Arabtec Holding (Arabtec) reported its financial results for 1Q16. Revenue was AED1.9bn (+8.2% Y-o-Y, -6.0% Q-o-Q: +10.6% versus EFGe), with net loss reported in the quarter, at AED75.9mn, versus net losses of AED279.8mn in 1Q15, AED46.4mn in 4Q15 and slightly better than our estimate of AED75.9mn, also in losses. On a positive note, gross profit margin was in the black for the first time in six quarters, benefiting from good execution levels, with revenue showing Y-o-Y growth and beating our estimate for the second consecutive quarter. We note, however, that the gross profit margin for Arabtec’s core business, construction, has continued to be in the red, with margin support coming from other segments, including MEP and oil & gas. G&A continued to fall (-26% Y-o-Y), on the back of the cost-cutting measures taken in 2H15, and it is expected to see further benefits through 2016, albeit at a slower rate, as confirmed by management. We note that Arabtec benefited from EGP25mn in other income (likely on sale of equipment), helping the bottom-line and explaining the earnings beat.   On the balance sheet, not much change in the company’s gross debt levels, but net debt levels grew 25% Q-o-Q on lower cash balance, pushing net-debt-to-equity to 0.44x up from 0.35x in December. The change in working capital was pressured by increased payments to suppliers, coupled with continued slowdown in receivable collection.   We note that Arabtec has had a good start in 2016 on new awards, which we estimate at AED7.2bn, the execution of which had already started. This should help revenue growth in 2016-17; yet, gross margins and working capital will continue to be pressured on tough market conditions. We have a Sell rating on the name, with a downside potential of 30%, despite the recent stock price correction. PER 2017e is at 30.0x, and EV/EBITDA is at 12.0x. (Company disclosure, Mai Attia, Sara Boutros)   Arabtec (DU): AED1.52 as of 12 May 2016, Rating: Sell, FV: AED1.07 per share, MCap: USD1,911 million, ARTC UH / ARTC.DU