Interim Managment Statement & Q3 Investment Report

RNS Number : 5161Q

Qatar Investment Fund PLC

15 October 2013

 

15 October 2013

Qatar Investment Fund plc ("QIF" or the "Company")

Interim Management Statement and Q3 2013 Investment Report

Qatar Investment Fund plc (LSE: QIF), today issues the following Interim Management Statement in accordance with the UK Listing Authority's Disclosure Rules and Transparency Rules, for the period 1 July 2013 to 14 October 2013.

The Company has also issued its Q32013 Investment Report for the period 1 July 2013 to 26 September 2013, a pdf copy of which can be obtained from QIF's website at: www.qatarinvestmentfund.com.

QIF was established to capitalize on the investment opportunities in Qatar and the Gulf Cooperation Council ("GCC") region, arising from the economic growth being experienced in the area. The Company invests in quoted Qatari equities listed on the Qatar Exchange ("QE") in addition to companies soon to be listed, with a possible allocation of up to 15% in other listed companies elsewhere in the GCC region. The Investment Adviser invests using a top-down screening process combined with fundamental industry and company analysis.

QIF Quarterly Report - Q3 2013

At the quarter end on 26 September 2013, Qatar Investment Fund plc's ("QIF" or "the Company") net asset value (NAV) had increased 1.2% to US$1.1813 from US$1.1672 on 27 June 2013. The Qatar Exchange Index rose 3.6% during the quarter. Compared to 31 December 2012 QIF's NAV has increased 17.9% (including dividends received) while the index rose 14.9%.

Economic growth in Qatar remains robust with real GDP up 6% in Q2 2013 compared to Q2 2012. This is the highest growth rate in the Gulf Cooperation Council (GCC) region. Strong growth in non-hydrocarbon sectors (+10%) offset slower growth in hydrocarbons (+1%).

This growth is set to continue. EFG Hermes estimates Qatar's GDP will grow 6.3% in 2013, and 7.8% in 2014, largely driven by non-hydrocarbon sectors.

Qatar's population is also rising. By September 2013 it stood at 2.04 million, 10.8% higher than December 2012.

The profitability of Qatari companies increased 13.6% in H1 2013 compared to H1 2012.

Credit growth in Qatar remains strong, 15.9% higher in August 2013 compared to August 2012.  By the end of August year to date credit growth was up 9.0%.

Project activity and awards picked up in the recent months. According to the Middle East Economic Digest (MEED) Qatar's project market of projects planned and underway is valued at US$260 billion - 120% of GDP.

Performance and Portfolio Structure

Embedded image removed - please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a chart depicting the NAV per share compared to the QIF share price.

On 26 September 2013, the QIF share price was trading at a 12.5% discount to NAV per share.

Performance against the QE Index

Performance	2007 5M	2008	2009	2010	2011	2012	2013 9M
QIF NAV	13.87%	-36.42%	10.40%	29.86%	1.29%	-4.68%	17.87%
QE Index	27.00%	-28.80%	1.10%	24.80%	1.10%	-4.79%	14.95%

Source: Bloomberg, Qatar Insurance Company

Portfolio Structure

Top 10 Holdings

Company	Sector	% Share of NAV
Qatar National Bank	Banks & Financial Services	19.2%
Masraf Al Rayan	Banks & Financial Services	10.9%
Industries Qatar	Industry	10.1%
Qatar Telecom	Telecoms	7.9%
Doha Bank	Banks & Financial Services	6.9%
Barwa Real Estate	Real Estate	6.3%
Commercial Bank of Qatar	Banks & Financial Services	6.1%
Qatar Electricity & Water Co	Industry	4.9%
Qatar Navigation	Transportation	4.6%
Qatar Insurance Co	Insurance	4.3%

Source: Bloomberg, Qatar Insurance Company

The top 10 holdings remained unchanged from the end of the previous quarter.

Country Allocation

At quarter end QIF had 28 holdings: 18 in Qatar, 6 in UAE, 3 in Oman and one in Kuwait. Cash was 2.8% of NAV (Q2 2013: 3.2%).

