Forecasts Report
Saudi Stock Market | Q1-2022
2022
+966 11 2256248
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AJC Research Team
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© All rights reservedForecasts Q1-22 – Earnings to increase 46% Y/Y led by Petchem and Banking sectors’
We present our forecast of 40 companies in multiple sectors for Q1-22. A combined result of these companies (excluding Aramco) is expected at SAR 24.8bn, as compared to SAR 17.1bn in Q1-21, representing a surge of 45.0% Y/Y, primarily attributable to 65.0% Y/Y growth in the petrochemical sector. On Q/Q basis, the net profit is estimated to increase 12.2% due to 13.4% growth in the petrochemical sector and a 30.2% rise in MAADEN’s net profit. Saudi Petrochemical sector is likely to register a net income of SAR 11.7bn vs. SAR 7.1bn in Q1-21, driven by improved product prices and volumes. The Shariah banks (excluding Bank Aljazira) in Saudi Arabia are expected to post strong earnings growth of 22.0%Y/Y, driven by 24.8% rise in Al Rajhi’s earnings due to strong credit growth. The telecom sector is likely to post earnings growth of 3.3% Y/Y to SAR 3.3bn with strong growth expected from Mobily. On the contrary, cement sector’s bottom line is expected to decline 51.7% Y/Y to SAR 345.5mn in Q1-22.
In Q1-22, with receding impact of the Omicron variant of COVID-19 and an increase in vaccination (60mn doses administered as of February 18, 2022), business activity started recovering. In the second half of the quarter, government began easing COVID-19 related restrictions. Starting from March 05, 2022, all restrictions including social distancing norms, PCR and quarantine requirements on arrival in KSA as well as suspension of flights from certain countries were removed.
Crude oil prices surged 38.7% QTD to USD 107.9 per barrel as of March 31. Prices breached USD 100 per barrel mark towards the end of February, as Russia attacked Ukraine, which was followed by sanctions from several developed nations including the US and the UK on Russia. On Y/Y basis, the oil prices were up 69.8%. Saudi oil exports rose 0.9% M/M or 6.0% Y/Y to 7.0 mbpd in January, the highest level since April 2020. The Kingdom’s total oil output stood at 10.2 mbpd in February.
In Q4-21, GDP grew 6.7% Y/Y (Q3-21: 7.0%), primarily driven by growth of 10.9% Y/Y in oil GDP, aided by 5.1% growth in non-oil GDP. GDP growth for FY21 stood at 3.2%, higher than estimated 2.9% as per Budget 2022 report by Ministry of Finance. Money supply increased 1.6% M/M, while it rose 7.8% Y/Y in February 2022. Total deposits were up 8.7% Y/Y in February. Purchasing Managers’ Index (PMI) rose in February to 56.2 from 53.2 in January, recording the first increase in five months driven by growth in new business. Consumer spending rose by 10.0% Y/Y to SAR 88.6bn in February with POS transactions growing 25.0% to SAR 38.9bn. Inflation moved upward, with CPI rising 1.6% Y/Y in February, an eight-month high, because of global inflationary pressure on food and commodity prices amid ongoing Russia-Ukraine war.
SAMA raised repo rate to 125 bps from 100 bps and reverse repo rate to 75 bps from 25 bps on March 16, 2022. The move was followed by the US Federal Reserve increasing interest rates by 25 bps to range between 0.25% and 0.50%. The US Fed has indicated six more rate hikes in FY22.
In Q1-22, higher oil prices and increased oil production are expected to have supported the growth of Saudi oil economy. Moreover, non-oil economy is likely to have benefitted from easing of COVID-19 restrictions in March 2022. Going forward the growth is expected to continue this year with situation returning to normal. A high level of inflation and rising interest rates may play a positive role in Saudi market, supporting the cyclical and financial sectors, but it may negatively impact some other sectors.
Banking sector: Earnings momentum likely to continue; Alinma to benefit the most from an increase in interest rates
The banking sector is likely to continue the growth seen in the past few quarters, with most banks posting strong growth in deposits and loans. On a Q/Q basis, earnings are expected to increase 5.4%, driven by a 16.9% growth in Alinma’s earnings and 3.7% rise in Al Rajhi’s earnings. Shariah banks in Saudi Arabia are expected to post strong earnings growth on a Y/Y basis due to improving lending activity. Earnings in the sector are likely to increase by 22.0% Y/Y in Q1-22, driven by 14.5% Y/Y rise in net financing and investment income revenue. Advances and deposits are expected to increase by 25.2% and 20.0% Y/Y, respectively led mainly by Al Rajhi. Al Rajhi is expected to post net income growth of 24.8% Y/Y driven by 15.7% increase in net income from financing and investment income resulting from 32.6% growth in advances. Albilad’s net income is anticipated to increase by 13.9% Y/Y, driven by 8.3% increase in net income from financing and investment income. Alinma’s net profit is likely to rise by 12.7% Y/Y led by 14.1% increase in net income from financing and investment income.
