GCCCorpEarnings13092012

Page 1

Kuwait Financial Centre “Markaz” RESEARCH

GCC Corporate Earnings – Q2 2012

Saudi, Kuwait and Bahrain decelerate

September 2012 Research Highlights: Provides a review of corporate earnings across the GCC Markaz Research is available on: Bloomberg - Type “MRKZ” <Go> Thomson Research, Reuters Knowledge Nooz Zawya Investor ISI Emerging markets Capital IQ FactSet Research Connect TheMarkets.com M.R. Raghu CFA, FRM Head of Research +965 2224 8280 rmandagolathur@markaz.com Deivanai Arunachalam Analyst +965 2224 8000 ext. 4606 Darunachalam@markaz.com

Report Highlights 

YoY (2Q12 vs. 2Q11) decline of 1%

QoQ (2Q12 vs. 1Q12) decline of 6%

Kuwait, Bahrain and Saudi suffered considerable declines in net earnings

Banks accounting for 40% of GCC earnings recorded a 1% increase in profits YoY and a 3% decline over the quarter

Oman‟s 2Q12 earnings were the highest in the last seven quarters at USD 469mn

Telecom recorded a growth of 8% YoY, staying close to the 1Q12 figure at USD 2.1bn

We forecast 8% YoY growth in GCC corporate earnings in 2012 at USD 56.5bn

2Q12 saw a decline of 1% YoY in net earnings of GCC corporations. The decline was led by Bahrain and Kuwait companies whose aggregate net incomes dropped 29% and 27% YoY. Saudi Arabian firms too witnessed a decline in profitability over the same period, albeit lower at 6%. Oman, UAE and Qatar firms‟ net income grew 56%, 12% and 8% respectively. Total GCC earnings came in at USD 13.8bn, down 6% from 1Q2012. Figure: 1 – Earnings Trend – GCC – 2Q12 (USD mn)

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: Thomson Reuters Eikon, Markaz Research


MARKAZ RESEARCH September 2012 2Q12 Earnings

KSA earnings decline 6% YoY in 2Q12 to USD 6.5bn

Saudi Arabia Earnings of Saudi Arabian companies totaled USD 6.5bn, a 6% decrease YoY. SABIC, which reported USD 1.4bn in 2Q profits, saw its bottom-line decline 35% YoY due to softening of global petrochemical prices and higher raw materials costs. Saudi Banks earnings increased 11% YoY while it fell 1% over 1Q12 to USD 2.0bn. Al Rajhi Bank reported a 14% YoY growth in net income to USD 558mn, on account of higher operating income. Telecom sector‟s earnings grew 18% YoY to USD 891mn as Etihad Etisalat‟s earnings rose 22% to USD 379mn due to higher revenue from data services. Saudi Telecom posted a 7% growth in earnings YoY at USD 642mn Kuwait Kuwait corporate earnings dropped 27% YoY to USD 811mn. 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 in 2Q12. Bank earnings declined 25% over the year and 32% over 1Q12 to USD 380mn. National Bank of Kuwait‟s earnings dropped 41% to USD 142mn owing to a USD 96.4mn provision it took due to the deteriorating operating environment. Telecom companies reported a bottom-line of USD 310mn (-20% YoY, -11% QoQ). Wataniya‟s profits fell almost 50% YoY 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 USD 254mn. Real Estate sector, whose profits grew 39% YoY dropped 62% over the quarter to USD 34mn.

Kuwait earnings drop 27% YoY to USD 811mn, led by the banking sector

UAE During 2Q12, UAE companies posted earnings of USD 3.0bn, a 12% growth YoY, and a 4% decline over the quarter. Banking sector, which accounts for 54% of UAE profits, declined 7% YoY, but grew 2% over the quarter to USD 1.6bn. Emirates NBD which had recovered from its lackluster performance during 1Q12 registered a 13% YoY fall in net earnings this quarter. 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% YoY growth in net income to USD 285mn primarily due to lower provisioning. Telecom earnings grew 22% YoY and 2% QoQ to USD 597mn. Etisalat reported a net profit of USD 508mn, 17% growth on a YoY basis buoyed by robust international operations. Real estate continued its recovery with profits of USD 355mn (1Q12: USD 342mn, 2Q11: USD 5mn). While Emaar witnessed a 146% YoY growth in earnings to USD 167mn driven by increase in contribution of subsidiaries, Aldar‟s 228% increase in profits was led by better occupancy. Table 1: Earnings Growth – Sectoral Trend (USD mn) Sector Banks Telecommunications Commodities Financial Services Real Estate Construction Related Conglomerates Others Total

