Forecasts Report
Saudi Stock Market | Q1-2023
2023
+966 11 2256248
ajc_research@aljaziracapital.com.sa
AJC Research Team
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© All rights reservedForecasts Q1-23 – Earnings estimated to drop 42% Y/Y, weighed down by Petrochemicals and MAADEN;
Banking, Telecom and Cement to lend some support
We present a Q1-23 forecast for the 44 companies under our coverage across multiple sectors. The combined result of these companies (excluding Aramco) is expected to record a decline of 41.9% Y/Y to SAR 14.1bn, as compared to SAR 24.3bn in Q1-22. The decline would be, by large, led by the Petrochemical sector (-91.7% Y/Y) and MAADEN (-56.1% Y/Y). Earnings of the Petrochemical sector are expected to be impacted by lower product prices and plant maintenance, while a decline in Phosphate prices are expected to drag MAADEN’s earnings downward. On the other hand, Banking (+7.7% Y/Y), Telecom (+8.5% Y/Y) and Cement (+73% Y/Y) sectors’
earnings are likely to grow. The earnings growth for the Shariah banks (excluding Bank Aljazira) in Saudi Arabia is anticipated to be driven by a healthy loan growth across corporates, SMEs and mortgages. The Telecom earnings are likely to receive support from a recovery in the consumer segment and continued demand from the B2B segment. The Cement sector’s bottom line is expected to spike on better price realization. The Healthcare sector (+13.7% Y/Y) is likely to register a double-digit growth in net profit. On a Q/Q basis, the earnings of the companies under our coverage are forecast to post a 4.4% decrease in net profits, mainly weighted down by the decline in earnings of the Petrochemical sector (-56% Q/Q), particularly SABIC Agri-Nutrients.
Saudi equity market was volatile during Q1-23, responding to the global events and fluctuations in the oil prices. TASI ended slightly higher, rising by 1.1% from the previous quarter. The global concerns over economic slowdown, inflation and higher interest rates continued; while the banking crisis in the US and Europe added to the negative sentiments. This led to TASI falling below 10,000 level occasionally in February and March. However, markets showed some recovery in the second half of March, as the impact of the baking crisis was limited after a series of regulatory interventions.
Crude oil prices fell 7.1% QTD in Q1-23. Oil prices witnessed some strength initially, reaching a high of USD 88.2 per barrel due to some optimism over the Chinese economy re-opening up, along with a supply cut by Russia; but fell back later to the lowest of USD 73.0 per barrel amid further rate hikes by the US Federal Reserve and overall demand concerns surrounding several global economic growth concerns. The crude prices were down 26.1% Y/Y. Saudi oil exports rose 3% M/M or 9% Y/Y to 7.66 mbpd in January. Total oil output stood at 10.45 mbpd in January, 0.1% M/M.
In Q4-22, Saudi GDP expanded 5.5% Y/Y (Q3-22: +8.7% Y/Y), driven by a 6.2% Y/Y growth in non-oil GDP and 6.1% growth in oil GDP.
On a seasonally adjusted Q/Q basis, GDP increased 1.3% compared to a 1.2% increase in Q3-22. The non-oil sector maintained a good momentum in Q1-23, with the manufacturing Purchasing Managers’ Index (PMI) at 58.2 in January and 59.8 in February (the highest in 8 years). The Industrial Production Index rose 6.8% in January on the back of growth in mining, quarrying and manufacturing activities. Money supply rose 1.1% M/M and 7.4% Y/Y in February 2023. Total demand deposits inched up 0.8% M/M but fell 3.8% Y/Y in February. Consumer spending increased 7.8% Y/Y, while it fell 4.2% M/M in January. Inflation reached 3.4% in January and eased to some extent in February to 3.0%. Housing, water, electricity, gas and other fuels prices were key contributors to the inflation, in addition to elevated food inflation.
