Forecasts Report
Saudi Stock Market | Q3-2022
2022
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AJC Research Team
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© All rights reservedForecasts Q3-22 – Earnings to expand 15% Y/Y led by MAADEN, Banking and Telecom; Petrochemical to drag sequential profits
We present the forecasts for 40 companies under our coverage across multiple sectors for Q3-22. A combined result of these companies (excluding Aramco) is expected record a growth of 15.4% Y/Y at SAR 23.6bn, as compared to SAR 20.5bn in Q3-21. The expected growth in MAADEN (+132.0% Y/Y), and Banking (+16.4% Y/Y) and Telecom (+6.1% Y/Y) sectors’ earnings are likely to be key contributors to the annual increase in combined result. Excluding the petrochemical sector, all other sectors are forecasted to post a Y/Y growth in earnings. On a Q/Q basis, combined net profit for our covered companies is estimated to decline 16.1%, mainly due to a 30.3% decline in the petrochemical sector and 26.7% fall in MAADEN. Saudi’s Petrochemical sector is estimated to register a net income of SAR 9.1bn vs. SAR 9.2bn in Q3-21 and SAR 13.1bn in Q2-22, mainly due to lower product prices, decline in demand and contraction in margins.
The earnings growth for the Shariah banks (excluding Bank Aljazira) in Saudi Arabia is anticipated to be robust at 16.4% Y/Y on the back of estimated healthy credit growth of 24.4% Y/Y. The telecom sector is likely to post an earnings growth of 6.1% Y/Y driven by revenue growth across all segments. Cement sector’s bottom line is expected to jump by 38.9% Y/Y to SAR 543.7mn in Q3-22, led by a strong growth in Yamama Cement.
Saudi market ended slightly lower in Q3-22, falling by 1.0% from the previous quarter. A substantial decline in oil prices owing to the demand concerns surrounding a global economic slowdown weakened the market outlook. The aggressive rate hike by the US Federal Reserve in an effort to tame stubborn inflation added to the pressure. However, the strength in the domestic economy, better Hajj season and overall improvement in non-oil economic activities lent some support.
Crude oil prices dropped significantly during the quarter, reaching USD 84.1 per barrel at its lowest. On a QTD basis, oil was down 23.4%
to USD 88.0 per barrel. However, the prices were up 12.0% Y/Y. Saudi oil exports rose 3% M/M or 17% Y/Y to 7.38 mbpd in July. Total oil output stood at 10.78 mbpd in July and 10.96 mbpd in August (the highest recorded in two years).
In Q2-22, Saudi’s GDP jumped 12.2% Y/Y (Q1-22: +9.9% Y/Y), led by a strong growth of 22.9% Y/Y in oil GDP, aided by 8.2% growth in non-oil GDP. On a seasonally adjusted Q/Q basis, GDP expanded 2.2% compared to a 2.6% increase in Q1-22. Money supply rose 0.3% M/M and 9.0% Y/Y in August 2022. Total demand deposits were up 0.3% M/M and 6.5% Y/Y in August. The manufacturing activity remained robust with the Purchasing Managers’ Index (PMI) increasing to 57.7 in August (the highest since October 2021) compared to 56.3 in July. The Industrial Production Index jumped 17.7% in July. The non-oil sector is expected to have maintained healthy growth in Q3-22 driven by increased consumer spending, travel and economic activities. Consumer spending witnessed a growth of 13.2% Y/Y or 4.0% M/M in August, despite inflation edging up further. Inflation in August reached 3.0% compared to 2.7% in July. Restaurants and Hotels, and Education were the key contributors to the rise in inflation.
SAMA raised repo, and reverse repo rates by 150 bps (July: 75 bps; September: 75 bps) during Q3-22, matching the hike by the US Federal Reserve. As a result, the repo rate currently stands at 375 bps, and reverse report rate is at 325bps. SAIBOR 3M jumped 118 bps to 4.1% by end of Q3-22 from 2.9% by the end of the previous quarter.
The steep rate hikes this year are expected to have weighed on the cost of borrowings and, ultimately on the earnings of heavily leveraged companies. Additionally, slowing global growth, and hence global demand, would impact the earnings of export-dependent firms. However, a strong recovery in KSA economy and favorable performance on almost all economic indicators would support growth for the companies more dependent on the local economy.