The Investment Adviser believes that Qatar remains the most attractive market in the region due to a combination of better growth prospects and stable political environment. This view is supported by Qatar's undemanding valuation and high dividend yield.

Sector Allocation

Embedded image removed - please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a chart depicting the overall portfolio allocation by sector as at 30 September 2013.

The banking sector (including financial services) remains the most attractive sector in the view of the Investment Adviser, with a 51.5% weighting in the Company. Qatar National Bank is the Company's largest holding (19.2% of NAV), followed by Masraf Al Rayan (10.9% of NAV).

The second largest sector weighting in the Company's portfolio, at 16.2%, is the industrial sector (Q2 2013: 18.4%) particularly Industries Qatar (10.1% of NAV).

The real estate sector weighting remained unchanged from the previous quarter at 9.7%. The telecoms sector increased from 5.1% in Q2 2013 to 8.4% in Q3 2013.

Transportation increased from 4.5% in Q2 to 4.8% in Q3 2013. The allocation to the insurance sector rose to 4.3%, while weighting in the services and consumer goods sector reduced to 2.3% in Q3 2013.

Regional market

In Q3 GCC markets rose alongside global financial markets, with the GCC index, Bloomberg GCC200, increasing 5.8% in Q3 2013. GCC markets saw some recovery as the Syria crisis eased in recent weeks following the agreement between the US and Russia to destroy Syria's chemical weapons under UN supervision.

The Dubai and Abu Dhabi markets gained 24.3% and 8.2% respectively, while all other GCC markets reported gains, except the Kuwait market. Compared to the UAE, Saudi Arabia and Oman markets, the Qatari market was relatively subdued, gaining 3.6%. This may have been influenced by news of the upcoming IPO of Qatar Petroleum's unit Mesaieed Petrochemical Holding Co. to raise QAR3.2 billion (US$880 million). Sector wise, telecoms led the market with a 13.4% increase, followed by consumer goods and services and transportation sectors growing 6.9% and 6.3%, respectively. MSCI's upgrading of Qatar and UAE to emerging markets status should increase foreign investor interest and support progress in these markets.

Saudi Arabia's Tadawul Index gained 6.2% in Q3 2013. The Omani market grew 4.9% during the period. The Bahrain index was up marginally by 0.5%, while the Kuwait market was flat. That said Kuwaiti's consumer sector index rose 5% while the banking sector increased 2%.

GCC equity markets are expected to perform well in the near term, supported by new reforms, strong economic growth, recovery in the real estate sector, earnings growth and compelling valuations and an improving economic outlook for US and Europe.

Qatar: corporate profitability increased 13.6% in H1 2013

As mentioned Qatari-listed companies' net profits rose 13.6% in H1 2013 compared to H1 2012. In Q2 2013, net profit of Qatari listed companies grew 15.8% to QAR10.8 billion (US$3.0 billion) compared to Q2 2012.

Sector profitability (net profit/loss in US$000s)

Sectors	H1 2012	H1 2013	% Change	Q2 2012	Q2 2013	% Change
Banking & Financial	2,289,013	2,461,105	7.5%	1,162,496	1,291,612	11.1%
Insurance	138,910	345,488	148.7%	55,533	240,823	333.7%
Industrial	1,524,515	1,718,297	12.7%	804,437	827,912	2.9%
Services & Consumer Goods	216,154	218,811	1.2%	112,026	117,138	4.6%
Real Estate	301,413	278,470	-7.6%	140,685	107,405	-23.7%
Telecoms*	371,461	475,657	28.1%	176,013	253,561	44.1%
Transportation	236,827	270,602	14.3%	105,342	121,638	15.5%
Total	5,078,293	5,768,430	13.6%	2,556,532	2,960,088	15.8%

* Excluding Vodafone Qatar

Source: Qatar Exchange

Banking and financial services sector profits increased 7.5% in H1 2013 compared to H1 2012. The growth largely came from increased lending, particularly to the private sector, helped by government and government-backed demand. Lending to the public sector should remain robust as project/ contract awards gather pace. Banking sector profits improved 8.7% in H1 2013 compared to H1 2012, with Qatar National Bank reporting profits increased 15.1%. Masraf Al Rayan Bank reported a 13.2% rise in profits, although Commercial Bank of Qatar's net profit was flat. Looking ahead Qatar's banking sector is expected to enjoy growth driven by the massive infrastructure building program, and an uptick in contract awards. Net profit of the financial services sector declined 53.7% in H1 2013 compared to H1 2012, mainly due to losses reported by Dlala Brokerage and a drop in net profit reported by National Leasing Company.

