1. QATAR electricity and water company
Stability
March 24, 2011
key data Highlights
Fair Value: QAR 144
Fair Value per share (QAR) 144.00
Closing Price (QAR) * 129.70 Recommendation: Accumulate – Risk Level**: 2
52-week High / Low (QAR) 136.30/101.00
Reason for Report: FY2010 Update
YTD / 12-month return 1.6%/25.7%
P/E (TTM) 11.2
Market Cap (QAR Millions) 12,970 • Qatar Electricity and Water Company (QEWC) reported
Shares Outstanding (Millions) 100
Free Float 36% strong financial results for 2010 as the company received
Reuters / Bloomberg QEWC.QA / QEWS QD a boost from new capacity additions and the consolidation
*As of March 24, 2011. Sources: Bloomberg and NBK Capital of Ras Laffan Power Company (RLPC) in 4Q2010. Total
revenue reached QAR 3.4 billion in FY2010, 29% above
key metrics FY2009 and 9.5% above our forecasts. EBITDA increased
by 33% in FY2010 to QAR 1.9 billion, a result that is ahead
2010A 2011F 2012F 2013F of our forecast by 13.8%. Moreover, net income stood at
EPS (QAR) 11.6 12.2 13.0 13.9 QAR 1.2 billion in FY2010, 23% above FY2009 and 2.9%
EPS Growth 26% 5% 7% 7% below our forecast.
P/E 11.2 10.7 10.0 9.4
Dividend Yield 5% 5% 5% 6% • QEWC is a leading utility company in the Gulf Cooperation
EV/EBITDA 13.2 11.5 10.9 10.8
Council (GCC) with long-term purchase agreements with
Revenue (QAR Millions) 3,430 4,320 4,543 4,606
Revenue Growth 29% 26% 5% 1% Kharamaa, the sole distributor of electricity and water in
EBITDA (QAR Millions) 1,883 2,175 2,286 2,312 Qatar. Accordingly, QEWC has a stable revenue stream, as
EBITDA Growth 36% 15% 5% 1% the company is not exposed to fluctuations in demand for
EBITDA Margin 55% 50% 50% 50%
electricity and water. QEWC is a capacity provider and does
Sources: Company financial statements and NBK Capital
not engage with the end-user, which makes the company a
low-risk business. Moreover, QEWC has been shielded from
QUARTERLY forecasts regional unrest, and operations remain normal.
• In 2010, QEWC saw major operational developments: a) the
QAR Millions 1Q2010A 4Q2010A 1Q2011F 2Q2011F
Mesaieed Power Plant (power-generating capacity of 2,007
Revenue 593 1,086 978 1,050
EBITDA 317 547 460 525 MWh) became fully operational in 4Q2010, b) the first
phase of Ras Gitras (which will be the largest power plant in
Source: NBK Capital
Qatar upon completion) was completed, and c) ownership in
RLPC increased from 25% to 80%.
Rebased Performance
• We are forecasting a 26% increase in revenue to QAR 4.3
140
billion for QEWC in 2011, mainly driven by new capacity
135 additions and the full consolidation of RLPC. On an
130 operational level, we are forecasting EBITDA to grow by
125 15.5% to QAR 2.2 billion in 2011, while we are expecting a
120 drop in the EBITDA margin from 54.9% in 2010 to 50.3%
115 in 2011 (mostly due to the accounting treatment of the new
110 plants as finance leases).
105
• QEWC remains a good dividend play. In 2010, the company
100
announced a higher-than-expected dividend payment of
95
QAR 6 per share, 9% above our forecast of QAR 5.5 per
90
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 share, and 20% ahead of last year’s payment. This translates
MSCI Qatar Qatar Electricity
into a dividend payout of 52% and a dividend yield of
Sources: MSCI, Bloomberg, and NBK Capital 4.6%. For 2011, we are expecting a dividend payment of
QAR 6.5 per share, which has an implied yield of 5%. Our
new fair value of QAR 144 per share for QEWC represents
Analysts an 11% upside potential from the last closing price (March
24, 2011); hence, our new recommendation for the stock
Samir Murad, CFA Wadie Khoury is “Accumulate.”
