(MENAFN - The Peninsula) By Satish Kanady I The Peninsula
DOHA: The third quarter earnings for Qatari stocks under the coverage of QNB Financial Services (QNBFS) are expected to deliver a strong 27 percent growth on year-on-year and a 4.6 percent on quarter-on-quarter.
Industries Qatar (IQ), Commercial Bank and Vodafone Qatar are estimated to contribute positively YoY to the aggregate bottom-line of stocks under coverage, QNBFS noted in its ‘Qatar Stock Exchange Q3 Earnings Preview', yesterday.
'Given the overall market's significant outperformance, we may need positive earnings surprises to fuel the rally going forward. For the time being, valuations seem reasonable vs. the region's forward price-to-earnings multiples, while dividend yields remain at par with the region, QNBFS analysts said.
On an overall basis, the Qatar Stock Exchange Index trades at a 2019 P/E of 11.8x, complemented by a dividend yield of 4.5 percent, while the MSCI GCC Index trades at a 12.0x P/E along with a dividend yield of 4.3 percent.
The Qatari Index has bounced back 27.6 percent and 34.1 percent (on a total return basis) from its lows reached on November 30, 2017. The index is almost flat on a price basis and is up 4.2 percent from its pre-embargo level (total return: +21.4 percent YTD).
Market recovery since mid-March has been driven by increased FOLs (and the resultant foreign flows) led by QNB and is being sustained by improving oil prices.
Medium-term, a lack of persistent catalysts, weakness in EM/EM currencies and volatility due to an ongoing global trade war could act as impediments. Longer-term, we remain bullish on the Qatari stock market given attractive fundamental drivers and a significant spending program that should provide tailwinds for growth.
On the banking sector performance, the QNBFS said the banks under its coverage (ex-QNB) to experience a YoY increase of 13.5 percent largely due to a base effect stemming from Commercial Bank. The estimated 1.9 percent quarter-on-quarter growth will be mainly driven by Doha Bank's base effect.
QNBFS expects Qatar Islamic Bank (QIBK) to continue its positive performance. It pencils in a +8.9 percent YoY growth in its bottom-line driven by net operating income (+5.6 percent), a drop in provisions and impairments (-12.5 percent YoY) as the bank booked high provisions in 3Q2017.
QNBFS estimates a YoY jump of 46.0 percent in the bottom-line of diversified non-financials under coverage, while forecasting a decent gain of 7.6 percent QoQ. 'Based on our assumptions, Industries Qatar (IQ) leads the significant growth in net income on a YoY basis, while Vodafone Qatar and Nakilat ) also contribute to the growth in overall net income.
Regarding IQ, Q3, 2018 group (steel + petchems + fert) revenue should grow nicely YoY but decline slightly QoQ despite strength in fertilizers; net income should grow YoY/QoQ. QNBFS analysts note YoY comparisons should be positive across the board with the possible exception of PE realizations. The level of steel revenue will continue to remain high as IQ sells billets previously earmarked for steel bar production in its Dubai operations.
However, QoQ revenue should come down due to lower inventory release and seasonality/project completions but we expect margins to improve. Fertilizers should grow given the healthy uptick in urea prices. Softening sequential PE prices could cause a modest decline in the petchems segment.
As far as Vodafone is concerned, the company should continue its trend of positive earnings in Q3,2018; top-line should be up nicely YoY. Revenue should, however, be flattish QoQ. Earnings should be in the green as expected vs. last year and flattish QoQ.
'Estimates can be impacted by one-offs, greater or lower provisions for banks and investment income/capital gains (losses). Volatile oil prices remain a substantial risk to regional equities and have a direct impact on stocks under coverage, QNBFS said.