2Q11 5,455

1Q12 5,705

2Q12 5,518

YoY 1%

QoQ -3%

1,943

2,095

2,100

8%

0%

3,648

3,139

2,570

-30%

-18%

47

536

127

169%

-76%

338

821

772

129%

-6%

717

780

688

-4%

-12%

400

425

342

-14%

-19%

1,448

1,118

1,688

17%

51%

13,996

14,619

13,806

-1%

-6%

Source: Thomson Reuters Eikon, Markaz Research

Kuwait Financial Centre “Markaz”

2


MARKAZ RESEARCH September 2012

Qatar sustains stability; corporate earnings grew 8% YoY to USD 2.6bn

Qatar Qatar‟s earnings continued to grow at a stable rate of 8% YoY and 5% over the quarter to USD 2.6bn. Industries Qatar‟s earnings sustained recovery this quarter with a 3% growth over the year to USD 585mn. Bank earnings continue to benefit from higher government spending with growth of 9% YoY and 3% sequentially to USD 1.14bn. Qatar National Bank‟s net income (USD 580mn) grew 17% YoY – the slowest bottom-line growth in the last 2 years. Oman Oman‟s corporate earnings grew 56% YoY and 7% over the previous quarter to USD 469mn. Banking sector profits grew to USD 173mn (+114% YoY, +5% QoQ). Bank Muscat‟s net income of USD 91mn was 19% higher on a YoY basis. Bahrain Bahrain‟s corporate profits dropped 29% YoY in 2Q12 to USD 370mn. The decline amounted to 11% on a sequential basis. Banking profits plunged 28% YoY and fell nearly 25% sequentially to USD 186mn. The drastic decline in banking income was led by Bahrain Islamic Bank (a loss of USD 44mn) and a 25% and 13% decline in earnings of Arab Banking Corpn and United Gulf Bank respectively. Higher gas costs and lower London Metal Exchange levels impacted Aluminium Bahrain‟s bottom-line (-49% YoY), while Bahrain Telecom‟s net profit was affected by lack of growth and stiff competition. The company‟s 2Q profit was USD 49mn (-13% YoY).

Bahrain’s corporate profits drop 29% YoY to USD 370mn led by banks again

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 USD 27b while UAE is expected to post a growth of 11% to USD 10.8 b. Kuwait earnings is expected to contract by 5% to USD 3.9b. Banks (38%), Commodities (23%) and Telecom(14%) account for over 75% of earnings. We expect Banks to post a growth of 8% to USD 21.5b, 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.

Figure: 2 – Earnings Trend – GCC – Long-Term (USD mn) 70,000

80%

64,381

60,000 50,000

48,921

56,499 60% 40%

32%

41,581 20% 34,769 34,720

40,000 30,000

52,252

6%

0%

26%

20% 8%

20,000 10,000

0% -20% -40%

-46%

0

-60% 2006 2007 2008 2009 2010 2011 2012 E

Source: Thomson Reuters Eikon, Markaz Research

Kuwait Financial Centre “Markaz”

3


GCC Corporate Earnings – 2Q12


GCC Market Cap Coverage at 98% Total market cap (USD Bn)

% Coverage in terms of market cap

Total Number of Companies

Coverage based on no. of companies

Saudi Arabia

352

100%

151

99%

Kuwait

97

95%

205

82%

U.A.E.

104

91%

110

95%

Qatar

123

100%

41

98%

Oman

17

98%

115

93%

Bahrain

17

95%

42

93%

710

98%

664

92%

Country

GCC Total

Market Capitalization-based coverage stood at 98% for all GCC countries.

Qatar & Saudi Arabia topped with almost 100% coverage, followed by Oman at 98%.

Earnings visibility (by number of companies) for the GCC region stood at 92% for 2Q12.

KSA’s coverage stood at 99% and Qatar’s at 98%. Kuwait’s coverage was the lowest at 82%.

2 Source: Thomson Reuters Eikon, Markaz Research


GCC Earnings dip in 2Q12 GCC Corporate Earnings (USD Mn) 16,000 14,000

13,892

13,996

14,619 13,507

13,806

12,000

YoY

QoQ

(%)

(%)

Oman

-29

-11

Qatar

-56

7

8

5

Kuwait

12

-4

Saudi Arabia

-27

-45

-6

-2

-1

-6

Bahrain

9,810

10,000 8,000

UAE

6,000 4,000 2,000

GCC

0 Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

-2,000

Second quarter corporate earnings in the GCC dropped 1% YoY and 6% QoQ to USD 13.8bn.

The fall in YoY earnings was led by Bahrain (-29%), Kuwait (-27%) and Saudi Arabia (-6%).

