Quarterly Report Q1

RNS Number : 3515F

Qatar Investment Fund PLC

24 April 2014

 



24 April 2014

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

Interim Management Statement and Q1 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 January 2014 to 23 April 2014.

The Company has also issued its Q1 2014 Investment Report for the period 1 January 2014 to 31 March 2014, 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.

For further information:

Qatar Investment Fund plc [phone]

Nick Wilson

Panmure Gordon - [phone]

Andrew Potts

Maitland - [phone]

William Clutterbuck/Robbie Hynes

Q1 - 2014 - QIF Quarterly Report for the 3 months ending 31 March 2014

Highlights

·     Qatar Investment Fund plc's NAV per share rose 15.1% in the quarter to end March 2014, outperforming (by nearly 3%) the Qatar Exchange Index which rose 12.1%.

·     Qatar's GDP grew 6.5% in 2013 and in 2014, is expected to grow 6.8%, largely through expansion of the non-oil & gas economy.

·     In 2013, profits of Qatari listed companies grew 11.1%. In Q4 2013, profits rose 24.2% compared to Q4 2012.

·     Qatar plans expansionary state budget for 2014-2015 to speed up and complete infrastructure projects before the 2022 FIFA World Cup.

·     $50 billion of contracts expected to be awarded in 2014, with spending expected to total $182.35 billion over five years.

·     Credit growth remained strong between December 2013 and February 2014 (up 3.3%).

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.

The chart above shows the Qatar Investment Fund plc (QIF) NAV per share compared to the share price. In the first quarter of 2014 QIF's NAV (excluding dividends) rose 15.1% to US$1.4325 (31 December 2013: US$1.2449). As at 31 March 2014, the QIF share price was trading at a 14.8% discount to NAV per share.

Historic performance against the QE Index

Performance	2007 5M	2008	2009	2010	2011	2012	2013	3M 2014
QIF NAV*	13.9%	-36.4%	10.4%	29.9%	1.3%	-4.7%	24.2%	15.1%
QE Index	27.0%	-28.8%	1.1%	24.8%	1.1%	-4.8%	24.2%	12.1%

*Dividend adjusted performance

Source: Bloomberg, Qatar Insurance Company

Portfolio structure

Top 10 holdings

Company Name	Sector	% Share
Qatar National Bank	Banks & Financial Services	17.0%
Industries Qatar	Industry	11.9%
Masraf Al Rayan	Banks & Financial Services	11.3%
Commercial Bank of Qatar	Banks & Financial Services	8.1%
Barwa Real Estate	Real Estate	7.2%
Doha Bank	Banks & Financial Services	7.2%
Ooredoo	Telecoms	6.9%
Qatar Insurance	Insurance	5.3%
Qatar Electricity & Water Co	Industry	4.7%
Qatar Navigation	Transportation	4.6%

Source: Bloomberg, Qatar Insurance Company

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

Country allocation

At the end of March, QIF had 27 holdings: 18 in Qatar, two in UAE, five in Oman and two in Kuwait. QIF's holdings outside Qatar represented 6.6% of NAV. The cash position stood at 2.1% of NAV as against 10.6% at the end of the previous quarter.

Qatar remains the Investment Adviser's preferred market in the Gulf Cooperation Council region (GCC). The relatively stable political environment, sizeable hydrocarbon reserves, strong growth prospects driven by an expansionary budget and infrastructure program are all notable, and are underscored by attractive valuations and healthy corporate earnings growth.

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 31 March 2014.

The Investment Adviser remains positive and overweight on the Qatari banking sector, with a sector weighting (including financial services) of 49.1% of NAV at the end of Q1 2014 (Q4 2013: 45.8%) vs. 45.3% for the Qatar Exchange (QE) Index.

Qatar's banking sector enjoyed strong growth in 2013, with banking assets growing 11.6% to QAR915.9 billion compared to QAR820.5 billion at the end of 2012. The growth was mainly driven by a 13.3% rise in loans. The Investment Adviser believes that growth prospects for Qatari banks remain good given strong lending growth domestically and as Qatari banks seek opportunities outside of Qatar. Qatar National Bank is QIF's largest holding (17.0% of NAV).

