qnbfs qatar equity strategy report 2015

Qatar Equity Strategy2015

According to QNB Group, Qatar’s economy is expected to remain resilient to lower oil prices

10,000

11,500

13,000

14,500

16,000

Jan-14

Jun-14

Jan-15

Volume mn (LHS) QSE Index (RHS)

UAE, Saudi Arabia and Bahrain call back theirenvoys from Qatar

Upbeat investor sentiment over Qatar's inclusion in MSCI's

FIIs turned net sellers concerned by Iraq crisis

Record budget of $62bn unveiled for 2014-15, gives a massive push to infrastructure

Full year results and dividend improve market sentiment

FIIs invested ~360mn. Turned net buyers consecutively for ~ a month

Advisory Council approves draft law on tax exemption for foreign investors

Investor buying interest continues despite generally soft 2Q2014 results

MSCI lifts weight of 3 Qatari stocks in its EM index on foreign ownership reform

Emir issues law allowing FIIs to own up to 49% of listed companies

MSCI removes the 0.5x limiting factor on QNBK, IQCD, CBQK & DHBK; adds GISS to its EM Index

Continuing fall in oil prices hit regionalequity markets

––

Present across a major portion of QP’s value

Much of the company’s drilling business

risk play deeply linked to Qatar’s growth story.company is Qatar’s leading listed electricity/desalinated

QGTS remains Qatar’s

Milaha’s business model is deeply linked to the Qatar growth story.

NS’ business is levered to Qatar’s economic growth through: 1)

DHBK’s loan portfolio vs. ~10% in 2008. During the same period,

a leading specialist insurer and reinsurer operating in the Lloyd’s

Focused on Qatar, KCBK’s management has set forth a 3strategy that would improve the bank’s market share

al assets (listed Shari’a complMARK has dominated the public sector Shari’a compliant segment.

Foundation), ABQK’s

Table of Contents

Introduction

Aggregate Bottom-Line to Grow at a Decent Pace of 13.2% in 2016 for Key Qatari Equities ............................................................ 5

Trading Performance Review (2014) ............................................................................................................................................................................ 6

Foreign Institutional Investors Remained Bullish in 2014 ................................................................................................................................ 9

QSE Remains an Attractive Relative Regional Play Despite a Strong Performance in 2014 ...........................................................12

Company Updates

Ahli Bank (ABQK)................................................................................................................................................................................................................14

Al Khalij Commercial Bank/Al Khaliji (KCBK) ......................................................................................................................................................16

Commercial Bank of Qatar (CBQK) .............................................................................................................................................................................18

Doha Bank (DHBK) .............................................................................................................................................................................................................20

Gulf International Services (GISS) ..............................................................................................................................................................................22

Gulf Warehousing Company (GWCS) .........................................................................................................................................................................24

Industries Qatar (IQCD) ....................................................................................................................................................................................................26

Mannai Corporation (MCCS) ..........................................................................................................................................................................................28

Masraf Al Rayan (MARK) ................................................................................................................................................................................................30

Qatar Electricity & Water Company (QEWS) .........................................................................................................................................................32

Qatar Gas Transport/Nakilat (QGTS) ........................................................................................................................................................................34

Qatar Insurance Company (QATI) ...............................................................................................................................................................................36

Qatar International Islamic Bank (QIIK) ..................................................................................................................................................................38

Qatar Islamic Bank (QIBK) ..............................................................................................................................................................................................40

Qatar National Cement Company (QNCD) ..............................................................................................................................................................42

Qatar Navigation/Milaha (QNNS) ..............................................................................................................................................................................44

Vodafone Qatar (VFQS) ....................................................................................................................................................................................................46

Appendix: Sector Recaps

Consumer Goods & Services Sector .............................................................................................................................................................................49

Industrials Sector .................................................................................................................................................................................................................50

Banking Sector ......................................................................................................................................................................................................................51

Insurance Sector ...................................................................................................................................................................................................................52

Telecoms Sector ....................................................................................................................................................................................................................53

Transportation Sector ........................................................................................................................................................................................................54

Real Estate Sector ................................................................................................................................................................................................................55