Banking sector: Lending momentum likely to continue with possible alteration in loan mix; repricing of loan assets expected to offset the rise in finding cost
The US Federal Reserve’s hawkish stance has set the tone for the monetary policy in KSA as SAMA mirrored the increase in repo rate and reverse repo rate following the 75 bps hike announced by the Fed in the September FOMC meet. SAMA’s repo rate now stands at 3.75% while the SAIBOR continues to maintain a premium to the policy rate indicating tight liquidity. Loan growth in Q3-22 is expected to be driven by sustained demand for mortgages, emerging MSME businesses and stable Retail (ex. mortgage), which could together offset the anticipated slowdown in large corporate loans. As for the banks under our coverage, we expect Albilad’s MSME segment to fair well while AlRajhi is expected to continue to outgrow the sector in mortgage lending, while Alinma’s retail book is expected to expand. For the 3 banks combined, our estimate for loan growth is 24.4% Y/Y with Al Rajhi, despite of its large size; leading the pack at 29.6% Y/Y growth driven by continued growth in mortgage. While deposits are expected to grow 18.6% Y/Y for the 3 banks at an aggregate level. Al Rajhi’s deposit base is expected to expand by 20.2% Y/Y although with a further decline in the CASA balances. Alinma’s deposit base is expected to expand at a decent rate (15.1% Y/Y) while continuing to improve its CASA mix. In terms of improvement in the earnings we expect Alinma to post a 28.8% Y/Y increase on the back of higher efficiency, better deposit mix and cautious approach towards balance sheet growth. With regards to Albilad, we expect higher margins in MSME and scope for improving efficiency coupled with stable outlook for COR to drive the net income (Our estimate: 16.2% Y/Y). In case of Al Rajhi, we expect continued support from high yield and low risk mortgages and improved outlook on corporate growth to aid bottom line growth (Our estimate: 14.0% Y/Y) although the increasing time deposit mix and a probable rise in COR (considering high corporate growth) could act as an impediment.
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© All rights reservedSaudi Petrochemical Sector: Earnings to be impacted by decline in products prices and sluggish demand amid economic slowdowns
Saudi Petrochemical sector’s net income is likely to fall 1.4% Y/Y to SAR 9.1bn in Q3-22. On a Q/Q basis, earnings would plunge 30.3%
due to decline in product prices and an impact of sluggish demand due to slowing economic growth globally, in addition to contraction of GP margins. However, reduction in shipping costs owing to easing supply chain pressures would help keep costs under control.
Crude oil (Brent) prices declined 23.4% Q/Q to USD 88.0 per barrel during the quarter. Subsequently, average naphtha prices decreased 18.9% Q/Q to USD 713/tonne in Q3-22. LPG feedstock were also down with average propane prices falling 19.5% Q/Q, while Butane decreasing 21.6% Q/Q.
Manufacturing activity was subdued amid ongoing recession concerns. US manufacturing PMI was unchanged at 52.8 in August, while China and Eurozone with PMI 49.5 and 49.6, respectively, recorded contraction in manufacturing activities.
Although there was a sharp decline in feedstock prices, the drop was even steeper for some of the products owing to weaker demand.
Average quarterly prices for VAM plummeted 27.1% Q/Q in Q3-22, as the demand was impacted by subdued construction activity during summer and lower consumer spending due to inflationary pressure. Acetic acid prices declined 26.8% Q/Q amid easing supply and slowing downstream demand. Polycarbonate prices continued the downtrend, falling 25.2% Q/Q, due to lower demand from automobile and construction industry. MTBE prices decreased 19.0% Q/Q, as its demand in gasoline blending was impacted by weaker gasoline crack spreads. Urea prices were highly volatile during the quarter and average prices for the quarter were down 16.7% Q/Q, as tight supply due to production shutdowns in Europe amid higher gas prices was outweighed by the softer demand. MEG (Asia) dropped 18.3%
Q/Q, while MEG (SABIC) fell 9.6% Q/Q. Methanol prices decreased 12.3% during the quarter due to rising supply. Among PE grades, LDPE declined the most, diving 21.3% Q/Q; HDPE and LLDPE prices were down 16.4% and 16.8%, respectively. PP-Asia prices fell 15.2% Q/Q due weaker end user demand and rising inventory levels.
