GCC SHIPPING SECTOR
REGIONAL RESILIENCE
• The Outlook For the Shipping Industry Appears Bleak, with some leading
indicators falling more than 90% since they peaked only in mid-2008.
Demand is plummeting and at the same time supply is growing at record
levels. Perversely, it seems, that after enjoying unprecedented growth in
recent years, the industry is about to enter the most difficult period in its
history.
• We Expect the Market to Remain Difficult in 2009 Forcing Many Operators to
Simply Go Out of Business. This should lead to a capacity reduction as a
large portion of the orderbook is cancelled. Also, further supply restriction will
be imposed as the industry consolidates over the next year. Overall, our
forecasts are factoring a bottoming in the market in 2009 and a small
improvement in 2010/2011.
• Despite the Doom and Gloom, We Believe There are Attractive Opportunities
Within the Sector, Specifically in the MENA Region, as it has higher
exposure to crude oil, which should be more resilient in the downturn. For
example, VLCC (crude) tanker rates have fallen back nearer to their 2007
levels, whereas Dry bulk is trading at 93% below the 2007 daily rate. In fact,
a significant portion of the industry weakness is in areas where the MENA
ship owners have low exposure – specifically Dry Bulk and Containers. In
addition, it is worth emphasising that most MENA ship owners have their
ships on charter and are not exposed to the volatile and weak spot market.
Consequently we expect the region to outperform in the current cycle.
• Overall, We Favour Stocks With
􀂾 a) significant revenue visibility,
􀂾 b) low short-term exposure to the spot market,
􀂾 c) exposure to crude oil
􀂾 d) strong balance sheets.
• Our Top Picks are Qatar Shipping and Qatar Navigation and we initiate with
ST/ LT Buy recommendations on both stocks with price targets of QAR34.4
for QShip and QAR82.3 for QNav, implying upside of 46% and 50%
respectively. Also our SOTP market cap value target for the merged entity
stands at QAR9.3 billion implying 58% upside as we believe the merger will
offer significant synergies.

􀂃 The Outlook For the Shipping Industry Appears Bleak, with some leading indicators falling more than
90% since they peaked only in mid-2008. Demand is plummeting and at the same time supply is growing
at record levels. Perversely, it seems, that after enjoying unprecedented growth in recent years, the
industry is about to enter the most difficult period in its history.
􀂃 We Expect the Market to Remain Difficult in 2009 Forcing Many Operators to Simply Go Out of
Business. This should lead to a capacity reduction as a large portion of the orderbook is cancelled. Also,
further supply restriction will be imposed as the industry consolidates over the next year. Overall, our
forecasts are factoring a bottoming in the market in 2009 and a small improvement in 2010/2011.
􀂃 Despite the Doom and Gloom, We Believe There are Attractive Opportunities Within the Sector,
Specifically in the MENA Region, as it has higher exposure to crude oil, which should be more resilient in
the downturn. For example, VLCC (crude) tanker rates have fallen back nearer to their 2007 levels,
whereas Dry bulk is trading at 93% below the 2007 daily rate. In fact, a significant portion of the industry
weakness is in areas where the MENA ship owners have low exposure – specifically Dry Bulk and
Containers. In addition, it is worth emphasising that most MENA ship owners have their ships on charter
and are not exposed to the volatile and weak spot market. Consequently we expect the region to
outperform in the current cycle.
􀂃 Overall, We Favour Stocks With a) significant revenue visibility, b) low short-term exposure to the spot
market, c) exposure to crude oil d) strong balance sheets.
􀂃 Our Top Picks are Qatar Shipping and Qatar Navigation and we initiate with ST/ LT Buy
recommendations on both stocks with price targets of QAR34.4 for QShip and QAR82.3 for QNav,
implying upside of 46% and 50% respectively. Also our SOTP market cap value target for the merged
entity stands at QAR9.3 billion implying 58% upside as we believe the merger will offer significant
synergies.
􀂃 We Initiate on Nakilat with a ST Neutral and LT Accumulate Recommendation with a Price Target of
QAR19.6 – implying 32% upside as we believe the company is likely to be the most defensive shipping
stock given the strong revenue visibility provided by the long-term charter contracts. However, we remain
cautious in the short term due to uncertainty on the LNG projects and vessel rates.
􀂃 We Initiate on Gulf Navigation with a ST Accumulate and LT Neutral Recommendation and AED0.77
Price Target implying 38% upside as we suspect the group could become a consolidation target at some
point in 2009.
􀂃 We Initiate on National Shipping Company of Saudi Arabia (NSCSA) with a ST Sell / LT Neutral
Recommendation and a Price Target of SAR14.9 Implying 15% Downside. The group has significant
scale and a strong management team but with 60% of the fleet exposed to the spot market and a large
orderbook, we suspect newsflow could get worse before getting better and consequently we remain
cautious in the near term

CONTENTS
I. BACKROUND 4
II. REVENUE AND
COST DRIVERS 15
III. MENA SHIPPING SECTOR 16
IV. PERFORMANCE AND
VALUATION 22
QATAR SHIPPING 26
QATAR NAVIGATION 33
Q.SHIP./Q.NAV. MERGER 39
NAKILAT 42
NSCSA 49
GULF NAVIGATION 55