Financial Services Sector .......................................................................................................................................................... 56

positively toward 4Q2014’s aggregate bottom

pack. Qatar’s QSE Index was the top performer, surging by 18.36% (total ret

equities during 2014 buoyed by the MSCI and S&P Dow Jones’ decision to upgrade the Qatari market from Frontier Markets status

- 10 20 30 40 50 60 70 80

All Share Insurance Index

QSE Al Rayan Islamic Index

All Share Banks & Financial Services Index

All Share Transportation Index

QSE Total Return Index

QSE All Share Index

All Share Consumer Goods & Services Index

All Share Industrials Index

All Share Real Estate Index

All Share Telecoms Index

31-Dec-07 5-May-10 7-Sep-12 11-Jan-15

2015e 2016e

-12.0%

28.0%G

2015e 2016e

8.9 18.8 32.2 20.2 18.9

5.9 8.0 13.2 9.4 8.6

2.7 5.4 10.8 6.2

3.1 6.9 13.2 8.8 12.5

4Q2013 1Q2014 2Q2014 3Q2014 4Q2014

Qatari Individuals (QR bn) Qatari Inst itut ions (QR bn)

Non-Qatari Individuals (QR bn) Non-Qatari Inst itut ions (QR bn)

8.3 15.8 31.4 19.2 18.6

5.6 8.5 10.9 8.8

2.7 5.0 10.0 6.1

4.1 9.9 17.1 10.5 12.9

4Q2013 1Q2014 2Q2014 3Q2014 4Q2014

Qatari Individuals (QR bn) Qatari Inst itut ions (QR bn)

Non-Qatari Individuals (QR bn) Non-Qatari Inst itut ions (QR bn)

17.3 34.6

39.3 37.5 11.6

18.2 17.1

12.4 12.1

19.3 25.5

4Q2013 1Q2014 2Q2014 3Q2014 4Q2014

Qatari Individuals Qatari Inst itut ions

Non-Qatari Individuals Non-Qatari Inst itut ions

4Q2013

1Q2014

2Q2014

3Q2014

4Q2014

Non-Qatari Inst itut ions Non-Qatari Individuals

Qatari Inst itut ions Qatari Individuals

Net Buying/ (Selling) by Investor Segment (QR bn)

Qatari Individuals’ Ownership Structure of Q

Qatari Institutions’ Owne

Qatari Individuals’ Ownership Structure of Q

Qatari Institutions’ Ownership St

2014 with Qatar leading the pack. Qatar’s QSE Index was the top performer, surging by 18.36% (total return: 23.56%) in 2014. ’s benchmark index rising by 14.2% in 2014 closely followed by Dubai’s DFMGI (+12.0%).

2014. On the other hand, Kuwait’s be

Bahrain Kuwait Oman Saudi Qatar Dubai Abu Dhabi

Foundation), ABQK’s management has

Average Volume (‘000)

Dec-13 Mar-14 May-14 Aug-14 Oct -14 Jan-15

QSE Index ABQK QD

Shahan Keushgerian+974 4476 6509shahan.keushgerian@qnbfs.com

Saugata Sarkar+974 4476 6534saugata.sarkar@qnbfs.com

listed banks). Focused on Qatar, KCBK’s management has set forth a 3 to 5 year strategy that would improve the bank’s market share and boost

assumptions on management’s strategy of focusing on core banking income vs.

%. KCBK’s LDR is expected to .3%, in line with QCB’s 100% policy.

m Average Volume (‘000)

QSE Index KCBK QD

management’s strategy for ABank (efforts underway to up stake to 75%) and 2)

Bank’s PEG stands at

QSE Index CBQK QD

% of DHBK’s loan portfolio

%, Doha Bank’s PEG stands at 1.3

QSE Index DHBK QD

3. GISS’

However, much of the company’s drilling business remains secured through

become GDI’s 10

GISS’ Board of Directors announced a cash DPS of

QSE Index GISS QD

20.4% surge in 2017’s bottom

capitalized previously) in 2014. Overall, LVQ’s

QSE Index GW CS QD

Abdullah Amin, CFA+974 4476 6569abdullah.amin@qnbfs.com

with most of IQCD’s business exposed to constructio

have a direct detrimental impact on IQCD’s operations.

