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

Hello, and welcome to the Qatar Navigation Milaha conference call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Bobby Sarkar to begin the conference. Bobby, over to you.

Thank you. Hi. Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I want to welcome everyone to Milaha's Second Quarter 2023 Financial Results Conference Call. So on this call, from Milaha Management, we have Akram Iswaisi, who is our Executive Vice President in Finance and Investments; and Sami Shtayyeh, who's the VP in Financial Planning and Analysis. So we will conduct this conference with management first reviewing the company's results followed by a Q&A. I would like to now turn the call over to Akram. Akram, please go ahead.

Okay. Thank you very much. Thank you, everyone, for joining Milaha's H1 2023 earnings call and your interest in the company. We are very pleased to report another quarter of solid financial results. In fact, this past second quarter had the highest profits of any Q2 going back to 2015. This is a testament to the efforts we've put in over the years into building a strong foundation for future growth. We'll follow the same lines as previous calls. 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, and then we will end the call with Q&As. The key highlights of our financial results. Milaha's operating revenue came in at QAR 1.5 billion for the first quarter of 2023 compared with QAR 1.7 billion for the same period in 2022, for a decrease of 15%. Operating profit came in at QAR 344 million for the first half of 2023 compared with QAR 310 million for the same period in 2022, for an increase of 11%. Net profit for the first half of '23 was QAR 648 million compared to QAR 641 million for the same period in 2022, for an increase of 1%. And lastly, our earnings per share was QAR 0.57 for the first half of 2023 compared with QAR 0.56 for the same period in 2022. Now let's jump on to the segments, Maritime & Logistics. The large decline in container shipping rates continued to drag down results in the Maritime & Logistics segment when compared to the previous year. Overall, revenue dropped by QAR 245 million versus the same period last year, with QAR 260 million -- QAR 262 million of that coming from container shipping due to reduced rates and volumes. And so we have offsets. We have decreases, and now we had increases, but the majority of the decreases were coming from container shipping rates. Higher revenue from our logistics units tied to some spillover work from the World Cup, along with increased project cargo, only slightly offset the large container shipping drop. Expenses came down by QAR 113 million, with most of that tied to the drop in container shipping volumes. Overall, we ended the year with net profit down QAR 152 million or 84% versus 2022. Moving on to Offshore. Milaha Offshore continues to steadily grow, with operating revenues increasing by 11% or QAR 63 million versus the same period in 2022. Increased utilization of key assets, along with additional diving and construction-related projects, more than offset a drop in third-party chartered-in vessel income. Lower chartered-in costs related to the drop in revenue and the one-off provision reversal drove a QAR 31 million decrease in expenses versus the same period in 2022. The net income result was year-over-year growth of QAR 99 million or 344%. Gas and Petchem recorded a 19% increase in revenue, with our FSO that became operational in the middle of 2022 offsetting lost revenue from the sale of our gas carrier, which was sold last year. Overall, expenses came down by QAR 16 million from the gas carrier divestment along with the nonrecurrence of mobilization related costs incurred last year for the FSO. At the nonoperating level, income decreased by QAR 15 million as a result of lower income from our associates, and net profit for the segment ended up QAR 20 million or 6% higher versus the same period in 2022. Trading segment, we were able to reduce bottom line losses by QAR 6 million versus the same period in 2022 by increasing sales of higher-margin goods and services, including marine-related ship chandlering products. And lastly, Capital. Revenue slashed by 15% or QAR 47 million, with QAR 64 million of Qatar Quarries sales -- lower Qatar Quarries sales more than offsetting higher overall investment and real estate income. Overall, expenses came down by QAR 79 million, driven primarily by around QAR 60 million from lower Qatar Quarries cost of goods sold due to the drop in revenue, along with a QAR 16 million reduction in bad debt provisions, all of which resulted in overall net profit growth of QAR 35 million or 27% versus the same period in 2022. And that wraps up the segments, and I will now turn it over to Sami to discuss outlook for the rest of the year.

Thank you, Akram. Starting with Maritime & Logistics. On the container shipping side, H1 has already reflected the large rate drop, and we expect that to hold the rest of the year. In Logistics, we expect a subdued second half. In Offshore, on the support vessels and services side, we expect to see continued growth, particularly longer term with all the expansion work in Qatar's oil and gas industry. In Gas and Petrochem, overall, we expect limited volatility due to the long-term nature of contracts we have in most business units. Our VLGC joint venture is the exception, where performance is difficult to predict due to volatile spot prices. In Trading, we will continue to focus on profitable growth and margin improvement. And lastly, Capital where we will continue to focus on yield enhancement. And with that, operator, we'll now open it up for questions.

[Operator Instructions] Our first question comes from the line of [ Nikhil Pattani ] from [ CVQ ].

I've not been able to hear your presentation, but there's a couple of questions which I'd like to know in terms of your divisions. First, in terms of your Maritime & Logistics, what we are seeing is there is a downfall in your joint ventures revenues. So I just wanted to know what is the reason behind it as compared to the run rate of around QAR 40 million. So that is it. Secondly, in terms of your, again, maritime, you did mention that there is going to be an uptick in the second half of 2023. Do you see the same thing happening second half because you did mention now that the outlook could be a little subdued in the second half of 2023? I think one more question in terms of your overall Offshore. I mean you did mention that there are significant contracts in the pipeline. So do you see the continued growth going up in terms of vessel chartering in the second half?

Okay. Could you just repeat the first question because I didn't hear you clearly?

