Qatar: Measured growth

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The transport sector in Qatar has had mixed results so far this year, in part a reflection of its exposure to the global economy. However, the three leading transport firms listed on the bourse continued to post strong earnings leading into the last quarter of the year.

In late October, most of the companies listed on the Qatar Exchange posted their results for the first three quarters of the year, with almost one-third of the 41 traded firms recording a drop in net profits and the majority seeing their profits come in between just under 1% and 9%.

While profits have edged up in the sector, they are not keeping pace with the broader economy, which is forecast to expand by around 6% this year. The share value of the three leading companies reflected the somewhat mixed results, with the sector index rising 1.69% in the third quarter but falling 9.04% in the year leading to September 2012.

Despite the transport index as a whole not performing to expectations, two of the three firms listed in the category did quite well, with both Qatar Navigation (Milaha) and Gulf Warehousing Company (GWC) seeing profit levels increase far above the index average. It was only a fall in profits by Qatar Gas Transport Company (Nakilat), a liquid natural gas (LNG) shipping firm, which drew the index’s results down.

The star turn for Qatar’s listed transport firms was GWC, which saw a 31% increase in profits for the first nine months of the year, mainly due to strong direct earnings coming form its local operations. Offsetting revenue of $98.7m – an increase of 21% over the same period in 2011 – the logistics, transport and storage firm saw costs rise by 17% to $69.3m, leaving a gross profit of $29.3m and a net profit of $16.6m.

Milaha also posted positive returns, with its net profit of $177m representing a 9% improvement on the first nine months of 2011. In its statement announcing the results, the company said the net profits of its maritime and logistics operations had strengthened over the first three quarters of 2012, compared to the same period in 2011, driven by port operations and container transport activities.

However, Milaha said continued weakness in product tanker rates resulted in lower net profit for the gas and petrochemicals segment relative to last year, a reflection of a slowdown in the international economy and a decrease in demand for energy and petroleum-based products.

According to Sheikh Ali Bin Jassim Al Thani, the chairman and managing director of Milaha, “While general weakness in the global maritime sector, combined with volatility, continues to have a negative impact, our strong position in the local and regional supply chain has helped offset this weakness to a large extent,” he said on October 26.

Milaha was not the only Qatari transport firm to be subject to the volatility of global conditions, with Nakilat seeing its third-quarter profits fall by 25.5% to $49.9m from $67.6m for the same period in 2011. The largest shipper of LNG in the world, Nakilat saw demand for gas ease as the global economy cooled and was also affected by the high costs of fuel, which has prompted the company to consider a $1bn project that would convert up to 45 of its largest tankers to burn gas, rather than oil.

However, Nakilat is expecting higher profits when the global economy improves. The company is also looking to the increase in business that will come from Japan’s planned phasing out of nuclear power, which will result in higher demand for LNG from one of the world’s largest economies.

Closer to home, both Milaha and GWC can expect Qatar’s own economy to fuel their growth, which will be sustained by the government’s medium-term infrastructure investments and preparations for the 2022 FIFA World Cup. These major projects will require massive amounts of materials and equipment to be shipped, imported and then moved domestically, which will help fill the transport sector’s order books and boost overall performance.

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