SABIC’s net profit is expected to drop 31.6% Q/Q to SAR 5,419mn in Q3-22 due to lower revenue and gross margin. The decline in revenue would be primarily attributable to lower product prices and lower contribution from its fertilizer segment compared to the previous quarter, which included a one-off recognition of revenue from delayed shipments. SABIC Agri-Nutrients is likely to register earnings of SAR 2,218mn, a decline of 26.7% Q/Q due to lower Urea prices and lower volumes (as the previous quarter included a one- off). Additionally, decrease in product prices are likely to squeeze GP margin given the fixed cost of feedstock. Sipchem’s net profit is expected fall 23.9% Q/Q at SAR 961mn, mainly impacted by a decline in prices and volumes of key product, VAM and AA. KAYAN is expected register a net loss of SAR 63mn in Q3-22 vs. a net profit of SAR 150mn in Q2-22, as pressure on product prices, decrease in volumetric sales, and elevated finance charges are likely to drag the company into losses.
Telecom Sector: Healthy operational performance with topline growth across segments; normalized net income growth solid
In Q3-22, the telecom sector’s earnings are estimated to grow 6.1% Y/Y, while excluding the one-off gain registered by STC in Q3-21, normalized earnings for the sector are expected to increase 12.8% Y/Y. The sector’s topline is forecast to keep the momentum with a growth of 8.1% Y/Y, benefitting from the higher number of visitors during Hajj and summer season, consumer segment recovery, growing 5G revenue and continued demand from B2B segment. On a Q/Q basis, the telecom sector is expected to register a 4.0% increase in net income, primarily driven by a 5.1% increase in STC’s bottom line. The GP margin for the sector is likely to remain steady, lower margin for Zain KSA would be offset by improved margins for STC and Mobily. STC is forecast to register a net income of SAR 3.0bn, up 1.9% Y/Y, as higher revenue (+8.0% Y/Y) and better margins would be partially offset by a one-off gain registered in Q3-21. Mobily’s net income for Q3-22 is expected to jump 24.2% Y/Y to SAR 349mn on account of revenue growth of 5.0% Y/Y and higher margins. Zain KSA is estimated to double its net profit with a surge of 124.1% Y/Y due to strong revenue growth (+14.0% Y/Y) and lower depreciation and amortization expenses as a result of the tower sale agreement.
Cement Sector: Government projects and construction activities to drive earnings in Q3-22, higher realization per tonne to aid Y/Y growth
Cement companies recorded volumetric sales of 7.39MT in the first two months of Q3-22, a growth of 11.8% Y/Y. The growth is expected to continue in September. The construction activities improved in Q3-22 with prices of construction materials falling, and increased demand from Ministry of Housing projects and other government mega projects. Additionally, the higher realization per tonne Y/Y would support the sector’s revenue and margins. The net profit of cement companies under our coverage are expected to grow 45.6% Y/Y and 23.2% Q/Q, despite the seasonality effect, to SAR 543.7mn, mainly led by growth in Yamama Cement. Yamama cement is estimated to post earnings of SAR 138.5mn, a growth of 246.4% Y/Y and 52.7% Q/Q, primarily on account of a growth in dispatches quantity and selling prices. Arabian Cement is expected to register a net income of SAR 64.1mn, an increase by 70.0% Y/Y and 42.4% Q/Q, mostly driven by the expected increase in local dispatches by 20.4% from last quarter. On the other hand, Qassim cement is expected to register a decline of 31.7% Y/Y in net income, but an increase of 42.5% Q/Q, to post SAR 41.3mn in net income.
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© All rights reservedRetail sector: Summer travel, back to school momentum, increase in pilgrim visits expected to support revenue amidst the weak consumption trend
Most companies in the retail sector were impacted by a weak consumption environment in Q2-22. We believe, summer travel, improved tourism momentum on back of uplifting of restrictions, and the back-to-school season is expected to support companies’ earnings in the slightly sluggish consumer spending environment. The value of point-of-sale (PoS) transactions rose by 21.2% Y/Y in August 2022, while the number of PoS transactions increased by 38.4% Y/Y. Consumer loans jumped by 13.1% Y/Y in Q2-22, while credit card loans surged 12.9% Y/Y in Q2-22. The retail sector’s earnings are expected to increase modestly by 4.2% Y/Y in Q3-22, supported by a high-single digit increase in top-line growth, while a significant contraction in GP margin (particularly of that of Bindawood, Leejam and Seera) would weigh on the sector’s bottom line. We expect Fawaz AlHokair to post earnings of SAR 25.9mn, an increase of 18.7% Y/Y compared to SAR 21.8mn in same quarter last year. Al Othaim’s bottom line is expected to improve by 13.9% Y/Y supported by 8.2% Y/Y growth in sales and a 90 bps Y/Y increase in gross margin. Jarir Marketing’s net profit is expected to decline by 3.2% Y/Y, as an estimated marginal uptick in revenue (1.6% Y/Y) is likely to be outweighed by the increase in costs. Leejam is expected to post earnings of SAR 64.4mn compared to SAR 76.2mn in Q3-21. SACO and Seera are expected to cut losses to SAR 13.2mn (vs loss of SAR 13.9mn in Q3- 21) and SAR 26.9mn (vs loss of SAR 72.0mn in Q3-21), respectively, in Q3-22.
