The Saudi corporate sector is continuing to thrive due to the relative stability of the Kingdom, its strong fundamentals and higher oil prices despite the recent wave of global political and economic instability, Aggregate net profits of the Saudi corporate sector reached SR73.4 billion by the end of first 9 months of 2011, up by 24.6 percent YoY. Meanwhile, total net profitability for Saudi listed firms by the end of Q3, 2011 increased by 22.1 percent, reaching SR25.8, the Kuwait-based Global Investment House (Global) said in a new report received here on Monday. The report covers the results of 136 companies that announced their financial results, and whose financial year end on Dec. 31. Companies, which did not have a comparable period, were excluded from this analysis. Of the 136 companies, the Global report said 72 companies managed to improve their bottom lines in the first nine months, including 7 companies that swung from losses in the first nine months of 2010 to gains by the end of first nine months this year. Meanwhile, 36 companies reported decreased profitably, and 28 companies reported loss. Sector profitability By sector, nine out of the 15 sectors of the market managed to enhance their bottom lines by the end of the first nine months, compared to the corresponding period of the previous year, while 6 sectors reported a decline in their net profit. As for the Saudi listed companies’ results by the end of Q3, 2011, 10 out the 15 sectors reported better results, compared to the corresponding period of the previous year. Petrochemical sector Net income of petrochemical industries sector grew by 55.3 percent by the end of the nine months of 2011, according to the Global report. In terms of quarterly performance, the sector posted an increase in its net profit for Q3, 2011 by 66.5 percent compared to Q3, 2010. Meanwhile, QoQ profitability marginally increased by 5.0 percent compared to Q2, 2011. This was largely due to higher product prices, supported by elevated production, particularly from Yanbu National Petrochemical Company (YANSAB) and Saudi International Petrochemical Company (Sipchem). Despite the weakening of the global economy in Q3, 2011, there appears to have been little impact on volumes sold. Within the sector, Saudi Basic Industries Corp.’s (SABIC’s), the biggest company in terms of market capitalization in the Middle East, posted another record profit in Q3 amounting to SR8.2 billion (+53.7 percent), which was a natural result of the continued growth experienced over the last two quarters of the same year. By the end of nine months, SABIC’s net profit stood at SR24 billion, up by 52 percent. SABIC’s affiliate YANSAB posted a significant rise of 132.5 percent in net profit to SR827.9 million in Q3. The strong performance followed a strong performance in Q2 when the company’s profitability rose by 91.8 percent, the Global report said. However, on a QoQ basis, net profit declined by 14.1 percent due to a decline in product prices compared to the previous quarter. Saudi Arabian Fertilizer Company (SAFCO) registered a considerable growth in net income during Q3 (+100.1 percent), on the back of handsome increase in product prices. Net income reported during nine months was SR2.8 billion compared to SR2.2 billion in the same period last year, an increase of 28.3 percent. The most impressive result, however, was posted by Methanol Chemicals Company (Chemanol) which achieved net profit amounting to SR46.89 million for nine months compared to SR2.04 million in nine months of 2010, an increase of 2,198.5 percent. As for the company’s performance during Q3, it posted SR26.7 million in net profit compared to a loss in the amount of SR15.6 million in Q3, 2010. Banking sector Most Saudi lenders posted higher earnings in Q3 due to lower provisions and higher income from lending activities. The banking and financial services sector posted a 29.3 percent jump in Q3 net profit, with 10 out of the 11 listed banks posting higher net profit. Similarly, nine-month net profit increased by 16.9 percent, reaching SR19.6 billion. Al-Rajhi Bank reported very strong set of numbers with its Q3 profitability increasing by 18 percent. The strong results have come on account of 48 percent and 14 percent jump in non-commission income, said the Global report. Although, deposit growth had been stagnant, lending for the quarter has been quite strong with total financing recording a jump of 5.1 percent. As a result, total financing/total customer deposit ratio has improved to 80.7 percent as compared to 77 percent in Q2. For the first nine months of the year, Al-Rajhi’s net profit stood at SR5.5 billion, up by 7.4 percent compared to the corresponding period of the previous year. Riyad Bank’s net income posted an increase of 15.1 percent. For the third quarter, the bank’s net profit increased by 30 percent, as it stood at SR 611 million. The strong result was driven by a growth in non-commission income and a drop in provisioning this quarter compared to the high provisioning during Q3, 2010. While non-commission income has gone up by 16.2 percent to reach SR509 million, net special commission income remained almost unchanged at SR1.06 billion. Bank Albilad recorded a significant increase in Q3 net income by 3,462.5 percent, up from SR2.4 million in Q3, 2010 to SR85.5 million in Q3, which coupled with improved H1, 2011 results, led to 9-month profitability increase of 153.5 percent to SR222.6 million. Telecom sector Aggregate net profit of the telecom sector declined by 9.3 percent by the end of nine months, as it declined from SR8.1 billion in same period of 2010 to SR7.3 billion in nine months of this year. Saudi Telecom Co. (STC) net profit plunged 53 percent in Q3 to SR1.6 billion, as foreign exchange currency