TIDMQIF
RNS Number : 9210S
Qatar Investment Fund PLC
14 July 2015
14 July 2015
Qatar Investment Fund plc ("QIF" or the "Company")
Q2 2015 Investment Report
Qatar Investment Fund plc (LSE: QIF), today issues its Q2 2015
Investment Report for the period 1 April 2015 to 30 June 2015, a
pdf copy of which can be obtained from QIF's website at:
www.qatarinvestmentfund.com.
QIF was established to capitalise 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 - Q2 2015
3 months ended 30 June 2015
Highlights
Ø Qatar Investment Fund Plc's ("QIF") net asset value (NAV) per
share net of dividends rose 2.2% between 31 December 2014 and 30
June 2015, while the Qatar Exchange Index (QE) fell 0.7%.
Ø QIF gained 2.8% in Q2 (April-June) while the QE rose 4.2%.
Ø Qatar's real GDP increased 4.1% in Q1 2015 compared to Q1
2014, driven by the non-hydrocarbon sector, which expanded
8.9%.
Ø The non-hydrocarbon proportion of GDP increased from 55% in
2007 to 62% in 2014.
Ø Qatari listed companies' profits rose 21.9% in Q1 vs Q1
2014.
Ø Credit growth rose 2.9% from December 2014 to May 2015.
Ø In Q2 MSCI added Ezdan Holding and Qatar Insurance Company to
its emerging markets index and increased the weighting of Doha
Bank.
Ø In the first six months of 2015, Qatar's population grew
4.9%.
Performance and Portfolio Structure
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.
QIF's NAV increased by 2.8% during Q2 2015, while the Qatar
Exchange index gained 4.2% during the same period. The performance
of the Qatar Exchange was mainly driven by gains in Ezdan Holding
(up 15.3%) and Qatar Insurance Company (up 21.5%), as these two
stocks were added to the MSCI emerging markets index. The
underperformance by QIF relative to the QE Index arose because
Ezdan Holding is not held by QIF and Ooredoo's share price fell
12.7% (the Ooredoo holding is 3.4% of NAV). QIF reduced its
exposure to Qatar Insurance Company, taking advantage of investor
inflows and the resultant price rise.
As at 30 June 2015, the QIF share price was at a 17.8% discount
to NAV.
Historic Performance against the QE Index
2007 2008 2009 2010 2011 2012 2013 2014 2015
5M 6M
----------- ------ ------- ------ ------ ------ ------ ------ ------ ------
QIF NAV* 13.9% -36.4% 10.4% 29.9% 1.3% -4.7% 24.2% 20.6% 2.2%
----------- ------ ------- ------ ------ ------ ------ ------ ------ ------
QE Index 27.0% -28.8% 1.1% 24.8% 1.1% -4.8% 24.2% 18.4% -0.7%
----------- ------ ------- ------ ------ ------ ------ ------ ------ ------
QIF Share
Price 15.5% -67.5% 97.3% 23.0% -2.3% 2.4% 26.4% 17.4% -6.7%
----------- ------ ------- ------ ------ ------ ------ ------ ------ ------
*Net of dividends paid
Source: Bloomberg, Qatar Insurance Company
Portfolio Structure
Top 10 Holdings
Company Name Sector % Share
of NAV
-------------------- ------------------- --------
Qatar National Banks & Financial
Bank Services 16.9%
-------------------- ------------------- --------
Industries
Qatar Industry 14.4%
-------------------- ------------------- --------
Masraf Al Banks & Financial
Rayan Services 11.3%
-------------------- ------------------- --------
The Commercial Banks & Financial
Bank Services 8.5%
-------------------- ------------------- --------
Qatar Islamic Banks & Financial
Bank Services 7.2%
-------------------- ------------------- --------
Gulf International
Services Industry 6.4%
-------------------- ------------------- --------
Banks & Financial
Doha Bank Services 5.2%
-------------------- ------------------- --------
Qatar Electricity
& Water Industry 4.9%
-------------------- ------------------- --------
Barwa Real
Estate Real Estate 4.4%
-------------------- ------------------- --------
Qatar Navigation Transportation 4.1%
-------------------- ------------------- --------
During the quarter, Industries Qatar replaced Qatar Insurance
Company in QIF's top 10 holdings. The Investment Adviser increased
exposure to Industries Qatar, as petrochemical prices started
showing some strength and valuations began looking attractive.
