Qatar Industrial Manufacturing Company Q.P.S.C. (QIMD) Earnings Call Transcript & Summary

Welcome, everybody, for QIMC's Investor Relations Conference Call for Q3 Results for Qatar Industrial Manufacturing Company. As usual, I start by introducing our team. Me, myself, I am Aktham Al-Baqali, Director of Administration and Finance for QIMC. The speaker here is Surya, he's Senior Business Analyst of QIMC, and I've got here in my left-hand Mr. Mazen Abu Safa, Head of Accounts at QIMC. As usual, we have got an investor presentation for you that consists of 3 parts: a quick one of our company overview, and then we'll go over financial performance, ending by operational highlights and then opening the platform for Q&A. So we shall start with going ahead with our presentations. Go on, Surya.

Good morning, everybody. I hope you can see the presentation in the screen. Can you please confirm? Yes, thank you. [Audio Gap] First of all, a quick overview of the company. We were established in 1990. We are listed in the Qatar Stock Exchange from inception. As on date, we have a paid-up a capital of QAR 475.2 million, which is 475.2 million shares of nominal value, QAR 1. Our core competency lies in establishing and managing small- and medium-sized manufacturing companies. We have a diversified portfolio across chemicals, petrochemicals, energy services, construction materials, paper and plastic and food processing. We have 8 and 12 associates. These are our subsidiaries. Qatar Acids, which manufactures sulfuric acid; Qatar Sand Treatment Plant, which manufacturers washed sand and aggregate; Qatar Paving Stones, which manufactures hollow blocks, interlocks and paving stones and kerbstones. We have National Paper Industries Company, which manufacturers facial tissue, toilet rolls, kitchen rolls and related paper material; we have Jahiz, which is tea packaging company. And then we have 3 subsidiaries, which are not 100% owned by us. One is, KLJ Organic Qatar, which manufactures chlorinated paraffin wax, caustic soda, hydrochloric and hypo. And we have Gulf Glass Factory, which is under commissioning. It will manufacture glass container. We'll have more information about this company in the subsequent slide. Then we have Qatar Metals Coating Company shortly called Q-COAT, which manufactures epoxy-coated steel bars. We have our associates, Amiantit Qatar Pipes Company, which manufacturers glass reinforced pipes. Then we have Qatar Clay Bricks, which manufactures concrete blocks, interlocks and kerbstones. We have Qatar Saudi Gypsum Company, which manufacturers gypsum powder. We have Qatar Aluminum Extrusion Company, which manufactures mill finished mill finished, powder-coated and special purpose aluminum profiles. Then we have our other associates in which we have minority stake Qatar Jet Fuel Company, Qatar Plastic Product Company, Gulf Formaldehyde, Gasal and Mahaseel. And then we have the subsidiaries of these companies, one is the United Chemicals, which is the subsidiary of KLJ Organic Qatar. Sarplast Qatar, which has been recently renamed as [ Fiber Type ]. And this is a subsidiary of [indiscernible]. And then we have a Qatar Tunisian Oil Company, which manufactures bottling -- which manufacture with bottles and markets olive oil. These are subsidiary of Mahaseel. Now, ongoing projects. First, is the Gulf Glass Factory. This factory will utilize locally available sand and natural gas with modern technologies and equipment to produce high-quality light-weight glass containers of various sizes. The project is located in the new industrial area. And design capacity of this plant will be 200 tonnes per day of glass container nearly 1 million bottles and jars. This is the first-of-its-kind environment-friendly factory in Qatar, and it will serve the local and regional market, as well as the worldwide food and beverage industry. And, of course, we have the ongoing project Corniche Park Towers, so we'll have little more updates on this. This is on the Corniche. This is a mixed-use property, which is having office space, residential space and hotel space. Now, moving on to the financial performance of the company, with a quick overview. As on 30th September 2022, the total assets of the company stood at QAR 3,492 million compared to QAR 3,111 million as of 30th September, which shows an increase of 12.2%. Total current assets is QAR 681.5 million compared to QAR 763.8 million. Total noncurrent assets QAR 2,810 million compared to QAR 2,347 million. Total current liability is QAR 334.9 million compared to QAR 384.3 million. We have working capital of QAR 346 million compared to [ QAR 378.5 ] million on the 30th