In addition to these three countries, UAE too faced a decline in earnings on a QoQ basis

3 Source: Thomson Reuters Eikon, Markaz Research


Commodities drive the decline Sectoral Earnings Trend (USD Mn)

YoY

QoQ

(%)

(%)

17

51

-14

-19

-4

-12

129

-6

169

-76

-30

-18

8

0

1

-3

In 2Q12, Banking sector earnings grew 1% YoY and declined 3% over the quarter, settling at USD 5.5bn. The real estate sector earnings declined 6% over 1Q12 reaching USD 772mn, a 129% increase YoY, largely due to a base effect.

After a dismal performance in 2011, Telecom sector earnings grew 8% over the year, while it stayed flat on a QoQ basis at USD 2.1bn.

The commodities sector that drove earnings in 1Q12 saw a dip of 30% on a YoY basis and an 18% decline over the last quarter

4 Source: Thomson Reuters Eikon, Markaz Research


Top 10 companies grow 3% over 1Q12 Top 10 GCC companies by 2Q12 earnings (Mn USD) Company Name

Country

Sector

2Q11

1Q12

2Q12

QoQ(%)

YoY (%)

Saudi Arabia

Commodities

2,160

1,939

1,414

-27%

-35%

Saudi Arabia

Telecom

602

672

642

-5%

7%

Qatar

Commodities

570

524

585

12%

3%

Qatar

Banking

497

551

580

5%

17%

Saudi Arabia

Banking

492

536

558

4%

14%

UAE

Telecom

434

492

508

3%

17%

Saudi Arabia

Telecom

310

322

379

18%

22%

Saudi Electricity Co

Saudi Arabia

Others

356

-156

363

NM

2%

Samba Financial Group

Saudi Arabia

Banking

294

305

309

1%

5%

UAE

Banking

279 5,994

283 5,469

285 5,622

1% 3%

2% -6%

13,996

14,619

13,806

-6%

-1%

Saudi Basic Industries Corp Saudi Telecom Co Industries Qatar QSC Qatar National Bank SAQ Al Rajhi Banking and Invt Corp Emirates Telecom Corp Etihad Etisalat Company

National Bank of Abu Dhabi PJSC Total GCC earnings

 6 of the top 10 GCC companies are Saudi-based, 2 hail from UAE and 2 from Qatar.  The composition of the top 10 is inclined towards banking, telecom and commodities firms 5


Saudi Arabia – 2Q12


Saudi banks hold ground; commodities slide Quarterly Earnings Trend (USD Mn)

Earnings Growth – YoY (%)

8,000 6,956

7,000 6,000

6,870

6,676

6,542

5,813

Q2 2012 -6%

5,226

5,000

Q1 2012

15%

4,000 3,000

Q4 2011

2%

2,000 1,000

Q3 2011

22%

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

 Saudi Arabia’s earnings fell 6% YoY and 2% over the quarter to USD 6.5bn as a result of decline in earnings of commodities firms.  Banking and telecom sectors performed well on a YoY basis registering increases in net income of 11% and 18% respectively.

Q2 2011

27%

Q1 2011

-10%

7 Source: Thomson Reuters Eikon, Markaz Research

23% 0%

10%

20%

30%


Alinma and Saudi Hollandi earnings surge Quarterly Sectoral Earnings Trend (USD Mn) 8,000 6,956

7,000 6,000

5,226

4,000

2,000 1,000

2,845

1,025 1,339

6,542 Others

5,111

1,776

6,676

5,813

5,646

5,000

3,000

6,870

2,108

798 1,399

2,650

2,898

Conglomerates

2,531 1,972

Construction Related

1,858

Real Estate Financial Services

753

501 1,668

1,821

576 1,731

920 1,610

853

891

2,043

2,019

Commodities Telecommunications Banks

0 Q3 2010

Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

Q1 2012 Q2 2012

 Saudi banks’ performance was led by Alinma and Saudi Hollandi Bank whose net incomes surged 90% and 24% YoY in 1H12. Al Rajhi and Riyad Bank witnessed YoY growth of 14% and 9% in 2Q12 earnings  Earnings of players in the commodity sector were depleted in 2Q12: Sahara Petrochemicals, Advanced Petrochemicals and SABIC posted declines in profits of 74%, 65% and 35% respectively.