Industrials sector profits grew 12.7% in H1 2013 compared to H1 2012. This sector now contributes 29.8% to the total net profit of all the listed companies. During the same period one of the largest chemical producers in the GCC region, Industries Qatar, reported a 13.2% jump in net profit.

In H1 2013, the insurance sector's net profit jumped 148.7% compared to H1 2012, driven by growth reported by Qatar Insurance Company and Qatar General Insurance & Reinsurance Company. The largest insurance company by net profit in the sector, Qatar Insurance Company (QIC) reported a 37.2% rise in net profit.

Net profits in the services & consumer goods sector increased 1.2% in H1 2013 compared to same period last year. The largest profit contributor was Qatar Fuel Company, which reported a 1.5% fall in net profit.

After reporting a 6.4% rise in net profits in Q1 2013, the real estate sector reported a poor performance in Q2 2013. In H1 2013, profits fell 7.6%, the only sector to report a decline in net profit. This was mainly due to a 66.5% slump in earnings reported by Barwa Real Estate, as the company reported a fall in revenues, following delays in closing contracts announced earlier this year.

The telecom sector comprises Vodafone Qatar and Qatar Telecom. Vodafone Qatar was excluded from this profit comparison, since its fiscal year ends on March 31. Qatar Telecom, renamed Ooredoo, reported a 28.1% rise in net profit for H1 2013.

The transportation sector net profit rose 14.3%, with two companies in the sector reporting higher profits and the remaining company reported a decline in net profit. The largest company by net profit, Qatar Navigation, reported a 30.1% growth in H1 2013 compared to H1 2012.

Recent Developments

Changes to QE Index constituents and weightings

Following the semi-annual review of QE Index constituents, the Qatar Exchange announced that from 1 October 2013, Al Khaliji Commercial Bank and Mazaya will not be a part of the QE Index and they will be replaced by Al Meera and Qatar Insurance. Based on 17 September 2013 closing prices, Qatar Insurance will represent an index weight of 2.9%, while Al Meera will have a weight of 0.7%. Additionally Al Ahli Bank has been added to the All Share index and Mannai Corporation was removed.

The Qatar Exchange caps the maximum weight a single stock can represent at 15% of the QE Index. Based on 17 September 2013 closing prices, Qatar National Bank (22.2% weight) and Industries Qatar (17.3% weight) were capped at 15% and with excess weights distributed proportionately among remaining QE Index constituents.

Infrastructure growth buoyant

Over the past few years, Qatar's ambitious infrastructure development plans, including the infrastructure for the 2022 FIFA World Cup, remained the growth driver for the economy. According to the Middle East Economic Digest (MEED) Qatar's overall project market, covering projects planned and underway, is currently valued at US$260 billion (or 120% of GDP). The value is US$36 billion higher year to date.

2013 has witnessed an uptick in project awards activity. According to the National Bank of Kuwait (NBK), during the first half of 2013, Qatar awarded thirty five contracts worth US$27.5 billion, representing an increase of nearly 30% on the value of contracts awarded in the whole of 2012. High value infrastructure projects awarded during the first half were predominantly in the transportation and construction sectors. These contracts include tunnelling for the Doha Metro (Red, Green and Gold lines, Msheireb and Education City stations) at a cost of US$12.3 billion and the commencement of the Barwa Al-Khor real estate development valued at US$9.9 billion. NBK estimates that additional contracts worth US$29 billion should be awarded during the second half of 2013.

