x Abu Dhabi, UAEThursday 18 January 2018

Arabtec expansion yet to bear much fruit

Big ambitions for Arabtec, the country's largest construction developer, are proving difficult to achieve.

Arabtec is labouring to cash in on its diversification strategy.

The construction bellwether has been expanding into Saudi Arabia, Egypt and Qatar following the downturn in Dubai's property sector. But the moves have not yet produced the profits the company had predicted.

This week Arabtec reported an 80 per cent drop in net profit for the first quarter to Dh26.6 million, down from Dh134m in the same period last year. Analysts had forecast earnings of between Dh58m and Dh70m. Earnings fell to a meagre 2 fils a share from 11 fils and net margins fell from 11 per cent in the first quarter of last year to 4 per cent this year. Ahmed Badr, a property analyst at Credit Suisse, cut his target price on the company to Dh1.48 from Dh2.08 and said he expected the property backlog to decline by 7.5 per cent this year.

He said Arabtec's main business remained largely "oversupplied", with property projects contributing 89 per cent of total backlog, despite significant infrastructure and utility contract wins totalling Dh1.9 billion last year.

In October, the company announced a 5bn Saudi riyal joint venture with Saudi Binladen Group to build 5,000 houses.

Preliminary construction has started on the project, which accounts for about 30 per cent of the company's backlog of projects, but Ziad Makhzoumi, Arabtec's chief financial officer, has said he does not expect to see any significant revenue from it until later this year.

Mr Badr retained a "neutral" rating on Arabtec and added it faced the risk of cancellation or suspension of some projects.

Almost Dh4bn worth of contracts were either cancelled or suspended last year, all of which were commercial and residential property projects.

"As the real estate sector in general is facing oversupply in most GCC countries, we highlight potential further cancellation risks to some of the real estate projects in Arabtec's current backlog," Mr Badr said.

Shares in Arabtec closed 1.41 per cent lower at Dh1.40 yesterday.