Revenue – AED2.0bn, +25% Y-o-Y, -7% Q-o-Q, +11% vs. EFGe Gross loss – AED152mn; 3Q15: AED617mn; 2Q16 (gross profit): AED6.0mn Net loss – AED225.5mn, 3Q15: AED944.8mn; 2Q16: AED186.4mn; EFGe: AED83.6mn        Arabtec Holding reported its financial results for 3Q16. We are awaiting further disclosure from management, but we estimate new awards were negligible for the quarter. Revenue was strong, which we attribute to the mobilisation of the projects secured in 1Q16, which management had indicated are executing well (including the Bahrain airport project), coming in above the AED2bn mark. This, however, did not prevent losses on the gross level, which we believe was due to cost overruns on Arabtec’s legacy projects. Leverage rose, as expected, as it started to drawdown from its two recently secured facilities. Working capital was positive, with extended payable terms masking a persistent collection issue.   Main positives Strong revenue, which came in at AED2.0bn (+24.5% Y-o-Y, -7.2% Q-o-Q, EFGe: +11.1%), reflecting positively on project execution Lower operating expenses, as the company continues to benefit from its cost-cutting programme    Positive working capital for the 9M16, owing to extended payable terms   Main negatives No significant new contract awards in 3Q16, based on our estimates. 9M16 new awards at AED7.2bn Reported losses on the gross profit level, likely indicating cost overruns on legacy projects Heavy losses reported on the bottom line, totaling AED225.5mn (3Q15: AED944.8mn, 2Q16:AED186.4mn, EFGe: AED83.6mn; all in the red). 9M16 losses reached AED458.3mn (9M15:  AED1.9bn) Jump in leverage ratios over the quarter, with the company’s total debt balance adding 13% Q-o-Q, in line with our expectations, on the drawdown of the two new debt facilities. Arabtec’s debt-to-equity ratio hit 0.75x in September (September 2015: 0.47x, June 2016: 0.60x), while its net-debt-to-equity ratio reached 0.45x (0.23x and 0.41x, respectively)   We expect Arabtec to return to profitability, on the EBITDA level, in 2017, supported by a higher representation from the better-performing recently-awarded projects. The EBITDA margin, however, will be slim (1.8% in 2017), in light of the dominance of low-margin civil projects within its well-performing portfolio of projects, failing to reflect positively on the bottom-line. Arabtec is expected to post net losses in 2017 and through 2020. Moreover, weak receivable collection will continue to pressure its cash position, while leverage will continue to rise as it draws down on its recently-secured facilities (AED400mn debt facility from Aabar, AED1.1bn facility, with TAV, to fund Bahrain airport project). We continue to be sellers of the name, with our FV suggesting 22% downside potential. (Company disclosure, Mai Attia, Sara Boutros)   Arabtec (DU): AED1.32 as of 13 November 2016, Rating: Sell, FV: AED1.03 per share, MCap: USD1,660mn, ARTC UH / ARTC.DU