The fourth-quarters results of Saudi Arabia’s listed companies presented a mixed picture with most of the domestic consumption-driven sectors reporting weaker results, whereas insurance and export-driven petrochemical sectors reported better performance, said a report.
An initial analysis of the overall results suggest increasing cost pressures at multiple levels for the consumption-driven sectors as companies try to maintain revenues through discounts and promotional offers, Al-Rajhi Capital’s research team in its latest report.
According to the report, aggregate annual net profit for Saudi listed companies declined 5 percent year-on-year in 2016 while revenue declined 2 percent year-on-year. 
However, excluding four sectors (banks, petchem, energy and insurance), aggregate net profit was down 20 percent year-on-year while top-line was down 3 percent year-on-year, implying higher cost pressures especially for the domestic activity driven sectors. 
Economists at Al-Rajhi Capital said: “Overall, we are cautious about the near term outlook for the consumption-driven domestic sectors given that the full effect of the allowance cut was seen only for 1-2 months in Q4 results and is likely to be felt going forward with likely more pressure coming from the new expat levy and hike in energy and utility charges.”
On the other hand, they added, the heavy weight petrochemical and banking sectors are likely to see relatively more stable performances, as we do not expect the pockets of weaknesses seen in Q4 to materially aggravate.”
Compared to the 20 percent year-on-year decline in net profit, operating profit was down 14 percent year-on-year for these companies, which could be partly attributed to the rise in SAIBOR levels increasing borrowing costs. 
The report said that Q4 performance was weaker than 2016 as a whole implying weakness toward the end of the year, which may carry on to the coming quarters. 
Net profit of petrochemical sector grew 8 percent in 2016 broadly in-line with expectations after a steep 38 percent fall in net profit last year, it said. 
Analysts at Al-Rajhi said that decline in revenue was more than offset by lower costs (due to both feedstock and cost cutting measures) leading to higher profit. However margins may weaken in the near term due to rising feedstock costs and relatively stable product prices, they added 
The report described the insurance sector as one of the better performing sectors with net profit more than doubling in 2016 as companies improved efficiencies and benefitted from higher pricing. 
Industrial sectors, the report added, such as cement saw profits coming much below expectations as price competition intensified with additional supplies coming to the market. 
Economists at Al-Rajhi said: “We believe that sales volume and selling prices will continue its downward trend.” 
“On the other hand, the heavyweight petrochemical and banking sectors are likely to see relatively more stable performances as we do not expect the pockets of weaknesses seen in Q4 to materially aggravate going forward.”

Source: Arab News