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MENAFN - Bahrain Tribune - 17/03/2008

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(MENAFN - Bahrain Tribune) For the year ended December 31, 2007, Qatar Navigation (QNNS) recorded a massive jump of 77.9% in net profit that reached QR437.94 million from QR246.13 million in 2006. The profits included a handsome gain of QR15.43 million from the disposal & write-off of property and vessels & equipment as against a loss of QR5.59 million posted in the previous year. In line with the robust bottom-line growth, basic & diluted EPS reached QR9.36 from QR5.26 in 2006. The company's operating revenues stood at QR 1,040.59 million as compared to QR996.82 million in 2006, indicating a rise of 4.4%. Simultaneously, its operating expenses slipped 3.0% to QR737.22 million, resulting in a 28.0% increase in gross profit to QR303.37 million.

Reflecting a strong investment portfolio, the company's investments & interest revenues soared 97.9% to QR228.82 million, thanks to healthy returns generated by the Doha Securities Market (DSM). On the other hand, general & administration expenses ascended 29.1% to QR65.25 million, with employee costs constituting 49.5% (QR32.3 million). Finance costs surged 51.2% to QR59.16 million from QR39.12 million, as a result of a huge hike in interest bearing loans and borrowings that zoomed 115.7% to QR300.45 million as compared to QR139.26 million in 2006.

For the year, QNNS's total assets escalated 45.5% to QR7.80 billion from QR5.36 billion a year ago, while shareholders' equity improved 41.8% to QR6.07 billion from QAR 4.28 billion in FY06.

Consequently, maximizing shareholders' value, both ROE and ROA advanced to 7.2% and 5.6% from 5.7% and 4.6%, respectively.

At the AGM held on February 24, 2008, shareholders approved the distribution of 50% cash dividend (QR5.00 per share). The company will shortly be increasing the capital by 28.25% through a rights issue of 13.22 million shares at a total purchase price of QR60 per share (including a premium of QR50 per share).

Qatar Navigation Company (QNNS) was established in 1957 as the Qatar National Navigation & Transport Company, and started operations as an agent for major shipping lines in Qatar. The company has innovative and advanced services in marine transportation, freight forwarding, international land transportation, cargo handling, warehousing & distribution services, and container & break-bulk operations. Its holistic approach has seen it include ancillary services like ship repair & steel fabrication, bunkering, offshore construction and maintenance. The company also operates a travel agency and acts as an agent for foreign shipping lines.

QNNS dominates the marine traffic between Qatar and the UAE. Amongst all feeder operators, it ranks first with an 80% share of the total container imports and exports market. Though the company operates in a variety of geographies across the GCC region, it has a lone branch in Dubai, which was incorporated to take care of its non- Qatari operations.

Listed on the Doha Securities Market (DSM), QNNS has stakes in several subsidiaries. It holds a 50% share in Halul Offshore Services Co., 25% in Qatar Quarries and Building Materials Co, 51% in Macgregor Qatar Navigation Co., 51% in Iraq-Qatar Transport & Shipping Services, 16% in Qatar Shipping (QSHS), and a 15% stake in Qatar Gas Transport Company (QGTS).
Shipping is vital to the world economy, carrying more than 90% of the world's traded goods by volume. Boosted by the rising need for oil, robust global economic growth, and rapidly-expanding seaborne trade, the shipping industry is witnessing extraordinary growth.

Backed by healthy increase in demand for oil and gas worldwide and steadily climbing prices, the Middle East is positioning itself as a hub between Europe, which sees a growing demand for commodities, and the Far East, which currently has the highest demand for energy as it becomes more industrialized. According to market watchers, as demand for oil increases, world oil consumption is projected to reach 93.7 million barrels per day (bpd) in 2011, compared to 84.7 million (bpd) in 2006. Subsequently, more shipping companies will be attracted to operate in the region. In 2008, investments in the Middle East shipping industry are expected to exceed AED 50 billion, especially in crude carriers as operators seek to tap into the market.

Shipping companies operating on Middle Eastern routes achieved an average growth of between 25% - 30% in both the dry bulk and VLCC (very large crude carriers) markets in 2007. Additionally, with an expected 17% growth in Asia, the continent is expected to have a total throughput of 20 million TEUs (20-feet equivalent units) of dry cargo this year. In 2007, UAE terminals increased container cargo throughput by 19% to 11 million TEUs, with Dubai's ports of Jebel Ali and Port Rashid growing at 20% to reach 10.7 million TEUs. Jebel Ali Port, one of the largest in the world, is expecting a 27% increase in cargo container throughput from the current 11 million TEUs to 14 million TEUs by February 2009. While some sectors of the Middle East economy have felt tremors from the current US economic crisis, the problem is not likely to dampen the optimism of the Middle Eastern shipping operators. However, many analysts believe that tanker oversupply is forecast to outnumber demand. Supply of tankers is estimated to increase by 6% - 8% for 2008, while demand for oil trade is expected to grow by just 4%. Additionally, terminal congestion will be a big challenge for the industry as infrastructure development fails to match the growing global demand and an increasing ship fleet.

Qatar is a key hub for shipping, port and maritime industry offering innumerable opportunities for the development of this business. Apart from QNNS, the other major player in the country's maritime shipping industry is Qatar Shipping. While Qatar Shipping has a strong focus on transporting crude oil and natural gas, QNNS specializes in dry and bulk cargo from the feeder services between UAE and Qatar.

On March 03, 2008, QNNS obtained the necessary official approvals to offer for subscription its share capital increase, starting from March 23, 2008, until the end of day of April 3, 2008. In January 2008, the company bagged a QAR 147 million five-year contract from state- owned Qatar Petroleum. As per this agreement, QNNS will supply manpower and equipment to the commercial port at Mesaeed.

In November 2007, Qatar Navigation Logistics Co. launched its Jebel Ali centre. The firm invested AED 15 million in the facility built on an area of 15,000 square metres, including an 8,585 square metre warehouse. Further, the company plans to build a facility in the upcoming Dubai Logistics City. In October 2007, QNNS approved an investment of 50 million in the United Arab Company for Chemical Carriers (UACC), comprising around 10.5% of the total capital of the new company. Kuwait-based United Arab Shipping Company (UASC) is also a part of the new venture, which will have other major and strategic investors from the GCC region as its shareholders.

Capitalizing on 50 years of experience in the industry, QNNS has witnessed healthy growth in its FY07 financials. The company's net profit margins escalated to 42.1% from 24.7% in 2006. Further, its recent focus on strengthening its core business operations is expected to strengthen its balance sheet & financial performance. QNNS is the leader in feeder traffic between Qatar and UAE ports, giving it an edge over other players. Finally, as the region continues to be driven by the phenomenal growth of consumption demands and trade lanes in the Far East and the Indian subcontinent, the company can expand its operational wings.

Currently, QNNS's stock is trading at a P/E of 11.76 and a PB of 0.85, making it an attractive investment proposition. Thus, we continue to be positive on Qatar Navigation's stock and reiterate our overweight opinion.


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