Improved earnings still signalling some softness – Kuwaiti companies continue to post rise in profits for first nine months of 2017

Listed Kuwaiti companies continued to post a notable rise in profits for the first nine months of 2017, though softness in business activity has affected revenue growth. The financial sector was the main contributor to the solid growth, with investment income benefiting from the stock market rally. Although results in other sectors continued to reflect a more lackluster operating environment, moderation in the consumer sector was visible in company results.

Earnings of listed corporates were up 18 percent y/y during the first nine months of the year. The aggregate profits of 148 reporting companies, out of 153 Kuwaiti companies listed on Boursa Kuwait, rose to KD 1.34 billion. There was also a significant drop in aggregate losses, which shrank by 50 percent y/y to KD 43 million; still, the number of loss-making companies was steady at 37.

The financial services sector benefited from the stock market rally this year. Boursa Kuwait’s weighted index was up 9 percent during 3Q’17, as the market benefited from the Zain acquisition by Omantel and the upgrade of Kuwait’s market to emerging by FTSE. Non-bank financial service companies with large exposures to the local market made strong gains on their investment portfolios. Total profits for this sector quadrupled to KD 131 million in 3Q’17, up from KD 26 million in 3Q’16. The strong results of the sector were broad-based. The number of loss-making companies dropped notably compared to 3Q’16 with 54 percent of reporting companies seeing an improvement in earnings.

Banks were the second largest contributor to profit growth in 3Q’17. Profits for the sector rose a good 7 percent to KD 595 million. Most banks contributed to the growth, with only one bank seeing declines in earnings. While growth came primarily from investment gains, net interest income also supported the sector’s profitability.

Industrial companies were another main contributor to profit growth. The sector’s profits were up 26 percent in 3Q’17. Gains from the sector were concentrated in two main companies, with others posting mixed to flat results.

Real estate companies have also done well, benefiting from the pickup in activity in the sector in 2017. The real estate market witnessed a slow and orderly correction in activity and prices in tandem with the declining oil prices between 4Q’15 and 4Q’16. Since then, the pickup in the sector’s activity and stabilization in real estate prices help push profits of real estate companies up 24 percent y/y in 3Q’17.

The consumer sector was a clear exception to the positive outcome, with results still reflecting a moderating operating environment. Although profits for the consumer sector were down 11 percent y/y, only a third of the companies saw declines in earnings. This is in line with the slight improvement that was witnessed in consumer sector data recently. In fact, consumer spending, imports of consumer goods, consumer confidence and household debt have all improved somewhat in 3Q’17.

By National Bank of Kuwait

 

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