Country Allocation
At quarter end, QIF had 20 holdings: 18 in Qatar and 2 in UAE
(Q1 2015: 23 holdings: 21 in Qatar and 2 in UAE). Cash was 2.2% of
NAV (Q1 2015: 7.4%).
Qatar remains the Investment Manager's favoured market in the
GCC region due to the relatively stable political environment,
massive infrastructure spending plans, strong growth in the
non-hydrocarbon sector and sizeable hydrocarbon reserves, coupled
with attractive valuations and a healthy dividend yield.
Sector Allocation
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
June 2015.
QIF remains overweight in the Qatari banking sector, with a
weighting (including financial services) of 51.4% of NAV at the end
of Q2 2015 (Q1 2015: 50.8%). Qatar National Bank is QIF's largest
holding (16.9% of NAV). The Qatari banking sector has a record of
strong growth and the Investment Adviser believes that future
growth prospects remain good, fueled by the government's
infrastructure development plans, subsequent domestic demand for
credit and Qatari banks' international development plans.
Industrials remain the second largest exposure at 25.7% (Q1
2015: 15.2%). During the quarter, the Investment Adviser increased
exposure to Industries Qatar (14.4% of NAV) seeing an upward trend
in petrochemical prices and valuations began looking attractive.
Exposure to Gulf International Services remained stable at 6.4%,
while exposure in Qatar Electricity and Water reduced from 5.3% in
Q1 2015 to 4.9% at the end of Q2 2015.
QIF's weighting in the real estate sector was unchanged (8.8% of
NAV). Exposure to the telecom sector reduced from 3.7% in Q1 2015
to 3.4% at the end of Q2 2015. The weighting in transportation
increased to 5.1% in Q2 2015 from 4.7% in the previous quarter.
Regional Market Overview
In 2014, the Qatari market was the best performing market in the
GCC region and also performed well against global markets, despite
a fall in oil prices in the second half. In the 12 months to June
2014 Qatar was the best performing market in the GCC region with a
6.2% rise. While that period saw lower oil prices and the ending of
the MSCI upgrade effect, Qatar performed well largely because of
infrastructure spending, economic diversification away from
hydrocarbons, long term gas contracts and a rising population.
During Q2 2015, GCC markets posted gains with the Bloomberg
GCC200 Index rising 4.6%, encouraged by rebound in oil prices. GCC
markets - excluding Kuwait and Bahrain - posted positive returns
with Dubai up 16.3% during the quarter led by gains in the real
estate, consumer and investment and financial services sectors.
During Q2 2015, the Qatari market rose 4.2% mainly driven by
strong performance of real estate and insurance sectors following
inclusion of Ezdan Holding and Qatar Insurance Company to the MSCI
emerging markets index. The Qatari market rebounded in the month of
June after posting a decline in May. Saudi Arabia, Abu Dhabi and
Oman reported gains of 3.5%, 5.7% and 3.0% respectively during
Q2.
The Investment Adviser believes that the Qatari market will
perform well in the coming period driven by strong fundamentals,
infrastructure spending and visibility on projects being completed
on time, non-hydrocarbon sector growth and rising population.
Infrastructure spend should support economic growth of over 6% per
annum until 2017. The Qatari government will continue with its
infrastructure spending regardless of the FIFA World Cup as the
majority of these projects were planned before winning the World
Cup bid in 2010.
Long term infrastructure projects to give impetus to GDP
growth
Qatar is spending over US$200 billion on infrastructure in the
next seven years, in line with Qatar National Vision 2030. This is
funded by large reserves accumulated from hydrocarbon earnings.
Moreover, recent oil price declines should only have a limited or
delayed impact on government revenues considering Qatar's long term
liquefied natural gas (LNG) contracts. Additionally, Qatar's 2016
budget will be based on an assumed oil price of US$55 per barrel,
lower than current assumed oil price of US$65 per barrel.
Spending directly related to the World Cup is estimated at
US$15-16 billion, representing about 7.5% of total infrastructure
spending. Most of the projects were planned independently of the
World Cup. FIFA World Cup provides impetus to project activity and
a definitive timeline, but is not the only factor driving
infrastructure investment in the country.
