Qatari stocks set for earnings recovery in Q1: QNBFS

Satyendra Pathak Doha Progressive lifting of coronavirus countermeasures from July this year coupled with a further recovery in commodity prices are expe...

Satyendra Pathak Doha Progressive lifting of coronavirus countermeasures from July this year coupled with a further recovery in commodity prices are expected to lift normalised earnings of Qatari stocks in the first quarter of 2021, QNB Financial Services (QNBFS) has said in its latest report.“Qatari stocks under coverage are expected to exhibit a sequential recovery in earnings on a normalised (excluding outliers such as Doha Bank, Gulf International Services, Baladna and Industries Qatar) basis in the first quarter of 2021. Normalised earnings should increase by 28 percent quarter-on-quarter (QoQ), in aggregate, mainly due to a recovery in non-financial stocks helped by the progressive lifting of coronavirus counter-measures from July, coupled with a further recovery in commodity prices,” QNBFS said in the report.“We continue to remain bullish longer-term on Qatari stocks given their defensive characteristics backed by their strong fundamentals and reasonable valuation. Moreover, lifting of the blockade is a positive for Qatar and the region. Infrastructure projects related to the 2022 FIFA World Cup and the 2030 Qatar National Vision investments have continued to be major growth drivers for local companies during the 2017-2020 period,” the report said.On top of Qatar’s macro strengths, the report said, Qatari companies enjoy robust balance sheets backed with low leverage and a decent return on equity, whereas Qatari banks stand out with their exceptional capital adequacy ratios, healthy NPLs, strong provision coverage, and high profitability. In case of any unforeseen volatility, the report said, the government’s QR10 billion stock purchase programme creates an important safety net for Qatari stocks. “We believe this market should continue to outperform on a relative basis, despite being a laggard thus far this year, bolstered by its effectively handled vaccination programme,” the report said. “Industries Qatar (IQ) and Commercial Bank of Qatar (CBQ) should make notable positive contributions to the sequential net income performance of stocks under our coverage. Doha Bank also has a notable contribution to QoQ aggregate earnings growth as the company posted a loss in the fourth quarter of 2020,” the report said. On a year-on-year (YoY) basis, QNBFS said, normalised aggregate earnings should record a growth of 11.8 percent.“IQ should post a substantial jump in YoY earnings, while CBQ and Qatar Aluminum Manufacturing Company (Qamco) are also expected to make handy contributions,” it said.“We estimate banks under coverage, ex-QNB Group, to experience strong earnings YoY, growing by 10.9 percent largely attributed to CBQ as the bank is expected to report a large YoY growth in earnings. Excluding CBQ, aggregate bank earnings could increase by 6 percent YoY. The increase in the aggregate bottom-line is driven by stable margins, cost containment and lower provisions and impairments. Moreover, we expect a sequential surge in profits of 50.6 percent as banks typically book lower provisions and impairments in the first quarter of 2021,” the report said.“CBQ is expected to contribute positively to the YoY profitability performance based on our figures. Strong revenue, specifically non-funded income, should drive earnings on a YoY basis. We estimate a 37.3 percent YoY jump in CBQ’s bottom-line driven by healthy revenue. On the other hand, we foresee further impairments related to United Arab Bank in the coming quarters, albeit at a lower amount against 2020,” it said.“The sequential surge in CBQ’s earnings is due to significantly lower credit provisions. CBQ’s management has been delivering on its five-year strategy objectives, which we think is positive. The stock remains inexpensive and we maintain our Outperform rating and target price of QR5.143. Regarding QIB, we expect the bank to post strong growth in net profit YoY of 10.3 percent in-line with historical trends,” it said.“We rate QIBK as a Market Perform with a target price of QR15.70,” it said.“We estimate a YoY rise of 12 percent in the normalised bottom-line of diversified non-financials under coverage. On a sequential basis, aggregate normalised earnings of diversified non-financials could increase 27.6 percent. Based on our assumptions, IQ should be a standout performer in the first quarter of 2021 benefiting from its 25 percent acquisition of QAFCO, a significant uptick in commodity prices and a lack of major planned shutdowns across the company’s operations. We maintain our Accumulate rating on IQCD and will be increasing our 2021/2022 estimates and target price of QR11.50 shortly,” the report said.