So far, the year has seen healthy growth across the board except for earnings correlated to market investments
Gulf Investment Services

Fuelled by the external buying, during the period under review (mid September to mid October) the benchmark MSM 30 Index posted 3.71 per cent gains to close at 5512.19, taking the year to date returns to 13.07 per cent, the best among regional markets. Also on October 8, the index had touched a new 52-week high of 5560.75. With corporate growth focused towards core earnings, the fundamentals remain strong. The year has seen healthy growth across the board.

The macro factors remain positive with economic growth expected to be healthy in the near future. As per IMF, the regional growth in the Middle East continues to outpace global growth and should average six to seven per cent in 2006 and 2007 in real terms. We have covered the earnings releases of some of the market leaders in the regional markets.

Healthy banking core earnings
Economic activity in the region has kept both industrial and personal credits at healthy levels. National Bank of Kuwait (NBK) has reported a record 22 per cent rise in net profit of KD190mn for the first nine months of 2006. Return on the assets and return on equity also rose to 3.85 per cent and 38.7 per cent respectively.

In the UAE, banks posted mixed results. While Abu Dhabi Commercial Bank (-28 per cent) and National Bank of Abu Dhabi (-19 per cent) posted lower bottomline compared to the same period last year, Commercial Bank of Dubai (12 per cent) and First Gulf Bank (60 per cent) reported reasonably good growth. Amlak Finance PJSC, the largest listed Islamic finance company in the home finance sector in the UAE, has announced a net profit of AED115mn after the depositors' share for the period ended September 30, 2006. Net profit after the depositor's share represents a 43 per cent increase over the same period last year.

Qatari banks that are well placed for absorbing the benefits of the current boom have been performing well due to their enlarging corporate book. The market leader, QNB, posted 37 per cent yoy growth while Ahli Bank grew 53 per cent.

Industrial development
Core earnings from the industry sector witne-ssed healthy growth backed by the government’s thrust on development and enlarging liquidity. The region has been growing its petrochemical capacities, whereby more than 50 per cent of the global capacity additions are planned in the Middle East for the next five years.

For the nine months ended September 2006, Raysut Cement has reported 73.3 per cent revenue growth to RO36.426mn. This was supported by contribution from new capacity and healthy demand conditions. However, despite the sales realisation being higher, turnover for the third quarter was lower by 11 per cent compared to the previous quarter. We continue to maintain our positive outlook on topline growth for the company. Margins are bound to remain healthy during the period.

The Saudi Basic Industries Corporation (SABIC) reported net profits of SR5.4bn during the third quarter. These profits are the highest ever achieved in a single quarter – an increase of 19 per cent over the second quarter of the current year. However, the total net profit for the first nine months of this year was SR14.2bn compared to SR14.7bn in the same period of the previous year – a decrease of 3.5 per cent.

Real estate sector
The UAE-based real estate major, Emaar Properties, has reported 35.2 per cent net profit growth for the three months ended September 2006 to AED1,595mn. Revenues for the same period have jumped by 60 per cent to AED3,449mn, while the earnings before interest and taxes have increased by 36.8 per cent to AED1,484mn. Its performance is supported by strategic local and regional expansions and international diversification initiatives.

Markets to consolidate
As per market sources, the total value of initial public offering during the year 2007 is in the range of US$12bn throughout the region. This would clearly provide a platform for the surplus liquidity that has been flowing all through the year. With the investment risk spreading across sectors and stocks reaching a realistic level, a healthy consolidation is expected in the regional markets in the next two quarters.

Disclaimer: This report has been prepared on the basis of publicly available information, internally developed data and other reliable sources. While all care has been taken to ensure that the facts stated are accurate and the opinions given are reasonable, neither GIS nor any employee shall be responsible for the contents of this report.

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