The US Federal Reserve continued to increase the interest rates with a total 50 bps hike in the quarter. Subsequently, SAMA also raised the repo rates by 50 bps that led to the repo rate reaching 550 bps. SAIBOR 3M rose to 5.7% by the end of Q1-23 from 5.3% by the end of the previous quarter.
The interest rates are expected to remain elevated throughout FY23; hence, higher finance cost would weigh on the profits of the Saudi companies. Moreover, weaker global economic outlook would also have some repercussions on the Saudi economy. Nevertheless, a healthy recovery in non-oil sectors, robust manufacturing activity, and expected acceleration in giga projects suggest that the Saudi economy is relatively well equipped to sail through the global economic slowdown.
Banking: Improvement in asset yields to be largely outweighed by higher cost of funds; further slowdown lending growth expected
SAMA is mirroring the rate hike path undertaken by the US Federal Reserve. SAIBOR rate increased from 4.29% in October 2022 to 5.57% in March 2023. In Q4-22, SAMA increased its repo rate and reverse repo rate by 125 bps to reach 5.0% and 4.5%, respectively.
Meanwhile, in Q1-23, SAMA increased its repo and reverse repo rate by 50 bps each, which are now at 5.5% and 5.0%, respectively. A robust pace of rate hikes is adopted by the Saudi Central Bank which is a step to follow US Federal Reserve, given the pegged exchange rate regime. The consequent impact of rate hikes is visible in the improving asset yields on banks. Saudi banks’ sector wide asset yields surged from 3.32% in Q4-21 to 5.12% in Q4-22. However, the rise was largely outweighed by the parallel increase in cost of funds as repricing liabilities are comparatively quicker than repricing assets. Cost of funds for all banks in the sector increased from 0.39% in Q4- 21 to 1.93% in Q4-22, which limited expansion of NIMs. During the same period, NIMs expanded from 2.97% to 3.35% i.e., by c.38 bps for all banks compared to improvement of c.180 bps in asset yields. For the 3 banks combined, our estimate for loan growth is 14.1% Y/Y, with Al Rajhi leading with 19.7% Y/Y growth driven by growth in mortgage while Alinma’s loan growth is expected through large corporate and SME. Meanwhile, deposits are expected to grow 12.9% Y/Y for the 3 banks at an aggregate level. Alinma’s deposit base is expected to expand at a faster rate at 15.9% Y/Y. In terms of net profit, we expect Alinma’s bottom line to increase by 16.1% Y/Y driven by demand for loans by large projects, as well as accelerated growth in retail books. Albilad’s net profit is expected to increase by 7.3% Y/Y driven by growth in Corporate as well as SME loan segments coupled with an expected cost control. With regards to Al Rajhi, we expect growth in net profit (6.04% Y/Y) to be supported by improvement in asset yields supported by growth in mortgage book.
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© All rights reservedSaudi Petrochemical Sector: Subdued demand, decline in certain product prices, higher feedstock prices and maintenance shutdowns to drag earnings
Saudi Petrochemical sector’s net income is forecasted to plunge 56.0% Q/Q and 91.7% Y/Y to SAR 920mn in Q1-23. On a Q/Q basis, earnings would contract due to the sharp decline in Urea prices and maintenance turnarounds at KAYAN and YANSAB plants. Moreover, the increase in feedstock prices would also weigh on the spread of some products.
During the quarter, manufacturing activity remained weak. In the US and Eurozone, manufacturing PMI remained in the contraction zone (February PMIs at 47.7 and 48.5, respectively), while China showed some improvement after reopening with a PMI of 51.6 in February.
Crude oil (Brent) prices declined 7.1% Q/Q to USD 79.8 per barrel during the quarter. On the contrary, feedstock prices increased in Q1- 23. Average naphtha prices increased 2.0% Q/Q to USD 689/tonne. Moreover, LPG feedstock prices jumped as average propane prices rose 13.5% Q/Q, while Butane gained 17.3% Q/Q.