The second largest exposure was industrial at 17.8% of NAV (Q4 2013: 15.8%) - Industries Qatar represents 11.9% of NAV. Weighting in the real estate sector increased to 11.3% (Q4 2013: 9.5%). The telecom sector weighting increased marginally to 7.8% from 7.5% as did transport to 4.8% from 4.4% in Q4 2013. The allocation to the insurance sector rose to 5.3%, while weighting in the services and consumer goods sector reduced to 1.8% in Q1 2014.

Regional market overview

GCC markets continued their strong performance with all posting gains in the quarter (Bloomberg GCC200 Index +9.8% in Q1 2014).  Dubai was the strongest performer (+32.1%). Oman and Kuwait were flat (+0.3% each).

Qatar's 12.1% gain included performance from the insurance (+20.5%), industrials (+17.9%) and banking & financial services (+16.9%) sectors. The Qatar market enjoyed net foreign investment flows of US$532.4 million in January 2014, followed by US$188.1 million in February 2014 and US$96.0 million in March 2014.

The Dubai market continued its strong 2013 performance, with banks, investment & financial services and real estate & construction sectors registering double digit growth in Q1. Saudi Arabia reported an 11.0% growth during the quarter, helped by gains in retail and real estate development. Bahrain gained 8.7% in the quarter.

The Investment Adviser believes that GCC markets can continue this performance in the near term, driven by the upgrade of Qatar and UAE to emerging market status by MSCI and S&P Dow Jones, continuing momentum in Dubai from winning the right to host the World Expo in 2020 and the strong pipeline of infrastructure project awards across the GCC region.

Qatar: corporate profitability increased 11.1% in 12M 2013

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

Sectors	12M 2012	12M 2013	% Change	Q4 2012	Q4 2013	% Change
Banking & Financial	4,477,784	4,775,230	6.6%	1,027,756	1,152,255	12.1%
Insurance	269,834	848,173	214.3%	94,301	458,496	386.2%
Industrial	3,329,134	3,432,505	3.1%	863,322	950,705	10.1%
Services & Consumer Goods	435,894	494,279	13.4%	103,916	129,007	24.1%
Real Estate	605,948	797,539	31.6%	204,337	330,896	61.9%
Telecoms*	809,496	708,422	-12.5%	217,269	140,110	-35.5%
Transportation	463,142	489,133	5.6%	117,075	103,063	-12.0%
Total	10,391,233	11,545,280	11.1%	2,627,976	3,264,534	24.2%

* Excluding Vodafone Qatar

Source: Qatar Exchange

The profitability of Qatari companies remained strong in 2013. Net profits increased 11.1% compared to 2012, to QAR42.0 billion (US$11.5 billion). In Q4 2013 corporate profits rose 24.2%. This growth was largely driven by the insurance and real estate sectors.

Banking and financial services sector profits increased 6.6% in 2013. The Banking sector was the main contributor with profits up 7.5% in the year with increased lending particularly to the private sector (+16.8% in 2013). Going forward, public sector loan growth is expected to remain healthy driven by Qatar's infrastructure investment programme. The largest bank, Qatar National Bank, reported profit growth of 13.7% in 2013, while Masraf Al Rayan grew profits 13.2%. The financial services sector was in contrast, with profits down 49.6% in 2013 compared to 2012, due to a plunge in in net income at National Leasing Company and Dlala Brokerage.

The net profit of the industrial sector increased 3.1% in 2013. The sector now contributes about 30% of the profits of all the listed Qatari companies. Sector heavyweight and one of the largest chemical producers in the GCC region, Industries Qatar, reported 5.1% lower profits. Recently, Mesaieed Petrochemical Holdings has been added to the sector.

Insurance sector net profit surged 214.3% in 2013, mainly due to growth at Qatar General Insurance & Reinsurance Company (QGRI) and Qatar Insurance Company. QGRI reported 1117.4% growth in profit, on the back of one-time fair value gain of QAR2.0 billion realized during 2013 compared to a fair value gain of QAR28.6 million in 2012. Profits of Qatar Insurance Company grew 23.4% in 2013.