Credit growth

Banks in Qatar continue to see strong growth in loans and deposits. Credit extended by Qatari banks continued to grow at stable rate, rising 15.9% in August 2013 compared to August 2012. The total credit extended by Qatari banks has grown 9.0% year to date. Public sector credit was higher 4.5% year to date (August 2013). The private sector reported higher growth in credit of 13.3% during the same period.

Credit growth in the coming years is expected to remain strong underpinned by massive infrastructure development plans driving project tendering and awards and growth in the non-hydrocarbon sectors.

Macroeconomic update

Qatar's economy continues to grow with real GDP increasing 6.0% in Q2 compared to Q2 2012. However, real GDP growth was marginally lower from the 6.1% than in Q1 2013. Non-hydrocarbon sector increased 10% mitigating the 1% growth in hydrocarbons. The construction and financial services sectors reported growth of 11.4% and 15.4%, respectively, in Q2 largely driven by the recent uptick in infrastructure projects. When compared to the previous quarter, the real GDP growth stood at 0.6%. Quarter on quarter the non-hydrocarbon sector grew 1.4%, while the hydrocarbon sector contracted 0.5%. EFG Hermes estimates Qatar's GDP will grow 6.3% in 2013, and 7.8% in 2014, largely driven by non-hydrocarbon sectors. In particular, the construction and financial services sector expanded 21.9% and 22.0%, respectively.

Population growth in Qatar has been healthy in recent years. In September 2013, Qatar's population stood at 2.04 million, a growth of 10.3% from September 2012 and 10.8% higher than December 2012. Growth in population is a long term positive for the Qatari economy and should benefit the non-hydrocarbon sector.

Recent population growth was largely driven by the infrastructure development program and spending on major projects. Infrastructure projects are expected to create over 120,000 jobs in 2013 and 2014 each, the majority being filled by expatriates. Infrastructure spending should have direct impact on sectors such as cement, steel, labour and services, with indirect impact on sectors such as housing, transportation, consumer services and banking. Hence, the Investment Adviser favours selected banks, consumer services and real estate sector companies.

Valuations

Market	Overall Market Cap.	P/E (x)		P/B (x)	Dividend Yield (%)
	US$ Mn	2013E	2014E	2013E	2013E
Saudi Arabia	422,163	13.8x	11.7x	1.8x	3.6%
UAE	153,175	12.9x	10.2x	1.2x	3.6%
Qatar	113,178	11.4x	10.9x	1.6x	5.5%
Kuwait	111,645	15.6x	14.9x	1.5x	3.1%
Oman	17,751	10.4x	9.3x	1.2x	5.0%
Bahrain	17,738	9.8x	9.5x	1.2x	4.9%
Egypt	21,576	10.1x	9.5x	1.2x	4.3%
Jordan	21,018	8.2x	7.3x	1.5x	4.6%
Overall MENA	878,244	12.7x	10.8x	1.6x	4.1%

Source: Bloomberg Finance LP, Deutsche Bank, Prices as of 30 September 2013

Outlook

Qatar's economy is growing at a reasonable pace (around 6% pa in the last two quarters) with economic growth largely driven by the non-hydrocarbon sectors. Corporate earnings momentum also remains healthy, with no negative surprises expected in the coming quarters. Project tendering and awards activity gained momentum during the first half of the year and should increase further in the coming years.

The banking sector should remain the main contributor to overall corporate profitability, driven by government infrastructure spending leading to higher public sector lending and growth in non-hydrocarbon sectors. Hence, the Investment Adviser favours selected banks. Job creation and rising income levels leading to increased disposable income, coupled with population growth should benefit domestic banks and the consumer, real estate, utilities, manufacturing and transport sectors.

The near term catalysts for the Qatari market include the upcoming earnings season, higher dividends from large cap companies, the recent upgrade to the MSCI Emerging Market index and upcoming IPO activity against a background of attractive valuations. The Investment Adviser believes Qatar and the Qatari listed companies are well positioned for future growth.

For further information:

Qatar Investment Fund plc - [phone]

Nick Wilson

Panmure Gordon - [phone]

Andrew Potts

Maitland - [phone]

William Clutterbuck

Robbie Hynes

 

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