Aggregate profits of $ 11.6 billion announced by GCC-listed companies for the second quarter of 2012 disappointed investors, as the numbers fell marginally short of analysts' aggregate median profits estimate of $ 12 billion. The results shortfall was led mainly by the results of Kuwaiti companies.
Forecasts were available for 124 companies compared with 103 companies for the first quarter of the year, with 57 percent of these companies announcing higher-than-expected second-quarter earnings. The findings are included in the GCC Equities - Result Snapshot Q2, 2012 research report published by Bahrain-based Securities & Investment Company (SICO).
Based on an analysis of 538 GCC-listed companies, aggregate second-quarter profits of these companies declined 2.8 percent year-on-year to $ 13.3 billion, from $ 13.6 billion in the first quarter of 2012. The SICO report notes that 71 of these companies have reported quarterly profit growth for four consecutive quarters, of which 48 have a market capitalization exceeding $ 300 million.
Companies in the UAE and Oman outperformed those in other GCC countries, with 19 out of 25 UAE companies and 9 out of 14 Omani companies surprising investors with higher-than-expected profits. In absolute terms, only the UAE and Omani companies surpassed analysts' estimates. Nearly 70 percent of Saudi companies posted better-than-expected profits, however their aggregate profit missed estimates by 7 percent. Excluding Bahrain (where estimates were available for just three companies), Kuwaiti companies were the worst performers, with 73 percent of companies missing estimates, including leading names in banking and telecoms.
Real estate continued to be the best-performing sector, with eight out of 10 companies beating analysts' estimates for the second quarter of 2012, followed by companies in the consumer sector. In the banking sector, 22 out of 30 banks reported higher-than-expected profits, while the majority of companies in the building materials and telecommunications sectors missed analysts' estimates.
Second-quarter revenues of GCC-listed companies increased 6 percent year-on-year, although their operating profit declined by 3 percent. Banking, telecom, building materials and consumer goods companies reported strong growth in operating profits, while basic materials and utility companies witnessed a double-digit decline in operating profits on a year-to-year basis.
Return ratios (RoE and RoA) for GCC-listed companies declined in quarter two 2012 from the first quarter's level of 14 per cent, but are higher than the 12 per cent level reported in the fourth quarter of 2011, when returns were impacted by year-end provisioning. Companies' operating margins, which were recorded at 21 percent in the second quarter of 2012, have declined, both on a quarter-on-quarter and year-on-year basis.
According to SICO's report, overall trading activity in GCC markets dropped 37 percent from average daily levels of $ 2.3 billion during the second quarter of 2012, to $ 1.5 billion during the current quarter (July-September 2012) driven by the expected slowdown in the summer season and the holy month of Ramadan.
Nevertheless, trading activity in the Saudi market during this summer (June-August 2012) was 83 percent higher compared with the same period last year. Overall, GCC markets are up 4.6 percent year-to-date, led by the DFM, Tadawul and ADSM at 17.7 percent, 9.6 percent and 8.7 percent respectively.
The S&P/IFC Global GCC Price Index gained 3.6 percent during the current quarter after losing around 11 percent during quarter two 2012.
Looking ahead, SICO expects GCC-listed companies under its coverage to achieve a strong profit growth of 13 percent year-on-year and 1 percent quarter-on-quarter in the third quarter of 2012. Telecom, banking, consumer and logistic sector companies are forecast to report higher year-on-year earnings, while real estate and construction companies are expected to report a year-on-year decline in profits.