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Global Research
Sector – Construction Contractors
September 2013

GCC Contractors

GCC Construction Contractors – 2Q13





Profit stands at USD61mn in 2Q13 vis-à-vis a loss of USD5mn in 2Q12
Backlog jumps 16.5%QoQ in 2Q13
Order receipts/new awards more than trebled in 2Q13
Gross margin at 11.3% in 2Q13, up from 6.9% in 2Q12

Profit stands at USD61mn in 2Q13 vis-à-vis a loss of USD5mn in 2Q12
GCC contractors (GIH Coverage) recorded a profit of USD61mn compared to a loss of
USD5mn a year ago. The rise was led mainly by sector heavyweights Arabtec and
DSI. Arabtec posted a profit of USD25mn compared to a loss of USD3mn in 2Q12,
while DSI posted a 68.7%YoY growth; however, AKS recorded a 43.0%YoY decline in
profit. On QoQ basis, profit of the sector declined marginally by 0.8%.
Order backlog jumps 16.5%QoQ in 2Q13
Total value of projects awarded rose to USD3.2bn in 2Q13 from USD0.9bn in 1Q13.
The improvement is ascribed to a surge in order receipt of Arabtec and DSI. Arabtec’s
order receipt rose to USD1.5bn in 2Q13 from USD0.2bn in 1Q13, while DSI’s order
receipt rose to USD1.1bn in 2Q13 from USD0.3bn in 1Q13. Consequently, total
backlog rose 16.5%QoQ to USD13.0bn in 2Q13. UAE contractors continued to lead
the sector, constituting 81% of the sector’s backlog.
GCC construction industry valued at USD2.6tr
As per Zawya, GCC construction industry continued to hover around USD2.6tr, same
as that in 1Q13. Saudi Arabia leads with projects worth USD927.9bn, followed by UAE
(USD813.6bn) and Qatar (USD365.3bn).
Saudi Arabia awards the Riyadh Metro mega project
Similar to Dubai and Qatar, Saudi Arabia continues to focus on expanding its
transportation network. The government recently awarded the Riyadh Metro project
worth USD22bn for connecting government facilities, universities, commercial areas,
airports, and other places.
Saudi Arabia continues to struggle with bureacracy and labor laws
Saudi contractors continued to face difficulties with bureaucracy slowing down project
activity in recent times. In addition, the recent labor laws have created labor shortage
in the kingdom, adding to the woes of the contractors.
GCC Construction Contractors

Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Tel: (965) 2295-1270
Hettish Karmani
Manager
hkumar@global.com.kw
Tel: (965) 2295-1281
Global Investment House
www.globalinv.net

September - 2013

Al Khodari, KSA
Arabtec, UAE
DSI, UAE
Nass Corp, Bahrain
DEPA, UAE
CGC, Kuwait
Galfar, Oman

Mkt Cap
(USDmn)
494.4
2077.2
703.0
91.0
252.0
463.5
204.6

Price
In (LC)
34.9
2.4
1.1
0.2
0.4
1.2
0.3

Stock Performance
1m
3m
12m
2.3% 11.5%
0.3%
6.1% 16.3%
5.3%
-3.4% 10.8% 30.6%
0.0% -8.2% 12.2%
0.0%
2.2% 14.8%
-3.1% -6.1% -3.1%
-4.1% -8.4% -3.8%

