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

Hello, everyone, and welcome to Qatar Navigation Conference Call. Please note that this call is being recorded. I'd like to hand the call over to Bobby Sarkar. Please go ahead.

Okay. Thank you, Ellie. Hi, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Milaha's First Quarter 2025 Results Conference Call. So on this call from Milaha management, we have Akram Iswaisi, who is the EVP 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 going over the company's results presentation, followed by a Q&A. I would now like to turn the call over to Akram. Akram, please go ahead.

Thank you very much, Bobby. Thank you, everyone, for joining Milaha's Q1 2025 Earnings Call and your interest in the company. Similar to prior calls, I will start by going over our consolidated financial results and then moving on to our various individual business segments, before turning it over to Sami to go over our outlook for the rest of the year. And as usual, we will end the call with Q&A. The key highlights of our financial results. Milaha's operating revenues came in at QAR 759 million for the 3 months ended March 31, 2025, compared with QAR 747 million for the same period, last year for an increase of 2%. Operating profit came in at QAR 212 million for the 3 months ended March 31, 2025, compared with QAR 208 million for the same period last year for an increase of 2%. And net profit for the Q1 2025 was QAR 374 million compared with QAR 365 million for the same period in 2024 for an increase of 3%. And lastly, our earnings per share was QAR 0.33 for the 3 months ended March 31, '25, compared with QAR 0.32 for the same period last year. Now moving on to our business segments, starting with Maritime & Logistics. Operating revenues for Maritime & Logistics increased by QAR 56 million going from QAR 165 million in '24 to QAR 221 million in '25, driven by our Container Shipping and Logistics units. In Container Shipping, our freight business, our volumes out of China services, our China service that began in the second half of '24 provided uplift and growth by around QAR 41 million year-over-year comparison. In our Logistics unit, higher freight forwarding volumes, in particular, project cargo and higher warehouse utilization versus '24 drove a QAR 9 million increase in revenue. Operating expenses increased by QAR 29 million with QAR 23 million of that increase being variable in nature and tied to revenue growth and QAR 10 million of the increase coming from depreciation and amortization in our Container Shipping unit due to right-of-use accounting for 2 chartered-in vessels that joined our fleet in Q4 of 2024. Nonoperating income increased by QAR 3 million with better performance coming from our Qterminals joint arrangement, more than offsetting lower gains on the sale of assets that were recorded in '24. And that brings us to an overall bottom line increase of QAR 30 million versus last year. Offshore results continue to trend upward with operating revenue up QAR 28 million or 8% versus last year. In addition, the addition of 2 vessels in mid-2024 and increased project work drove a substantial portion of that growth. Overall, expenses increased by QAR 21 million, with QAR 17 million of that increase coming from higher third-party chartered-in vessels and QAR 6 million from higher technical expenses related to the addition of vessels in that fleet. The net income result for offshore was a year-over-year growth of QAR 8 million or 12%. In Gas and Petchem, there were a couple of one-off items that essentially knocked each other out, with the balance being a QAR 1 million uptick in net profit. In short, higher depreciation expense related to the change in useful life for our 2 wholly owned LNG vessels that occurred in Q4 of '24 was offset by increased results from associates and joint arrangements. Net profit for the segment came in at QAR 187 million this year versus QAR 186 million in '24. And our Trading segment recorded a slight increase in revenue going from QAR 47 million to QAR 48 million in 2025. Increased sales of bunker and marine-related items offset lower heavy equipment sales. Cost of goods sold similarly increased with the end result being a bottom line loss of QAR 5 million or 7% lower -- obviously, lower than last year. Lastly, moving on to Capital. Revenue slid by 22% or QAR 37 million with a QAR 12 million drop coming from lower Qatar Quarries sale and a QAR 24 million drop coming from our investment unit, QAR 34 million of the investment drop had to do with lower dividend income from our local Qatari equities position. Some of you may know that in '24 -- '24 was the first year, Qatari companies started issuing semiannual dividend distribution. This happened later in '24. So in Q1 '24, companies paid the full year dividend, but Q1 '25 only paid the semiannual dividend and that obviously had an impact on our numbers. On the cost side, total expenses came down by QAR 50 million, with QAR 9 million related to reduced Qatar Quarries cost of goods sold and QAR 6 million was related to the successful recovery of an old accounts receivable amount that was previously provisioned for. All in all, Capital recorded a net profit decrease of QAR 29 million compared to the same period last year. And that wraps up the segments. And now I will turn it over to Sami to discuss the outlook for the rest of the year. Sami?

