Nakilat: Transportation

THE COMPANY: Qatar Gas Transport or Nakilat (QGTS on the Qatar Exchange) is the world’s largest owner of liquefied natural gas (LNG) ships. QGTS was incorporated in 2004 to address the needs for shipping the large quantities of LNG being produced by Qatar. With a total effective LNG shipping capacity of about 8.6m cu meters, the company accounts for about 16% of global LNG shipping capacity. The company’s LNG fleet consists of 54 state-of-the-art vessels, of which 25 are wholly owned by Nakilat. QGTS also jointly owns four vessels for transporting liquefied petroleum gas (LPG). Nakilat enjoys stable revenue and cash flows due to long-term (25 year) and fixed-rate (with operating cost inflation adjustments on some vessels) time charter contracts with Qatargas, RasGas and Tasweeq. Besides its shipping business, the company also manages and oversees the activities of Qatar’s shipyard at Ras Laffan and provides several maritime industrial services to vessels in Qatari waters. QGTS operates through several subsidiaries and joint ventures. Nakilat Inc. (100% owned) was set up for the sole purpose of obtaining financing for acquiring wholly owned LNG vessels. Nakilat Shipping (Qatar) (100% owned) was incorporated in March 2007 and manages the operations of all wholly owned LNG vessels of QGTS and the LPG vessels owned by Gulf LPG Transport Company. Nakilat Agency Company (95% owned) acts as an exclusive agent for all local and international ships arriving at the Ras Laffan Port. The company’s other subsidiaries include Nakilat Marine Services, QGTC Nakilat Investment and QGTC Nakilat Holding. Key joint ventures (JVs) include Nakilat-Keppel Offshore and Marine. Incorporated in November 2008, this 80%-owned JV with Keppel Offshore and Marine is engaged in the development and management of the shipyard facility at the Ras Laffan Port. Nakilat Damen Shipyards Qatar is a 70%-owned JV with Damen Shipyards Group, which manages the ship building facility for the construction of high-value ships at the Ras Laffan Port shipyard. Nakilat Svitzerwijsmuller is a 70%-owned JV with Svitzer Middle East that owns and operates tugboats, pilot boats and harbour crafts at the Ras Laffan Port. Finally, Gulf LPG Transport Company is a 50%-owned JV that owns and operates four LPG vessels. Milaha (through Q-Ship) owns the remaining 50% interest.

At around QR3bn ($823.8m) in 2011, revenue from the company’s 25 wholly owned LNG ships grew 10% from 2010. As expected, performance has remained stable thus far in 2012, with revenue for the first half of the year increasing about 3% over the same time period in 2011. The share of operating profits from JVs also grew 10% from 2010 to reach almost QR272m ($74.7m) in 2011. JV vessels recorded a slightly softer first half of 2012, with revenue dropping 4% from the comparable period in 2011. Finally, income from marine and agency services, which includes the shipyard business, posted a 28% growth in 2011 and a 5% year-on-year (y-o-y) increase in the first half of 2012. At around QR39m ($10.7m), this segment remains relatively small but should increase over the long term as the shipyard business becomes prominent. Net income increased by 25% in 2011 to almost QR833m ($228.7m) given growth in the wholly owned vessels business and was flat y-o-y in the first half of 2012.

DEVELOPMENT STRATEGY: We continue to view Nakilat as a stable yield play, albeit with limited top-line growth prospects during the medium term. The company remains a vital part of Qatar’s LNG value chain. Total debt stood at QR24.3bn ($6.7bn) as of June 2012, but with the company’s fleet expansion completed in 2010, we expect strong free cash flow generation to allow QGTS to meet its debt repayments comfortably, which could lead to earnings per share accretion. Nakilat also stands to benefit from any further expansion in Qatar’s LNG production capacity if the North Field moratorium is lifted in the future.