Average quarterly prices of Urea plummeted 35.2% Q/Q due to continued weak demand and abundant supply. The prices of VAM and EVA also declined during the quarter by 1.4% Q/Q and 8.4% Q/Q, respectively. Acetic acid prices were down slightly 0.3% Q/Q, as weak demand was partially offset by tight supply due to maintenance in plants in China. Polycarbonate prices continued the downtrend, falling 2.0% Q/Q. MEG (Asia) rose 9.2% Q/Q, while MEG (SABIC) increased 3.1% Q/Q on downstream polyester demand in Asia. MTBE prices inched up 1.0% Q/Q due to the increase in fuel demand amid travelling season. Methanol prices gained 2.8% during the quarter due to higher demand from Europe. Among PE grades, HDPE increased the most, up 7.1% Q/Q; LDPE and LLDPE prices rose 3.7% and 6.4%, respectively. PP-Asia prices also increased 4.2% Q/Q.
SABIC’s net profit is expected to grow 144% Q/Q to SAR 717mn in Q1-23 due to the expansion of the gross margin from a significantly lower margin recorded last quarter. The revenue is expected to marginally increased Q/Q due to an expected improvement in revenue from Petrochemicals business. SABIC Agri-Nutrients’ results are likely to be impacted severely by a decline in Urea prices by 35.2%
Q/Q and contraction of margin. The company is forecasted to register a 58% Q/Q decrease in earnings to SAR 909.6mn. YANSAB and KAYAN would be impacted by maintenance shutdowns during the quarter. YANSAB, with a scheduled 53 days of plant maintenance, is expected to widen losses to SAR 182mn from SAR 96.4mn in Q4-22. Similarly; KAYAN, with 31 days maintenance in March is estimated to record losses of SAR 912.4mn in Q1-23 vs. losses of SAR 791.1mn in Q4-22. Sipchem’s net profit is expected to fall 26.4% Q/Q to SAR 352.4mn, due to a decline in key products such as VAM, EVA and BDO coupled with an expected contraction of margin. Advanced is likely to register a net loss of SAR 6.5mn vs. net loss of SAR 6.4mn in the previous quarter due to pressure on Propane-PP spread amid a higher increase in feedstock prices vis-à-vis the product. Tasnee’s net income would fall slightly by 1.2% Q/Q in Q1-23 due to a one-off impact recorded in Q4-22.
Telecom Sector: A continued growth in net income on B2B momentum and consumer segment recovery
In Q1-23, the telecom sector’s earnings are forecasted to increase 8.5% Y/Y, as all three companies are expected to register growth in the bottom line. The sector’s topline is expected to grow 2.6% Y/Y as a result of continued momentum in the B2B segment, and recovery in the consumer segment. However, the pace of revenue growth is likely to slow down modestly, given the higher base last year. On a Q/Q basis, the telecom sector is expected to register a 3.2% increase in net income, as the increase in STC’s bottom line is estimated to be partially offset by the drop in net income of Mobily and Zain KSA. The GP margin for the sector is likely to contract slightly (~20 bps Y/Y) due to pressure on STC’s margin from the lower margin at its subsidiaries. STC is forecast to register a net income of SAR 3.2bn, up 6.0% Y/Y, as Q1-22 included one-off losses. Mobily’s net income is expected to jump 24.5% Y/Y to SAR 397mn led by revenue growth of 5.8% Y/Y and improved operating efficiencies. Zain KSA is estimated to record a spike of 40.9% in net profit on account of healthy revenue growth amid consumer segment recovery.
Cement Sector: Higher realization per tonne to drive Y/Y growth, despite the lower volumetric sales
Cement companies recorded volumetric sales of 8.5MT in the first two months of the year, declining by 5.5%Y/Y. This decline is mainly due to slowdown in housing construction activities. However, improving selling prices are expected to compensate for the lost volume, leading to higher revenues Y/Y. The net profits of cement companies under our coverage are expected to reach to SAR 570.2mn, growing 72.9% Y/Y. This growth is mainly led by growth in Saudi Cement and Yamama Cement. Saudi Cement is estimated to post a net profit of SAR 131.3mn, a growth of 114.8%Y/Y, due to a 27% increase in selling prices compared to the same period last year. Yamama Cement is expected to register a net income of SAR 92.8mn, an increase of 213.3% Y/Y despite the lower volume in Q1-23. Yamama’s realization price in Q1-23 is expected to stand at the level of SAR 190/tonne, increasing from SAR 107/tonne in Q1-22 (up 79%Y/Y).