8 Source: Thomson Reuters Eikon, Markaz Research


Top companies – Sector – Growth Rate – 2Q12 Top Companies – Saudi Arabia – Banking Market Cap Company Name (USD mn) 2Q11 2Q12

Growth

Top Companies – Saudi Arabia – Commodities Market Cap Company Name (USD mn) 2Q11 2Q12 Growth Saudi Basic Industries Corp 73,196 2,160 1,414 -35%

Al Rajhi Bank

29,398

492

558

14%

Samba Financial Group

10,751

294

309

5%

Saudi Arabian Fertilizers Co

11,399

211

209

-1%

Riyad Bank

9,300

223

244

9%

Saudi Kayan Petrochemical Co

5,960

-4

-88

NM

Banque Saudi Fransi

8,027

206

202

-2%

Yanbu National Petrochemical Co

6,570

257

173

-33%

Saudi British Bank

8,640

227

244

7%

Saudi Arabian Mining Co

7,498

17

34

105%

Arab National Bank

5,893

186

191

3%

Saudi Industrial Investment Group

2,448

39

27

-31%

Alinma Bank

4,880

29

48

68%

Saudi International Petrochemical Co

1,765

44

36

-18%

1,574

56

14

-74%

1,047

42

14

-65%

Saudi Investment Bank

2,303

56

59

7%

Sahara Petrochemical Co

Saudi Hollandi Bank

2,805

70

89

26%

Advanced Petrochemical Co

81,996

1,782

1,944

9%

Total

Total

Top Companies – Saudi Arabia – Conglomerates Market Cap Company Name (USD mn) 2Q11 2Q12 Growth Kingdom Holding Co National Industrialization Co Total

11,809

44

48

9%

5,512

158

155

-2%

17,320

202

202

0%

Top Companies – Saudi Arabia – Others Market Cap Company Name (USD mn) 2Q11 2Q12 Saudi Electricity Co 14,332 356 363 Almarai Trading Co Ltd 6,880 93 101

111,457

2,821 1,835

-35%

Top Companies – Saudi Arabia – Telecom Company Name Saudi Telecom Co Etihad Etisalat Company Saudi Mobile Telecommunications Co Total

Growth 2% 9%

9 Source: Thomson Reuters Eikon, Markaz Research

Market Cap (USD mn) 21,012 11,666 2,912 35,590

2Q11 602 310 -120 793

2Q12 642 379 -105 916

Growth 7% 22% NM 16%


Kuwait – 2Q12


Kuwait banks and telecom companies disappoint Quarterly Earnings Trend (USD Mn)

Earnings Growth – YoY (%)

2,500 2,000

2,009

1,473

1,500 1,112 1,000

Q2 2012

-27%

Q1 2012

-27%

978 811

500 Q4 2011

0%

Q1 2011

Q2 2011

Q3 2011

Q4 2011 -118

Q1 2012

Q2 2012 Q3 2011

-500

 Kuwait’s financial services sector ended in a loss of USD 39mn in 2Q12 while conglomerates closed with a loss of USD 67mn.  Among the profitable sectors too, most experienced a lull. Banking and telecom sector earnings dropped 25% and 20% respectively over the year.

 The real estate sector posted a growth of 39% YoY. 11 Source: Thomson Reuters Eikon, Markaz Research

-65%

-9%

Q2 2011

Q1 2011

-100%

-50%

80% 0%

50%

100%


NBK, Gulf Bank and KIB deliver lackluster numbers Quarterly Sectoral Earnings Trend (USD Mn) 3,000

2,009

2,000 1,080 1,000

-

1,277

345

383

595

524

Q3 2010

Q4 2010

1,473

1,112

811 301

565

505

571

405

555

310 380

Q1 2011

Q2 2011

978 Q3 2011

Q4 2011

Q1 2012

Q2 2012

-1,000 -628 -2,000

351

388

Others Construction Related Financial Services Telecommunications

367

-118

Conglomerates Real Estate Commodities Banks

 In 2Q12, Kuwait Banks saw their bottom-line come in at USD 380mn (-25% YoY, -32% QoQ). All major banks witnessed a net income decrease on YoY basis, for the second consecutive quarter.  National Bank of Kuwait took a severe beating, its net income declining 41% YoY; Gulf Bank and Kuwait International Bank’s incomes plunged 38% and 22% respectively.

 Global Investment House and KAMCO experienced 2Q12 losses of USD 34mn and USD 12mn respectively. Wataniya’s profits fell 50% to USD 68mn, while Zain’s dropped 1% to USD 254mn. 12 Source: Thomson Reuters Eikon, Markaz Research


Top companies – Sector – Growth Rate – 2Q12 Top Companies – Kuwait – Banking Market Cap Company Name (USD mn) 2Q11 2Q12

Top Companies – Kuwait – Financial Services Growth

Company Name

Market Cap (USD mn)

