31-Jul-2017
Al-Khodari - 2Q17 results: New record lows and losses across the board
Rating: Sell
Target Price: SAR7.08
Closing Price: SAR9.09
Weak new awards, new lows on backlog & revenue; heavy losses on P&L
Al-Khodari reported its headline figures for 2Q17. New awards were negligible, coming in at SAR8.9mn (2Q16: SAR54mn, 1Q17: SAR68mn). Its backlog shrank for the tenth consecutive quarter, on weak new awards, reaching SAR2.7bn in June 2017 (SAR2.8bn in March 2017, SAR3.1bn in June 2016). Revenue hit a new record low, coming in at SAR127mn (-49.9% Y-o-Y, -34.3% Q-o-Q, EFGe: -33%). Gross loss for the quarter was SAR20.4mn (2Q16: SAR38.6mn, 1Q17: SAR11.4mn, in gross losses). S,G&A continued to drop (-22.7% Y-o-Y, -7.7% Q-o-Q) which reflected reduced activity, as well as continued costs control on overheads and manpower expenses. Net losses for the quarter totalled SAR25.0mn (2Q16: SAR56.2mn, 1Q17: SAR17.8mn, EFGe: SAR14.4mn, all in losses). The quarter carried SAR15.8mn in other income, from the sale of old equipment. 1H17 revenue dropped 50% to SAR321.4mn, while the gross loss came in at SAR31.8mn (1H16 gross loss: SAR9.5mn), and net loss at SAR42.8mn (1H16 net loss: SAR54.0mn). We await the release of the full statement to assess the quarter’s balance sheet and cash flow trends.
Weak results, but not a surprise
Management had guided for a difficult 2017, citing: i) new awards drying-up, ii) pace of project execution continuing to be slow; and iii) receivable collection not resuming in a stable manner. They also previously indicated that it may take up to five years to see a return to normalised levels for new awards, with the drive likely to come from the private sector, incentivised by the government. Al Khodari’s business development efforts are continuing towards attracting business from the private sector, but this will take time to materialise.
Further downside potential, despite recent underperformance
We see no recovery in the near term for Al-Khodari, given the continued weak inflow of new awards and slow pace of project execution. We expect Al Khodari to continue to report losses through 2019, after which the company is expected to benefit from a relative revival in construction activity in Saudi Arabia. The stock has lost 31% of its value YTD, a reflection of the prevailing difficult environment. We continue to be sellers of the name, with our TP of SAR7.08 implying more downside (22%).
Sara Boutros
Mai Attia
Target Price: SAR7.08
Closing Price: SAR9.09
Weak new awards, new lows on backlog & revenue; heavy losses on P&L
Al-Khodari reported its headline figures for 2Q17. New awards were negligible, coming in at SAR8.9mn (2Q16: SAR54mn, 1Q17: SAR68mn). Its backlog shrank for the tenth consecutive quarter, on weak new awards, reaching SAR2.7bn in June 2017 (SAR2.8bn in March 2017, SAR3.1bn in June 2016). Revenue hit a new record low, coming in at SAR127mn (-49.9% Y-o-Y, -34.3% Q-o-Q, EFGe: -33%). Gross loss for the quarter was SAR20.4mn (2Q16: SAR38.6mn, 1Q17: SAR11.4mn, in gross losses). S,G&A continued to drop (-22.7% Y-o-Y, -7.7% Q-o-Q) which reflected reduced activity, as well as continued costs control on overheads and manpower expenses. Net losses for the quarter totalled SAR25.0mn (2Q16: SAR56.2mn, 1Q17: SAR17.8mn, EFGe: SAR14.4mn, all in losses). The quarter carried SAR15.8mn in other income, from the sale of old equipment. 1H17 revenue dropped 50% to SAR321.4mn, while the gross loss came in at SAR31.8mn (1H16 gross loss: SAR9.5mn), and net loss at SAR42.8mn (1H16 net loss: SAR54.0mn). We await the release of the full statement to assess the quarter’s balance sheet and cash flow trends.
Weak results, but not a surprise
Management had guided for a difficult 2017, citing: i) new awards drying-up, ii) pace of project execution continuing to be slow; and iii) receivable collection not resuming in a stable manner. They also previously indicated that it may take up to five years to see a return to normalised levels for new awards, with the drive likely to come from the private sector, incentivised by the government. Al Khodari’s business development efforts are continuing towards attracting business from the private sector, but this will take time to materialise.
Further downside potential, despite recent underperformance
We see no recovery in the near term for Al-Khodari, given the continued weak inflow of new awards and slow pace of project execution. We expect Al Khodari to continue to report losses through 2019, after which the company is expected to benefit from a relative revival in construction activity in Saudi Arabia. The stock has lost 31% of its value YTD, a reflection of the prevailing difficult environment. We continue to be sellers of the name, with our TP of SAR7.08 implying more downside (22%).
Sara Boutros
Mai Attia