance House BSC 194 NA NA NM
Securities and Investment Co. BSC 229 NA NA NM
Esterad Investment Company BSC 55 -7 -8 NM
BMB Investment Bank BSC 44 NA NA NM
Industry Total 1,739 -7 -8 NM
Note: Companies that have not declared their 2Q11 results on the date of
this report are marked as NA in the 2Q10 and 2Q11 columns.
29
Annual Results Saudi Earnings (USD Mn)
Kuwait Earnings (USD Mn)
GCC Earnings (USD Mn)
Source: Reuters Eikon, Markaz Research
46,986 50,335
65,836
34,145 34,388
41,615
26,586
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2005 2006 2007 2008 2009 2010 1H11
18,427
21,443 23,035
12,392
15,532
20,752
12,690
-
5,000
10,000
15,000
20,000
25,000
2005 2006 2007 2008 2009 2010 1H11
11,477
9,473
16,430
-1,900 -462
5,341
2,942
-5,000
-
5,000
10,000
15,000
20,000
2005 2006 2007 2008 2009 2010 1H11
30
Annual Results
Oman Earnings (USD Mn)Bahrain Earnings (USD Mn)
UAE Earnings (USD Mn)Qatar Earnings (USD Mn)
Source: Reuters Eikon, Markaz Research
10,748 11,639
16,427
13,910
9,152
4,730 5,198
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2005 2006 2007 2008 2009 2010 1H11
3,773
4,725
5,682
7,487
9,434
8,113
4,333
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2005 2006 2007 2008 2009 2010 1H11
945
1,107
1,645
1,270 1,380
1,607
822
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2005 2006 2007 2008 2009 2010 1H11
1,617
1,947
2,618
987
-647
695 600
-1,000
-500
-
500
1,000
1,500
2,000
2,500
3,000
2005 2006 2007 2008 2009 2010 1H11
R E S E A R C H August 2011
Economics
MENA Unrest (Apr-11) Kuwait Development Plan (Apr-11) MENA Unrest (Apr-11)
Kuwait Investment Sector (Sept-10) The New Regulations on Kuwait Investment Sector (Jun-10) Kuwait Capital Market Law (Mar-10) The “Vicious Square” Monetary Policy options for Kuwait (Feb-08) A Gulf Emerging Portfolio: And Why Not? (Jun-07) To Leap or To Lag: Choices before GCC Regulators (Apr-07)
GCC for Fundamentalists (Dec-06) GCC Leverage Risk (Nov-06)
Real Estate Abu Dhabi Algeria Dubai Egypt Jordan KSA Kuwait Lebanon Qatar Syria U.S.A.
Banking
Stress testing Kuwait Banks (May-11)
GCC Banks - Done with Provisions? (Jan-10) Shelter in a Storm (Mar-09) Banking Sweet spots (Apr-08)
Oil & Gas Diworsification: The GCC Oil Stranglehold (Jan-09)
Periodic Research
Monthly Regional Petroleum Projects Commentary Weekly Real Estate Market Commentary Daily Oil & Gas Bulletin
Strategic Research GCC Outlook 2H11 (Aug-11) What to expect in 2011 (Jan-11)
The Golden Portfolio (Sept-10) Persistence in Performance (Jun-10) What to expect in 2010 (Jan-10) What is left for 2009? (Sept-09) Missing the Rally (Jun-09) This Too Shall Pass (Jan-09)
Fishing in Troubled Waters (Dec-08) Down and Out: Saudi Stock Outlook (Oct-08) Mr. GCC Market-Manic Depressive (Sept-08) Global Investment Themes (June-08) To Yield or Not To Yield (May-08) China and India: Too Much Too Fast (Oct-07)
A Potential USD 140b Industry: Review of Asset Management Industry in Kuwait (Sep-07) A Gulf Emerging Portfolio: And Why Not? (Jun-07) Derivatives Market in GCC (Mar-07) Managing GCC Volatility (Feb-07)
Periodic Research Annual GCC Market Outlook Quarterly GCC Equity Funds GCC Corporate Earnings GCC Equity Research Statistics Monthly Market Review Weekly MENA Market Intelligence KSE Market Review International Market Update Daily Markaz Daily Morning Brief Markaz Kuwait Watch Daily Fixed Income Update
Company Research (See the list attached)
Capital Markets
Markaz Research Offerings