2Q11

2Q12

Growth

1,555

31

31

-1%

National Bank of Kuwait

16,090

240

142

-41%

Kuwait Projects Co Holding

Kuwait Finance House

7,588

83

79

-5%

National Investments Co

326

18

-3

NM

Gulf Bank

4,100

31

19

-38%

Commercial Bank of Kuwait

3,551

0

0

-7%

ALAFCO Aviation Lease & Finance Co

781

13

12

-7%

Boubyan Bank

3,880

8

10

17%

Commercial Facilities Co

538

9

18

93%

Al Ahli Bank of Kuwait

3,250

44

35

-21%

International Finance Co

239

-9

0

NM

Burqan Bank Ahli United Bank

2,378 3,812

49 39

49 38

-1% -2%

KIPCO Asset Management Co

219

1

-12

NM

Kuwait Financial Centre

217

5

-6

NM

947 45,595

9 505

7 380

-22% -25%

Global Investment House

228

-61

-34

NM

4,102

7

6

-19%

2Q12 32 29 28 4 4 97

Growth -35% 37% -2% -85% -95% -51%

Kuwait International Bank Total

Top Companies – Kuwait – Telecom Market Cap Company Name (USD mn) 2Q11 2Q12

Top Companies – Kuwait – Others Growth

Mobile Telecommunications Co

11,425

256

254

-1%

National Mobile Telecom

3,969

136

68

-50%

15,394

393

322

-18%

Total

Total

Company Name Kuwait Food Company Americana Mabanee Co Agility Public Warehousing Co National Industries Group Holding Gulf Cable and Electrical Industries Total

Note: Companies that have not declared their 2Q12 results on the date of this report are marked as NA in the 2Q12 and 2Q11 columns. 13 Source: Thomson Reuters Eikon, Markaz Research

Market Cap (USD mn) 1,842 2,363 1,443 955 857 7,458

2Q11 49 21 29 25 76 199


United Arab Emirates – 2Q12


UAE earnings fairly stable Quarterly Earnings Trend (USD Mn) 3,500

3,000

3,130

2,836

Earnings Growth – YoY (%) 3,009

Q2 2012

12%

2,693

2,500 Q1 2012

2,050

10%

2,000 1,416

1,500

Q4 2011

NM

Q3 2011

-4%

1,000 500 Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2011

Q2 2012

 UAE 2Q12 corporate profits grew 12% YoY; registered a 4% decline over the quarter settling at USD 3bn.  Banking continued to dominate corporate profits with more than half the country’s earnings coming from that sector. Earnings deteriorated 7% YoY, while a 2% increase over the quarter was recorded.

Q1 2011

-20%

15 Source: Thomson Reuters Eikon, Markaz Research

37%

1% 0%

20%

40%


Real Estate sustains its recovery Quarterly Sectoral Earnings Trend (USD Mn)

4,000 3,000 2,000 1,000

2,126 518

1,304

Q3 2010

-2,287

2,836

2,693

551

490

1,640

1,740

1,354

Q1 2011

Q2 2011

Q3 2011

800 903 Q4 2010

2,050 536

1,416 312 960 Q4 2011

3,130

3,009

583

597

1,588

1,618

Q1 2012

Q2 2012

-1,000 -2,000 -3,000 -4,000

Others

Conglomerates

Construction Related

Real Estate

Financial Services

Commodities

Telecommunications

Banks

-5,000

 Abu Dhabi Commercial Bank’s 2Q12 net income dropped 45%, ENBD’s by 13% and Commercial Bank of Dubai’s by 7% over the year.  The Telecom sector posted a strong 22% YoY growth at USD 597mn; a 2% increase over the quarter. Emirates Integrated Telecom (Du) posted a 57% YoY rise in net profit taking the figure to USD 89mn, while ETISALAT’s earnings rose 17% during the same period.

 The Real Estate sector sustained its recovery with 2Q12 profits of USD 355mn; a QoQ increase of 4%.

16 Source: Thomson Reuters Eikon, Markaz Research


Top companies – Sector – Growth Rate – 2Q12 Top Companies – United Arab Emirates – Banking Company Name National Bank of Abu Dhabi First Gulf Bank Emirates NBD Bank Mashreqbank Abu Dhabi Commercial Bank Dubai Islamic Bank Union National Bank Commercial Bank of Dubai National Bank of Fujairah United Arab Bank Total

Market Cap (USD mn) 8,714 6,723 4,101 2,993 5,043 1,933 1,889 1,554 1,587 841 35,380

2Q11 279 242 203 78 363 90 113 71 20 20 1,480

2Q12 285 277 176 87 200 84 124 66 19 32 1,351

Top Companies – United Arab Emirates – Real Estate Growth 2% 14% -13% 12% -45% -6% 10% -7% -5% 64% -9%

Company Name Emaar Properties Aldar Properties Sorouh Real Estate Co Deyaar Development Union Properties Total

