x Abu Dhabi, UAEMonday 22 January 2018

Analyst still wary despite stock surge

Shareholders were clearly pleased with Mohammad Al Mojil Group but analysts say the stock's valuation is unwarranted.

A Saudi civil contractor surged yesterday after announcing two contracts worth a billion riyals, but analysts say the stock valuation is unjustified.

Shares of Mohammad Al-Mojil Group (MMG) rose as much as 7.3 per cent after signing an 811 million riyal contract and a 220m riyal deal with Saudi Aramco yesterday.

The projects include mechanical and electrical works and general construction for the Yanbu Refinery Complex, bringing MMG's total awards so far this year to 1.5 billion riyals.

The shares finished 5.1 per cent higher at 17.30 riyals. The company has faced competition in its domestic market in the past year from UAE firms, including Arabtec Holding and Drake & Scull International.

Its stock price benefits from being traded on the Saudi bourse, which is more liquid than UAE markets.

Until recently the company was the only listed contractor on the Saudi bourse and investors bid up the shares on expectation the construction industry would soon recover.

"While we view this exceptionally large contract award as a very positive development that warrants a revisit of our forecasts and target price, we do not expect a change in our recommendation from 'sell' to 'buy'," said Roy Cherry, an analyst at Shuaa Capital in Dubai. Mr Cherry said he would place his target price of 11.73 riyals "under review".

MMG also announced on Tuesday it had been awarded its second Aramco contract to build and install a gas plant in Wasit.

Last month, MMG bought 20 per cent of Saudi Masader, a power and water project company, to boost its offering in the utilities sector in its home market. Saudi Masader competes for contracts for oil, gas and waste water projects.

MMG was also awarded a 197m riyal contract by Hyundai Engineering & Construction for civil engineering work in Abu Dhabi.

MMG posted a net loss of 179.5m riyals last year, compared with a profit of 40.3m riyals in 2009.