Net income: SAR104.8mn, -45% Y-o-Y, -30% Q-o-Q, -42% vs. EFGe Total revenue: SAR535mn, -4% Y-o-Y, -10% Q-o-Q, -7% vs. EFGe Gross profit: SAR159.7mn, -30% Y-o-Y, -25% Q-o-Q, -31% vs. EFGe Operating profit: SAR102.7mn, -44% Y-o-Y, -31% Q-o-Q, -43% vs. EFGe   Catering reported weak 4Q16 results, with headline earnings falling for the fourth consecutive quarter. The pace of the decline (-45% Y-o-Y; -42% vs. EFGe) was the largest on record impacted by weak revenues and a slash to margins across the board. FY16 earnings fell 23% Y-o-Y (the company in its disclosure mentioned that 2015 included provision and other cost reversals worth SAR112mn that explain the bulk of the decline in earnings). Top-line fell 4% Y-o-Y (-7% vs. EFGe; has been flat to slightly declining for seven consecutive quarters), mainly as in-flight catering revenue (c68% of 4Q16 top-line) fell 7% Y-o-Y and non-airline revenue (c9%) returned to a declining trend (-6%), affected by lesser remote site catering contracts. The bright sport was Sky Sales (c14%) that rose 10% Y-o-Y, driven by several retail shops opened at some KSA airports. There was no mention of business lounge revenue that has been the star performer for some time. Gross margin plunged c11.2bps Y-o-Y to a record-low of 29.8% (gross profit -30% Y-o-Y; -31% vs. EFGe), partly on higher rent costs (4Q15 included some reversal of rent charges), as well as higher depreciation (Medina unit, KAEC industrial laundry, Dammam employee accommodation). Adjusting for the rent charge reversals in 4Q15 (cSAR20.2mn), gross margin would still be down by c8pp Y-o-Y signaling that margins on airline catering contracts are under pressure (changes to meal configurations, etc.). Operating margin fell a greater c13.9pp Y-o-Y (EBIT -44% Y-o-Y; -43% vs. EFGe) as G&A costs surged 29% Y-o-Y (+10% vs. EFGe), partly on higher receivable provision charges, in our view (booked under SAR1mn in 4Q15).   Overall, a very disappointing results set that confirms our concerns on the sustainability of Catering’s profitability profile. We have a Neutral rating on the stock. (Company disclosure, Hatem Alaa, Nada Amin)   Saudi Airlines Catering: SAR99.03 as of 19 January 2017, Rating: Neutral, TP: SAR105.00 per share, MCap: USD2,165mn, CATERING AB / 6004.SE