Milaha shares poised for long-term upside: QNBFS

Satyendra Pathak Doha Qatar Navigation’s (Milaha) shares remain poised for the longer-term upside as recovery in oil prices, sentiment, the recent lifting...

Satyendra Pathak DohaQatar Navigation’s (Milaha) shares remain poised for the longer-term upside as recovery in oil prices, sentiment, the recent lifting of the blockade, the 2022 FIFA World Cup Qatar and the massive NFE project are all set to provide growth tailwinds to the company, QNB Financial Services (QNBFS) has said in its latest report.QNBFS, which has initiated coverage on Milaha with an outperform rating, has said that its price target on the stock is QR10.5, which implies a 43.6 percent upside.“Milaha’s stock, over 2011-2021, has always traded at a significant discount to its sum-of-the-parts, sometimes worth only the value of its investment stake in Nakilat and its equity and bond portfolio. This remains the case currently, with Milaha’s ‘non-core’ assets along with its net cash position, making up close to 100 percent of the company’s market cap. Growth snapback, as COVID-19 restrictions ease, should also contribute to easier comparisons going forward in 2021. Lack of significant impairments in the future should also help Milaha’ earnings trajectory,” the report said. “Supportive fundamentals should imply an end to substantial impairments and boost earnings visibility. There were no impairments reported in the first quarter of 2021, a remarkable feat as the third quarter of 2016 was the last impairment-free quarter,” the report said.“Over 2014-2020, Milaha recorded almost QR2 billion in impairments, about 44 percent of its net income and 24 percent of its market cap. Going forward, we do not expect significant impairments in light of supportive oil, macro environment and considering that management has already ‘right-sized’ assets down to the market and economic values with previous impairments,” it said.Milaha Maritime & Logistics segment’s container shipping business should benefit as Qatar-GCC trade picks up post the blockade, while industrial and project logistics should get a boost from the 2022 World Cup in the near-to-medium term and the NFE project in the longer-term, it said. QTerminals, also part of Maritime & Logistics, should also see an uptick in its port management business as container flows pick up. Milaha Offshore, which went through a rough patch given lacklustre oil prices and impairments, remain strong growth drivers with the improvement in oil outlook along with the NFE project. “Milaha Gas & Petrochem like the offshore segment should benefit from higher oil prices leading to improved charter rates and utilization levels. Overall, all segments should benefit from improving outlook as COVID-19 restrictions ease going forward,” the report said.According to the report, earnings should grow at a CAGR of 8.5 percent over five years (2020-2025e) excluding impairments and one-offs.“Almost 63 percent of this five-year growth in ‘clean’ earnings should be driven by Milaha’s operating businesses led by growth at MM&L and MO. QTerminals should show a 3.9 percent CAGR given volume uptick and phase II expansion at the Hamad Port. On the non-core front, Nakilat propels the remaining 37 percent of Milaha’s five-year earnings growth despite a decline in Milaha Capital,” the report said.“Milaha has generally maintained low leverage levels and could potentially ramp up spending and seek acquisition opportunities. Given supportive market fundamentals, purchases of floating storage and offloading (FSOs) and floating production storage and offloading (FPSOs) vessels in the MG&P segment and acquisition of logistics businesses, among others, could act as potential catalysts,” the report said.