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting Qatar: Total planned capex.
The Investment Adviser believes Qatar's long term infrastructure
spending will remain intact, driven by low gearing, budget
surpluses from past years and one of the lowest break even oil
prices in the region. Excluding the World Cup investment, Qatar's
real GDP would still continue to grow above 5% a year.
Qatar: corporate profits increased 21.9% in first 3 months of
2015
Net profits of Qatari listed companies grew by 21.9% during the
first three months of 2015 compared to the same period last year.
This rise was supported by robust earnings growth achieved by the
real estate sector, coupled with rising profits from banking,
consumer and transportation sectors.
Sector profitability (net profit/loss in US$000s)
Sectors Q1 2014 Q1 2015 % Change
--------------------- ---------- ---------- ---------
Banking & Financial 1,277,105 1,378,519 7.9%
--------------------- ---------- ---------- ---------
Insurance 124,620 125,743 0.9%
--------------------- ---------- ---------- ---------
Industrial 821,186 618,319 -24.7%
--------------------- ---------- ---------- ---------
Services & Consumer
Goods 108,885 116,734 7.2%
--------------------- ---------- ---------- ---------
Real Estate 271,862 1,116,824 310.8%
--------------------- ---------- ---------- ---------
Telecoms* 243,583 137,682 -43.5%
--------------------- ---------- ---------- ---------
Transportation 160,656 172,354 7.3%
--------------------- ---------- ---------- ---------
Total 3,007,896 3,666,176 21.9%
--------------------- ---------- ---------- ---------
* Excluding Vodafone Qatar because of 31 March year end
Source: Qatar Exchange
Profits in the banking and financial services sector rose 7.9%
in the first quarter of 2015 compared with the first quarter of
2014. Growth was predominantly driven by an 8.5% rise in net income
by Qatari listed banks, offsetting the 39% fall in net income of
financial services companies. Excluding The Commercial Bank, all
the listed banks reported higher net profits in Q1 2015 compared to
the same period in 2014. Net profit of Islamic banks rose 15.6%
during Q1 2015, compared to a 6.6% increase in conventional banks.
Qatar Islamic Bank and Masraf Al Rayan reported net profit growth
in the high teens, while Qatar International Islamic Bank reported
a 4% growth in net profit. The largest bank in the sector, Qatar
National Bank reported over a 10% rise in net profit. During Q1
2015, total credit extended by Qatari banks increased 3.5%, mainly
driven by private sector lending which grew 6.2% during the
period.
The Industrial sector's profitability declined 24.7% during the
first quarter of 2015 compared to the same period in 2014. The main
reason was a 40% fall in net profit of Industries Qatar and a 77%
decline in net profit of Mesaieed Petrochemical Holding, caused by
the fall in petrochemical prices. However, Gulf International
Services reported an 88% rise in net profit, while Qatar
Electricity and Water profits rose 15.8%.
In Q1 2015, the net profit of the insurance sector grew 0.9%
compared to Q1 2014, with increased profits from Qatar General
Insurance and Reinsurance (up 64.8%) and Qatar Islamic Insurance
Company (up 46%). Sector heavyweight, Qatar Insurance Company's
profit declined 11.7%, mainly due to lower investment income.
Net profit in the services & consumer goods sector grew 7.2%
during first quarter of 2015 compared to the same period last year.
Sector heavyweight, Qatar Fuel Company achieved grew profits 3.5%
during Q1 2015 vs Q1 2014. Medicare Group reported a 44.9% rise in
profits, while Al Meera Consumer Goods' profits rose 10%.
Real estate profits grew over four fold, driven by the
significant rise in net profit reported by Barwa Real Estate (up
1127.6%). The company reported profit on sale of properties to the
tune of QAR2.7 billion in Q1 2015.
The Qatari telecom sector includes two companies, Vodafone Qatar
and Ooredoo. Vodafone Qatar is excluded from this profit
comparison, since its fiscal year ends on 31 March. Ooredoo
(formerly Qatar Telecom), reported a 43.5% fall in profit in Q1
2015, mainly due to competitive pressure, adverse currency impact
and challenging macro environment in some of the operating
countries.