Market Cap (USD mn) 4,727 1,235 729 467 371 7,529

2Q11 68 35 30 5 -142 -4

2Q12 167 114 40 5 23 349

Growth 146% 228% 34% 3% NM NM

Top Companies – United Arab Emirates – Telecom Market Cap Company Name (USD mn) 2Q11 2Q12 Growth Emirates Telecom. Corp 19,741 434 508 17% Emirates Integrated Telecom. 3,809 56 89 57% Total 23,550 490 597 22%

Top Companies – United Arab Emirates – Construction Related Company Name Arkan Building Materials Co Arabtec Holding National Marine Dredging Drake and Scull International Total

Market Cap (USD mn) 372 1,210 589 493 2,664

2Q11 3 8 29 14 54

2Q12 Growth 5 60% -3 NM 26 -12% 7 -49% 35 -36%

Top Companies – United Arab Emirates – Others Market Cap Company Name (USD mn) 2Q11 2Q12 Growth Dubai Financial Market 2,065 4 3 -31% Abu Dhabi National Energy 2,048 118 122 3% Dana Gas Co 665 34 49 46% Total 4,778 156 174 11%

17 Source: Thomson Reuters Eikon, Markaz Research


Qatar – 2Q12


Qatar growth firms up Quarterly Earnings Trend (USD Mn)

Earnings Growth –YoY (%)

2,900

2,790

2,800

Q2 2012

2,738

8%

2,700 2,605

2,600 2,500

2,445

Q1 2012

2%

2,485 Q4 2011

2,413

50%

2,400 Q3 2011

2,300

35%

2,200 Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

 Qatar 2Q12 earnings grew 8% YoY and 5% over the quarter stabilizing at USD 2.6bn.  Earnings of the commodities sector (Industries Qatar) grew 3% YoY and 12% over the quarter reaching USD 585mn.  The real estate sector witnessed a 35% growth in net income YoY and a 14% growth over the quarter. Financial services and construction related sectors posted YoY net income growth of 18% each, while income decline on a QoQ basis.

Q2 2011

23%

Q1 2011

19 Source: Thomson Reuters Eikon, Markaz Research

14% 0%

20%

40%

60%


Banking continues its stable growth while telecom suffers Quarterly Sectoral Earnings Trend (USD Mn) 3,000 2,500 2,000 1,500

Others Construction Related Financial Services Telecommunications

2,030

132 391

1,000 500

Conglomerates Real Estate Commodities Banks

1,859

212

2,738

2,790 2,485

2,445

2,413

211

146

575

570

570

479

691

463

172

2,605

196

524

585

390

917

848

978

1,049

1,069

1,023

1,105

1,142

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

-

 Qatar banks registered a 9% increase in 2Q12 net income over the year even as they maintained 3% increase over the quarter. While Qatar National Bank and Commercial Bank of Qatar held up the sector’s results, Qatar Islamic Bank was a dampener recording a 9% YoY decline in second quarter earnings.  The telecom sector failed to impress with net income falling 6% in 2Q12 as compared to 2Q11, while the QoQ fall was 11%. Qatar Telecom’s quarterly earnings plunged 11% YoY to USD 176mn whereas Vodafone Qatar incurred a loss of USD 32mn. 20 Source: Thomson Reuters Eikon, Markaz Research


Top companies – Sector – Growth Rate –2Q12 Top Companies – Qatar – Banking Market Cap Company Name (USD mn) 2Q11 2Q12 Qatar National Bank 25,560 497 580 Commercial Bank of Qatar 4,750 140 150 Qatar Islamic Bank 4,952 105 96 Masraf Al Rayan 5,562 100 102 Doha Bank 3,122 93 96 Qatar International Islamic Bank 2,025 45 45 Al Khalij Commercial Bank 1,661 36 38 Ahli Bank 1,817 33 34 Total 49,449 1,049 1,142

Growth 17% 7% -9% 2% 3% 1% 8% 1% 9%

Top Companies – Qatar – Real Estate Operations Company Name

Market Cap (USD mn)

2Q11

2Q12

Growth

Ezdan Real Estate Company

14,512

18

54

196%

Barwa Real Estate Company

2,859

56

83

48%

United Development Company

1,639

56

44

-22%

19,010

131

181

39%

Total

Top Companies – Qatar – Commodities Market Cap Company Name (USD mn) 2Q11 2Q12 Industries Qatar 19,215 570 585 Total 19,215 570 585

Top Companies – Qatar – Telecom Market Cap Company Name (USD mn) 2Q11 2Q12 Qatar Telecom(Q Tel) 9,281 198 176 Vodafone Qatar 2,104 -45 -32 Total 11,385 153 144