Healthcare Sector: Seasonality to be present this quarter, yet partially offset by a supportive momentum in patient volumes and expansions
Companies in the healthcare sector are expected to have faced the seasonality of Q3 with different degrees and outcomes for this year.
Earnings for the sector (as for the companies covered) are positioned to experience an 18.9% Y/Y growth (down 3.1% Q/Q) driven by larger patient volumes and hospital (and clinic) capacities as revenues grow by 5.9% Y/Y. Dallah is expected to leverage its potential for growth on utilization rates, as well as increasing the capacity of its Nakheel hospital, and cost control initiatives to support its Y/Y and Q/Q growth in net income by 58.1% and 13.4%, respectively, (excluding the one off gain Dallah recorded in Q3-21 from the acquisition of Care Shield Holdings and Makkah Medical Center). Expectations for Sulaiman AlHabib Medical Group sets the group to also face the seasonal effects of the quarter at an 11.8% Y/Y increase in net income (down 2.1% Q/Q) driven by increase in patient volumes. Revenues are expected to sit at a relatively flat Q/Q increase supported by patient volumes towards the group. OPEX to edge up slightly (1.8% Q/Q) as the group undergoes strategic initiatives and faces expansions in the near horizon. Middle East Healthcare (MEH) is expected to post a 69.5% Y/Y decline (58% Q/Q) as revenues sit at a Y/Y increase with a modest Q/Q decline. MEH’s bottom line is expected to be pressured by several of its expansions kicking off at once (in Mecca, Jeddah, and Riyadh). Mouwasat’s net income is expected to post a modest 3.3% Y/Y decline (down 2.5 Q/Q), supported by its ramping up Dammam hospital, and new Medina expansion. Lower operating margins (down 90 bps Y/Y) are expected to pressure net income for the group. Net income for Care is anticipated to sit at a 15% Y/Y increase (down 8.7% Q/Q), supported by increase in operating margins as it is affected by the quarterly seasonality. Revenues for Care are to record a 1.6% Y/Y decline (down 3.1% Q/Q) as a result of the seasonality effect on the group. When excluding AlHammadi’s Q3- 21 one off loss from discontinuing its Olaya hospital, net income is set to grow 35.0% Y/Y (down 16.4% Q/Q) as OPEX shrinks by 19.6%
from the same quarter last year. Revenues for the group are expected to face the seasonal effect at a 7% Q/Q decline.
Miscellaneous Sector: Bottomline boosted by lifting of travelling restrictions and higher number of flights
The miscellaneous sector is estimated to register a net profit of SAR 149mn in Q3-22, compared to a net profit of SAR 56mn in Q3-21 and SAR 82.2mn in Q2-22. The sector’s net profit growth would be driven by growth in the bottom lines for Catering, Theeb, Budget Saudi, and SGS reducing losses. The sector would continue to benefit from the recovery in number of flights operating, increase in overall travelling – (domestic as well as international), summer vacation and hajj seasons during Q3-22. SGS’s net loss is forecast to decrease to SAR 12.2mn from a loss of SAR 43.5mn in Q3-21, as higher revenue owing to increased number of flights is expected decrease losses.
Catering is expected to post a net profit at SAR 50.2mn, compared to SAR 17mn in Q3-21 and SAR 43.5mn in Q2-22. The net profit would be supported by increased operating rates and higher margins. Theeb’s net profit is estimated at SAR 47.3mn, up 72.9% Y/Y and 9.8% Q/Q, driven by strong recovery in its core renting business and continued demand for used vehicles. Budget Saudi’s net profit is expected to increase 12.3% Y/Y to SAR 63.7mn. The growth in the lease and rental segments would support Budget Saudi’s earnings.
