The combined net profits of Saudi Arabia's leading companies are expected to rise 17 per cent in 2014 and a further 11 per cent in 2015, largely on the back of petrochemical producers and banks, although a number of companies in other sectors also promise strong growth.

The figures are based on average forecasts from analysts surveyed by Reuters for 81 companies which accounted for 99 per cent of the total profits of constituent companies in Saudi Arabia's main equities index last year.

The outlook puts Saudi Arabia roughly on a par with Qatar, where profit growth is set to average 13 per cent this year and next, and Abu Dhabi, which is expected to average 17 per cent.

It's a big improvement from Saudi Arabia's zero profit growth in 2012 and a 6 per cent increase last year. That poor performance was almost entirely due to weak profits at petrochemical firms, which saw product prices sag because of the economic slump in Europe.

Strong earnings will not necessarily translate into further fast rises for Saudi stock prices, which are already up 28 per cent year-to-date, having surged since the market opening plan was announced in July; many fund managers think the market is no longer cheaply valued.

But the earnings picture does ensure that the market opening is likely to attract heavy investor activity.

Estimates for 45 stocks in MSCI's Saudi Arabia index suggest the country's earnings performance will outpace most of the emerging market universe, which the country could eventually join after the market opens up, depending on the decisions of international equity index compilers such as MSCI.

Saudi Arabia's "earnings per share growth, at 13.5 per cent compound annual growth rate for 2013-16, is above all other Eastern Europe, Middle East and Africa markets, other than Egypt," Morgan Stanley said in a report last month, citing its own estimates.

PETROCHEMICALS, BANKS

In the petrochemical sector, earnings are expected to jump 25 per cent this year and then rise 9 per cent in 2015, thanks in part to companies swinging to profitability after years of losses, including National Petrochemical Company, which launched a polypropelene plant in 2010, and Saudi Kayan Petrochemical Company, which started commercial production of specialised chemicals in 2011.

Companies such as Saudi Kayan and its parent Saudi Basic Industries (Sabic) which produce ethylene, the feedstock for most common plastics, are in especially favourable positions, analysts say. Sabic is one of the world's biggest petrochemical firms.

"The ethylene market is very tight - since 2008 growth in demand has outpaced supply, and this should continue until 2017-2018, when new capacity comes online," said Ahmed Shams El Din, director of equity research at EFG Hermes in Cairo.

Analysts expect Sabic's earnings, which account for about a quarter of the combined profit of all listed Saudi companies, to rise 12 per cent this year after shrinking in 2012 and increasing just 2 per cent in 2013.

On the other hand, the outlook is not very favourable for fertiliser producers such as Saudi Arabian Fertilizer Company (Safco), another Sabic affiliate; prices for their products are under pressure.

The fertiliser market "is oversupplied, China has flooded the market," said Shams El Din. Analysts on average expect Safco's profit to rise 7 per cent this year and 2 per cent in 2015 after dropping 18 per cent last year.

Meanwhile, earnings in the banking sector are forecast to rise 9 per cent this year and 12 per cent in 2015. Banque Saudi Fransi is seen as one of the key contributors, with its profit expected to jump by a third this year after dropping 20 per cent last year.  -Reuters