Qatar Navigation Q.P.S.C. (QNNS) Earnings Call Transcript & Summary

Good day, and welcome to the Qatar Navigation 2022 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Bobby Sarkar. Please go ahead.

Thank you, operator. Hi, hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Qatar Navigation or Milaha's Second Quarter 2022 Results Conference Call. So on this call, we have Akram Iswaisi, who is the EVP of Finance and Investments at Milaha; and Sami Shtayyeh, who's the VP of Financial Planning and Analysis. So we will conduct this conference with management reviewing the company's results followed by a Q&A. I would like to now turn the call over to Akram. Akram, go ahead, please.

Okay. Thank you very much. Thank you for joining Milaha's first half of the year earnings call and your interest in the company. I'll be starting with our consolidated financial results, and then we'll go through our various segments before turning it over to Sami to go over our outlook for the rest of the year. Finally, as usual, we will end the call with questions and answers. The key highlights of our financial results. Milaha's operating revenues came in at QAR 1.77 billion for the first half of 2022 compared with QAR 1.37 billion for the same period in 2021 or an increase of 29%. Operating profit came in at QAR 310 million for the first half of 2022 compared with QAR 144 million for the same period in 2021 for an increase of 115%. As for net profit, net profit for the first half of 2022 was QAR 641 million compared with QAR 438 million for the same period in 2021 for an increase of 46%. And lastly, our earnings per share was QAR 0.56 for the first half of 2022 compared with QAR 0.39 for the same period in 2021. Moving on to our segments, starting with Maritime Logistics. This segment continued its strong performance witnessed over the past few quarters, primarily boosted by strong container shipping rates. Top line revenue grew by 49% or QAR 247 million, much of that flowing to the bottom line, resulting in an increase in net profit of 159% or QAR 125 million. Moving on to Offshore. Offshore similarly had a strong half year with operating revenue up 24% or QAR 113 million versus the same period in 2021. We had increased revenue from additional chartering -- third-party chartering employment of our liftboat. As you're well aware, that liftboat was idle most of last year. And this year, the liftboat was actually operational. In addition to that, we had additional diving-related project work, which drove the increase in revenue. Overall, operating expenses increased less than revenue, which increased operating profit margins by 137% or QAR 25 million despite the increased incurring COVID-instigated costs, particularly in the first quarter of 2022. Various accounting provisions and impairments that negatively impacted last year's results did not recur this year, which further helped to boost year-over-year growth in the bottom line by QAR 29 million. With respect to Gas & Petrochem, also boosted very strong results. Operating revenue came in lower by 23% or QAR 31 million, but expenses dropped by more than that, resulting in an operating profit pickup of QAR 5 million. This is due to Milaha exiting the tanker business, which performed poorly last year due to near record low shipping rates. And on the nonoperating level, income increased by QAR 42 million, with QAR 50 million additional coming from primarily our share in Nakilat and the QAR 14 million reduction or less coming from our VLGC joint venture, Gulf LPG, which got impacted by lower shipping rates compared to the same period last year. Net profit for the segment ended up QAR 48 million or 18% versus the same period in 2021. As for our Trading segment, we saw an increase of 10% in revenue driven by our Bunker & Marine sales unit, but margin pressure negatively impacted the bottom line growing from a loss of QAR 3 million in the first half of '21 to a loss of QAR 4 million for the same period in 2022. And lastly, capital. Investment revenue increased by QAR 24 million, and our real estate units increased by QAR 8 million, primarily from the villa compound leased out in Q3 of '21. Both increases were partially offset by a QAR 16 million bad debt provision recorded in Q1 of this year and QAR 8 million in lower nonoperating income. Net profit ended up QAR 4 million versus same period last year. And that essentially wraps up the segment, segment analysis. And I will hand this over now to Sami to discuss the outlook for the rest of the year.

Thank you, Akram. Starting with Maritime & Logistics. On the container shipping side, we expect rates to remain fairly stable rest of the year. In Logistics, we expect uplift in warehousing and freight forwarding activity from new global network partnerships as well as work related to the North Field Expansion. In Offshore on both to support vessels and services side as well as the harbor side, we expect the continuation of what we've already witnessed this year. Additionally, it's worth mentioning that we just signed a 5-year contract for the liftboat which will stabilize income for that key asset for some time to come. In Gas & Petrochem, overall, we expect limited volatility due to long-term nature of contracts we have in most business units. We do have one gas carrier, which just came off a time charter, and we're setting options related to what to do with that. We also have a VLGC JV in which results are difficult to predict as rates are exposed to volatile spot prices. In Trading, growing the business, particularly ship chandlering is still a priority, and we expect positive results. Margins, however, remain a challenge but are also a focus area for us. And lastly, capital, on the investment front, we will continue to focus on yield enhancement. And in real estate, we will continue to see through the third quarter, the positive year-over-year impact of the villa compound that was rented out in Q3 2021. And with that, we'll now open up for questions. Operator?

