OQ Gas Networks SAOG (OQGN) Earnings Call Transcript

Hello, and welcome. This is Ahmed OQGN Investor Relations Manager. Thank you for joining us today to discuss our Q3 2026 performance and financial results. [Foreign Language] Thank you once again. I'm happy and delighted to introduce the executive management team, Engineer, Mansoor Al Abdali, the company's CEO, who will take you through a brief highlight about our operational and financials, followed by engineer Saif Al Hosni, our Chief Business Development and Commercial, who will shed light on our growth. Finally, our newly joined CFO, Mr. Musaab Bingaradi, who will deep dive on our financials related to the quarter. So without any further ado, I will hand it to engineer Mansoor.

In fact, Ahmed, just a correction. I will just give -- welcome the people on the call. So thank you for joining us to hear on the OQ Gas Q3 performance. And we are all here at your discreet to answer any clarification. But for the operational highlights, I would request Khalifa Al Makhmari, who is our COO, to give us high-level brief on performance until Q3 of this year.

Thank you, Mansoor.[Foreign Language] So the HSC front, we have achieved -- we are proud to have achieved 26 million without LTI. Also in terms of driven kilometers, we are proud also to have achieved 15.6 million without incident. In the front of the process safety, we managed to achieve 0 process safety Tier 2 so far. Regarding throughput, we have managed to deliver 7% more than the same period in last year, which is showing increase of the demand in the gas coming mainly from the power sector. In terms of our reliability, we are at 99.99%. We had a very good record also this year, and we will continue towards the end of the year in [Foreign Language] -- in terms of our growth projects, we are carrying on with the 42-inch, as you have seen on the last investor call with a good progress, almost we managed to finish almost close to the right of way trenching and in the pipeline. The plan in the first half of the next year to complete this project. Bidorteir is progressing well, the 14-inch in Bidorteir, and that's progressing very well as well in terms of schedule. We've had, as you know, with the ongoing geopolitical situation, there are various challenges to the supply chain disruption. But we managed to deliver the main bips required for our critical projects, mainly here DO, that's put us in a good -- in a comfortable way to progress our projects. Despite all of this, yet we have this challenge in delivering many materials, and we are working with our partners to make sure that there is -- we manage the impact if there is any in our projects. That's a high level with regard to the operational and project execution.

Again, sustainability front, we are very proud of our records, achieving 16% reduction on Scope 1 and Scope 2 and also now developing a framework that will tackle climate-related risks. And maybe can talk maybe more, especially on the financial reporting is a transitional requirement. Am I right?

Good afternoon, everyone. Just a quick overview on our financial highlights before we dip into it in more detail later on in the presentation. First of all, we have an improved profitability up 1.6% compared to the same period in 2025. with continued growth in our regulated asset base of about 4.9% average annual per year since 2023. Our dividend profile is quite stable and supported by regulated cash flows. Our again, cash flows are operating -- our operating cash flows continue to be high and stable, supported by attractive RAB terms. Our OpEx recovery as of quarter 3 is quite healthy. And our borrowing capacity, as we'll see in the last few slides, is within a very healthy range. Our debt ratios continue to remain below our peers and the industry averages showcasing OPGN's capacity to continue to leverage for growth initiatives in.

Good afternoon, everybody. Moving to the growth section of the presentation and focusing on the -- what's left of PC3 growth. So the company continues expanding its infrastructure to meet the national gas demand in the short to medium term. By the end of this year, the projected pipeline length is expected to be 4,435 kilometers, enabling transporting volumes based on demand, of course, to more than 45 billion standard cubic meters, demonstrating an increase in the utilization of our network. As Harifer described previously, our 3 main growth projects currently under construction towards the north, the Fahotuharoutine, 193 kilometers. and the Budorteia pipeline, 21 kilometers and Duqm port zone pipeline of 13 kilometers, connecting the inland zone to the port in Duqm. And all of these demonstrate the company's ability to expand its asset base to meet the demand requirements of gas. And with that, I give the spotlight back to my colleague, Monal.

