The Company
Qatar Electricity and Water Company (QEWC), which trades as QEWS on the Qatar Exchange, is leading local listed provider of utility services. The group owns and operates power generation and water desalination plants across Qatar. QEWC’s installed power generation and water desalination capacity is 5432 MW and 258m imperial gallons per day (MIGD). Moreover, QEWC participates in all independent water and power producers (IWPPs) and independent power producers in Qatar and retains a strategic stake in them. Overall, it supplies more than 60% of total electricity and almost 80% of total water production. The government has a direct holding of 42% in QEWC and an indirect holding of 11.2% through Qatar Petroleum (QP).
QEWS operates through several subsidiaries and joint ventures (JVs). The Ras Laffan Power Company (RLPC) operates the Ras Laffan A project. This plant has an installed electricity generation capacity of 756 MW and a seawater desalination unit producing around 40 MIGD of potable water. The station supplies water and electricity to Qatar General Electricity & Water Corporation (KAHRAMAA) under a 25-year agreement. QEWC has an 80% shareholding in RLPC. Ras Laffan Operating Company is a 100%-owned entity and is engaged in the management, operation, maintenance and development of the Ras Laffan A plant. Q-Power, a JV, operates the Ras Laffan B project with an installed capacity of 1025 MW of electricity and 60 MIGD of potable water. QEWC (55%), International Power (40%) and Chubu Electric Power (5%) own Q-Power. Mesaieed Power (MP) operates the 2007-MW, combined-cycle gas turbine power plant and supplies output to the national grid and the Mesaieed aluminium smelter. QEWC (40%), the Marubeni Corporation (30%), QP (20%) and Chubu Electric Power (10%) jointly own MP.
Furthermore, Ras Girtas Power Company (RGPC) was incorporated to install and operate the Ras Girtas Power Project, which has a total capacity of around 2730 MW of power and 63 MIGD of water. QEWS has a 45% stake in RGPC, while QP retains a share of 15%.
Despite a lack of significant near-term growth catalysts, we continue to remain bullish longer term on QEWC. It is Qatar’s leading listed electricity and desalinated water producer, and possesses a low-risk business model – minimal demand and cost risk – with secure and visible earnings and cash flows. Qatar continues to enjoy solid fundamentals with a robust outlook expected in terms of economic growth, economic diversification, infrastructure spending and population growth. QEWC should benefit from these tailwinds.
QEWC remains one of the more defensive ways to play the Qatar growth story given it is essentially a capacity provider. The company is able to procure gas at long-term, fixed-price contracts from QP and can pass on the cost of fuel to KAHRAMAA, again under long-term contracts. Thus, the company is not affected by volatility in commodity prices or fluctuations in end-user demand for electricity and water. QEWC continues to enjoy secure and visible earnings and cash flows, and strong free cash flow yield.
Financial Forecasts
As of December 2013, we expect QEWC to post revenue of QR2.86bn ($783m) and QR2.9bn ($794m), respectively, for 2013 and 2014.
Our 2013 and 2014 earnings per share estimates are QR13.61 ($3.73) and QR14.44 ($3.96), and we forecast dividends per share of QR7.50 ($2.05) and QR8 ($2.19) for 2013 and 2014, versus QR7.30 ($2) in 2012.
Risks
International expansion is one risk, while liquidated damages (penalties) for operating underperformance at plants is also key. In addition, negative changes in the tariff structure will also need to be monitored.
Development Strategy
On the domestic front, we expect a re-acceleration in earnings in 2015, when a new water plant (RAF-A2 with a capacity of 36 MIGD) comes on-line. Going forward, KAHRAMAA has planned an IWPP with a power generation capacity of 2400 MW and a desalination capacity of 130 MIGD. Looking beyond Qatar, the company is eyeing regional expansion and has set up a $1bn JV (60% stake) called Nebras Power along with QP International and Qatar Holding.