However, the company is expected to incur higher depreciation costs driving the cost per ton up by 22.6%Y/Y during Q1-23 due to the full commencement of commercial operations for the new factory. On the other hand, Southern cement is expected to post SAR 66.0mn in net income for Q1-23, a decline of 24.2% Y/Y, as the company is expected to have lower realization price at SAR 173/tonne; significantly lower than the same period last year, despite a stable volumetric sale.
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© All rights reservedRetail: Higher prices to dampen consumer spending, however, boost in tourism activities and commencement of Ramadan/Eid season to support revenue growth
The POS sales increased 15.2% Y/Y in February 2023 to SAR 44.8bn, while the POS transactions increased 27.6% Y/Y to 633mn indicating slowdown in growth. Consumer loans increased by 5.4% Y/Y in Q4-22, while credit card loans surged 18.3% Y/Y during the same period. Leejam is expected to post earnings of SAR 57.1mn in Q1-23 compared to SAR 46.0mn in Q1-22, however on a Q/Q basis, based on the expected drop in number of memberships, earnings are expected to drop by 46.7% Q/Q. AlOthaim’s bottom line is expected to improve by 20.8% Y/Y to SAR 110.3mn, as compared to SAR 91.3mn in Q1-22. We expect AlOthaim’s revenue to increase 13.1% Y/Y driven by robust addition in stores. Bindawood’s net profit is expected to increase by 17.9% Y/Y to SAR 77.2mn as compared to SAR 65.5mn in Q1-22. Sha’ban and Ramadan season are expected to boost revenue in Q1-23. A boost to religious tourism activities is expected to increase Bindawood stores’ revenues. However, Danube stores are expected to face competition and inflationary pressures.
Jarir Marketing’s revenue is expected to be lower than Q4-22 as we foresee sales of electronic products being discretionary products, are expected to remain subdued given the rise in prices. Net profit is expected to rise modestly by 6.5% Y/Y to SAR 267.6mn in Q1-23 from SAR 251.3mn in Q1-22. SACO’s revenue is expected to improve modestly by 4.9% Y/Y to SAR 335.2mn as higher prices and lower discretionary spending are expected to weigh on sales. Net profit is expected to decline to SAR 0.5mn from SAR 1.1mn in Q1-22.
Healthcare Sector: Momentum in demand for healthcare services in the Kingdom to persist, as quarterly performances are shaped by the different phases in expansion campaigns from the stocks under our coverage.
Healthcare stocks under our coverage are anticipated to continue the performance-momentum in the sector driven by increase demand for healthcare services in the Kingdom to reach a Y/Y net income growth of 13.75% during Q1-23, and a modest 3.5% Q/Q decline;
partially due to Ramadan occupying nearly 9.0% of the first quarter of the year. Dr. Sulaiman Al Habib is expected to maintain its momentum in patient volumes to reach a top line virtually similar to that of the previous quarter, at a top line 13.1% higher on the Y/Y scale. Margins and operational efficiency from higher patient volumes are expected to support an 11.5% Y/Y bottom line increase (and a moderate 1.4% Q/Q decline). Despite an expected slightly declined topline for Dallah (on the Q/Q scale), the firm is expected to post a Q/Q increase of 9.7% in net income as a result of the almost SAR 21mn in provisions recognized in the previous quarter, which weighed down on Q4-22’s bottom line. The firm is expected to reach a 4.1% Y/Y net income increase. The group’s revenues are anticipated to post an 8.1% Y/Y increase. Saudi German Hospital, in the recent hiatus-phase of its expansions, is expected to post an increase in revenue for the quarter (by 21% Y/Y, and 0.8% Q/Q) as the hospital provider is still ramping up its three new facilities opened up in 2022, as well as two new facilities in Riyadh which started their commercial operations in Q1-23. A 45% Y/Y increase in net income is anticipated for the healthcare provider. Mouwasat is expected to post a 10.3% Y/Y increase in its net income, supported by its new Madinah facility and patient momentum. Q/Q net income is anticipated to retract by 10.3%. Al Hammadi’s high utilization rates, and headroom for higher rates, are expected to continue to support a bottom line increasing 20.7% Y/Y and 2.2% Q/Q. National Medical Care’s OPEX- to-revenues are expected to normalize at 10.5% in Q1-23, compared to the previous quarter which saw a reversal in provisions on credit loss. Provisions are expected to increase as a result of the increased business from its government clients, namely GOSI. Net income is anticipated to reach 18.0% lower Q/Q, and 51.1% higher Y/Y.