Yes. This is regarding your Maritime & Logistics division. You -- we are seeing there is a slight downfall in your JVs results from an average run rate of around QAR 30 million, QAR 40 million. It has come down to around QAR 18 million. Is that right? And what is the reason behind it? And what do you see it going forward in 2023 second half?

Okay. There was -- in terms of the JV on M&L, there was a slight drop in our [ Q ] terminal results, and that's driven primarily by the slowdown in import activities in Q1 and slightly in Q2 of this year. So you're seeing that across the board -- across various other logistics players as well as our container business and our logistics business. In general, Q1 and Q2, there is some drop in volume, but we were able to compensate for that in our project logistics work because we've been doing some additional project logistics work. So this is part of the increase in terms of that JV. And that's -- the second question is what? I'm sorry, repeat that again.

So the -- again, I mean, second half, do you see the same trend continuing in terms of other division logistics, for example, supporting it much more than your results from your joint agreements? It will be in the [indiscernible] whatever downturn that you see it in joint ventures, so the overall profit...

Yes, sir. Listen, there was -- again, in terms of cargo, there is -- what is a drop across the board, you see that everywhere in the Q1. There was excess inventory in warehouses across the country. And that inventory now is being consumed. So you should see the second half of the year looking much better in terms of cargo flow. And that's -- we're optimistic that, that picture will look much better in the second half of the year. But again, there was a significant amount of cargo and volume moving in the second half of last year. And so some of that spillover effect, you see that in Q1 of 2023. And so we suspect that second half of the year, much of that inventory will be consumed and absorbed and there should be more movement in the second half of the year.

Okay. Okay. I mean regarding your other businesses, we see that vessel chartering business under Offshore has done well. I mean, comparatively over the last 1 or 2 quarters. So what do you see the trend in second half of 2023? And anything else, I mean, in terms of, say, any abnormal losses, gains, which could be seen going forward in second half?

I mean, I think the results for the first half speak for themselves. We're in a very positive trend. It's a good trajectory, and that will continue for the rest of the year. So there's nothing else to add to that.

Okay. Okay. Okay. Lastly, on your Trading division, I mean, what we are seeing is, to a certain extent, in terms of your overall revenue movement has been quite good. But if you look at the GPM level, we could be -- we have seen a sharp drop. I mean operating supplies and expenses have gone up quite considerably, I mean, compared to the first quarter. So any reason behind this -- the first quarter was an abnormal one? What -- I mean what do you see on this?

For what? For Trading?

Yes, for Trading.

Listen, this is a spot business. So there is, again, a lot of movement month-to-month, quarter-to-quarter. So I'm not sure what is your question. I mean this business here is tied to -- the marine and industrial products business has been growing. And as I mentioned in previous calls, we are growing our ship chandlering business, so that continues to grow. So in terms of this business, I don't see a -- I mean if you're talking about bunker, our bunker volume dropped, but that also is correlated. And if you look at delta in the revenue versus the delta in operating expenses, they're very much aligned. So as you see a drop in bunker volume, we do see a drop in bunker cost of sales. But overall, in terms of this business, the -- again, it turned profitable. And again, because we are focused on higher-margin products, as I mentioned earlier, we are pushing more higher products and services. And we are pushing more ship chandlering activities. And so to grow on -- again, as I mentioned in the previous calls, we see potential for building up a ship chandlering supply chain in the country, and we continue to focus on that and be able to serve vessel owners in Qatar and the region. So that's one of the areas we're focused on. So I think hopefully, that answers your question on Trading.

Yes. I mean you mentioned -- okay, fine, I can understand that you want to go for higher yields and higher returns. But I mean that belies in second quarter because overall, you've increased your bunker sale. But then I believe that -- I mean the margins have been negative the way it looks like because it has been pulled down very [ drastically ] on your GPM level. So we wanted to know whether are you going to be again cautioning on the same thing of forcefully going into bunker sales further. Am I right on saying that margins have been very squeezed hard in second quarter for bunker?

I mean bunker margins are very, very thin. This is an ancillary business that we provide to our customers. So if you look at our approach, the way we're approaching our customers, so again, don't get fixated on bunker by itself. We provide a lot of different services and products to our customers. So when I come to my customer, I provide ship chandlering, I provide bunkering, I provide a lot of different services. So I have to increase. It's a platform approach. So you will make thin margins of certain products, but you will try to increase them on others. And that's the strategy that we're following. So if I serve vessel owners, vessel owners have a need for spare parts, for rope, for water, for bunker, and the approach that we take is a platform approach, and that's the approach that we're following. So don't get fixated on bunker by itself because again, at the end of the day, it's a thin-margin product, and we are using this as an enabler to be able to serve our clients. I cannot just serve my clients with just water, spare parts. I need to provide a platform to serve my client who is ultimately a vessel owner, right? So that's the approach that you got to consider, and that's what you're going to look at.

Our next question comes from the line of [ Jagdish Tandy ] from Avalon Global Research.

All right. Good morning. I think my -- most of the questions are answered. So I mean I'm very satisfied with the answers that you have given.

[Operator Instructions] There are no further questions at this time. I will now hand the call back to Bobby Sarkar.

Okay. Thank you. If there are no further questions, we can end the call for today. I want to thank Akram and Sami for taking the time to go over the presentation and answer our questions, and we'll pick this up next quarter. Thank you very much.

Thank you very much, everyone. Appreciate it.

Thank you, everyone. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.