• Al Khodari; beneficiary of recent announcement that will have a positive impact on the operating market Delay in receivables collection has been an issue for Al-Khodari over the past 2 years, but the company managed such delays via i) extending payable days; ii) raising short-term borrowings; and iii) securing an interest-free shareholders loan. Despite Al Khodari’s pure exposure to Saudi government, we see limited upside risk to our working capital assumptions; hence, on our valuation. We see Al-Khodari’s weak contract awards as a bigger concern.
• Collection of receivables for KAPSARC is key; not necessarily linked DSI has been facing receivables collection issues in KSA; delays in its payment regarding the KAPSARC project have been a major issue over the past year. While we see no direct link between the payment of due arrears on the government and the collection of the abovementioned variation order, we believe this may act as a catalyst for a faster resolution. Given its significance, we note that the receipt of all/part of the variation order of the KAPSARC project would have a positive impact on its net income, since these receivables have been mostly provisioned for. More importantly, the receipt of these payments would provide a relief to working capital, albeit temporarily.
• Minimal impact on Depa; possible reversal would have a positive impact Depa has exposure to Aramco’s KAPSARC project too, for which we believe collections has been slow. The company had booked AED22 million in net losses in 3Q2015 and we forecast further net losses in 4Q2015 (AED11.4 million), with the pressure on profitability coming from booked provisions against the KAPSARC and other Saudi projects. Reversal of such provisions would have a positive impact on the company profitability in 2016.
• Arabtec has recently reduced exposure to KSA – Minimal impact Arabtec has implemented a plan that limited its exposure to the KSA market, disposing of the company’s equity interest in 5 Saudi-based companies and maintaining a branch office in KSA. Arabtec has 2 major projects in KSA, one of which is an Aramco project, secured in 2015, which makes the news likely positive. Thus, we do not believe a rapid collection of receivables from KSA would have a significant effect on Arabtec’s working capital and profitability.
• OC’s exposure would feel positive impact once SBG issue is resolved While almost 100% of OC’s exposure in KSA is to public-sector projects, we see limited benefit if the above news materialises, given: i) OC’s slow execution pace for KSA projects, resulting in lower revenue recognition, and thus, receivables; ii) reduced exposure to KSA; and iii) the nature of OC’s current exposure to KSA, given that the bulk of its work is through its Saudi partner, Saudi Binladin Group (SBG). We note that SBG had witnessed a recent problem with the government and is restricted from working in several sites. Thus, we believe resolving such issues with the government will have a more significant positive impact on OC’s operations.

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