JEDDAH – Profits of Saudi companies exceeded SR100 billion ($27 billion) for the first time ever last year, the National Commercial Bank data showed. Petrochemicals giant Sabic accounted for around a quarter of profits among Saudi companies listed on the Tadawul, and the petrochemicals sector as a whole accounted for around 33 percent of total profits. The banking sector contributed around 28 percent of profits last year, while telecom sector was a distant third with around 14 percent of total TASI profits. Even as overall profits grew by 6.6 percent compared with the same period last year, construction sector posted a mammoth 811.7 percent improvement in profits. The Saudi economy grew by a comfortable 3.8 percent last year, although lower than the 5.8 percent growth rate achieved in 2012. The 2013 performance is impressive as it was primarily driven by the non-oil sector, which rose 5.1 percent, compared to a slight contraction in the oil sector. Overall though, growth has pared from the heady days of 2012 and 2011 when oil prices were rising and the authorities announced a raft of new projects. Saudi bank Samba expects the non-oil sector to also see a decline in capital spending. "2013 data have not yet been disaggregated between current and capital spending, but we think that capital spending probably shrank again, this time by a more modest 2 percent (the fact that the authorities are projecting a balanced budget in 2014, rather than a surplus as in recent years might also be indicative of a more cautious approach to public spending," James Reeve, an analyst at Samba, wrote in a report on the Kingdom. The Saudi petrochemicals sector, which had seen prices decline last year, now has to contend with falling growth in key emerging markets such as China and India. NCB expects prices to increase marginally year-on-year in 2014 with higher demand the key driver of revenue growth in the sector. "This coupled with contribution from the start-ups of Sahara, Tasnee and Sipchem as well as improved operational efficiencies at existing plants are expected to drive earnings," wrote NCB analyst Iyad Ghulam. "However, fertilizer prices are expected to decline due to rising supply from China and the MENA region in addition to the Russia-Ukraine gas agreement." The Saudi banking sector enjoyed moderate profit growth of just under 4 percent last year, but may also see lower growth as higher provisioning eat into profits. "Credit growth slowed down in 2013 after growing at a faster pace in 2012," noted Al Rajhi Bank. "The total credit grew by 12.5 percent year-to-date through November as compared to 16.4 percent. Sectors such as electricity witnessed a decline in credit in year-to-date terms, whereas credit to services sector witnessed only a marginal gain in 2013. Credit to the construction sector also moderated." Analysts are cautious as credit growth is set to moderate even further. The promising real estate sector, which was widely expected to boom as housing became the number one priority, saw overall net income decline 15 percent year-on-year, as key corporation Dar Al Arkan saw its earnings decline 31 percent. However, NCB believes recent government initiatives such as "Ejaar" and "Land and Loan" programs, would trigger a surge in activity. The cement sector also disappointed, rising up 0.8 percent last year, but is poised for strong progress as new projects get under way in the New Year. "Our main concern for the sector in the short term is the slowdown in construction due to labor shortages," said NCB . "This has negatively impacted 4Q13 results and we expect a similar impact on 1Q14, although less pronounced. Thus, we expect 1Q14 to be relatively weak vs. the usual trend of the first quarter of the year being the strongest. Based on our discussions with various market players, we believe this situation will noticeably improve from 2Q14 onwards." Saudi corporations are expected to see moderate growth this year, although events could take a turn for the worse if emerging market woes weighs down crude prices. – SG