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© All rights reservedCode Company Name Forecasted-
Revenue Q3-22 Forecasted-Net
Profit Q3-22 Forecasted-
EPS Q3-22 Forecasted-
Q/Q growth Forecasted- Y/Y
growth Forecasted-
EPS FY22 Prospective PE-FY22 Banks
1120 Bank Alrajhi 7,243.4 4,324.5 1.07 1.6% 14.0% 4.20 19.7
1150 Bank Alinma 1,992.7 950.9 0.45 2.8% 28.8% 1.76 21.0
1140 Bank Albilad 1,325.4 522.6 0.52 2.3% 16.2% 1.99 24.5
Telecommunication Services
7010 STC 16,994.2 2,980.8 0.60 5.1% 1.9% 2.36 16.7
7020 Mobily 3,786.4 349.0 0.45 -2.9% 24.2% 1.77 20.0
7030 Zain 2,262.0 135.3 0.15 1.1% 124.1% 0.55 21.5
Food & Staples Retailing
4001 Al Othaim 2,160.9 51.0 0.57 9.3% 13.9% 3.92 32.0
4161 Bindawood 1,188.0 54.8 0.48 29.4% -22.0% 1.96 35.4
Retailing
4190 Jarir 2,259.1 263.8 2.20 48.9% -3.2% 7.88 21.3
4240 Fawaz Al Hokair* 1,442.1 25.9 0.23 -55.2% 18.7% 1.36 13.8
4008 SACO 277.2 -13.2 -0.37 NM NM -0.88 NEG
Materials
2010 SABIC 48,338.9 5,419.3 1.81 -31.6% -3.1% 8.49 10.6
2060 TASNEE 844.2 222.5 0.33 -25.1% -33.3% 1.59 8.8
2290 YANSAB 1,785.8 185.1 0.33 -35.9% 2.9% 1.78 26.3
2020 SABIC AGRI-NUTRIENTS 4,471.2 2,217.8 4.66 -26.7% 83.8% 19.91 7.9
2310 Sipchem 2,589.5 961.3 1.31 -23.9% -6.6% 5.75 7.3
2330 Advanced 673.6 85.2 0.33 -22.3% -60.9% 1.88 24.1
2350 KAYAN 2,793.4 -62.9 -0.04 NM NM 0.30 46.0
1211 MA'ADEN 9,974.2 2,951.3 1.20 -26.7% 132.0% 4.70 14.7
3020 Yamamah Cement 332.9 138.5 0.68 52.7% 246.4% 2.01 14.3
3030 Saudi Cement 332.6 92.7 0.61 -9.6% 57.8% 2.39 22.1
3050 Southern Cement 347.8 90.5 0.65 49.6% 8.5% 3.17 17.0
3040 Qassim Cement 181.7 41.3 0.46 42.5% -31.7% 1.93 39.7
3010 Arabian Cement 237.4 64.1 0.64 42.4% 69.9% 2.19 16.4
3060 Yanbu Cement 253.1 54.5 0.35 13.4% 49.7% 1.28 29.6
3003 City Cement 109.6 29.5 0.21 18.7% -22.5% 0.81 26.5
3080 Eastern Cement 167.7 32.6 0.38 -24.1% -13.5% 1.85 24.0
Health Care
4007 Hammadi 260.3 54.4 0.34 -16.4% HIGH 1.51 31.5
4002 Mouwasat 546.3 138.0 1.38 -2.5% -3.3% 5.74 35.3
4005 Care 209.8 38.4 0.86 -8.7% -15.6% 3.28 22.6
4004 Dallah 594.9 78.8 0.88 13.4% -7.0% 3.50 45.1
4013 Sulaiman Al Habib 2,024.2 389.9 1.11 -2.1% 11.8% 4.49 46.6
4009 Saudi German 503.5 4.5 0.05 -58.1% -69.5% 0.49 HIGH
Consumer Services
1810 SEERA 596.5 -26.9 -0.09 NM NM -0.59 NEG
1830 Leejam 256.9 64.4 1.23 78.8% -15.5% 4.24 18.4
Food & Beverages
2280 AlMarai Company 4,342.1 502.3 0.50 -3.5% 22.8% 1.78 30.1
Transportation
4260 Budget 245.6 63.7 0.90 2.0% 12.3% 3.53 12.5
4261 Theeb 238.7 47.3 1.10 9.8% 72.9% 4.13 17.3
4031 Saudi Ground Services 552.4 -12.2 -0.07 NM NM -0.57 NEG
Commercial & Professional Services
6004 Catering 438.2 50.2 0.61 15.4% 226.4% 2.12 34.1
Source: AlJazira Capital
Prices as of 2nd of October 2022 , *Fiscal year ends March 2023, NM: Not meaningful
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AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business.
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