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Real estate market liquidity dips 12.9% in May

Listed companies’ Q1 earnings rise 6.2% to KD 562.2 million

Local Real Estate Market – May 2018

The latest released data by the Ministry of Justice -Real Estate Registration and Authentications Department- (after excluding the crafts activity and the coastal strip system) indicate a decrease in real estate market liquidity during May 2018 versus April 2018 liquidity. Total value of contracts and agencies traded during May scored KD 278.5 million which is a -14.4% drop than its counterpart value in April 2018 which scored KD 325.4 million. Liquidity also decreased by -12.9% when compared with May 2017 liquidity that totalled KD 319.5 million, says Al-Shall Weekly Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.

Trading during May 2018 was distributed between KD 263.4 million to contracts and about KD 15 million to agencies. Number of real estate deals in this month scored 470 deals of which 454 contracts and 16 agencies. The highest share in real estate deals went to Al Ahmadi Governorate by 147 deals representing about 31.3% of the total number of real estate deals. Mubarak Al Kabeer Governorate came second by 91 deals or 19.4%. The lowest share went to Al Jahra Governorate by 36 deals, representing 7.7% of the total.

Value of private residential activity scored KD 109.6 million, lower by -15% compared with KD 129.1 million in April 2018. Its contribution percentage declined to 39.4% of the total real estate trading versus 39.7% in April 2018.  The monthly average value for private residence trading in the last 12 months scored KD 102.9 million. This means that May trading value is higher by 6.5% than the average.

The number of deals for this activity decreased to 339 deals versus 406 deals in April 2018. Accordingly, the average value of private residence activity deal scored about KD 323 thousand versus KD 318 thousand in April 2018, indicating a 1.7% increase.

Value of investment housing activity scored KD 130.6 million, lower by -9% from KD 143.5 million in April 2018. Its contribution to total liquidity increased to about 46.9% versus 44.1% in April 2018. Monthly trading average value of investment housing during 12 months scored KD 85.3 million. This means that trading value during May 2018 was higher by 53.1% compared with 12 months’ average. In addition, its deals dropped to 123 deals compared with 283 deals in April 2018. Therefore, the average value per deal for investment housing scored KD 1.1 million versus KD 507 thousand in April 2018, i.e. 109.4% rise.

Commercial activity trading value also dropped to KD 36.7 million, or by -15% compared with KD 43.2 million in April 2018. Its percentage out of total real estate trading value slightly declined to 13.2% compared with 13.3% in April 2018. Average value of commercial activity trading in 12 months scored about KD 33.2 million. This means that total trading value in May was higher by 10.5% than the last 12 months’ average. Its deals totalled to 7 deals compared with 10 for April 2018. The average value per deal for May 2018 scored KD 5.2 million versus KD 4.3 million average for April 2018, a 21.5% increase. Moreover, 1 deal occurred for stores activity in May 2018 worth KD 1.5 million, versus 6 deals in April 2018 totalled KD 1.6 million.

When we compare total May 2018 trading with May of 2017, we note that liquidity declined in the real estate market from KD 319.5  million  to  KD  278.5  million, i.e. -12.9% decrease as mentioned previously. The drop included the liquidity of the commercial activity by -41.5%, private residential activity by -33%, while the investment housing activity rose by 42.7%.

 Profits of Listed Companies – First Quarter 2018

A total of 166 listed companies, equivalent to 94.9% of total listed companies (175) announced the results of their operations for the first quarter, after excluding the companies that did not announce their results, the deleted and suspended companies and those with a different fiscal year. Net profits of those companies scored KD 562.2 million, a 6.2% growth above profits of the companies in the first quarter of 2017 which were KD 530 million.

5 sectors improved their profits compared with their performance in the first quarter of 2017, while 7 other sectors have achieved lower profits; the best was the banking sector which increased its profits of about KD 244.8 million to KD 281.7 million profit. The industrial sector came second, by enhancing its performances with an increasing profit from KD 58.4 million to KD 61.3 million profit. The oil and gas sector came third in terms of increased profits from KD 1.2 million to KD 3.8 million. The following schedule sums up the sectors’ details.

Results of the first quarter of the current year indicate that performance of 90 companies improved when compared with the first quarter of last year, including 64 companies which increased profits and 26 companies reduced their losses or converted losses to profits. This means that 54.2% of the companies which announced their results achieved better performance. Performance of 76 companies dropped including 51 companies with less profit and 25 companies moved from profit to loss. The top winners list contained 10 leading companies which achieved profits by KD 331.6 million, or 58.9% of total absolute profits. “National Bank of Kuwait (NBK)” took the lead with KD 93.6 million. “Ahli United Bank (Bahrain)” came second with profits by KD 52.3 million, and “Kuwait Finance House (KFH)” came third in profits by KD 44 million. “Zain” came fourth by KD 40.9 million profits. On the contrary, 10 companies achieved the highest absolute losses by a total of KD 8.9 million. “International Financial Advisers” achieved the highest absolute losses by KD 2 million and “Munshaat Real Estate Projects” came second in losses by KD 1.6 million.