R E S E A R C H August 2011
Bahrain • Batelco (Aug-10) • Al Salam Bank (Aug-10) • Gulf Finance House (Oct-08) • Esterad Inv. Company (Aug-08) • Bahrain Islamic Bank (Aug-08) • Ithmaar Bank (July-08)
• Tameer (July-08)
Qatar • Qatar National Bank (Oct-10) • Qatar Gas Transport Co. (Sept-10) • QISB (Sept-10) • Masraf Al-Rayan (Jun-10) • Commercial Bank of Qatar (Mar-10) • Qatar Telecom (Jun-09)
• Industries Qatar (Apr-09) • United Development Co. (Feb-09) • Qatar Fuel Co. (Dec-08) • Qatar Shipping Co (Dec-08) • Barwa Real Estate Co. (Nov-08) • Qatar Int’l Islamic bank (Nov-08) • Qatar Insurance Co. (Nov-08)
• Doha Bank (Aug-08) • QEWC (July-08)
UAE
• NBAD (Mar-11) • Union National Bank (Sept-10) • FGB (Aug-10) • Etisalat (Aug-10) • Dubai Financial Market (Sept-09)
• ADCB (Jun-09) • DP World (Jun-09) • NBAD (Feb-09) • Sorouh Real Estate (Feb-09) • Aldar Properties (Feb-09) • Gulf Cement Company (Jan-09) • Abu Dhabi National Hotels (Dec-08)
• Dubai Investments (Dec-08) • Arabtec Holding (Dec-08) • Air Arabia ( Nov-08) • Union Properties (Nov-08) • Dubai Islamic bank (Oct-08) • Emaar Properties (July-08)
• Dana Gas (July-08)
Oman • Bank Muscat (Mar-11) • Raysut Cement Company (Sept-10) • Shell Oman Marketing (Apr-10) • Galfar Engineering & Cont. (Nov-08) • Oman Telecommunications (Sept-08) • Bank Muscat(Sept-08)
• Oman cement (Sept-08) • National Bank of Oman (Aug-08) • OIB (July-08)
• Wataniya (Jul-10) • Boubyan Bank (June-10) • Agility (June-10) • Gulf Bank of Kuwait (May -10) • National Bank of Kuwait (Mar-10) • Al Deera Holding (Aug-09) • Kuwait Finance House (Apr-09) • Kuwait Financial Centre (Dec-08) • Commercial Bank of Kuwait (Oct-08) • National Industries Group (Sept-08) • Zain (Sept-08) • Global Investment House (Sept-08) • Kipco (Sept-08)
• The Investment Dar (Sept-08) • Burgan Bank (Sept-08) • Automated Systems Co (Aug-08) • Al Safat Investment Co (July-08)
Markaz Company Research Coverage
MSCI Arabian Markets
Conventional MSCI Arabian Markets
Islamic Local Index
Saudi Arabia 60% 64% 78%
Kuwait 83% 92% 56%
Qatar 92% 90% 95%
UAE 79% 25% 58%
Bahrain 79% 100% 21%
Oman 63% 100% 50%
Egypt 62% 100% 45%
Jordan 39% 0% 32%
Morocco 50% 70% 24%
MENA 79% 93% 63%
Markaz Research Offerings
R E S E A R C H August 2011
Disclaimer
This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by the Central Bank of Kuwait. The report is owned by Markaz and is privileged and proprietary and is subject to copyrights. Sale of any copies of this
report is strictly prohibited. This report cannot be quoted without the prior written consent of Markaz. Any user after obtaining Markaz permission to use this report must clearly mention the source as “Markaz “. The report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable but no representation or
warranty, expressed or implied, is made that such information and data is accurate or complete, and therefore should not be relied upon as such. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinion of Markaz and are subject to change without notice. Markaz has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. This report may not consider the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each
security’s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily indicative of future performance. Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals, with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect
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