T. +965 2259 5145 T. +965 2259 5118
E. samir.murad@nbkcapital.com E. wadie.khoury@nbkcapital.com **Please refer to page 6 for recommendations and risk ratings.
nbkcapital.com

2. March 24, 2011 Utilities – Qatar Electricity and Water Company
Valuation
Our 12-month fair value estimate for QEWC’s share price increased by 10% and currently stands
at QAR 144 per share. The fair value derived from the discounted cash flow (DCF) valuation
increased by 13% while the value generated from the peer comparison method saw a decline of
2%. Given that our fair value estimate is 11% above the latest market price, our recommendation
for QEWC is “Accumulate.”
Figure 1 Fair Value per Share
Old New
Valuation Method Change
Weight Value Weight Value
Our new 12-month fair value Discounted cash flow 80% QAR 129 80% QAR 146 13%
for QEWC is QAR 144 Peer comparison 20% QAR 136 20% QAR 133 -2%
Weighted average fair value 100% QAR 131 100% QAR 144 10%
Source: NBK Capital
Strong financial performance in 2010 comes in higher than expected
Qatar Electricity and Water Company (QEWC) reported stronger-than-expected financial results for
FY2010. Total revenue reached QAR 3.4 billion in FY2010, 29% above FY2009 and 9.5% above
our forecasts, primarily due to new capacity that came online in 4Q2010 and the consolidation of
the Ras Laffan Power Company (RLPC).
The power generation and water desalination operations continued to show strong growth in
revenue for FY2010; each grew by 19%. However, the highest growth came from lease income,
which more than doubled due to the accounting treatment of the new plants as finance leases. As
a result, lease income’s contribution to revenue increased from 7.7% in 2009 to 15.1% in 2010.
At the operating level, the company reported 33% year-on-year growth in EBITDA to QAR 1.9
billion in FY2010, a result that is ahead of our forecast of QAR 1.6 billion by 13.8%. Moreover,
net income stood at QAR 1.2 billion in FY2010, 23% above FY2009 and 2.9% below our forecast.
QEWC continues to demonstrate its ability to generate strong cash flow from operations. Cash
flow from operations remained positive at QAR 1.2 billion in 2010, slightly lower than QAR 1.3
billion in 2009.
Figure 2 Income Statement
Full Year Common Size
QAR '000 2009 2010 YoY FY2009 FY2010
Electricity 1,515,516 1,801,027 19% 57% 53%
Water 931,294 1,110,739 19% 35% 32%
Lease Income from Plants 204,058 518,468 154% 8% 15%
Sales 2,650,868 3,430,234 29% 100% 100%
Power generation and water
Cost of Goods Sold (1,535,409) (1,891,517) 23% -58% -55%
desalination operations
Gross Profit 1,115,459 1,538,717 38% 42% 45%
continued to show strong
General and Admin. Expenses (162,504) (166,652) 3% -6% -5%
growth in revenue; however, Share of Profits from Associates 46,619 31,946 -31% 2% 1%
the highest growth came from EBITDA 1,408,230 1,866,817 33% 53% 54%
lease income Depreciation 408,656 462,806 13% 15% 13%
EBIT 999,574 1,404,011 40% 38% 41%
Finance Cost (194,466) (465,618) 139% -7% -14%
Other 139,766 228,472 63%
Net Income 944,874 1,166,865 23% 36% 34%
Source: QEWC
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3. March 24, 2011 Utilities – Qatar Electricity and Water Company
QEWC has been shielded from regional unrest, and operations remain normal
Qatar has not been affected by the unrest that has swept the Middle East and North Africa (MENA)
region. Thus, QEWC, which operates solely in Qatar, has been shielded from the geopolitical
events that have been taking place since the onset of 2011. QEWC is responsible for generating
power and desalinizing water in Qatar, with long-term purchase agreements with Kahramaa (the
government entity responsible for distributing electricity and water within Qatar). As a result,
QEWC has a secure revenue stream and cash flow from operations that are not exposed to the
fluctuations in demand for electricity and water. Moreover, 54% of the company is owned by the
Government of Qatar (direct and indirect stake), which further strengthens the company’s position
in the local market.