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© All rights reservedSaudi Petrochemical Sector: Earnings growth driven by higher product prices
Saudi Petrochemical sector is expected to register 68.0% Y/Y growth in net income to SAR 11.9bn in Q1-22, mainly due higher product prices. On Q/Q basis, earnings grew 15.6%. Average Naphtha prices increased 17.7% Q/Q to USD 872/tonne in Q1-22. Prices of LPG feedstock were relatively steady with average Propane prices declining 2.2% Q/Q, while Butane increasing 1.3% Q/Q.
Crude oil (Brent) prices were up 38.7% QTD and 69.8% Y/Y, reaching USD 107.9 per barrel as of March 31. Manufacturing activity in the US and Europe slowed in March. US ISM Manufacturing PMI fell to 57.1 in March from 58.6 in February due to slower growth in new orders and production, while Eurozone manufacturing PMI declined 56.5 in March versus 58.2 in February impacted by Russia-Ukraine war. On the other hand, China’s manufacturing activity contracted recording March PMI at 48.1, as the country implemented stringent precautionary measure restrict a new surge in COVID-19 cases.
Average quarterly prices for ammonia increase the most among the products. Ammonia was up 25.1% Q/Q amid tighter supply after sanctions on Russia, a major exporter. Subsequently, DAP prices also climbed 21.4% Q/Q due to high raw material costs. However, Urea prices were down 12.5% during Q1-22, as sharp decline in prices due to lower in demand in the first half of the quarter was partially offset by surge in prices post sanctions on Russia. MTBE witnessed a growth of 22.8% Q/Q due to higher crude and gasoline prices. Methanol was up 4.1% during the quarter primarily due to increase in MTO run rates. Acetic acid prices saw a steep decline of 31.9% Q/Q due to subdued demand. VAM prices fell 8.2% Q/Q. Polycarbonate price decreased 10.8% Q/Q due to lower demand from automobile industry.
On quarterly bases, Polycarbonate, PP-Asia and MEG (Asia) prices declined by 10.8%, 2.6% and 4.6% respectively.
SABIC is expected to post net profit of SAR 6,954mn in Q1-22, representing a growth of 40.9% Q/Q due to expected improved gross margin and one-off losses during Q4-21. SABIC Agri-Nutrients is likely to register earnings of SAR 2,456mn, a decline of 11.1%Q/Q due to lower Urea prices and gross margin. Sipchem’s net profit is expected decline 22.2% Q/Q at SAR 1,027.2mn, impacted by 32%Q/Q decline in Acetic Acid price and 8%Q/Q decline in VAM, while gross margin is likely to contract by 378bps. KAYAN is expected post a net profit of SAR 380.8mn in Q1-22, down 15.2% Q/Q due to expected weak gross margin and product prices.
Telecom Sector: Broad-based revenue growth expected; margins to be under pressure
Telecom sector is forecast to register a 3.3% Y/Y growth in earnings in Q1-22. This growth would be driven by increase net income for Mobily and Zain KSA. Total revenue for the sector is expected to rise by 5.5% due to increasing subscriber base, expected recovery in consumer business and ongoing momentum in B2B business. On Q/Q basis, sector earnings are expected to jump 10.6% due to a sharp increase in STC’s net income, due to expected revenue growth and one-off losses Q4-21. The GP margin for the sector is likely to contract by 105bps Y/Y. STC’s net income for Q1-22 is expected to inch up by 0.2% Y/Y to SAR 3.0bn, as the revenue growth is likely to be offset by the drop in GP margin. Mobily is forecasted to post net income of SAR 303mn (+34.2% Y/Y) driven by higher revenue (+8.0% Y/Y) and better margins. Zain KSA’s net profit is likely to surge 60.4% Y/Y due to expected recovery in revenue with recovery in consumer segment.
Cement Sector: Temporary pressure on selling prices; likely to witness strong recovery in short-term
Cement and clinker local dispatches for the first two months of Q1-22, stood at 9.11mn tons, compared to 9.93mn tons in the first two months of Q1-21. The decline in local dispatches was due to the slowdown in construction activities and mortgage loans. Meanwhile, exports stood at 1.1mn tons compared to 1.94mn tons in the first two months of Q1-21, showing a decrease of 43.3%. On Y/Y basis, the earnings of companies under coverage are estimated to decline 49.5% due to the discounts in selling prices to maintain market shares.
