GCC corporate earnings increased by 16% for the full year in 2017 compared to 2016. UAE, Kuwait and Saudi Arabia were the three countries in the GCC region to register positive earnings growth in 2017 growing by 62%, 10% and 9%, respectively. On account of low base effect, UAE posted a full year earnings growth of 62% in 2017. Saudi Arabia’s earnings growth was largely helped by the positive momentum in its non-oil sectors, such as banking, telecommunications and utilities. While, Kuwait was largely helped by the positive performance in the commodities sector and its real estate sector.
On an aggregate basis, commodities, banking and construction related sector were top performers, with earnings growing at 29%, 9% and 6%, respectively. The recovery of the oil prices and improved interest margins helped the commodities and banking sector companies to post higher profitability. The improved profitability reported by the construction sector companies, can be attributed to lower base, as several companies reported losses during 2016.
Source: Reuters Eikon, Markaz Research
Saudi Arabia witnessed 9% increase in its overall earnings during 2017 largely prompted by the earnings increase in its commodities and telecommunications sector. Saudi Arabia’s commodities and telecom sector witnessed 28% and 23% increase in its earnings respectively in 2017 compared to 2016. The banking sector witnessed a 9% gain in earnings and all the banks in the country witnessed positive earnings growth during 2017 compared to 2016. Construction related and real estate sectors slumped on the back of a weak economic environment with negative sentiment impacting activity levels and sale prices. The construction industry was plagued by delayed cash cycle leading to significant losses and as a result the earnings fell by 59%.
Kuwait witnessed 10% increase in earnings during 2017 compared to 2016. The improved earnings were supported by growth in the financial services, real estate and commodities sectors. Kuwait’s banking sector witnessed 1% decline in its earnings during 2017 owing to marginal recovery in the credit growth. Telecommunications and construction sector, were other prominent sectors, which witnessed a decline of 2% and 6% respectively in 2017. The telecommunications sector’s earnings declined from USD 788mn in 2016 to USD 769mn, while the construction sector’s reduced earnings stood at USD 211mn in 2017.
United Arab Emirates
UAE’s overall earnings gained by 62% during 2017. In Q4, 2016 Abu Dhabi National Energy (Taqa) registered a loss of USD 4bn on account of impairment of assets which dragged the overall earnings for UAE in 2016 to USD 11.4bn. On account of low base effect, UAE’s full year earnings improved substantially. UAE banks increased their earnings by 21% during 2017 while the other two major sectors of the economy – telecom and real estate posted 2% and 28% decline in earnings during the same period.
All of the Qatar’s sectors with the exception of banking, utilities and commodities witnessed decline in their earnings during 2017. Banking, utilities and commodities witnessed a gain of 5%, 4% and 2%, respectively during 2017. The ongoing diplomatic crisis appears to have impacted the earnings across sectors. However, support from the government and recovery of oil prices shielded the banking and commodities sector profitability to some extent.
We expect GCC corporate earnings to expand by 4% in 2018 over 2017 and reach USD 69.4Bn by the end of the year. The GCC governments are set to embark on an expansion mode following a year of fiscal consolidation and several austerity measures. Economic heavyweights of the region – UAE and Saudi Arabia are expected to see their corporate earnings increase by 4% and 7%, while earnings in Kuwait are expected to remain flat at 1%. The earnings for Qatar and Oman are expected to expand by 3%, while, Bahrain is likely to contract by 1%, during 2018.
About Kuwait Financial Centre “Markaz”
Established in 1974, Kuwait Financial Centre K.P.S.C “Markaz” is one of the leading asset management and investment banking institutions in the MENA region with total assets under management of over KD 1.03 billion as of 31 December 2017 (USD 3.40 billion). Markaz was listed on the Boursa Kuwait in 1997.