Second quarter 2012 GCC corporate earnings show weakness

The decline was led by Saudi Arabia and Kuwait companies whose aggregate net incomes dropped 6% and 27% respectively.

Bahrain also reported considerable weakness though it has a smaller share. Oman, UAE and Qatar firms net income grew 56%, 12% and 8% respectively.

Among the three largest sectors 'Banks, Commodities and Telecom', commodities showed considerable weakness '-30%' while Banks stayed put '+1%' with Telecom showing some good signs of growth '+8%'.

Saudi Arabia
Earnings of Saudi Arabian companies totaled $6.5bn, a 6% decrease compared to the same quarter previous year. SABIC, which reported $1.4bn in 2Q profits, saw its bottom-line decline by 35% due to softening of global petrochemical prices and higher raw materials costs.

Saudi Banks earnings increased 11% with Al Rajhi Bank reporting a 14% growth in net income to $558m, on account of higher operating income. Telecom sector's earnings grew 18% to $891m as Etihad Etisalat's earnings rose 22% to $379m due to higher revenue from data services. Saudi Telecom posted a 7% growth in earnings at $642m.

Kuwait
Kuwait corporate earnings dropped 27% in 2Q12 to $811m compared to similar quarter in the previous year. Kuwait saw its earnings recover in the first quarter of 2012 after three consecutive quarters of decline. However Kuwait corporations haven't been able to sustain the recovery.

Bank earnings declined 25% over the year and to $380m. National Bank of Kuwait's earnings dropped 41% to $142m due to a $96.4m provision it took due to the deteriorating operating environment.

Telecom companies reported a bottom-line of $310m '-20%' Wataniya's profits fell almost 50% as a result of competitive pressures in the country and negative exchange rate movements in Algeria.

Zain earnings dropped 1% over the year, settling at $254m. However, Real Estate sector performed well with a profit growth of 39%.

UAE
During 2Q12, UAE companies posted earnings of $3.0bn, a 12% growth compared to similar quarter in the previous year.

Banking sector, which accounts for 54% of UAE profits, declined 7%to $1.6bn. Emirates NBD which had recovered from its lackluster performance during 1Q12 registered 13% fall in net earnings this quarter compared to similar quarter in the previous year.

The bank's 1H12 profits settled 40% lower than that of 1H11 due to gain on the sale of a stake in Network International last year. NBAD reported 2% growth in net income to $285m primarily due to lower provisioning.

Telecom earnings grew 22% to $597m. Etisalat reported a net profit of $508m, 17% growth buoyed by robust international operations. Real estate continued its recovery with profits of $355m (1Q12: $342m, 2Q11: $5m).

While Emaar witnessed a 146% growth in earnings to $167m driven by increase in contribution of subsidiaries, Aldar's 228% increase in profits is led by better occupancy.

Qatar
Qatar's earnings continued to grow at a stable rate of 8% compared to similar quarter previous year to $2.6bn. Industries Qatar's earnings sustained recovery this quarter too with a 3% growth over the year to $585m.

Bank
earnings continue to benefit from higher government spending with growth of 9% to $1.14bn. Qatar National Bank's net income ($580m) grew 17%- slowest bottom-line growth in the last 2 years.

Oman
Oman's corporate earnings grew 56% to $469m, one of the strongest showing. Banking sector profits grew to $173m (+114%) aided by Bank Muscat's net income growth of 19% to $91m.

Bahrain
Bahrain's corporate profits dropped 29% in 2Q12 to $370m compared to similar quarter previous year. Banking profits plunged 28% to $186m. The drastic decline in banking income was led by Bahrain Islamic Bank (a loss of $44m) and a 25% and 13% decline in earnings of Arab Banking Corporation and United Gulf Bank respectively.

Higher gas costs and lower London Metal Exchange Levels impacted Aluminum Bahrain's bottom-line (-49%) while Bahrain Telecom's net profit was affected by lack of growth and stiff competition. The company's 2Q profit was $49m (-13%).

Looking Ahead
Based on the current trend, we expect a muted earnings growth of 8% during the year 2012. We expect Saudi Arabia to clock a 9% growth to $27bn while UAE is expected to post a growth of 11% to $10.8bn.

Kuwait earnings is expected to contract by 5% to $3.9bn. Banks (38%), Commodities (23%) and Telecom (14%) account for over 75% of earnings.

We expect Banks to post a growth of 8% to $21.5bn, Commodities and Telecom are likely to contract by 1% each. Overall, stock markets should look for triggers other than earnings to support it in 2012.