Saudi market profitability in 2011 showed strong growth with net income rising 22 percent YoY to SR94.8 billion from SR78.1 billion in 2010, said NCB Capital, Saudi Arabia's leading wealth manager, in a new report. However, growth slowed significantly in 4Q11 with net income increasing by only 11 percent YoY against 25 percent for the first nine months of 2011. The 4Q11 net income was significantly impacted by a YoY net income decline from the petrochemical sector. Farouk Miah, Head of Equity Research at NCB Capital, said: "The petrochemical sector accounted for 43 percent of the total market net income in 2011 (up from 38 percent in 2010) and was 38 percent higher YoY. At the same time, SABIC accounted for 31 percent of total market net income in 2011 (up from 28 percent in 2010) and saw YoY net income growth of 36 percent YoY. In addition, the Banking sector reported YoY net income growth of 17 percent YoY in 2011 and accounted for 27 percent of total market net income in 2011, down from 28 percent in 2010. The petrochemical sector's 2011 net income came in at SR40.8 billion, up 38 percent YoY due to increased volumes and higher petrochemical prices. The start up of Sahara's Al Waha facility and the full year contribution from Yansab and Sipchem's Phase II fuelled volumes growth in 2011. The sector reported a 4Q11 net income of SR7.8 billion, down 6.7 percent YoY due to lower selling prices. SABIC alone accounted for 71.5 percent of the Petrochemical sector's total net income in 2011 compared to 72.8 percent a year ago. SABIC's 4Q11 net income came in at SR5.2bn (down 9.9 percent YoY and 35.7 percent QoQ) as lower selling prices dented earnings, despite higher sales volumes "We believe KSA petrochemical producers are likely to witness weaker demand and prices in the near term due to strained economic conditions in Europe and the US," Miah said. "However, we believe the prevailing cost advantage, proximity to Asian markets and the full year contribution from Saudi Kayan and Sahara's Al Waha plants to be key positives for the Saudi petrochemical sector in 2012." The Saudi banking sector (including NCB) posted a healthy performance in 2011, with the sector's net income growing 18.4 percent YoY to SR31.6 billion. Net profits for the 11 listed banks grew 16.5 percent YoY to SR25.6 billion; while the 10 banks under NCB Capital coverage reported a 16.5 percent YoY growth in net income to SR25.2 billion. "The net income of 10 banks under our coverage came in slightly below our estimate of SR25.6 billion," he noted. The YoY growth in net income is attributed to the significant growth in non-interest income and to a substantial decline in provisioning. Customer deposits and loan book of the 10 banks under our coverage grew significantly by 11.3 percent and 11.0 percent respectively. Healthy lending growth was partly contributed by the government's spending spree earlier in 2011 buoying economic activity and boosting investor sentiment. The majority of the growth in loan book came from the 'core sectors' such as the manufacturing, retail and commerce sectors which should support medium-term growth. 2011 was a strong year for the cement sector with net income up 25 percent for the sector as a whole. As the year progressed, net income growth picked up; in 1Q11, YoY net income growth was 13 percent, which increased to 20 percent in 2Q11, 27 percent in 3Q11 and 43 percent in 4Q11. NCB Capital said the strong performance was driven by strong growth in overall sector sales volumes as well as supported by a YoY increase in selling prices of cement per ton and reduced cost per ton. Telecoms sector net income was down 0.4 percent YoY in 2011 due largely to the significant one-off losses from STC in 3Q11 which led to sector net income in that quarter to fall 41 percent YoY. For 2011, revenue for the covered stocks grew by 13 percent YoY to SR83 billion, driven mainly by an increased subscriber base, as well as expansion of broadband.