Software and Services: Ramadan advertisement to support AlArabia, while 2P services a larger backglog for the quarter
ALArabia is expected to be supported by advertisement revenue from Ramadan related outdoor advertisement campaigns, along with its digitalization initiatives. Revenues are anticipated to reach 12.7% higher Y/Y, and 2.0% on the Q/Q scale to also increase the stock’s bottom line by 15.5% Y/Y for Q1-23 (-7.2% Q/Q). Perfect Presentation’s large backlog expansion during the previous year (55.3%
increase from FY21 to FY22), along with likely contract closes are expected to raise the tech provider’s bottom line by 56.8% Y/Y and -25.4% less on a Q/Q scale, as the bulk of firm’s revenue recognition for the year tends to be weighted towards H2). Revenues for the group are expected to increase 30.0% Y/Y (-12.7% Q/Q).
Miscellaneous Sector: Recovery in travel and tourism to boost earnings
The miscellaneous sector’s combined net profit is estimated to grow 44.8% Y/Y and 46.1% Q/Q to SAR 173mn in Q1-23. The sector’s net profit growth on an annual basis would be led by a sharp increase in net profit for Catering, further supported by growth in Theeb and Budget Saudi coupled with a reduction from SGS losses. The revenue growth is forecasted at a healthy 19.3%, primarily on account of the higher number of flights operating and the increase in domestic travel. Catering is likely to double its earnings to SAR 73.4mn from SAR 35.3mn in Q1-22, due to higher revenue and margins driven by improved operating conditions. SGS’s net loss is forecast to decrease to SAR 15.3mn from a loss of SAR 19.0mn in Q1-22 on account of higher operating rates. Theeb’s net profit is estimated at SAR 48.9mn, up 14.9% Y/Y, as the company is expected to maintain strong growth in both short term rentals and leasing segments.
Budget Saudi’s net profit is expected to increase 8.5% Y/Y to SAR 65.4mn on continued recovery in core renting business and a support from sales of used vehicles.