September 2021. The total equity of the shareholders stands at QAR 1,823.5 million compared to QAR 1,693.3 million as of 30th September 2021. The gross income of the company during the 9 months was QAR 475.7 million compared to QAR 361.7 million in the same period last year. The profit before taxes stands at QAR 136.03 million compared to QAR 96.76 million in the same period last year. Out of this, other income was QAR 30.8 million and QAR 28.1 million was the other income of last year. The earnings per share stands at QAR 0.29 per share compared to QAR 0.20 as of -- for the period 9 months ending 30th September 2021. The net book value per share stands at QAR 3.84 compared to QAR 3.56 during the 9 months last year. The equity attributable to noncontrolling interest stands at QAR 49.18 million compared to QAR 43.87 million as of 30th September 2021. Now, a little more detail, as we saw total revenues of QAR 475.66 million compared to QAR 361.6 million, net profit of QAR 136.04 million compared to QAR 96.76 million. So the total revenue is up by 31.5% compared to third quarter last year. And net profit is up by 40.6%. Now, how it has reached to QAR 96.76 million to QAR 136.04 million, just take a quick break up. As you know, the gross profit is up by 44.86%. The share of results from associates has increased by 13.8%. And then the gross profit is up predominantly because of KLJ Organic Qatar, which have performed significantly much better compared to the 9 months last year. And share of results from associates is better because most of our associate companies have reported good performance during these 9 months. In particular, Qatar Plastic Products Company, Q-Jet, Qatar Saudi Gypsum, QALEX and Gasal have done well, partially offset by slightly lower performance from [indiscernible] during this 9 months. Dividend from share market portfolio, other income and expenses are all more or less in line with last year. Profit attributable to noncontrolling interest is slightly higher because the JV company KLJ Organic Qatar has performed much better in this year compared to last year. Now, total assets stands at QAR 3,492.06 million compared to QAR 3,111.11 million on 30th September 2021. Total equity stands at QAR 1,823.5 million compared to QAR 1,693.4 million as of 30th September 2021. Increase in assets due to upcoming QIMC that our assets getting added to the company. And then CapEx in subsidiaries have also contributed to the increase in assets. Total equity in -- change increase is due to positive change in returned earnings from the profit reported. Now, earnings per share, as I said is QAR 0.29 per share compared to QAR 0.20 during the first 9 months of last year. The return on assets is 4.12% compared to 3.36% last year. So that was a quick overview of our financial performance for the 9 months ending 30th September 2021 -- 2022. Now, some operational highlights. KLJ Organic Qatar has exported its products to more than 25 countries in Middle East, Africa, Europe, Asia and Americas. Qatar Paving Stones has started exporting some of its products to Kuwait. QALEX has exported its products to Europe, Australia, Africa, U.S.A., beside Middle East. The company has taken over the metal coating facility on lease from a local company. Qatar Clay Bricks Company has started selling various size of standard and large-sized kerbstones being produced on a new machine. Now, Gulf Glass Factory, just a quick overview. You can see the pictures or the latest pictures in the site construction. The construction is underway in full speed. The construction will be completed in Q1 2023, while the installation of equipment and testing and commissioning will be completed in Q2 2023, and commercial production is expected to start from the fourth quarter of 2023. [ As mentioned ], the main factory is 67% complete and handover is completely expected by early '23. Then there is some reporting on the different parts of the plant like batch house and other facilities, they're all progressing rapidly. And more than 70% of machinery and installation of equipment have already arrived at plant site and the remaining shipments are on the way. We're making rapid progress in our Corniche Park Towers also, you can see some pictures here. These are all real pictures taken from the site. And we also have some pictures a mockup of the different components within the property, like hotel rooms and apartment, residential apartments. So we are going good on this project as well. So that is a quick presentation. Now, over to Mr. Aktham, who will handle the Q&A session. Please allow me to stop the sharing, so we can all see each other.

