Doha – QNB Financial Services (QNBFS) has said in its latest report that it maintains accumulate rating on Qatar Electricity and Water Company (QEWC) with a price target QR209.
“We continue to like QEWC as a long-term play with a defensive business model. QEWC enjoys a solid long-term growth profile with attractive earnings before interest, tax, depreciation and amortisation (EBITDA) margins, compelling dividend and free cash flow (FCF) yields. Long-term catalysts, which we have not yet factored into our estimates abound, including additional expansions domestically like facility E, Siraj solar project and others,” the report said.
“QEWC’s net income in the fourth quarter rose 25 percent year-on-year (YoY) and 11 percent (QoQ) to QR380 million, beating our estimate primarily on an accounting adjustment for depreciation. QEWC increased the useful life of its plants to 30 years from 25 years, leading to a quarterly depreciation adjustment charge of only QR9 million against our assumption of QR90 million. Rolling back this adjustment, QEWC’s net income would have come in at QR299 million, 2 percent lower than our estimate of QR305 million,” QNBFS said in the report.
“The company’s EBITDA margins expanded on lower general and administrative (G&A). EBITDA margins expanded more substantially to 43.7 percent against our estimate of 39.5 percent because of lower selling, general, and administrative (SG&A),” the report said.
Reported net income benefits from lower depreciation charges and better-than-expected joint venture (JV) income, the report said.
“Depreciation was much lower than expected. Moreover, JV income was 16 percent ahead of our estimate. The outsised 56 percent QoQ jump in this item is because of a QR57 million provisions related to a JV over seawater costs in the third quarter of 2018. Nevertheless, JV income was surprisingly strong in a seasonally weak quarter and we await clarity from management in this regard,” the report said.
“Lower depreciation can boost our 2019 earning per share (EPS) estimate by around 5 percent. New depreciation schedule should lower depreciation expense to a quarterly run rate of around QR70-75 million, which should lead up to 0.7 EPS boost. We will update our estimates to account for this and other changes shortly,” QNBFS said.