QSE Index IQCD QD

––

2017e. Currently, Damas’

In 2013, emerging markets’ currencies came under considerable pressure. In

QSE Index MCCS QD

303 306 1,781 1,831

3 4 1,124 1,443 1,211

21 - - 3,538 3,447 3,431

Shari’a Compliant Play in the Qatari Banking Sector

(listed Shari’a complpublic sector Shari’a compliant segment. We recommend a

, the bank’s board recommended a cash Dline with our estimate. The bank’s total assets surged 20.4%

erall, we expect MARK’s loan book to grow to

QSE Index MARK QD

Total Shareholders’ Equity and Minority Interests

risk play deeply linked to Qatar’s growth story.

Qatar’s electricity & water demand is set to grow by a CAGR of 8

Petroleum), practically Qatar’s sole power & water producer, should benefi

(36 MIGD), from 2H2015 adding ~14% to QEWS’ net water capacity. Further,

QEWS’ net electricity & water capacity by 27

Power, with QPI/QH. The partners are valuing QEWS’ assets in Oman & Jordon

in Ma’an Jordan

QSE Index QEW S QD

Employees’ End of Service Benefits

A Play on Qatar’s LNG

QGTS remains Qatar’s primary LNG carrier and benefits from stable/visible revenue

Qatar’s LNG carrier. player. Nakilat, the world’s largest LNG fleet owner (~15% share), forms a vital link between Qatar’s gas output and i

QSE Index QGTS QD

operating in the Lloyd’s market) that will increase its global footprint and allow it to

The company’s gross written premiums grew

Meanwhile, the company’s board of directors has recommended distribution of

QSE Index QATI QD

IK’s loan book to

QSE Index QIIK QD

Gain from Foreign Exchange Operations & Share of Associates’ Results

Largest Shari’a Compliant Bank in Qatar

m Avg. Volume (‘000)

QSE Index QIBK QD

Sukuk Holders’ Share of Profit

Total Shareholders’

Customers’ Deposits

A Play on Qatar’s Growth But Already in the Priceand the company’s

In order to cash in on Qatar’s anticipated

(‘000)

QSE Index QNCD QD

Milaha’s business model is deeply lWe continue to believe that QNNS’ business is levered to

Qatar’s economic growth through: 1) offshore oil & gas (27% of 2013 revenue); 2) the

de, QNNS’ 30% stake in QGTS remains a driving force behind QNNS’ bottom

sible progress in management’s

We maintain QNNS’ Market Perform rating and

prices; 4) A slowdown in Qatar’s economy/stock market and 5) Geopolitical crisis

QSE Index QNNS QD

The company’s remains the only pureplay on the

line expansion as VFQS’ mobile base expands another

prepaid levels). The company’s subscriber base should continue to benefit from

m Avg. Volume (’000)

Dec-13 Feb-14 Apr-14 May-14 Jul-14 Aug-14 Oct -14 Nov-14 Jan-15

QSE Index VFQS QD

SIIS’ Sequential Ne

Zad Holdings’

MERS’ gross profit grew by a healthy 11.2% QoQ with the gross margin climbing up

contract both QoQ and YoY. WDAM’s net profit dropped by 16.6% QoQ (down

x which is at a substantial premium to the QSE Index’s current P/E

Source: Company data; Note: Net income is in QR’000

All Share Consumer Goods & Serv ices Index

GISS’ reported solid metrics that were in

Revenue growth was driven by the 100% consolidation of GISS’ drilling subsidiary

IQCD’s profitability was aided by a sharp improvement in capacity utilizationgroup’s 3Q2014 net income rose to QR1.88bn (+50.1% QoQ, +6.3% YoY) vs. our

which includes the company’s share of profits from petrochemicals and fertilizers,

QEWS’ profitability boosted by a one The group’s

Source: Company data; Note: Net income is in QR’000, *Unavailability of MPHC’s 3Q2013 net income skews YoY aggregat