In 2013, profits in the services & consumer goods sector increased 13.4%. The largest profit contributor was Qatar Fuel Company, which reported a 5.7% higher profits. Al Meera Consumer Goods and Medicare reported 85.5% and 99.7% profit growth, respectively.

Real estate sector profits grew 31.6% in 2013, helped by higher earnings from Ezdan Holding Group (+289.4%) and Mazaya Qatar Real Estate (+113.3%). Sector heavyweight Barwa Real Estate increased profits by 20.9%.

The telecom sector comprises Vodafone Qatar and Qatar Telecom. Vodafone Qatar is excluded from this profit comparison, since its fiscal year ends on 31 March. Ooredoo (formerly Qatar Telecom), reported a 12.5% fall in profit in 2013.

Transportation sector profits rose 5.6% in 2013, driven by growth at Qatar Navigation and Gulf Warehousing Company. Of the three companies listed in this sector, two reported higher profits while one reported lower profits. Sector heavyweight Qatar Navigation increased profits 13.7%.

Recent developments

Expansionary state budget for 2014-2015

Qatar's fiscal budget shows a commitment to speed up and complete planned infrastructure projects before the 2022 FIFA World Cup. The 2014-2015 budget assumes a conservative oil price of US$65 per barrel, unchanged from the previous budget, substantially lower than current Brent Crude oil price of approximately US$100 per barrel, and translating into budgeted revenue of QAR225.7 billion, an increase of 3.5% on 2013. Total government spending is expected to increase 3.7% to QAR218.4 billion, compared to QAR210.6 billion planned in the previous budget. Budget surplus is estimated at QAR7.3 billion, marginally down from QAR7.4 billion in 2013-2014.

Allocation to the education sector has been increased by 7.3% from the previous budget to QAR26.3 billion in 2014-15, as the government plans to build 85 new schools in the next 18 months. Total expenditure on the health sector is expected to be 12.5% higher (to QAR15.7 billion) compared to the previous budget. These include allocations to complete the Sidra medical and research center, complete Hamad General Hospital and building the maternity hospital and 19 new health centers, including 6 that are already under construction. The budget has also allocated QAR3.3 billion (up 18% from 2013-2014) to provide housing for Qatari nationals. These funds are to complete 3,700 housing units which are under construction and to build additional 2,300 homes for 6,000 nationals, ensuring that there is no waiting list for housing.

Strong infrastructure news-flow

News-flow related to Qatar's infrastructure spending remains strong, with Qatar's central bank governor having revealed the government's plan to award contracts worth $50 billion in 2014. The governor mentioned that projects would largely be awarded in the transport, energy and other sectors as the country prepares for the 2022 FIFA World Cup.

Additionally, the recent budget has allocated $24.03 billion for key projects, an increase of 16.8% from the previous budget. The Minister of Finance estimated that spending on projects would reach $182.35 billion over the next five years. In the 2014-2015 budget, investment in infrastructure and transport increased 22% to QAR75.6 billion from last year. A large amount of the spending would be used to complete ongoing projects and to initiate construction of eight new stadia for the World Cup.

Furthermore, the government has allocated funds for the completion of the Hamad International Airport and the new Doha Port, for the rail and metro projects and roads. The budget has allocated funds to upgrade the existing electricity and sewage system network to cope with the growing urbanization.

Credit growth strong with public sector loan growth outpacing the private sector

According to Qatar Central Bank (QCB) data, credit growth in Qatar remained strong in 2014. Total credit (including credit outside Qatar) extended by Qatari banks continued to accelerate, growing 3.3% between December 2013 and February 2014. Public sector credit growth stood at 3.7% between December 2013 and February 2014 marginally higher than private sector credit growth (up 3.0%). Total deposits (including deposits outside Qatar) grew 4.9% between December 2013 and February 2014. The banking sector's loans-to-deposit ratio (LDR) stood at 104% at end of February 2014 compared to 105% at the end of December 2013.

Going forward, public sector credit growth is expected to remain strong and should drive loan growth in Qatar, helped by the expected uptick in project starts in the coming months.