Major developments in QEWC’s portfolio in 2010
In 2010, QEWC saw major developments in its operations: a) the Mesaieed Power Plant (power-
generating capacity of 2,007 MWh) became fully operational in 4Q2010, b) the first phase of Ras
Gitras (which will be the largest power plant in Qatar upon completion) was completed, and c)
the ownership stake in the Ras Laffan Power Company (RLPC) increased from 25% to 80%. On
a proportional basis, these power plants added 2,040 MWh of electricity, bringing QEWC’s total
power-generating capacity (on a proportional basis) to 5,471 MWh. Ras Gitras, the final plant
in the company’s pipeline, is expected to be inaugurated in 2Q2011 and raise the company’s
proportionate power-generating capacity to 5,875 MWh.
Market Update – Power Surplus in Qatar
According to MEED’s Arabian Power and Water Market Report for 2011, Qatar is the fastest-
growing power market in the region with 7,900 MWh of capacity and a reserve margin of 36%
(the reserve margin is measured against peak demand for electricity). MEED data shows that
peak power demand in Qatar increased by 12% in 2010 to 5,095 MWh. However, Kharamaa
forecasts that Qatar’s existing power capacity is sufficient to meet future demand until 2015.
MEED expects that a new facility with 2,000 MWh capacity may be tendered in 2011, for which
construction will begin in 2013. We expect that QEWC will be part of a consortium that is awarded
the contract for the new facility, as is the case for all previous power projects in Qatar. All of our
revenue forecasts are based on existing projects. We did not include any greenfield projects that
QEWC has expressed interest in, such as expanding into countries outside Qatar. We will begin to
incorporate new capacity into our forecast once the projects are formally announced.
2011 Forecasts
We are forecasting a 26% increase in revenue to QAR 4.3 billion for QEWC in 2011, mainly driven
by new capacity additions and the full consolidation of RLPC. However, in 2011, we expect lease
income from plants to show the largest growth in revenue due to the full impact of the Mesaieed
Power Plant and RLPC. Moreover, the completion of Ras Gitras in 2Q2011 provides a further
boost to lease income in 2011. As a result, we are forecasting 80% growth in lease income in
2011, which increases the segment’s contribution to revenue from 15.1% in 2010 to 22% in
2011.
On an operational level, we are forecasting EBITDA to grow by 15.5% to QAR 2.2 billion in 2011,
while we are expecting a drop in the EBITDA margin from 54.9% in 2010 to 50.3% in 2011. The
450-basis point drop in the EBITDA margin stems mostly from the accounting treatment of the
new plants as finance leases.
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4. March 24, 2011 Utilities – Qatar Electricity and Water Company
All of QEWC’s plants are built by using project financing; whereby, interest is capitalized during
the construction phase. As a result of the completion of QEWC projects, we are expecting interest
expense to jump 38% in 2011. In our opinion, this increase will limit net income growth to 4.6%
in 2011, with the net income margin dropping to 28% in 2011 from 33.9% in 2010.
A higher-than-expected dividend payment for 2010
The long-term take-or-pay agreements with Kahramaa have enabled QEWC to consistently produce
positive cash flow from operations and increase dividend payments on a yearly basis. QEWC has
repeatedly increased dividend payments by QAR 0.5 per share between 2006 and 2009 to reach
QAR 5 per share in 2009. In 2010, the company announced a higher-than-expected dividend
payment of QAR 6 per share, 9% above our forecast of QAR 5.5 per share, and 20% ahead
of last year’s payment. This translates into a dividend payout of 52% and a dividend yield of
4.6%. We believe that the higher-than-expected dividend payout was a result of the nearing of
the completion QEWC’s planned capacity expansions (Ras Gitras is the last confirmed project
in QEWC’s pipeline). For our forecasts, we have assumed that QEWC will revert to its previous
dividend policy of increasing dividends in increments of QAR 0.50 per year.