The platform is open right now. If anybody is having...

I've got a few questions. Firstly, KLJ, you said was majorly responsible for the increase in gross profit. Is it because of price? Because I know the caustic soda prices increased significantly, right? So...

List all of your questions and I'll address all of them at once.

Okay. That's fine. So the first question is on price. Was it because of the price that it has gone up? And also, how is the price going right now? Because as we understand, the price has come down for this caustic soda. So that's my first question. The other question is on, will your towers be complete for the World Cup? And will they be up and running for the FIFA World Cup? Will it be utilized during that period? That's second question. Third question is on the -- are there any -- you have naturally done borrowing for the different projects that you're doing. Will there be any capitalized -- is there any interest that has been capitalized and it will come on to the P&L after the towers are like commercialized? So how much would that be, if that's the case? The -- I think I'll start with 3 questions.

Okay. I think -- I mean, those 3 points you raised are very smart ones. We'll start with the first one, which is -- which was about KLJ pricing. I will rephrase your question if I make. Maybe you were looking for whether this kind of average price for 2022 will be sustainable for 2023? Highly likely. Yes, on an average, this the answer for KLJ. For the tower and the World Cup, the straightforward answer, as you have seen in our operational highlights, it is not likely that this project is going to be completed. We are anticipating that this project will be -- yes, our target is to obtain the certificate of completion by May 2023. And then since this is a huge project, we think that by end of 2023 or beginning of fourth quarter, we will start the soft opening. For the interest capitalization, I think if you can analyze and focus a little bit more on our financials you will see some work in progress, some -- a huge part of it will be capitalized related to the towers. I can give you the breakdown, if you want, later on if you can ring me, I'll give you the details if you want. I hope that -- this is -- I mean, the answer has addressed your questions clearly.

I have 2 other questions, if I -- if you allow me. So the first is, what was responsible for the -- so in second quarter, your revenue was QAR 195 million. In third quarter, your revenue was QAR 160 million.

Come again.

In second quarter your revenue was QAR 195 million. In third quarter, your revenue is QAR 160 million. So what was the reason for this decline? That's my other question. And my last question is, for many years, we've seen that QIMC has maintained its dividend at around 73%, 70%, then 60%. Now it has slightly come down to 40% payout ratio. So how do we see the payout ratio? I mean, this year, you're going to have [ Mazen ] again a very good earnings for the year compared to '21. Can we see the -- this payout ratio increasing? Or do we see it stable at 40%?

For the gross profit, it's very [indiscernible] the increase of sales during the period. We have increased the sales [indiscernible] from the first half and Q3. That's been [indiscernible] gross profit. And regarding the second question of what? Dividend, up to now and -- yes, it's not clear, we have to decide later depending on many factors. It's not up to clear. Maybe close to December, we can...

[ Sohan ], if you can readdress your first question regarding the revenue?

So in the -- so if the revenue in your second quarter of this year was QAR 195 million and in the third quarter of this year, it was QAR 160 million. So I just want to know why did it come down from QAR 195 million to QAR 160 million?

No, no...

It is the 2 quarters put together is QAR 195 million and third quarter alone is QAR 160 million. We have done better than the first 2 quarters if you look at it.

Okay. Probably, I'm looking at it wrong then?

Yes, I guess so. Because for the...

Okay. Let me...

It is QAR 475 million for the 3 quarters put together, which is QAR 160 million, that's why we're saying. QAR 160 million for the third quarter alone. Correct?

Let me just confirm from the financials. So in your financials from the website -- so from the Qatar Stock Exchange website. I'm looking at the -- for the 3 months, 30th June 2022, the sales is QAR 195 million.

Q2 alone?

Yes. And in Q3, it is QAR 160 million for the 3 months, 30th September 2022.

For the 3 months, 30th September 2022.

For 3 months ended?

Why Q3 is less than Q2 revenues?

Yes.

Q3 alone. If you look at individual quarter.

So this is the operational issue. I -- maybe in some sense, we have experienced some downturn in sales, mainly on those consumable items and the construction products because of a high, let's say -- during this period, there were a lot of, I mean, delivery of World Cup projects on one side, the construction side. And the other side is the consumption has experienced and is down due to high travel because people who are not -- for 3 years locked down. And then most of the people have [ turned out to Qatar ].

So my last question on this is, did KLJ revenue also come down from second quarter? Or was it higher quarter-over-quarter? KLJ revenue for the third quarter was higher than second quarter or lower than second quarter, KLJ?

KLJ, I think if you analyze this, I mean, KLJ operation, 90% of it is on export base. So on an average, there were a slight slowdown, but not a great one, slight. Not to do to market an operational and major shutdowns that we have experienced during this period. That's it. Any other question from the other participants? [indiscernible], I can see that [ Al Rayan Investment ] is dominant here in this 4 months. Go ahead.

Thank you for the presentation and updating and answering our questions. I had a couple of questions on the Q-Jet side. We are having a big event in Qatar in this quarter. What do you see the demand for Q-Jet in terms of volumes? Do you see how much volumes you see to increase? And are you -- in terms of you do -- have you built the inventory to service this kind of increase in the demand?

Okay. Do you have any other questions? Or this is the only one? So we can take more. Is this the only question?

This is the only question?

I was expecting such questions. Thank you, [ Shabbir. ] This is a very nice question. Let me just start by noting to you gentlemen that Q-Jet used to be, let's say, 5 years back or 6 years back, it used to be contributing into our revenue by 60%. It's not any more of the case. So it is not all about 16% to 17%, the contribution of the stake of our portfolio that is coming from the Q-Jet. This is one side, which is very important to highlight and to consider analyzing our performance. The other thing, as you have stated, clearly, the aviation traffic is experiencing, let's say, a huge, I mean, actions here -- due to the World Cup. But we anticipate that this would contribute, but that contribution is not going to be highly significant.