Kuwait’s cor­po­rate re­sults show pos­i­tive mo­men­tum


Kuwait Times - - BUSINESS -

The fi­nan­cial re­sults of Kuwaiti ex­change-listed com­pa­nies con­tin­ued to sig­nal some soft­ness, though per­for­mance did ap­pear to sur­prise on the up­side. The cor­po­rate sec­tor has felt the heat of the cur­rent low oil price en­vi­ron­ment with signs of weak­ness more preva­lent in non­bank fi­nan­cial ser­vices and real es­tate. How­ever, profit announcements seemed to sur­prise on the up­side with stocks mak­ing good gains since the re­port­ing pe­riod com­menced. Eq­ui­ties have also been sup­ported by a gen­er­ally im­proved sen­ti­ment brought about by the sale of Amer­i­cana to a UAE in­vestor.

Earn­ings of listed cor­po­rates de­clined by 6 per­cent year-on-year (y/y). The ag­gre­gate prof­its of 166 re­port­ing com­pa­nies, out of a to­tal of 171 Kuwaiti com­pa­nies listed on Boursa Kuwait, de­clined to KD 1.1 bil­lion in the first nine months of 2016 (9M16). Profit growth would still show a 4.2 per­cent y/y decline even af­ter mak­ing an ad­just­ment for a large one-time gain recorded in 1Q15 by one of the banks. Losses also grew; re­ported losses rose to KD 82 mil­lion, an in­crease of 59 per­cent y/y, while the num­ber of loss-mak­ing com­pa­nies was sta­ble at 40. How­ever, earn­ings re­sults ap­peared to im­prove in 3Q16 com­pared to the first half of the year.

The large decline in oil prices since the mid­dle of 2014 has clearly hurt the per­for­mance of cor­po­rates as the oper­at­ing en­vi­ron­ment proved more chal­leng­ing. To­tal rev­enues for a sam­ple of 130 listed com­pa­nies saw a decline of 2.7 per­cent y/y for 9M16. This is the sec­ond con­sec­u­tive year of de­clines in to­tal rev­enues. How­ever, busi­ness ac­tiv­ity should be on track to re­cover as nonoil growth is ex­pected to pick up slightly in 2017 driven by in­vest­ments.

Non-bank fi­nan­cial ser­vices ac­counted for most of the decline in prof­its, with sec­tor earn­ings down by 69 per­cent y/y. The poor per­for­mance of GCC eq­ui­ties ear­lier in 2016 ap­peared to weigh on the port­fo­lios of in­vest­ment com­pa­nies. Also, low vol­umes in the lo­cal bourse likely weighed on the sec­tor’s commission income. As a re­sult, 14 com­pa­nies in the sec­tor suf­fered ag­gre­gate losses of KD 53 mil­lion. Of the 41 com­pa­nies that an­nounced 9M16 re­sults, 27 saw their prof­its decline com­pared to 9M15.

Real es­tate com­pa­nies were also a main con­trib­u­tor to weak­ness. To­tal sec­tor prof­its re­treated 28 per­cent y/y and the decline was broad-based; around 60 per­cent of re­port­ing com­pa­nies saw prof­its down on the year and 15 re­ported losses com­pared to 11 in 9M15. This co­in­cided with a sharp de­crease in ac­tiv­ity in the real es­tate mar­ket and a no­table price cor­rec­tion. The value of sales was down 27 per­cent y/y in 9M16 and NBK real es­tate price in­dices are off by 1316 per­cent y/y.

Bank re­sults were mixed with some reg­is­ter­ing dou­ble-digit growth just as oth­ers saw no­table de­clines in earn­ings. On a sec­tor level, prof­its were off 0.5 per­cent y/y in 9M16. How­ever, on an ad­justed ba­sis, to­tal sec­tor prof­its were up 3.9 per­cent y/y as banks con­tin­ued to show re­silience in the cur­rent low oil price en­vi­ron­ment and amid con­cerns in Kuwait and the re­gion that eco­nomic growth might be mod­er­at­ing.

The con­sumer sec­tor was the main con­trib­u­tor to growth de­spite com­ing off its more ro­bust per­for­mance of the pre­vi­ous few years. On ag­gre­gate, prof­its of con­sumer ser­vices and con­sumer goods sec­tors in­creased by 11 per­cent and 10 per­cent y/y, re­spec­tively. How­ever, more than half of the com­pa­nies in these sec­tors saw de­clines in prof­its.

Profit announcements seemed to have sur­prised on the up­side. Boursa Kuwait’s value weighted in­dex is up 4.7 per­cent since the end of Septem­ber. A sam­ple of 11 blue chip com­pa­nies an­nounced net prof­its 19 per­cent above the mean an­a­lyst es­ti­mates. Out of this sam­ple, only two com­pa­nies saw neg­a­tive earn­ings sur­prises. Also, the ac­qui­si­tion of a con­trol­ling stake in Amer­i­cana by a UAE in­vestor gave mar­ket sen­ti­ment a ma­jor boost.

Khal­ifa Univer­sity stu­dents be­side an Air­bus A380 en­gine at the Eti­had Air­ways En­gi­neer­ing hangar.

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