Figure 3 Dividend Payout
9.0 70%
65%
8.0 59%
60%
7.0 53%
52%
50%
45%
6.0
The company announced a 40%
5.0
higher-than-expected dividend
QAR
payment of QAR 6 per share
4.0
30%
in 2010
3.0 6.0
5.0 20%
4.5
2.0 4.0
3.5
10%
1.0
0.0 0%
2006 2007 2008 2009 2010
Dividend Per Share [LHS] Payout Ratio Ratio [RHS]
Source: QEWC and NBK Capital
nbkcapital.com | 4

5. March 24, 2011 Utilities – Qatar Electricity and Water Company
FINANCIAL STATEMENTS
Balance Sheet ( Q A R M i l l i o n s ) Historical Forecast
Fiscal Year Ends December 2009 2010 2011 2012 2013 2014 2015
ASSETS
Cash 2,307 2,074 1,218 1,430 1,478 1,834 1,651
Receivables 432 1,454 691 727 737 747 757
Total Inventory 274 295 331 348 354 360 366
Finance Lease Receivable 3,848 11,836 13,105 12,890 12,658 12,408 12,138
Property/Plant/Equipment, Total - Net 10,664 5,974 7,308 6,988 6,688 8,261 9,750
Long Term Investments 275 358 358 358 358 358 358
Goodwill and Intangilbes - 133 133 133 133 133 133
Other Long-Term Assets, Total 247 - - - - - -
TOTAL ASSETS 18,048 22,123 23,143 22,874 22,406 24,100 25,152
LIABILITIES & EQUITY
Accounts Payable 1,667 2,315 2,313 1,932 1,691 1,457 1,441
Short-Term Debt 668 1,513 1,147 1,103 1,028 1,131 1,178
Other Current Liabilities 1,209 1,813 1,813 1,813 1,813 1,813 1,813
Long-Term Debt 10,823 12,446 13,190 12,680 11,824 13,009 13,551
Minority Interest - 176 186 190 194 197 201
Other Liabilities 92 98 114 130 144 161 180
Total Liabilities 14,458 18,361 18,764 17,848 16,695 17,769 18,365
Total Equity 3,590 3,763 4,380 5,026 5,711 6,331 6,787
TOTAL LIABILITIES AND EQUITY 18,048 22,123 23,143 22,874 22,406 24,100 25,152
Income Statement ( Q A R M i l l i o n s ) Historical Forecast
Fiscal Year Ends December 2009 2010 2011 2012 2013 2014 2015
Total Revenue 2,651 3,430 4,320 4,543 4,606 4,669 4,733
Operating expenses (1,265) (1,547) (2,145) (2,257) (2,294) (2,329) (2,366)
Depreciation/Amortization (409) (463) (466) (470) (450) (527) (611)
Operating Income 977 1,421 1,708 1,816 1,862 1,812 1,756
Interest (Expense) Income (54) (331) (552) (579) (536) (501) (558)
Other (1) 77 82 82 82 82 82
Minority Interest - (4) (22) (23) (23) (23) (24)
Net Income 922 1,163 1,217 1,296 1,385 1,370 1,256
Cash Flow Statement ( Q A R M i l l i o n s ) Historical Forecast
Fiscal Year Ends December 2009 2010 2011 2012 2013 2014 2015
Cash from Operating Activities 1,525 1,674 1,630 2,067 2,288 2,339 2,604
Cash from Investing Activities (3,954) (1,996) (1,656) (16) (14) (1,955) (1,950)
Cash from Financing Activities 3,120 90 (831) (1,839) (2,226) (29) (837)
Sources: Company’s financial statements and NBK Capital
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6. March 24, 2011 Utilities – Qatar Electricity and Water Company
RISK AND RECOMMENDATION GUIDE
RECOMMENDATION UPSIDE (DOWNSIDE) POTENTIAL
BUY MORE THAN 20%
ACCUMULATE BETWEEN 5% AND 20%
HOLD BETWEEN -10% AND 5%
REDUCE BETWEEN -25% AND -10%
SELL LESS THAN -25%
RISK LEVEL
LOW RISK HIGH RISK
1 2 3 4 5
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7. March 24, 2011 Utilities – Qatar Electricity and Water Company
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8. KUWAIT DUBAI ISTANBUL CAIRO