P/E
2013e
13.00
24.20
22.40

P/BV
2013e
2.20
1.30
0.90

NA
11.58
44.38
11.72

NA
NA
NA
NA

Source: Bloomberg & Global Research
* Market prices as of 01 September 2013

1

Global Research - GCC

GCC Construction Sector

GCC construction industry continues to hover around USD2.6tr
The GCC construction market is valued at 2.6tr as per the Zawya Projects. Saudi Arabia is currently leading the
table, with projects valued at USD927.9bn or 35.9% of the total. Next is UAE with projects valued at USD813.6bn or
31.4% of the total market, while Qatar has projects worth USD365.3bn or 14.1% of the total construction market.
Furthermore, latest MEED estimates show that total contracts awarded during 1H13 stood at over USD39bn in the
GCC region. Qatar Rail was the biggest awarding client, which awarded five contracts worth USD8.4bn. The second
largest awarding client was the Saudi Arabia Ministry of Interior that awarded projects worth USD6.1bn. Majority of
the contracts were awarded to contractor consortiums in Qatar, including four for Doha Metro project and one for
Msheireb Downtown Doha Development project. Saudi Bin Laden Group became the top ranked contractor after it
won the USD3.5bn contract for Abraj Kudai in Makkah.

Saudi Arabia awards Riyadh Metro mega project worth USD22bn
Saudi Arabia recently awarded contracts worth USD22bn for the Riyadh Metro project. The project will include six
lines and connect various places such as government facilities, universities, commercial areas, airports, and others.
The three major contractors are Bechtel Group, Inc., Fomento de Construcciones Contratas, and Ansaldo STS SpA
(STS) that have been awarded contracts worth USD9.4bn, USD7.8bn, and USD5.2bn, respectively.

Saudi Arabia continues to struggle with bureaucracy and new labour laws
Despite the largest construction market status in the GCC market, Saudi Arabian contractors struggle with
bureaucracy and new labor laws in the Kingdom. As witnessed earlier, bureaucracy along with a large pipeline of
projects led to a decline in awarded contracts to USD50bn in 2012 from USD66bn in 2011. In addition, the recently
announced labor law, Nitaqat, has already created a shortage of manpower and is expected to further slowdown
construction activities in the Kingdom.

Order backlog jumps 16.5%QoQ in 2Q13
Order backlog surged 16.5%QoQ to USD13.0bn in 2Q13, after witnessing a meager growth (2.0%QoQ) in 1Q13.
Total value of projects awarded was USD3.2nn, up 248.5%QoQ from USD0.9bn in 1Q13. On YoY basis, projects
awarded increased 120.8%. Total project awards for the sector were boosted by Arabtec and DSI. Arabtec’s project
awards rose to USD1.5bn in 2Q13 from USD0.2bn in 1Q13, while DSI’s project awards increased to USD1.1bn in
2Q13 from USD0.3bn in 1Q13. UAE contractors remained the largest in terms of order backlog, led by Arabtec, DSI,
and Depa, which constituted 51%, 24%, and 6% of the sector, respectively.

Gross margin at 11.3%, up from 6.9% in 2Q12
Margins of the sector came in at 11.3% in 1Q13, up from 6.9% in 2Q12. On QoQ basis, gross margin declined
marginally from 11.4% in 1Q13. Operating margin also improved to 6.1% in 2Q13 compared to a -3.0% in 2Q12.
Despite the YoY improvement witnessed in 2Q13, we continue to believe that margins will decline going forward as
rising construction costs and stiff competition eat into the profits of GCC contractors.
Gross Margins & ROE - 2Q13