[Operator Instructions] It appears we do not have any questions at this time.

This is Bobby Sarkar again. I -- well, maybe we can wait for a couple of minutes for Q&A from outside, but till then, let me ask a question. Shipping rates, container shipping rates for you guys have been very strong since about mid- last year. Where do you see the near- to medium-term outlook for shipping rates for the remainder of this year and then into next year?

Thank you, Bobby. I'll take that question, Sami. With respect to container shipping rates, listen, we're beginning to see rates come down but at a very slow pace. So we expect rates for the rest of the year to be relatively stable. But next year, rates should continue to decrease. And that's the global trend. The expectation is that rates will come down, but they will not come down immediately. They will come down at a much, much slower pace. So everybody expected this to the market -- container ship market expects rates to come down. As the, let's say, as COVID begins to impact and COVID begins to subside and things begin to normalize, rates will eventually come down. The question is, are they going to go back to pre-COVID levels? Or are we looking at a new norm, which is higher than pre-COVID levels? So -- but so far, we're seeing, let's say, a slight dip in rates but at a very slow pace.

Okay. Great. And then just a general question. Do your businesses have any impact? Or do you foresee any positive impact from the upcoming World Cup?

In terms of the World Cup, to be honest with you, the main impact would be for us on the logistics and freight forwarding side. And we're actively working on picking up additional business, obviously, during that time frame in the next 6 months. And essentially, the months after that, that follow, there will be quite a business, quite a bit of work on the Logistics side. And we are targeting to try to capture some of that business.

Okay. And then my last question, the recent announcement that you had with Qatar Energy for the, I guess, the EPCI contract, QAR 1.4 billion over 5 years. When can we start seeing this impacting your top line in your Offshore and the bottom line?

Listen, I think -- I mean I can honestly say I'm much more optimistic about offshore now. There's a lot of optimism. There's a lot of business there. The market is very robust. And if you look at it globally, the OSV market is doing exceptionally well. It's coming back again. Now we expect to -- I mean, again, we expect that, again, in addition to Sami mentioned earlier, our liftboat is working again. So we're going to see a nice pickup in the second half of the year. So the second half of the year and starting next year, you will begin to see the impact of this new business on our bottom line, in addition to other things that we're working on so...

Right. And just to follow up on this contract, how can we go about like putting this into our models? Is this like going to be like more lumpy in nature? Or this is something which will be fairly regular in terms of the top line impact per quarter?

Well, these are -- this is a 5-year contract. So I think for the most part, it's recurring. There might be a small percentage of lump there, on how to say, I want to say volatility, but for the most part, this is a long-term fixed contract for 5 years.

Okay. Great. Operator, do we have any questions from outside?

Yes, we have received a question from [ Mustafa Ameer ] from Al Rayan Investments.

Congratulations on another strong set of results. Good to see the company doing really well. I just had a question on the FSO. On the FSO, is that supposed to sort of, I think the tanker was supposed to be converting to the FSO. Will it -- and I think it's been chartered as also, will we see that impact coming through in the second half?

Yes, you will.

Hello? Hello?

Go ahead.

Yes. So on the Slide #9, the minus 25 that we see on the waterfall, that's basically because it's not been deployed for the first half, right? It will be from the second half onwards.

That's correct. In the first half, it will be into the conversion and the second half will be deployed.

Sure. Sounds good. I just wanted to understand one more thing on the liftboat that Bobby asked earlier. Now in your outlook, it says that liftboat contract was signed and will be taking effect mid-Q3 2022. So is this another liftboat? Or is this -- there was already a liftboat that was sitting idle, which was employed. I didn't quite understand that.

Well, this is the same liftboat that was idle last year and that we brought back to Qatar, and now it's working -- it will be working on a 5-year -- under a 5-year contract. So now we're talking about the pre-stabilization on one of our key assets.

Right. So there was no impact on it for the first half, right? The liftboat was sitting idle for the first half.

Exactly. And with that, I mean, obviously, we are impairing operating expenses. And so second half of the year, we'll see an impact from that in terms of revenue generation.

[Operator Instructions] We have no further questions at this time.

Okay. So if you have no further questions, we can end the call for today. I want to thank Akram and Sami for taking the time to talk to investors and answer our questions, and we'll do this again next quarter. Thank you very much.

Thank you very much, everyone. Thank you for your interest in Milaha.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.