However, we believe the pressure in selling prices is temporary, and prices has already picked up during March 2022. The central region players started increasing prices in the end of March, which can be seen as a sign of recovery. Qassim Cement is expected to register a net income of SAR 28.2mn in Q1-22, a decline of 72% Y/Y, driven by a decline in realization per tonne by 29%Y/Y to SAR 131.0/tonne compared to SAR 184.4/tonne in Q1-21. City Cement is expected to register a net income of SAR 24.8mn in Q1-22, a decline 62.5%
Y/Y, driven by a decline in dispatches by 24.3% and 17.7% decline in selling prices. Arabian Cement is expected to post net income of SAR 36.4mn (up 56.1% Q/Q), backed by an increase in dispatches by 13.0% Q/Q.
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© All rights reservedRetail sector: Most companies have returned to pre-COVID levels; few companies facing supply chain challenges
Most companies in the retail sector have recovered from the impact of the COVID-19 pandemic. Point-of-sale (PoS) transactions sales rose by 25.2% Y/Y in Feb-22, while the number of PoS transactions increased by 58.2% Y/Y. Consumer loans jumped by 17.3% Y/Y, while credit card loans increased by 6.1% Y/Y in Q4-21. Leejam is expected to post earnings of SAR 80mn compared to loss of SAR 7mn in Q1-21, supported by 74.7% growth in sales and 2,522 bps improvement in GP Margin. Al Othaim’s bottom line is expected to improve by 8.7% Y/Y due to 23 bps increase in operating Margin and 5.2% growth in sales. SACO is expected to post net loss of SAR 8mn in Q1-22 compared to net profit of SAR 16mn in Q1-21, impacted by 576 bps contraction in GP Margin and 14% decline in the top line due to the impact of supply chain. Jarir Marketing’s net profits are likely to decline by 17.0% Y/Y due to 11.4% decline in sales which could be attributed to supply chain issues.
Healthcare Sector: Revenue growth represents the key earnings growth driver for the sector as margins likely to remain stable
Most companies in the healthcare sector are expected to post modest growth in earnings, driven by impact of capacity additions and stable margins. The Saudi healthcare sector would see 13.3% Y/Y increase in earnings in Q1-22, driven by a 11.5% Y/Y rise in revenue.
Revenue is expected to rise by 11.5% Y/Y, mainly driven by capacity additions at Dallah following the acquisition of Care Shield Holdings (Kingdom Hospital). On a Q/Q basis, earnings are estimated to increase by 7.8%, driven by growth in Al Hammadi’s earnings by 222.7%.
Dallah is expected to post net income growth of 51.9% Y/Y due to positive impact of the acquisitions. Mouwasat’s revenue is expected to increase 5.6% Y/Y, driven by increase in patient traffic. Care’s net profit is expected to rise by 1.3% Y/Y, driven by cost-control measures undertaken by the company. Saudi German’s net profit is likely to decline by 2.8% Y/Y due to higher OPEX. Al Hammadi suspended the reception of patients at Olaya Branch Hospital from the end of Sep-21, which is expected to continue impacting its financials in Q1-22.
We forecast the company’s revenue to decline by 19.4% Y/Y and net profit to decline 3.1% Y/Y, in Q1-22.
Miscellaneous Sector: Recovery driven by easing of travel restrictions
The miscellaneous sector is estimated to register a net profit of SAR 161mn in Q1-22 compared to SAR 34mn in Q1-21 and SAR 44mn in Q4-21. The net profit growth would be attributable to SGS and Catering posting profits, while Theeb recording a strong growth in bottom- line. Revenue of SGS and Catering would benefit from expected increase in number of flights operating and removal of COVID-19 related restrictions. Moreover, improved utilization rates would lead to margin expansion. SGS’s net profit of SAR 5mn (Q1-21: loss of SAR 17mn) is likely to be supported by on-time gain of SAR 24mn on sale of equity portfolio. Catering is expected to post net profit for the third consecutive quarter at SAR 61mn, compared to loss of SAR 30mn in Q1-21 and net income of SAR 46mn in Q4-21. Theeb’s net profit is forecasted to grow by 60.1% Y/Y to SAR 41.6mn, driven by revenue growth of 19.3% Y/Y due to strong recovery in car rental segment and continued demand for the used vehicles. Budget Saudi’s net profit is expected to decline 2.8% Y/Y to SAR 54mn, as GP margin, which was supported by the sale of used vehicles at attractive margins in Q1-21, is likely to moderate to some extent.