Changes to QE Index constituents and weightings

AlKhaliji Commercial Bank and Medicare Group joined the QE Index from 1 April, replacing National Leasing and Widam Food Company. Alkhaliji Commercial Bank will have a weight of approximately 2.7% and Medicare Group a weight of 0.67% in the Index. The QE All Share Index components remained unchanged from the previous review, with 40 stocks qualifying for inclusion.

The Qatar Exchange caps the maximum weight a single stock can represent at 15% of the QE Index. Based on 1 April 2014 closing prices, Qatar National Bank (20.2% weight) and Industries Qatar (17.0% weight) were capped at 15%, with excess weights distributed proportionately among remaining QE Index constituents.

Macroeconomic update

The Qatari economy continued to grow in Q4 2013, with GDP increasing 5.6% compared to Q4 2012, according to the Qatar Statistics Authority (QSA). The growth was driven by double-digit growth in construction, trading and hospitality, and financial, insurance, real estate, and business services (combined) sectors, together with Qatar's rising population. The oil and gas sector contracted 1.1% in the fourth quarter, largely due to a drop in oil production and closing down of few LNG trains for maintenance in Q3 2013.

GDP growth numbers confirm that the Qatar economy is diversifying away from hydrocarbons to being a manufacturing and services hub. During Q4 2013, trade, hotels and restaurants (combined) was the fastest growing sector (growth of 19.3% compared to Q4 2012) mainly driven by population growth. Financial, insurance, real estate, and business services (combined) reported growth of 18.1%, helped by the banking and real estate sectors. Construction sector growth (+15.0%) was largely attributed to uptick in Qatar's infrastructure investment program. 

Qatar's GDP grew 6.5% in 2013, largely driven by growth in the non-hydrocarbon sectors. Looking ahead, Qatar's economic growth is expected to be 6.8% in 2014; according to QNB Group estimates. This is likely to come from non-hydrocarbon sectors as large infrastructure projects are implemented and the population rises.

Population growth in Qatar has been strong in recent years. At the end of March 2014, Qatar's population reached 2.14 million, 11.6% higher than March 2013. Qatar's population growth in 2014 is expected to remain strong as employment opportunities attract expatriate workers into the country.

Valuations

Market	Market Cap.	P/E (x)		P/B (x)	Dividend Yield (%)
	US$ Mn	2014E	2015E	2014E	2014E
Saudi Arabia	516,141	15.2x	12.3x	2.6x	3.9%
UAE	209,019	18.0x	15.3x	2.1x	3.7%
Qatar	139,856	12.7x	12.2x	2.6x	4.0%
Kuwait	118,108	16.9x	12.5x	1.7x	3.7%
Oman	18,476	10.9x	10.1x	1.7x	5.2%
Bahrain	20,268	11.0x	9.3x	1.3x	4.7%
Egypt	29,142	17.3x	14.4x	2.2x	4.4%
Jordan	24,692	16.5x	13.4x	1.7x	3.1%
Overall MENA	1,075,704	15.5x	12.9x	2.3x	3.9%

Source: Bloomberg Finance LP, Deutsche Bank Report (Prices as at 25 March 2014)

Outlook

The Investment Adviser believes that near to long term growth prospects of the Qatari economy remain compelling, driven by a strong infrastructure pipeline. Spending on projects is expected to reach $182.35 billion over the next five years, as the country prepares for the 2022 FIFA World Cup.

Strong population growth should drive demand for housing, financial, retail and social services, thus benefitting sectors such as financial services, transportation and telecommunications. Additionally, small and medium sized enterprises including hotels, restaurants, medical services and retail stores should benefit from a growing population. Hence, the Investment Adviser favours selected consumer facing companies. Heavy government spending should fuel lending growth in the country, driving growth in the Qatari banking sector. For this reason the Investment Adviser favours selected domestic banks.

The Qatari market is expected to remain attractive in the near term, on the back of sustained foreign investment inflows, reasonable bottom-line growth, the upgrade to the Emerging Markets index and increased project starts. This is further supported by Qatar's compelling valuations and healthy dividend yield.

 

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