In the transportation sector, profitability increased 7.3%, with
all three companies in the sector reporting higher profits. Gulf
Warehousing Company reported the strongest growth of 39.9% in net
profit, while Qatar Navigation and Qatar Gas Transport Company
reported 4.3% and 7.7% increase in profits in the quarter
respectively.
Recent Developments
Non-hydrocarbon sector GDP contribution stands at 62%
Qatar is consistently taking steps to reduce reliance on
hydrocarbon income. This has been producing positive results with
non-hydrocarbons rising from 55% of GDP in 2007 to 62% in 2014.
Qatar is continuing to diversify and the share of the
non-hydrocarbon sector in the economy should increase further, as
oil prices remain low.
In real terms the growth of the non-hydrocarbon sector has been
impressive, growing between 10% - 11% per annum since 2011, driven
by investment plans centering on construction, transportation, real
estate and the financial services sectors. During 2007-2014,
non-hydrocarbon real GDP grew at a CAGR of 12.9%; much faster than
the 8.5% CAGR of the hydrocarbon sector.
Strong fiscal balances, healthy current account surpluses and
low inflation levels should help the country continue with its
extensive infrastructure development plan. The non-hydrocarbon
sector is likely to be the largest beneficiary of this spending.
The growth in non-hydrocarbon sector has also helped the country to
counter; to a certain extent, the recent slowdown in oil and gas
revenues.
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting % share of hydrocarbon in real GDP.
Qatar's project market to grow fastest in GCC in 2015
According to MEED, Qatar's project market is expected to be the
fastest growing in the GCC in 2015, with projects to the tune of
US$30 billion planned. A similar number of new projects should be
awarded in 2016. Moreover, contracts with a value of US$135 billion
are expected between 2015 and 2020. These contracts would be
additional to the US$100 billion worth of contracts already placed
/ in execution since Qatar was appointed in 2010 to host the 2022
FIFA World Cup. In 2015, MEED expects that the value of contracts
placed in the GCC to increase to US$172 billion.
Private sector credit growth continues to remain strong
According to Qatar Central Bank (QCB) data, total credit
extended by Qatari banks grew 2.9% between December 2014 and May
2015. Public sector credit declined 7.8% during the period, while
the private sector reported a strong 9.6% rise in credit.
Credit growth in Qatar remained muted in May 2015, mainly due to
a fall in public sector lending. Overall credit decreased 0.1%
month on month in May 2015 after posting a 0.5% decline in April
2015. Compared to March 2015, total credit declined 0.6% at the end
of May 2015. Public sector credit declined 1.7% month on month in
May 2015 after reporting a 5.0% month on month drop in the previous
month. From March to May 2015 public sector credit was down 6.6%.
Private sector credit increased 1% month on month in May 2015 after
posting a 2.2% rise in April 2015. As compared to March 2015,
private sector credit was up 3.2% in May 2015. Total deposits grew
4.9% year to date (1.5% quarter to date). The banking sector's
loans-to-deposit ratio (LDR) stood at 107% at end of May 2015,
lower than 109% reported at the end of December 2014.
Looking ahead, the Investment Adviser believes credit growth
will remain at healthy levels, driven by infrastructure spending
before the 2022 FIFA World Cup, double digit growth in the
non-hydrocarbon sector and the increasing population.
Qatar Insurance and Ezdan Holding added to MSCI EM Index
During its semi-annual review in May 2015, MSCI included Qatar
Insurance Company and Ezdan Holding in its MSCI emerging markets
index and increased the weighting of Doha Bank. Following this
upgrade, Qatar's weighting in the MSCI emerging markets index
increased to 0.93%. According to a Deutsche Bank report, following
the index inclusion, Qatar Insurance Company received funds inflows
to the tune of US$144 million while Ezdan Holding attracted US$318
million. The increase in weighting attracted additional foreign
funds to Qatar of US$492 million.
Additionally, the Qatar Exchange is working with listed
companies in order to increase their weighting in the MSCI emerging
markets index, even though the traded value increased over three
times after the MSCI upgrade to emerging market status last year.
During the quarter, listed companies including Ezdan Holding,
Commercial Bank, Aamal, Qatar Insurance Company, Doha Bank and
Qatar General Insurance and Reinsurance increased their foreign
ownership percentage limit to 49%. The Investment Adviser believes
this is a positive move with further companies expected to increase
their foreign ownership limits in the coming period. This in turn
should help to further improve Qatar's weighting in the MSCI
emerging markets index.