On the slide, you see the waterfall chart of our total income and profitability as of quarter 3 compared to 2025 and the previous year. You can see our total income is 142 million with a slight decrease of our construction revenue, offset by a healthy continued growth of our income from concession and a slight increase as well of our other income, again, sitting at $142.6 million. Our profitability has grown by 1.9%, sitting at 39.7%. And as you mentioned earlier, with an increase of 4.5 million of our income from concession. Our construction margin decreased slightly in line with our construction revenue decrease above mentioned and increase of finance costs and others and slightly offset by taxation, again, sitting at 39.7% for 2026, which is a 1.6% growth since the previous quarter 3 2025. Next slide, please. Over here is our income buildup net of construction costs. Just as a quick reminder, OQGN follows IFRIC 12 accounting standard, where any growth project we execute in our construction costs and on top of that is the actual cost we charge at a margin of 7.79%, which is equal to our WACC. Purpose here is to show the sustainability and steady growth of our income and compared to the last few periods. The net impact of construction costs and construction revenue is our -- highlighted in the orange, which is our construction margin, as mentioned earlier, slightly less, but to show our overall net income is still growing by 4.5% at $94.8 million compared to $90.7 million of the previous year quarter 3 2025. Over here is a highlight of our costs. Our construction cost, as you can see, is slightly below at 47.8% compared to this year of 57.3%, in line with the reduction of our construction revenue. And below that, you'll see our OpEx and admin is sitting at 29%, which is slightly higher than the previous year. But as mentioned earlier, with the OpEx recovery as of quarter 3 of 96.5%, reflecting strong cost discipline and efficiency. our last slide over here, we're just discussing the concession assets and capital structure, just to show an overview of the continued growth of the concession receivables and contract assets. You can see it's grown by 2.2% compared to the same end year 2025. And as mentioned earlier, 4.9% year-on-year since 2023, annual growth rate of 4.9%. On the right, we just -- as I mentioned earlier, just to give a reflection of our net debt over adjusted EBITDA, which is about 3.58x compared to our industry average of 5.5x and our historical net debt over RAB, which shows our continued potential to leverage for growth of 0.35 compared to the industry average of 0.5 and 70%, which is our facility agreements restriction, again, reflecting the health and the capital structure of OQGM. In summary, just showing that OQGM still driving growth from concession income profitability and strong margins and cash flows, and we continue to drive our plan to our executed plan that the team is allocated for the rest of the price control.

Thank you. By this, we will come to an end of the presentation. And now we will open the question-and-answer session. Yes, we have a question from Sashank.

I have a couple of questions. I'm just curious to understand the net profit for Q3. It seems like the growth moderated year-on-year versus what we saw in the first half '26. Specifically, your construction revenue was down versus last year. So can you just talk us through what happened here exactly? And how should we be looking at Q4 in terms of forecasting both the top line and the bottom line? And the second thing is your RAB time period ends next year. So in terms of your guidance, is there any change for the total CapEx through this period? And also any early indicators of what the WACC will be for the next period?

So when you look at our profitability increased by 1.6%. This was majorly driven by the income from concessions -- concession assets. You can see, although our construction revenue has decreased, that's in line with our plans and in line with the CapEx plans of the business. It's -- when you compare it to quarter 3 of last year, it's just the cycle. So we cannot communicate to you what the forecast of the year-end, but we're on plan in terms of our CapEx for the projects, as my colleague mentioned earlier, for Fahud and the other 2 collectively of OMR 21 million. And in terms of the PC4 WACC, I believe my colleague has addressed that in the previous investor call, but we'll have indications next year when the discussion starts with APSR. But there's no idea until that time begins, which I guess my colleague can give a little bit of highlight on that.

So referring to the question about the next price control, of course, next year is the last year of the current price control. And naturally, we start building the case or the submission of Pest Control 4, whether it's CapEx, OpEx or WACC throughout next year and it's submitted next year and then the negotiation process starts with the regulator. So as Mab said, it's still early to give any indication. This is the work that we will undergo diligently next year. And upon receiving the final determination, then only then can we safely disclose because this is a negotiation process and even the initial determination varies from the final one.

Okay. If I can just follow up on the PC3 CapEx. I think the guidance you gave us was around QAR 294 million. you reached about 63% at the end of Q2. So can you just talk us through where you are at this point, end of Q3? And you also said you expect to reach about 90% at the end of PC3. So is that guidance still intact?

Yes. We are still -- the management is still confident to achieve 90% of the allowed CapEx. And correctly, as you said previously, was 63% achieved. At the moment now, it's about 64% out of quarter 3.

We have a question from Boris.

This is Boris Nisen from Oman Investment Bank. I have just one question, probably on the current gas network in the country and your plans for the next few years. So you have this -- a few growth projects which are going to finish next year. But the question is, after that project within the whole gas network system in Oman split by North, Central or South, right, where do you see some bottlenecks remaining on one hand or otherwise, the parts of the network, which are underutilized at the moment?

Thanks, Boris, for the question. So -- whatever projected in the current slide is our plans for Presscotro II. We're currently working on the next 4 years of growth, which is going to be part of the PC4 submission. And as you know, we still have a couple of areas where the network -- although there are not many, but the gas network is still not reaching. So for example, there's still parts of Duqholm greenfield parts, which need infrastructure, and it's still not there. So that's one area. But -- and also one source of expansion can be the power demand happening in the country. So it's no secret that many power plants now have been sanctioned, which would require additional capacity in the line, so in general. But of course, the detailed plans from a CapEx perspective and a phasing perspective will all be depicted in price control for as we go.