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Third quarter presents a mixed bag

http://archive.gulfnews.com/business/Markets/10081746.html

11/10/2006 11:35 PM | By Arif Sharif, Staff Reporter

Dubai: UAE companies posted mixed results in the third quarter but top firms like property heavyweight Emaar and phone company etisalat met market expectations by unveiling robust profits.

Banks were hurt by a decline in stock market and IPO-related income, but analysts said underlying earnings were strong after stripping out the impact of investment in shares.

Corporate profits could improve in October-December helped by a seasonal upswing, possibly an improving share market and the continuation of current growth.

"The results of the large caps were mostly healthy, especially Emaar and etisalat, which met expectations. Some of the results showed the impact of the slowing capital market," said Walid Shihabi, head of research at investment bank Shuaa Capital.

Several UAE banks, insurance and even cement companies have large investments in shares and made strong gains last year from a market boom. But this year's market dip and nearly flat prices in July-September hit earnings.

Banks, which had a windfall last year from lending for IPOs, were also hurt by fewer issues this year.

Only one was floated in the period, the Dh910 million offering of shipping firm Gulf Navigation Holding which was oversubscribed 3.5 times, poor by UAE standards.

Still, results of top firms were robust. Emaar, the UAE's biggest company by market value, met market expectations by unveiling a 35.2 per cent rise in quarterly profit to Dh1.6 billion.

But its shares slid in the days after the results as investors worried over the sharp drop in operating profit margin to 43 per cent in the quarter from 50.3 per cent in the year ago.

Ahmad Gad, an analyst at brokerage EFG-Hermes, said in a results report the decline in margin was expected owing to greater proportion of low margin property sales compared to raw land sales.

The consolidation of earnings of John Laing Homes, the US home builder which it acquired on June 1, into its results also reduced margins.

Gad said Emaar's revenues and operating margins will improve in the fourth quarter when construction of Burj Dubai reaches the 20 per cent benchmark or when customers pay up at least 20 per cent.

Emirates Telecommunications Corp or etisalat reported a 42.8 per cent rise in third quarter profit to Dh1.59 billion helped by robust mobile subscriber additions and improved operating efficiencies.