Riyadh – Mubasher: Al Rajhi Capital expected that the first quarter of the year would be good for most sectors.

The investment’s firm expectations included improvement in petchem spreads, repricing of loans, lower cost of deposits, and stabilisation of bad debt.

Al Rajhi Capital said that these improvements could lead to a better performance for heavyweight sectors, such as the petrochemical and banking sectors.

The Petrochemical sector

Despite higher Brent crude prices for most of the year, as a result of the OPEC output cut deal, prices recently dropped on concerns of rising US production (9 million barrels per day), due to higher drilling activity and inventory levels.

The report added that on the cost level, average key feedstock prices have sharply increased by 36% for Butane, 27% for Propane, and 12% for Naphtha, which is likely to raise costs for producers like SABIC and Yansab.

Higher prices of SABIC’s diverse product portfolio would drive the company’s profitability to SAR 5.6 billion in the first quarter, to record its highest profitability since Q3-15, Al Rajhi expected.

Moreover, Sipchem and SAFCO’s operating performance is likely to further improve in Q1 due to higher product spread, on account of increased product prices coupled with its largely fixed feedstock costs, the company reported.

Al Rajhi expected that the profitability of Tasnee would continue improving in Q1, primarily driven by cost restructuring programme.

The investment company placed an "Overweight" rating on Sipchem.

The retail sector

The retail sector is expected to see a “healthy performance” in Q1-17, Al Rajhi said, adding: “Electronic retailers like Jarir and eXtra will continue to benefit from market share gains on the back of regulatory changes (mandatory Saudisation of mobile shops) and retreat of smaller electronic chains.”

Jarir, which is expanding “aggressively,” is expected to register a 16% year-on-year growth in revenue, while eXtra would achieve a 7% increase.

As for Al Othaim Markets, focusing on non-discretionary products and aggressive store expansions will lead to high revenue growth by 18% year-on-year.

Al Hokair may post a modest decline in revenue due to the decline in like-for-like (LFL) growth, Al Rajhi noted.

Al Rajhi said that the net profit of all retailers is likely to hike on an annual basis, majorly backed by revenue growth of Jarir, eXtra, and Al Othaim, while it will be supported by the normalisation of gross margins of Al Hokair.