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Economic recovery witnessed during the fourth quarter (Q4) of last year is likely to boost the corporate earnings.
Companies listed on the Qatar Stock Exchange are expected to announce stronger growth in earnings in the last quarter of 2021. QNB Financial Services (QNBFS) expects the fourth-quarter earnings for Qatari stocks to grow 31.2 percent year-on-year (YoY) on a normalised basis.
“We expect 4Q2021 earnings for Qatari stocks under coverage to grow 31.2 percent YoY on a normalised basis (excluding outliers Industries Qatar, Milaha and Gulf International Services). The YoY growth in normalized earnings is attributable to a continuously improving operating environment in 4Q2021 vs 4Q2020. The fourth quarter of 2020 had relatively stricter counter-COVID-19 measures in place,” said QNBFS in its fourth quarter earning preview report released yesterday.
However, on a Quarter-on- Quarter (QoQ) basis, earnings should recede 24.8 percent, added the report.
The outlook for the current year is encouraging and the market will benefit from many factors including the Word Cup Qatar 2022. It expects the market to benefit from inflows when foreign ownership limits are increased in four major banks (QNB, Qatar Islamic Bank, Commercial Bank of Qatar and Masraf Al Rayan). “With the FIFA World Cup Qatar 2022 finally around the corner, we believe the Qatari stock market will benefit from the sheen of this unprecedented success enjoyed by Qatar on the global stage,” it added. “While any actual MSCI-related flow increase will take place in May at the earliest (and FTSE in June), we expect the market to move in anticipation of this ~$1bn event,” added the report.
Over the medium-to-long term, the North Field Expansion Project and 2030 Qatar National Vision investments continue to be major growth drivers for local companies. On top of Qatar’s macro strengths, Qatari companies enjoy robust balance sheets backed with low leverage and decent RoEs, whereas Qatari banks stand out with their exceptional capital adequacy ratios, healthy NPLs, strong provision coverage and high profitability.
With coronavirus continuing to affect the real economy, global emerging market equities as well as Qatari stocks could stay volatile. So far, the impact of the Omicron variant seems limited but risks persist, said the report.
“We continue to remain bullish longer-term on Qatari stocks given their defensive characteristics backed by their strong fundamentals and reasonable valuations, coupled with Qatar’s effectively-handled vaccination program, which reduces COVID-19 variant risks substantially,” said the report.
QNBFS estimates banks under coverage, ex-QNB Group, to experience strong earnings YoY, growing by 24.5 percent largely attributed to Doha Bank (which reported a loss in 4Q2020), Masraf Al Rayan (which benefits from its merger with KCBK) and Commercial Bank of Qatar. Excluding Doha Bank, aggregate bank earnings could still exhibit an increase of 12.3 percent YoY. Mainly cost containment and flat-to-lower provisions & impairments drive the increase in the combined bottom-line.
The report estimates a YoY rise of 506.9 percent in the bottom-line of diversified non-financials under coverage mainly due to higher commodity prices driven by Industries Qatar and significant impairments at Qatar Navigation or Milaha, Gulf International Services and provisions at Qatar Electricity & Water during 4Q2020.