The exact sample of companies however, achieved a major improvement by 51.8% compared with profits level in the fourth quarter of 2017 when those companies achieved KD 370.7 million only. 6 sectors improved their profits compared with their performance in the fourth quarter of 2017.  4 sectors converted their losses compared to the fourth quarter of 2017 to profits and the remaining 2 sectors achieved lower profits; the best was the financial services sector which increased its profits of about KD 553 thousand to about KD 85.3 million profit. The real estate sector came second which converted its losses from KD 10.4 million to KD 37.3 million profit. The banking sector came third in terms of increased profits from KD 260.2 million to about KD 281.7 million. The attached schedule sums up the sectors’ details.

And results of the first quarter of the current year indicate that performance of 115 companies improved when compared with the fourth quarter of last year, including 42 companies which increased profits and 73 companies reduced their losses or converted losses to profits. This means that 65.7% of the companies which announced their results achieved better performance. Performance of 51 companies or 30.7% of total companies that announced their results dropped, including 37 companies with that achieved lower profits and 14 companies moved from profit to loss.

Performance of Global Economy – World Bank

In its current June 5th report, the World Bank estimated the growth of the global economy at 3.1% in 2018 (3.9% estimate for the IMF) and 3% for 2019 (3.9% estimate for the IMF) and 2.9% for 2020 (3.8% estimate for IMF). The difference is big between the two estimates which is justifiable and is due to a different estimate for the risks extent. The WB gives more weight to the impact of those risks on its estimates more than the IMF. Both however were optimistic about the rise of those (growth) rates starting 2017. The rationale for optimism is the start of a noticeable recovery in the growth estimate for most main global economies. The WB projects higher growth for the American economy from 1.5% in 2016 and 2.3% in 2017 to about 2.7% for the current year 2018 and 2.5% in 2019. These projections remain optimistic though they are lower than the IMF estimates by 0.2% for the next two years. The Chinese economy’s growth estimates are expected to be lower than the WB estimates by 0.1% for 2018 and 2019 and by 6.5% and 6.3% for the two years respectively. The forthcoming economic giant, India, is expected to grow at 7.3% and 7.5% for 2018 and 2019. Though these rates are lower by 0.1% and 0.3% respectively for the two years, they remain the highest growth rates among the advanced and the emerging economies. The Euro zone is expected to grow by less than 0.3% than IMF estimates for 2018 and 2019 by 2.1% and 1.7% respectively.

The paradox is that WB and contrary to its less  optimistic  outlook  for  the growth of most world countries adopts a slightly more optimistic outlook to most GCC economies for the current year 2018. In 2018, its estimates for the growth of 5 GCC states excel those of the IMF. For Qatar it expects 2.8%, UAE 2.5%, Oman 2.3%, Kuwait 1.9%, KSA 1.8% versus 2.6%, 2%, 2.1%, 1.3%, and 1.7% respectively as estimates for IMF. The only exception was Bahrain which it expects a growth by 1.7% while IMF estimates it at 3%.

Its various estimates mix with those of IMF in 2019. It estimates higher growth for 3 GCC states and lower for the other three. It expects 3.2% growth for UAE (3% for IMF), for Qatar it expects 3.2% (2.7% for IMF), 2.1% for KSA (1.9% for IMF). Its estimates for Kuwait are at 3.5% (3.8% for IMF), 2.5% for Oman (4.2% for IMF), and 1.7% for Bahrain (1.9% for IMF).

The estimates are big even in the short term estimates especially as half of 2018 has lapsed and the two institutions have the same data base and adopt the same estimation methodology. However, the differences despite their wide margin remain justifiable. The uncertainty case is at maximum. The estimates are not controlled by economic factors but by macro political variables. An example is what happened last week:  a relative success then total failure for the G7 meeting and the associated breath holding. Then the outcome of the American and North Korean meeting whose outcome was encouraging. The two events occurred in one week.  To be added to the foregoing are the geopolitical events which have been haunting the world and the region, the oil market conditions and the early warnings of a global trade war.

Therefore, the differences between the two reports will continue in the future. However, they agree that the gulf region will continue to remain the weakest in the world in terms of growth because political tensions prevail over economy interests.

Kuwait Finance House (KFH) Financial Results – First Quarter 2018  

Kuwait Finance House (KFH) announced the results of its operations for the first quarter of the current year, indicating an achieved net profit for its shareholders (after tax deduction) by KD 51.4 million, a rise by KD 8.4 million or by 19.5% compared with KD 43 million in the same period of 2017. The rise in the level of net profits is due to the absolute rise in total operating income by a higher value than the rise in total operating expenses. As such, the operating profit of the bank rose by KD 11.6 million or by 11.7%, and scored KD 110.3 million versus KD 98.7 million for the previous year.

In details, the bank’s total operating income rose by KD 20.5 million or by 12.2% and scored KD 189.1 million compared with KD 168.6 million in first quarter of 2017. This resulted from the rise in the item of net finance income by KD 38.3 million or by 38.2%, reaching KD 138.4 million compared to KD 100.1 million. Item of investment income declined by KD 15.9 million or by 58.5%, and scored KD 11.3 million versus KD 27.2 million.