All Share Indust rials Index

QNBK’s Stellar Performance Drives Sector Net Income

sector’s incremental net income in the quarter. QNBK’s net income grew by 11.2%

DHBK’s net income continued its

line. DHBK’s net interest i

biggest contributor with deposits increasing by QR6.1 QoQ. However, CBQK’s

All Share Banks & Financial Serv ices Index

lines. Thus, even a significant surge in QGRI’s QoQ profitability (1,108.2%

The Insurance sector’s bottom QATI’s

impact of Antares’ 1H2014 results). Hence, a QoQ decline in the bottom

All Share Insurance Index

The Telecoms sector’s bottomORDS’ net profit more than halved on a sequential basis while

sector. However, on a YoY basis, ORDS’ net profit grew 11.2% while VFQS also

ORDS’ r

. A sharp fall in Ooredoo’s

ORDS’ net profit slumps 54.1% QoQ to QR375.0mn in 3Q2014. ORDS’ QoQ bottom

ted ORDS’ bottom

despite ORDS’ customer base rising 1.1% QoQ and 6.8% YoY to 15.7mn.

QR551.2mn. VFQS’ customer base rose ~16% YoY to 1.372mn, while its ARPU grew . VFQS’

x, which is at a premium to the QSE index’s P/E multiple of

Source: Company data; Note: Revenue is in QR’000

All Share Telecoms Index

which is at a discount to the QSE Index’s P/E mul

Milaha Capital and Milaha Gas & Petrochem propelled Milaha’s (QNNS) 3Q2014 net

QR721.0mn, up 33.7% QoQ (+44.3% YoY). Milaha Capital’s and MG&P’s net profit Y, respectively. Milaha Capital’s bottom

sturdy VLGC rates and robust performance from QNNS’ stake in Nakilat (QGTS).

profitability, respectively. On the other hand, offshore unit’s profitability declined

from the company’s LPG joint ventures. Revenue from wholly

GWCS’ net profit fell 10.4% QoQ (up by 52.1% YoY) to QR34.7mn in 3Q2014.

Source: Company data; Note: Net Income is in QR’000

All Share Transportat ion Index

majority of the sector’s earnings, followed by UDCD. Ho

for 53.6% of the sector’s aggregate

Real Estate Co.’s (ERES) net profit jumped by 24.3% YoY (+15.3% QoQ) to e company’s bottom

basis ERES’ net profit increased by 15.3% mainly

(down 51.2% QoQ). The company’s revenue slipped by 1.4% YoY and 25.6%

All Share Real Estate Index

accounted for 46.7% of the total sector’s profit. NLCS was the only company in the

DBIS’ net profit down 65.2% QoQ; grows by 7.1% YoY.

QR18.4mn, flat on a YoY basis and down 54.1% QoQ. The company’s bro

sector’s net income in 3Q2014, though down NLCS’ net

core business slipped 27.8% YoY to QR23mn. As a result, the company’s

, the company’s revenue plunged 31.1% and

Islamic Holding Group’s (IHGS) revenue surged

All Share Banks & Financial Serv ices Index

ahmed.alkhoudary@qnbfs.com.qa

This publication has been prepared by QNB Financial Services SPC (“QNBFS”) a wholly owned subsidiary of QNB SAQ (“QNB”). QNBFS is regulated by the

Contacts

Saugata SarkarHead of ResearchTel: (+974) 4476 6534saugata.sarkar@qnbfs.com

Abdullah Amin, CFASenior Research AnalystTel: (+974) 4476 6569abdullah.amin@qnbfs.com

Shahan KeushgerianSenior Research AnalystTel: (+974) 4476 6509shahan.keushgerian@qnbfs.com

Sahbi KasraouiManager – HNWITel: (+974) 4476 6544sahbi.alkasraoui@qnbfs.com

Ahmed Al-KhoudaryHead of Sales Trading – InstitutionalTel: (+974) 4476 6548ahmed.alkhoudary@qnbfs.com

QNB Financial Services SPCContact Center: (+974) 4476 6666PO Box 24025Doha, Qatar

QNB Financial Services S.P.C.P.O. Box 24025, Doha, Qatar

Tel: +974 4476 6666Fax: +974 4476 6660

qnbfs.com

qnbfs qatar equity strategy report 2015

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