Growth 3% 3%

Growth -11% NM -6%

Top Companies – Qatar – Others Market Cap Company Name (USD mn) 2Q11 2Q12 Qatar Electricity & Water Co 3,653 121 96 Aamal Co 2,381 14 14 Qatar Gas Transport Co Ltd 2,371 53 56 Qatar Fuel 3,312 91 88 Qatar Navigation 1,850 43 43 Total 13,566 322 297

21 Source: Thomson Reuters Eikon, Markaz Research

Growth -21% 0% 6% -3% 1% -8%


Oman – 2Q12


Oman delivers steady earnings Earnings Growth –YoY (%)

Quarterly Earnings Trend (USD Mn) 500

469 439

450 400

56%

396

370

Q2 2012

334

350

300

300

19%

Q1 2012

250 200

10%

Q4 2011

150 100 Q3 2011

-1%

50 Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

 Oman’s corporate earnings grew an impressive 56% over the year, and 7% QoQ to USD 469mn, the highest in the last 8 quarters.  Banks and telecom held their positions recording increases in earnings of 5% each on a QoQ basis.

Q2 2011

-45%

Q1 2011

-22%

-100% -50%

23 Source: Thomson Reuters Eikon, Markaz Research

0%

50%

100%


Banking contributes to majority of incremental growth Quarterly Sectoral Earnings Trend (USD Mn) 500

Others

Conglomerates

Construction Related

Real Estate

Financial Services

Commodities

Telecommunications

Banks

450 400

401

305 41

250

53

150

92

300 35 17

27

200

39

99

19

32 7

334 24 27 106

33 13 107

45 47

39 46

103

109

165

173

Q1 2012

Q2 2012

101

100 50

469

396

370

350 300

439

119

126

138

Q3 2010

Q4 2010

Q1 2011

154

140

Q3 2011

Q4 2011

81

Q2 2011

 Most banks showed positive earnings growth in 2Q12. Bank Muscat’s net profit was up 19% YoY in 2Q at USD 91mn while Bank Dhofar’s first quarter earnings came in at USD 27mn.  Financial services delivered a decent set of numbers with bottom-line staying close to 1Q12 figure at USD 46mn, increasing more than 6 times over the 2Q11 number.  Telecom earnings rose 7% YoY (QoQ: 5%) to USD 109mn; Oman Telecom reported a 11% YoY increase in net income to USD 83mn. 24 Source: Thomson Reuters Eikon, Markaz Research


Top companies – Sector – Growth Rate – 2Q12 Top Companies – Oman – Banking Company Name Bank Muscat Bank Dhofar National Bank of Oman Ahli Bank Bank Sohar Total

Market Cap (USD mn) 2,763 1,195 838 510 384 5,689

2Q11 76 -39 24 9 10 81

2Q12 91 27 27 15 13 173

Growth 19% NM 10% 64% 30% 114%

Top Companies – Oman – Telecom Company Name Oman Telecommunications Company Omani Qatari Telecommunications Total

Market Cap (USD mn) 2,601 861 3,462

2Q11 75 26 101

2Q12 83 25 109

Growth 11% -3% 7%

Top Companies – Oman – Construction Related Market Cap Company Name (USD mn) 2Q11 2Q12

Growth

Raysut Cement Co

698

10

18

75%

Oman Cement Co

553

8

10

22%

Galfar Engineering & Contracting

235

3

4

14%

Oman Cables Industry

191

5

8

58%

1,676

27

40

48%

Total

Top Companies – Oman – Real Estate Operations Market Cap Company Name (USD mn) 2Q11 2Q12 Sahara Hospitality Company 37 1 1 Total 37 1 1

25 Source: Thomson Reuters Eikon, Markaz Research

Growth 21% 21%


Bahrain – 2Q12


Bahrain corporate earnings falter Quarterly Earnings Trend (USD Mn)

Earnings Growth –YoY (%)

600 521 475

500 419

Q2 2012

-29%

Q1 2012

0%

Q4 2011

N.M.

416 370

400 300 200

162

100

Q3 2011

332%

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

 Bahrain’s corporate profits plunged in 2Q12, a 29% YoY fall spurred largely by the commodities and banking sectors. The QoQ decline in Bahrain net income was 11%.  Bahrain Islamic Bank ended in a loss of USD 44mn, while Arab Banking Corp and United Gulf Bank saw their earnings deplete on a YoY basis by 25% and 13% respectively.

