Depa Group (Depa) has announced its financial headlines for 3Q16. New awards totaled AED1,171mn in 9M16, implying an estimated AED234mn for 3Q16 (3Q16e: AED400mn). Backlog reached AED2.1bn in September (-9.8% Y-o-Y, -5.7% Q-o-Q). Revenue came in at AED1,186mn in 9M16 (unchanged Y-o-Y), implying AED414mn in 3Q16 (+19.2% Y-o-Y, -8.3% Q-o-Q, EFGe: +3.4%). Gross profit margin was 16.4% in 9M16 and 17.3% in 3Q16, showing notable Y-o-Y improvement over the corresponding figures of 9.9% in 9M15 and 10.4% in 3Q15. Net income came in at AED29.0mn in 9M16 (9M15: AED6.6mn in net loss), implying AED12.7mn in 3Q16 (3Q15: AED22.0mn in net loss, +74.9% Q-o-Q, EFGe: AED8.0mn). The company’s net cash position rose to AED172mn in September 2016 (AED125mn in June).   A good set of results by Depa, with revenue slightly beating estimate and gross profit margin coming in strong, at the high-end of the guidance, resulting in a wide net income beat. New contracts were slow, on a negative note, which had placed some pressure on backlog. Management indicated that whilst Depa Interiors continued to experience challenging market conditions, the performance of the Deco and Design Studio groups were “pleasing at a revenue, gross profit and net profit level.” Vedder’s performance was steady, in line with 1H16 trend, showing marginal improvement Y-o-Y.   We do not expect 2017 to carry much excitement for Depa, with no meaningful pick-up in contract awards during the year, and with revenue expected to weaken (-11.7% Y-o-Y) and ROEs continuing to be in low single-digit territory. Management indicated that it has conservatively adjusted for most of its troubled projects and accounts in 2015 and through 2016, in an attempt to yield a cleaner balance sheet. However, given the sector’s latest trends, we are not excluding the possibility of booking further provisions, especially in light of the still-challenging operating environment. Depa will become potentially a more interesting story, in our view, starting 2019, as we approach Expo 2020, which we expect will drive new awards, revenue, and profitability. (Company disclosure, Sara Boutros, Mai Attia)   Depa Limited (DU): USD0.35 as of 24 November 2016, Rating: Neutral, FV: USD0.33 per share, MCap: USD788mn, DEPA DU / DEPA.DI