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© All rights reservedCode Company Name Forecasted-
Revenue Q1-23 Forecasted-Net
Profit Q1-23 Forecasted-EPS
Q1-23 Forecasted- Q/Q
growth Forecasted- Y/Y
growth Forecasted-EPS
FY23 Prospective PE-FY23 Banks
1120 Bank Alrajhi 7,188 4,383.4 1.10 -0.5% 6.0% 4.62 16.0
1150 Bank Alinma 2,136 957.6 0.48 11.3% 16.1% 2.25 13.2
1140 Bank Albilad 1,322 526.0 0.53 -2.5% 7.3% 2.74 14.8
Telecommunication Services
7010 STC 17,161 3,217.7 0.64 16.7% 6.0% 2.58 15.7
7020 Mobily 4,032 397.2 0.52 -34.5% 24.5% 2.25 18.1
7030 Zain 2,375 113.4 0.13 -54.7% 40.9% 0.72 18.1
Food & Staples Retailing
4001 Al Othaim 2,785 110.3 1.23 -44.5% 20.8% 4.86 26.3
4161 Bindawood 1,348 77.2 0.68 18.8% 17.9% 1.60 40.6
Retailing
4190 Jarir 2,391 267.6 2.23 0.0% 6.5% 9.01 17.8
4240 Cenomi Retail 1,400 (8.2) -0.07 NM NM -1.84 NEG
4008 SACO 335 0.5 0.01 NM -51.7% -0.96 NEG
4003 Extra 1,439 93.9 1.25 -22.6% -3.7% 5.79 13.4
Materials
2010 SABIC 43,143 716.8 0.24 145.0% -88.9% 4.09 22.4
2060 TASNEE 928 42.6 0.06 -1.2% -86.0% 0.63 20.2
2290 YANSAB 1,015 (182.3) -0.32 NM NM 0.46 HIGH
2020 SABIC AGRI-NUTRIENTS 3,242 909.6 1.91 -58.1% -63.8% 6.63 19.4
2310 Sipchem 1,891 352.4 0.48 -26.4% -67.3% 2.43 16.0
2330 Advanced 637 (6.5) -0.02 NM NM 1.33 35.4
2350 Saudi KAYAN 1,795 (912.4) -0.61 NM NM -0.96 NEG
1211 MA'ADEN 8,659 952.6 0.39 -6.3% -56.0% 1.57 40.8
3020 Yamamah Cement 307 92.8 0.46 -32.8% 213.4% 1.77 17.6
3030 Saudi Cement 410 131.3 0.86 -15.0% 114.8% 2.97 18.9
3050 Southern Cement 301 66.0 0.47 1.7% -24.2% 2.11 23.7
3040 Qassim Cement 197 64.2 0.71 17.5% 167.1% 2.62 25.9
3010 Arabian Cement 237 57.6 0.58 64.0% 37.4% 2.47 14.9
3060 Yanbu Cement 278 55.1 0.35 -6.9% 41.5% 1.48 23.9
3003 City Cement 127 44.2 0.32 -6.2% 157.7% 1.22 17.1
3080 Eastern Cement 243 59.0 0.69 12.4% 103.5% 2.46 16.5
Health Care
4007 Hammadi 332 74.8 0.47 2.2% 20.7% 1.75 28.3
4002 Mouwasat 634 165.6 1.66 -10.7% 10.3% 6.84 35.1
4005 Care 248 45.4 1.01 -18.0% 51.5% 4.06 22.4
4004 Dallah 659 86.0 0.96 9.7% 4.1% 4.09 37.4
4013 Sulaiman Al Habib 2,252 435.4 1.24 -1.4% 11.5% 4.96 HIGH
4009 Saudi German 623 29.7 0.32 -10.4% 45.0% 1.10 33.6
Consumer Services
1810 SEERA 622 3.9 0.01 -112.5% NM 0.08 HIGH
1830 Leejam 290 57.1 1.09 -46.7% 24.0% 5.66 18.1
Food & Beverages
2280 AlMarai Company 4,902 478.8 0.48 34.6% 13.9% 2.05 26.9
Transportation
4260 Budget 279 65.4 0.92 0.5% 8.5% 3.89 15.4
4261 Theeb 248 48.9 1.14 -8.8% 14.9% 4.70 16.4
4031 Saudi Ground Services 510 (15.3) -0.08 NM NM 0.13 HIGH
Commercial & Professional Services
6004 Catering 501 73.4 0.90 -31.4% 108.0% 4.20 20.0
Software & Services
7204 2P 252 34.6 2.31 -25.4% 56.8% 10.62 20.2
Utilities
2081 AWPT 319 41.3 1.65 149.1% 63.1% 8.49 15.8
Media and Entertainment
4071 ALARABIA 324 74.9 1.50 -7.2% 15.5% 6.63 18.3
Source: AlJazira Capiral, Tadawul.
Prices as of 2nd of April 2023, NM: Not meaningful
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