Q2 2011

Q1 2011

-100%

27 Source: Thomson Reuters Eikon, Markaz Research

7%

0%

0%

100% 200% 300% 400%


Dismal performance from Aluminium Bahrain Quarterly Sectoral Earnings Trend (USD Mn) 600

521 475

500 419

400 300

110

200

51

100

179

-100 -200 -300

88 -58

46

111

232

416

185 214 47 260

197

55 -51 Q3 2010

Q4 2010 -108

Q1 2011

57 43

56

Q2 2011

Q3 2011

162

94 49

76

248

62 35 Q4 2011

Others Construction Related Financial Services Telecommunications

370

Q1 2012

186 Q2 2012

Conglomerates Real Estate Commodities Banks

 Lower London Metal Exchange levels and higher gas costs impacted Aluminium Bahrain’s bottomline. The company’s net income (USD 94mn) was 49% lower than 2Q11.  Bahrain Telecom’s net profit of USD 49mn declined 13% over the year, impacted by lack of growth and stiff competition.

28 Source: Thomson Reuters Eikon, Markaz Research


Top companies – Sector – Growth Rate – 2Q12 Top Companies – Bahrain – Banking Market Cap (USD mn)

2Q11

2Q12

Ahli United Bank

3,035

84

88

4%

Arab Banking Corporation

1,431

68

51

-25%

National Bank of Bahrain

1,248

28

29

5%

Al Baraka Banking Group

959

34

38

BBK

903

30

United Gulf Bank

518

Ithmaar Bank

Company Name

Growth

Top Companies – Bahrain – Financial Services Market Cap Company Name (USD mn) 2Q11 2Q12

Growth

Gulf Finance House

285

-11

5

NM

Securities and Investment Co

350

3

-1

NM

Esterad Investment Co

60

-8

0

NM

13%

Bahrain Middle East Bank

42

1

0

-87%

30

-1%

Total

1,375

-15

4

NM

8

7

-13%

322

1

1

61%

Al Salam Bank Bahrain

163

4

-7

NM

Bahrain Islamic Bank

237

4

-44

NM

Khaleeji Commercial Bank

104

1

-

-100%

TAIB Bank

307

-3

-8

NM

9,227

260

186

Total

-28%

Top Companies – Bahrain – Telecom Company Name Bahrain Telecommunications Co. Total

Top Companies – Bahrain – Others Company Name Aluminium Bahrain

Market Cap (USD mn) 2,034

2Q11 185

2Q12 94

Growth -49%

29 Source: Reuters Eikon, Markaz Research

Market Cap (USD mn) 1,757 1,757

2Q11 56 56

2Q12 49 49

Growth -13% -13%


Annual Results

Saudi Earnings (USD Mn) 30,000 25,000

GCC Earnings (USD Mn) 70,000

50,000

15,000

48,921

20,844 15,643

52,252

56,499

12,472

10,000 5,000

41,581

40,000

23,044 21,445

20,000

64,381

60,000

27,187 24,837

-

34,769 34,720

2006 2007 2008 2009 2010 2011 2012E

30,000 20,000

Kuwait Earnings (USD Mn)

10,000

18,000

15,802

16,000

2006

2007

2008

2009

2010

2011

2012E

14,000 12,000 10,000

8,983

8,000 4,906

6,000 4,000

2,000

4,147 3,940

-1,003 -76

-2,000 2006

30 Source: Thomson Reuters Eikon, Markaz Research

2007

2008

2009

2010

2011 2012E


Annual Results Qatar Earnings (USD Mn)

UAE Earnings (USD Mn) 15,039

16,000 14,000 12,000

12,000

12,758 10,815

9,756

9,064

10,000

10,828

6,000 4,961

6,000

6,482

11,233

8,121

7,507

4,733

4,000

4,000

2,000

2,000 -

-

2006 2007 2008 2009 2010 2011 2012E

2006

Oman Earnings (USD Mn) 1,800

1,690

1,569

1,600

1,400 1,200

9,482

10,000 8,000

8,000

10,367

1,463

1,650 1,405

1,255

2009

3,000 2,500

800

1,000

600

500

400

-

200

-500

2007

2008

2009

2010

2011 2012E

2010

2011 2012 E

2,445

1,909

1,781

1,741 1,660

1,500

1,000

2006

2008

Bahrain Earnings (USD Mn)

2,000

1,036

2007

1,058

2006 2007 2008 2009 2010 2011 2012E

-1,000

-1,500

31 Source: Thomson Reuters Eikon, Markaz Research

-856


MARKAZ RESEARCH September 2012

Disclaimer This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by the Capital Markets Authority and 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) may seek 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 the objectivity of this report. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of Markaz, Markaz has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Markaz‟s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or Markaz‟s website shall be at your own risk. For further information, please contact „Markaz‟ at P.O. Box 23444, Safat 13095, Kuwait ; Email: research@markaz.com ; Tel: 00965 1804800; Fax: 00965 22450647.


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