Arabtec Holding (ARTC) - 2Q11 Results

·          Net profit down by 74% YoY to AED29.0mn.

·          Results offer negative surprise against our expectations of AED48.4mn on lower margins and higher than anticipated SGA costs.

·          Total backlog stood at AED13.9bn and is down by AED1.2bn QoQ.

·          Total revenues down 5% YoY to AED1,217mn.

·          Gross profit down by 25% to AED136mn.

·          Gross margin stood at 11.2% compared with 14.0% in 2Q10.

·          SG&A up by 91% YoY to AED94.1mn

·          Minority interest share at 35% vs. 16% in 2Q10 (1Q11 minority share at 50.7%)

·          Total trade receivables down 3.5% QoQ and 7.4% YTD to AED4.6bn 

Analyst comments:

Arabtec posted a weak bottom-line and missed our forecast on lower margins and higher than anticipated SGA costs. Although gross revenues came down by 5% YoY, gross profit was hit hard and was down 24.6% YoY. Consequently, gross margins came down to 11.2% from 14.0% in 2Q10. SGA expenses too jumped 94% YoY, although QoQ are down by 23%. Backlog stood at AED13.9bn and is down 8% QoQ. Pace of project execution regionally remained slow and has impacted revenues while margins have been suppressed on account of higher fixed costs in Dubai and lower margins elsewhere.