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© All rights reservedCode Company Name Forecasted- Revenue
Q1-22
Forecasted- Net Profit
Q1-22
Forecasted-
EPS Q1-22 Forecasted-
Q/Q growth Forecasted-
Y/Y growth Forecasted-
EPS FY22 Prospective PE-FY22 Banks
1120 Bank Alrajhi 7,086.2 4,162.2 1.66 3.7% 24.8% 6.62 24.6
1150 Bank Alinma 1,758.0 723.4 0.36 16.9% 12.7% 1.62 24.9
1140 Bank Albilad 1,213.0 447.5 0.60 4.5% 13.9% 2.59 24.2
Telecommunication Services
7010 STC 16,480.3 2,957.1 1.48 13.1% 0.2% 6.02 18.0
7020 Mobily 3,890.9 303.0 0.39 -5.5% 34.2% 1.78 22.4
7030 Zain 2,024.7 65.5 0.07 -8.2% 60.4% 0.32 41.5
Food & Staples Retailing
4001 Al Othaim 2,205.3 62.7 0.70 -59.5% 8.7% 4.22 27.4
4161 Bindawood 1,126.9 39.8 0.35 200.7% -35.9% 2.09 46.1
Retailing
4190 Jarir 2,240.9 222.2 1.85 -15.3% -17.0% 8.57 23.5
4240 Fawaz Al Hokair* 1,490.2 (78.7) -0.37 NM NM 0.03 HIGH
4008 SACO 290.9 (8.0) -0.22 NM NM 1.13 38.0
Materials
2010 SABIC 50,549.8 6,953.8 2.32 40.9% 43.0% 7.21 18.3
2060 TASNEE 1,168.4 375.2 0.56 10.8% 14.6% 1.67 13.5
2290 YANSAB 2,015.2 355.9 0.63 6.3% -15.3% 2.25 30.1
2020 SABIC AGRI-NUTRIENTS 3,029.6 2,456.2 5.16 -11.1% 481.1% 14.63 12.4
2310 Sipchem 2,548.5 1,027.2 1.40 -22.2% 149.7% 4.08 13.2
2330 Advanced 881.9 165.1 0.63 4.5% -3.7% 2.52 29.0
2350 KAYAN 3,441.4 380.8 0.25 -15.9% -22.7% 1.07 20.3
1211 MA'ADEN 9,727.5 2,721.2 2.21 30.2% 257.5% 6.46 22.8
3020 Yamamah Cement 228.9 30.6 0.15 NM -44.5% 0.73 45.8
3030 Saudi Cement 299.8 49.5 0.32 -26.6% -58.1% 1.92 31.9
3050 Southern Cement 352.8 117.3 1.00 21.2% -32.9% 3.17 22.0
3040 Qassim Cement 144.1 28.2 0.31 -20.4% -72.1% 3.42 24.9
3010 Arabian Cement 249.8 36.4 0.36 56.1% -45.7% 2.34 18.6
3060 Yanbu Cement 217.2 28.4 0.18 179.4% -61.3% 1.74 24.5
3003 City Cement 106.3 24.8 0.18 280.7% -62.5% 1.35 20.5
3080 Eastern Cement 145.9 46.0 0.53 10.9% -23.2% 2.52 19.9
Health Care
4007 Hammadi 224.4 34.4 0.29 222.7% -3.1% 0.94 47.5
4002 Mouwasat 564.0 149.0 1.49 1.4% 1.3% 5.92 36.8
4005 Care 222.2 36.2 0.81 -1.4% 1.3% 3.00 26.1
4004 Dallah 581.4 79.9 0.89 8.4% 51.9% 3.85 26.7
4013 Sulaiman Al Habib 1,938.0 371.1 1.06 -3.3% 16.3% 4.59 41.2
4009 Saudi German 523.7 11.8 0.13 NM -2.8% 0.55 HIGH
Consumer Services
1810 SEERA 448.6 (54.3) -0.18 NM NM -0.35 NEG
1830 Leejam 259.5 79.5 1.52 -7.4% NM 6.83 19.2
Food & Beverages
2280 AlMarai Company 3,968.9 288.0 0.34 0.5% -25.4% 1.51 34.1
Transportation
4260 Budget 257.5 53.6 0.75 3.7% -2.8% 2.81 18.1
4261 Theeb 211.0 41.6 0.97 -12.3% 60.1% 3.55 18.5
4031 Saudi Ground Services 470.8 5.2 0.03 NM NM 0.30 HIGH
Commercial & Professional Svc
6004 Catering 388.5 61.0 0.74 32.3% NM 3.87 22.5
Prices as of 5th of April 2022 , *Fiscal year ends March 2022, NM: Not meaningful Source: AlJazira Capital
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