fluctuation loss of SR780 million and provision of SR134 million with regards to additional financial costs arising as a result of merging the two systems of Public Pension Fund and General Organization for Social Insurance. If you exclude these losses, the net profit comes to SR2.5 billion. The significant decline of profitability was also due to the one off gain of SR728 million registered in Q3, 2010 on account of sale of towers to AIRCEL in India. On the other hand, revenue grew by 6 percent to SR14 billion. The Global report also said that Etihad Etisalat (Mobily) Q3 net profit grew marginally by 7.6 percent to reach SR1.2 billion, due to lower sales of low-margin smart phones from the company’s own outlets. Sales revenue increased by 16.0 percent in Q3 which is lower than the sales growth of 25 percent in Q1, 2011 and 29.1 percent in Q2, 2011. The company reduced its sales of low margin smart-phones to enhance EBITDA margins, which increased to 39.0 percent in Q3 from 34 percent in Q2. For nine months, the company’s net profit increased by 23 percent, reaching SR3.4 billion. Saudi Zain’s Q3 loss narrowed by 11 percent to SR484 million from SR544 million a year earlier as it added more subscribers. Loss in the first nine month period narrowed over 20 percent to SR1.5 billion from SR1.84 million in the same period last year. Energy and utilities sector Both utilities companies posted subdued results by the end of nine months, with the sector’s aggregate net profit marginally increasing from SR2.7 billion in nine months of 2010 to SR2.8 billion in nine months of 2011, up by 5.3 percent. In the meantime, the sector’s Q3 net profits retreated by 6.1 percent. Saudi Electricity Company’s (SEC) Q3 fell by 6.1 percent at SR2.2 billion, due to higher costs of consumption and purchased energy. The company’s net profit increased by 5.1 percent to SR2.7 billion in nine months. Meanwhile, National Gas and Industrialization Company’s Q3 stood at SR27 million (-0.07 percent), while the company’s net profit grew by 11.9 percent to SR72.3 million in nine months. Cement sector The cement sector continued to thrive in 2011 due to the thriving demand of cement in the Kingdom, according to the Global report. Listed cement companies had good results by the end of nine months, with 8 out of the 9 listed companies enhancing their bottom lines, including the newly listed Jouf Cement Company, which managed to turn from a net loss of SR1.9 million in nine months of 2010 to profits of SR68.5 million in nine months of 2011. Meanwhile, Arabian Cement Company witnessed a strong net profit growth of 28.4 percent to SR104.9 million in Q3, 2011. The company cited increase in sales and production from its Rabigh plant as the major reason behind the surge in profitability on a YoY basis. However, the company has incurred losses on its operation of the Qatranah cement plant in Jordan to the tune of JOD5.6 million since the start of the commercial operations which has held back the performance of the company to a certain extent. The company is facing high fuel costs and intense competition in Jordan. On a QoQ basis, net profit declined by 6.1 percent due to Ramadan and Eid falling in this quarter. Net profit in nine months increased by 36 percent to SR332.7 million. In the meantime, Saudi Cement Company net profit increased by 39.2 percent YoY in Q3 to SR195.3 million. The company has posted good results in the last three quarters due to higher than expected efficiency savings and cement dispatches. The new production lines that came online in April 2009 had an apparent effect on cost of sales per ton which declined to SR101.1 in Q3 compared to SR116.9 in Q3, 2010. These efficiency gains have pushed up gross margins to 57.9 percent in Q3, 2011 compared to 50.1 percent in Q3, 2010. The company’s net profit stood at SR619.9 million in nine months, up by 22.2 percent YoY. Real estate sector The year 2011 has been a year of groundbreaking decisions for the Saudi real estate sector. With the mortgage law approved, the new Ministry of Housing in place and SR250 billion allocated to build 500,000 new housing units; the government is determined to back the housing sector. Aggregate net profit of the Real estate development sector stood at SR1.2 billion, up by 30.7 percent YoY. Within the sector, Dar Alarkan 3Q, 2011 net profit came in at SR227.5 million down by 21.4 percent YoY and 23.6 percent QoQ. Net profit for nine months stood at SR798.3 million, down by 29.1 percent YoY. Revenues for nine months came in at SR2.5 billion down 22 percent from SR3.2 billion in the nine months of 2010 reflecting the decline in sales throughout all three quarters since the beginning of the year. Emaar Economic City’s (EEC) net income came at SR80.2 million in nine months compared to a net loss of SR377.5 million in the comparable period. For Q3, the company’s net profit stood at SR6.2 million, compared to a net loss of SR195.6 million in Q3, 2010. EEC’s revenues were boosted by land sales from the remaining Esmiralda plots. Financial charges are starting to weigh on EEC’s bottom line with net finance costs of SR19.2 million in Q3, 2011 compared to a net gain of SR390,000 in Q3, 2010. As of Q3, 2011, EEC had a cash and short term deposits balance of SR5 billion indicating that the money received from the Ministry of Finance loan has not yet been channeled through to contractors, which indicates that minimal construction progress has been achieved during the quarter. Looking forward, the SR5 billion loan to revitalize the pace of construction in King Abdullah Economic City (KAEC) as of Q4, 2011 although EEC’s earning power, in the short term, will remain solely reliant on land sales along with very slim contributions from apartment sales and the industrial valley.