Receivable Days & Net Margins - 2Q13
10%

30%
18%

GECP

18%
11%

8%

AKS
ARTC
Net Margin

Return on Equity

24%
14%
CGC

GECP
CGC

12%
7%

ARTC
DSI

DSI

6%
4%

AKS

DEPA
NASS
NASS
DEPA

8%

11%

14%

Gross Margin

17%

AKS

ARTC
ARTC

4%

DEPA
DEPA
CGC

CGC

DSI
DSI

2%
NASSNASS

0%

5%

AKS

6%

20%

0%
100
140

140
170

180
200

GECP
GECP

220
230

260

300
290

Receivable Days

Source: Company Reports & Global Research

September – 2013

2

Global Research - GCC

GCC Construction Sector

Contractors’ Financial Performance
Business activity picked up again for the GCC construction sector in 2Q13 after a decline in 1Q13. The GCC
construction sector saw its top line surge 24.7%YoY and 7.5%QoQ to USD1, 517mn in 2Q13. On YoY basis, DSI and
Arabtec continued to lead the table, recording growth of 86.8%YoY and 20.9%YoY in 2Q13, respectively. Together,
the two companies accounted for nearly 82% of incremental growth in the top line. On QoQ basis, Depa and DSI
provided the impetus to the sector, accounting for almost 60% of incremental growth in top line. The sector’s growth is
primarily attributed to big-ticket projects entering the execution phase during the quarter, coupled with faster execution
of projects. We expect the sector to sustain this trend in the coming quarters, aided by strong growth in order receipts
as seen in 2Q13.
The sector has seen a turnaround in profitability in the past one year, with its net profit reaching USD61mn in 2Q13,
compared to a net loss of USD5mn in 2Q12. At the same time, margins have expanded; gross margin rose to 11.3%
in 2Q13 from 6.9% in 2Q12, while operating margin came in at 6.1% in 2Q13 as against -3.0% in 2Q12. Similarly, net
margin improved to 4.0% in 2Q13 from -0.4% in 2Q12. Although margins increased in 2Q13, we believe margins will
remain under pressure over the long term due to rising construction costs and competition.
Among UAE heavyweights, DSI continued to outperform Arabtec, with revenues of the former rising 9.2%QoQ in
2Q13, compared to 3.3%QoQ growth of the latter. However, the revenue growth story remains intact for both
companies as they continue to win major projects not only in the UAE, but other GCC markets as well. Meanwhile,
Depa put up an impressive performance, registering a revenue growth of 26.3%YoY (26.5% QoQ). Consequently,
margins also improved, after posting losses during 2Q12.
In Saudi Arabia, Al-Khodari bounced back in 2Q13, with revenues rising 20.1%QoQ compared to a 7.9%QoQ decline
in 1Q13. Gross margin improved to 13.6% in 2Q13 from 13.3% in 1Q13, while net profit margin rose to 6.2% in 2Q13
from 5.3% in 1Q13. The improvement was driven by better volume realization and reduction in direct cost of sales.
GCC Construction Sector* - Quarterly Performance
(USD mn)
Sales Revenue
Cost of Sales
Gross Profit
Operating Expense
Operating Profit
Financial Charges
Net Profit

Gross Margin (%)
Operating Margin (%)
Net Margin (%)

2Q12
1,216.6
1,132.3
84.4
120.7
(36.4)
10.9
(4.9)

1Q13
1,411.4
1,250.4
161.0
102.4
58.6
13.5
61.4

2Q13
1,516.8
1,345.1
171.6
78.7
92.9
14.9
60.9

6.9%
-3.0%
-0.4%

11.4%
4.2%
4.3%

11.3%
6.1%
4.0%

QoQ
7.5%
7.6%
6.6%
-23.2%
58.6%
10.8%
-0.8%

YoY
24.7%
18.8%
103.4%
-34.8%
NM
37.0%
NM

-

-

Source: Company Report & Global Research
* Includes Arabtec, DSI, Al-Khodari, Depa, NASS Corp, GECP and CGC

Overall, GCC companies rebounded in 2Q13, after posting a dull performance in 1Q13. The improvement was driven
by a combination of factors that include rising project awards, commencement of work on big-ticket projects, and a
faster execution rate. However, the longer-term trend reveals that margins would continue to contract as the sector
matures amid rising competition. Arabtec continues to remain our top pick, as the company continues to witness a rise
in order backlog, market share, and aggressive expansion plans with support from Aabar. The company has
witnessed a host of new appointments in the top management in recent times, while successfully raising funds
through its rights issues for business expansion. The company has the highest backlog/sales ratio of 3.9x in the
sector. Thus, we remain bullish on the stock.