Thank you, Akram. Starting with Maritime & Logistics. On the Container Shipping side, there's an industry-wide uncertainty over shipping rates given the political and economic trade and tariff issues. We'll have to see how that plays out. In Logistics, the environment remains very competitive and challenging, but we're optimistic that new product and service offerings, such as pharma, warehousing and turnaround efforts will improve results. 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. For the harbor and industrial logistics operations, we expect stable revenue given the long-term nature of most contracts. 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 charter rates are currently stable. However, the longer-term outlook is uncertain. In Trading, we will be focused on optimizing the segment and continuing our 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 the call for questions.

[Operator Instructions] Your first question comes from the line of Rob Skepper of Ashmore.

Yes, a couple of questions from me. Just on -- in Maritime & Logistics, yes, so first quarter was a good quarter and particularly your container business. Obviously, you've highlighted the overall kind of uncertainty in that industry right now. But just in terms of like the month of April, like are you already experiencing like significant disruption there in terms of like canceled routes and like less utilization, just so we can be a little bit prepared for second quarter? And then my second question is just on Offshore & Marine. So yes, on the vessel chartering side, you've seen the benefit of the larger fleet. Are there new vessels being deployed throughout the year in the OSV space? And should we kind of expect the Offshore Marine segment to be growing sequentially throughout the year? Or how should we think about it?

Okay. Thank you very much for that question. I'm going to start off with Container Shipping. To be honest with you, we haven't seen any major changes. And we haven't seen the impact of, let's say, the change in global trade routes or reconfiguration of the global supply chain yet. And so it's too soon to tell. But clearly, there will be some changes, and we will have to deal with them. And so at the end of the day, nothing -- to be honest with you, so far, we haven't seen anything. I mean we have different scenarios we're looking at, and seeing how we are ready to react to the upcoming changes, but so far, we haven't seen anything. As it relates to offshore, our strategy is to deploy a mix of owned and chartered-in vessels when possible. At times, we will chartering vessels to activate contracts that we have won. So it's almost like a bridge asset, if you will. So we try to bridge the contract by chartering vessels to serve our clients until we're able to get delivery of the new vessels. However, as I've mentioned in previous calls, we do have a very large CapEx program, and we have a good order book of vessels, and they will continue to be delivered over the next 2 to 3 years. And so there will be some deliveries this year, but they will continue on and it could be spread over the next 2 to 3 years. I can't give you a specific dates just simply because there are a number of variables that come into play here, but there is a CapEx program and a mix, again, of new orders, plus we're looking at secondhand as well. But again, as I mentioned in previous calls, offshore is on a growth trajectory given what's happening in Qatar and the expansion on the energy side. So we're very well positioned to capitalize on growth and continue to serve the country as well as our major clients will depend on us.

Got it. Great. And then yes, just jumping back on the container side. So I mean good that you haven't seen too much disruption yet. Just in terms of like the nature of the Chinese routes that you added in the second half of next year, is that China Qatar? Or is there any other routes there?

Well, I mean it's mostly -- it's tied to Southeast Asia and Asia and the regions. So it's not -- it doesn't have anything to do with -- it's not tied to Europe and the U.S. So expectation will be some reconfiguration of the trade routes and potentially some change in volumes on different routes. And so it's difficult to speculate right now on how this is going to play out.

Yes. I agree. I just wanted your thoughts.

This is too much again. You see it on the capital market side, it's difficult to speculate on how the market will perform. I think we're seeing the same thing here in shipping. But again, so far, we haven't seen any volatility yet, and we're -- we've got plans to see how it impacts us whether positively or negatively. So we're -- and we're talking again to our customers and we're talking to the other mainliners because obviously we're part of that ecosystem and everybody is doing the same thing. But it's too soon right now. In April, we haven't seen really that much of an impact. And I think in the next 2 to 3 months, we should begin to see some impact from that, whether positive or negative. And we have our own views, which I can't share at this moment.

[Operator Instructions] Your next question comes from the line of Nikhil Phutane of CBFS.

Well, this is actually -- I think many of the questions have been answered in terms of Offshore as well as on your Maritime & Logistics. But in the last quarter, you did mention that there will be some pressure on rates. So in all priority, you could be seeing on a Q-o-Q slight reduction in your container shipping, but we do see a flat growth. So it could be...

I can't hear you. Can you speak up? I'm sorry, but it's not -- can you speak up, I can't hear you.

This is regarding your Container Shipping, sir. We wanted to know -- I mean you did mention about rates being pressured during this first quarter, but we see -- we pleasantly surprised that Q-on-Q, there has been a flat growth. So that is a result of higher capitalization of your vessels. I mean can we say that?

I'm sorry, I can't understand the question. But let me -- I mean in terms of -- we have -- if you look at the China business that's new business that we started in the second half of last year, which was not in place in Q1 of last year. So obviously, we see the growth now in Q1. And rates in Container Shipping are volatile, right? Sometimes they're event-driven, and they can quickly impact rates. So in terms of our volume, we -- volume, we exit certain routes that are unprofitable and we're growing new routes. And so the focus right now is profitably growing our volume growth. So right now, again, if you look at what's happening, we started the new China route, and that's good business. We've long-term plans for that. And so if you look at our business today, it's -- you've got volume and you've got rates, which impact sort of our top line.