On the other hand, total operating expenses increased by KD 8.9 million or by 12.8%, from KD 69.9 million to KD 78.8 million due to the rise in the items of staff costs and general & administrative expenses by KD 9.2 million against a drop in the item of depreciation & amortization by KD 318 thousand. Percentage of total operating expenses to total operating income reached 41.7% versus 41.5% in the first quarter of 2017. Total provisions rose by KD 4.2 million or by 9.7%, and scored KD 47.6 million compared with KD 43.4 million. All the previously mentioned figures explain the decline in the net profit margin to 24.6%, compared to 25.8% in the same period of 2017.

KFH’s total assets rose by KD 12.9 million or by 0.1%, to KD 17.371 billion compared with KD 17.358 billion in the end of 2017. It rose by KD 926.3 million or by 5.6%, and when it scored KD 16.445 billion when compared with the same period of 2017. Item of finance receivables rose by KD 280.9 million or by 3%, and scored KD 9.497 billion (54.7% of total assets) versus KD 9.216 billion in the end of 2017 (53.1% of total assets). It rose considerably by KD 1.036 billion, a rise by 12.2% compared with the same period of last year when it scored KD 8.461 billion (51.5% of total assets). Percentage of total finance receivables to total depositors’ accounts scored nearly 80.7% versus 77.1%. Item of short-term murabaha rose by KD 81 million or by 2.8%, and scored KD 3.006 billion (17.3% of total assets) versus KD 2.925 billion in the end of 2017 (16.9% of total assets). It rose by 255.2 million or by 9.3% (16.7% of total assets) compared with KD 2.751 billion in the same period of last year. Item of investment in sukuk dropped by KD 34 million or by 2.4%, reaching KD 1.395 billion (8% of total assets) versus KD 1.429 billion in the end of 2017 (8.2% of total assets). It rose by KD 180.4 million or by 14.9%, compared with KD 1.214 billion in the same period last year (7.4% of total assets).

Figures indicate that the bank’s liabilities (excluding total equity) rose by KD 149.4 million or by 1%, and scored KD 15.391 billion compared with KD 15.242 billion in the end of 2017. Total liabilities rose by KD 925.6 million, or by 6.4%, when compared with the same period of 2017 when total liabilities scored KD 14.466 billion. Percentage of total liabilities to total assets scored 88.6% versus 88% in the same period 2017.

Results of analysing the financial statements indicate that all of the bank’s profitability have increased compared with the same period of 2017. The average return on bank’s assets (ROA) rose to 1.2% up from 1%. The average return on capital (ROC) rose to 34% from 31.3%. The average return on shareholders’ equity (ROE) rose to 9.6% compared to 8.7%. Earnings per share (EPS) rose to 7.03 fils compared to 6.17 fils. (P/E) scored 21.1 times (slightly improved) compared to 21.5 times, as a result of the rise in earnings per share (EPS) by 13.9% against a lower rise in the share market price by 11.9% compared to their level in March 31, 2017. (P/B) scored 1.9 times versus 1.5 times.

The Weekly Performance of Boursa Kuwait 

The performance of Boursa Kuwait for last week was mixed compared to the previous one where the traded value, traded volume and the general index showed an increase, while the number of transactions showed a decrease. AlShall Index (value weighted) closed at 394.4 points at the closing of last Thursday, showing an increase by 3.8 points or by 1% compared with its level last week, it also increased by 7.4 points or by 1.9% compared with the end of 2017.

The following tables summarize last week’s performance of Boursa Kuwait

Description                                Week 24            Week 23        Diff

14/06/2018         07/06/2018          %

Working days                                     5                     5                

AlShall index (33 Companies)               394.4                390.6         1%

Boursa All Share Market Index            4,842.7              4,805.5       0.8%

Value Trade (KD)                       53,127,322         52,722,515

Daily average (KD)                    10,625,464         10,544,503       0.8%

Volume Trade (Shares)                213,699,258        194,771,712

Daily average (Shares)                42,739,852         38,954,342       9.7%

Transactions                                  10,408              10,487

Daily average (Transactions)                2,082                2,097      -0.8%

 Most Active Sectors & Companies

Description                                    Value Traded              % of Total

Companies                                               KD                  Market

Mobile Telecommunications Co (Zain)           10,038,852                     18.9 National Bank Of Kuwait       9,440,769              17.8%

Kuwait Finance House                            7,068,467                    13.3%

Gulf Bank                                        3,431,747                    6.5%

Boubyan Bank                                    2,694,232                     5.1%

Total                                            32,674,067                   61.5%

Description                                    Value Traded              % of Total 

Sectors                                                   KD                  Market

Banks Sector                                     27,441,054                   51.7%

Telecommunications Sector                      10,142,821                   19.1%

Industrials Sector                                  6,051,661                   11.4%

Financial Services Sector                           3,532,787                     6.6%

Basic Materials Sector                              2,255,061                    4.2%

Al Shall Index                                     Week 24                Week 23

14/06/2018             07/06/2018

Increased Value (# of Companies)                         19                       14

Decreased Value (# of Companies)                          4                       11

Unchanged Value (# of Companies)                      10                         8

Total Companies      33                      33

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