Revenue – SAR204.9mn, -18.9% Y-o-Y, -39.1% Q-o-Q, -31.7% vs. EFGe Gross loss – SAR35.5mn, vs. gross profit of SAR13.7mn in 3Q15, SAR31.8mn in 2Q16, EFGe: SAR6.0mn Net loss – SAR47.8mn, vs. net loss of SAR14.3mn in 3Q15, SAR43.3mn in 2Q16, EFGe net loss: SAR17.0mn   Al-Khodari has reported another weak set of results for 3Q16. New awards continued to be weak (SAR78mn), mainly coming from one award win by the Ministry of Environment, Water and Agriculture worth SAR69mn. This has further pressured backlog, a trend we have seen since mid-2015. The quarter saw the weakest quarterly revenue on record, a product of: low new contract awards, slow execution and “much slower than usual collection from majority of clients,” as cited by management in the earnings release. This, together with further upward cost revisions, has resulted in losses on the gross, operating and net levels. The only positive aspect of the results was further reduction in operating costs, which came on the back of savings in overheads and manpower costs. We await the release of the full statements to assess the quarter’s balance sheet and cash flow developments, which we expect would have come under further distress.     Main negatives: Weak awards for the quarter (SAR78.4mn), roughly in line with the expected SAR70mn. This compares to SAR52mn in 3Q15, SAR54mn in 2Q16 Backlog shrank for the seventh consecutive quarter, on weak new awards, reaching SAR3.0bn in September 2016, vs. SAR4.7bn in September 2015 and SAR3.1bn in June 2016 Another record low quarterly revenue; at SAR205mn (-18.9% Y-o-Y, -39.1% Q-o-Q, -31.7% vs. EFGe). Management attributed the weakness to: i) slow progress on the ongoing projects; ii) “much slower than usual collection from majority of clients; and iii) low contribution from newly awarded contracts. 9M16 revenue totalled SAR829.3mn (-30.0% Y-o-Y) Heavy gross loss of SAR35.5mn, due to the weakness in revenue and the upward revision of costs of a number of projects. This brings 9M16 gross loss to SAR46.6mn   Main positive: S,G&A continued its downtrend (-48.2% Y-o-Y, -4.2% Q-o-Q), due to the reduction overheads and manpower costs   Al-Khodari’s pure exposure to Saudi Arabia and to the government/semi-government entities offers slight buffer amidst the increasingly challenging market in Saudi Arabia. The Saudi construction sector has continued to be difficult with: i) slow bidding (new awards: -58% Y-o-Y drop in 3Q16, -54% Y-o-Y in 9M16); ii) weak project execution; iii) tightening liquidity; and iv) rising financing costs, continuing to be the main themes for the sector in Saudi Arabia. We reiterate our concerns over the company’s i) inability to secure significant contract awards since 2Q15, with its backlog-to-revenue heading below the 2x mark; ii) high leverage (net debt-to-equity at 1.2x in June 2016); and iii) rising unbilled receivables balance (120% to 1H16 annualised revenue, 172% to total receivables). Al-Khodari (-55% YTD) has underperformed Tadawul (-22%), which is justified in our view, in light of the increased challenges. (Company disclosure, Mai Attia, Sara Boutros)   Abdullah A. M. Al-Khodari Sons Company: SAR6.97 as of 19 October 2016, Rating: Sell, FV: SAR8.60 per share, MCap: USD104mn, ALKHODAR AB / 1330.SE