Recently, the chief executive of the Qatar Exchange stated that
prior to MSCI upgrade the Qatar Exchange's total transactions in
value terms were around QAR250 million per day. However, post MSCI
reclassification, traded value peaked to QAR1 billion, and have
been in the range of QAR600-700 million per day. Moreover, the
Qatar Exchange also plans to launch new products such as margin
trading and exchange traded funds, along with Real Estate
Investment Trust and may get regulatory approvals in the third
quarter of 2015.
Macroeconomic Update
According to Ministry of Development and Planning (MDPS),
Qatar's real GDP increased 4.1% in Q1 2015 compared to Q1 2014,
using new base year (2013), driven by non-hydrocarbon sector. As
compared to the previous quarter, real GDP growth stood at 3.4%.
During Q1 2015, hydrocarbon sector growth contracted 0.1% on a year
on year basis, while the non-hydrocarbon sector reported a strong
8.9% increase. Non-hydrocarbon sector growth was the result of a
rise in construction, trading, hospitality and financial sectors
coupled with a jump in Qatar's population in Q1 2015. The reduction
in international crude oil prices continues to weigh on the
hydrocarbon sector. Construction rose 11.4% on a year on year
basis, helped by major public investments in this sector. The
financial sector (includes finance, insurance, real estate and
business services) reported 9.8% year on year growth while trade,
hotels and restaurants (combined) sector expanded 9.3% year on year
during the quarter.
Going forward, the Investment Adviser believes that strong
infrastructure pipeline ahead of the FIFA World Cup and in line
with Qatar National Vision 2030 should continue supporting the
non-hydrocarbon sector growth. Additional output from Barzan Gas
project should further help the overall GDP growth in the country
in the coming year.
Qatar's population increased 4.9% in the year to date (December
2014 and June 2015), to a total of 2.34 million. Population growth
is expected to remain strong in the coming period as infrastructure
spending attracts expatriate workers. The Investment Adviser
believes that the rise in population should drive consumption
growth, benefiting local consumer companies.
Valuations
Market Market PE (x) PB Dividend
Cap. (x) Yield (%)
--------- ---------- -------------- ------ -----------
US$ Mn 2015E 2016E 2015E 2015E
--------- ---------- ------ ------ ------ -----------
Saudi
Arabia 542,079 17.0 18.1 2.6 4.0
--------- ---------- ------ ------ ------ -----------
UAE 221,309 14.1 12.5 1.9 4.2
--------- ---------- ------ ------ ------ -----------
Qatar 147,257 13.2 12.3 2.3 4.5
--------- ---------- ------ ------ ------ -----------
Kuwait 95,206 13.1 11.6 1.6 4.4
--------- ---------- ------ ------ ------ -----------
Oman 18,128 10.8 10.8 1.8 5.2
--------- ---------- ------ ------ ------ -----------
Bahrain 21,178 9.5 9.2 1.2 6.2
--------- ---------- ------ ------ ------ -----------
Egypt 26,300 16.2 11.5 2.8 2.8
--------- ---------- ------ ------ ------ -----------
Jordan 22,219 13.5 10.7 1.4 3.3
--------- ---------- ------ ------ ------ -----------
Overall
MENA 1,093,675 15.2 15.0 2.3 4.2
--------- ---------- ------ ------ ------ -----------
Source: Bloomberg Finance LP, Deutsche Bank, Prices as of 29th
June 2015
Outlook
The growth of the Qatari economy remains impressive with
diversification efforts showing positive results. Real GDP growth
is estimated at 7% in 2015 and 7.5% in 2016 (QNB estimates).
Non-hydrocarbon sector growth is expected to be in double digits
underpinned by US$200 billion of infrastructure spending, a rising
population and increased government budget spending. Additionally,
growth in the non-hydrocarbon sector has helped the country to
offset the recent slowdown in oil and gas revenues, to a certain
extent.
The banking sector and consumer driven companies should benefit
from infrastructure spending, growth in the non-hydrocarbon sector
as well as the rising population, supportive demographics and an
expansive budget announcement.
The Investment Adviser believes that for these reasons Qatar's
economy and the Qatari market will remain attractive to investors,
who will also be attracted by the healthy dividend yield.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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