Saudi petchem, retail earnings set to improve in Q1: Al Rajhi Capital

The aggregate earnings of Saudi Arabia's petrochemical and retail companies are likely to improve on a quarterly basis in Q1 2018, supported by increasing product prices and robust expansion plans, Al Rajhi Capital said in a new report.

The retail sector is expected to witness a healthy performance in Q1 with electronic retailers such as Jarir and Extra expected to benefit from market share gains on the back of regulatory changes such as mandatory Saudization of mobile shops and retreat of smaller electronic chains.

The petrochemical sector will also grow on a quarterly basis, driven by higher prices for most of the products as well as lower natural gas liquids (NGLs) costs, the report said.

Companies in the healthcare sector will follow suit and are expected to see their revenues jump on average by 14 percent with net profits registering a decent increase following high provisioning last year, Al Rajhi said.

Meanwhile, the cement and telecom sectors will remain tepid in Q1.

According to Al Rajhi forecast, the cement sector will witness a drop in revenues of 16 percent year-on-year (YoY), while earnings are likely to fall by 25 percent YoY.

Earnings in the telecom sector will also remain under pressure despite January saw an increase in prices. The sector has been impacted by lower expat population in the Kingdom and increasing usage of VoIP.

A tepid performance will be seen in the food sector as consumption slowdown weighs on revenue growth. Higher electricity and utility prices will also affect consumer sentiment.

While the Saudi Stock Market (Tadawul) remained among the best performing indices in the Middle East and North Africa (MENA) region, rising 8.6 percent YTD, Al Rajhi said the focus was now shifting to foreign investor inflows than on earnings, given the potential inclusion of Tadawul in FTSE Russell and MSCI emerging market (EM) indices.

"QFI ownership and net purchases of Saudi stocks, which reached SAR13.2 billion year-to-date (YTD), have been increasing over the last few months in anticipation of the FTSE inclusion while rising oil prices have also lent support," it said.