Okay. Okay. Again, on the offshore business, I mean you did mention about oil and gas activities, increased activities being seen. In fact, last quarter also, you mentioned a similar kind of outlook. But actually, in the first quarter, we are not seeing actually that kind of trend in your revenue side on a quarter-to-quarter basis. So I mean what could be the reason? I mean you were expecting some improvement. Are you going to be seeing the improvement going forward in second quarter?

Well, I mean it's -- the growth is not going to be immediate. You cannot turn on the switch and tomorrow morning, you start generating revenue. There's usually a lag, right? So you bid on work. You go acquire the vessel. You win the work. I mean there's two ways, right? You can speculate, go buy the vessels and then deploy them once you win the contracts, or you can win the contracts and then go ahead and acquire the vessels. And largely, we've got a mix of those 2 strategies with a big emphasis on contract-backed CapEx acquisitions to a large extent to try to derisk our future cash flow. So -- and again -- and that's the reason. I mean it's not going to be quarter-to-quarter growth, it takes time to build up that growth. But as I mentioned, we do have a large CapEx program, the pipeline for growth in Qatar is substantial, but there's usually a lag between -- again, I said there's growth. It's going to continue to build up, but it takes time to acquire vessels, to build vessels, so that's primarily the reason. So it's not a switch that you could flip on and tomorrow, you start generating that revenue.

So you continue to maintain the...

Yes. I mean we've announced that and it's committed. So there's substantial commitment and that will continue. But that's the nature of the business in CapEx-heavy industries where, again, there's usually a lead time where you have to build whatever infrastructure asset and it takes time to be deployed, you build it, you mobilize it, you contract it, you build it, you mobilize it on existing contracts. But fortunately, we have a fantastic pipeline of work. And so that level of CapEx commitment is backed or is based on a mix of committed contracts as well as our view of projections of future contracts.

Okay. God speed. Okay. I mean one last one. I mean in terms of your provisions...

Sorry, I didn't hear that.

Yes. Regarding your -- again -- yes, I was looking at your provisions in your receivables. I mean we do see provisions again coming into picture. I mean I wanted to understand that. I know that it's not a very big amount, QAR 11 million. But you can definitely say it is a little bit on the higher side as compared to your normal run rate, say, for last year. So can you give us some color on this? Or what do you expect going forward?

There's no comment -- we're just following the accounting standards. I mean there's nothing to comment on, and this is -- I've explained that many calls before, we just follow IFRS and there's a model that is being used to provision for receivables. And then -- and again, we're in an industry where, at times, there will be a lag in collection of receivables based on the nature of the clients we deal with or depending on whether there's a dispute over an invoice or not, but this is normal. I mean this is again, there's nothing really to comment on there, except for the fact that we follow accounting standards to the letter and this is also something that gets audited extensively. And so you provision based on an ECL model. And when you collect, you just simply recover that. So at times, we may have disputes regarding some work we've done, so there's a delay in receivable. It could be potential for litigation, but this is just a normal course of business. In the grand scheme of things, it's immaterial, to be honest with you.

Your next question comes from the line of Mohit C of Lesha Bank.

I am Mohit from Lesha Bank. I think last quarter we had a call and you mentioned that the...

Sorry, can you speak up. We can't hear you and honestly...

Yes. Regarding the CapEx growth, and I think last quarter was mentioned around QAR 1.3 billion to QAR 1.4 billion will be on the vessel-related CapEx. So I think for this quarter, it's around QAR 150 million or something. So how should we look at the spread over the next 3 quarters in terms of CapEx?

Honestly, I can't comment on the CapEx because it's tied to payment schedules. So what you see is a function of payment schedules depending on what our contract dictates, how we make payments for the vessels. So it could be if we buy secondhand, you could see a big spike next year. But if it's contracted, it just depends on the contractual terms. So unfortunately, I can't comment on how you're going to see that spread over the next year. As I mentioned, CapEx program is large, and we continue to push forward on acquiring vessels or building vessels. But in terms of commenting on what that trend will look like, it's quite difficult because, again, like I mentioned, either we buy secondhand, then you'll see a big spike next quarter, I mean $30 million, $40 million, $50 million, maybe more, or it depends really on the contractual terms of the building program.

Thank you. I'd now like to hand the call back to Bobby Sarkar for final remarks.

Okay. Thank you, Ellie. If that's all the questions we have, then I would like to thank Akram and Sami from Milaha management for taking the time to go over the presentation and answer our questions. Thanks, everyone, and we will pick this up again next quarter.

Thank you for attending today's call. You may now disconnect. Goodbye.