September – 2013

3

Global Research - GCC

GCC Construction Sector

Projects and Contracts



Overall GCC projects market stands at USD1.5trn as of 1H13
Contract awards in MENA up by 52.6%YoY during 2Q13

GCC Projects Market Size
2,500.0

(USD bn)

2,000.0
1,500.0
1,000.0

500.0
2006

2007

2008

2009

2010

2011

2012

1H13

MENA Contract Awards – Average during the period

25

(USD bn)

20
15
10
5

2Q-13

1Q-13

4Q-12

3Q-12

2Q-12

1Q-12

4Q-11

3Q-11

2Q-11

1Q-11

4Q-10

3Q-10

2Q-10

1Q-10

4Q-09

3Q-09

2Q-09

1Q-09

4Q-08

3Q-08

2Q-08

1Q-08

-

Projects Country Wise
1,800.0
2013

2012

(USD bn)

1,440.0
1,080.0
720.0

360.0
Saudi Arabia

September – 2013

UAE

Oman

Kuwait

Qatar

GCC

4

Global Research - GCC

GCC Construction Sector

Contracting Companies




New order receipts surge to USD3.2bn in 2Q13 from USD0.9bn in 1Q13
Backlog rises to USD13.0bn in 2Q13 from USD11.2bn in 1Q13
Arabtec continues to lead in order backlog (51%), followed by DSI (24%) and Galfar (11%)
Order Receipts – 2Q13

Order Receipts (Aggregate)
3.5
3.0
2.5
2.1
2.0
1.5
1.4
1.5
1.0
0.5
-

3.2

1.1

1.2
0.6
0.3

0.1

0.2

0.3
Depa

0.9

AKS

(USD bn)

0.9

Arabtec

DSI

GECP

2Q13

1Q13

-

4Q12

3Q12

1.5

1.5

(USD bn)

2Q12

1.8

Includes aggregate of Arabtec, DSI, GECP, Depa and Al-Khodari

Backlog – 2Q13
7.0

13.0

2.0

2Q13

1Q13

-

4Q12

1.0

8.0
3Q12

9.0
2Q12

3.2

3.0
0.8

1.0

1.5

Arabtec

9.3

4.0

DSI

10.1

5.0

GECP

10.0

9.8

11.2

AKS

11.0

(USD bn)

11.0

1Q12

(USD bn)

13.0
12.0

6.6

6.0

Depa

Backlog (Aggregate)
14.0

Includes aggregate of Arabtec, DSI, GECP, Depa and Al-Khodari

Backlog Market Share – 2Q13
Depa
6%
GECP
11%

Order Receipts Market Share – 2Q13
Depa
AKS
8%
7%
GECP
4%

AKS
8%

Arabtec
47%

Arabtec
51%

DSI
24%
Market size assumed to be the aggregate of the mentioned players

September – 2013

DSI
34%
Market size assumed to be the aggregate of the mentioned players

5

Global Research - GCC

GCC Construction Sector

Financials in Chart
EV/Backlog (x) v/s Backlog/Sales (x)
1.2
EV/Backlog
(Last Reported)

1.0
0.8

AKS

GECP

0.6
0.4

Arabtec
Depa

0.2
4.5

4.0

3.5

3.0

2.0

1.5

1.0

2.5

DSI

-

Back Log/Sales (Last Reported)
Size of the Bubble represents Market Cap

Gross Margins – 2Q13

Net Margins – 2Q13

20.0%

6.8%

17.0%

5.8%

14.0%

4.8%

11.0%

3.8%

8.0%

2.8%

5.0%

1.8%

ARTC

DSI

AKS NASS DEPA CGC GECP

Receivables Outstanding (Days) – 2Q13

ARTC

AKS NASS DEPA CGC GECP

Inventory Stock (Days) – 2Q13

300

80

260

64

220

48

180

32

140

16

100

DSI

ARTC

DSI

September – 2013

AKS NASS DEPA CGC GECP

ARTC

DSI

AKS

NASS DEPA CGC GECP

6

Global Research - GCC

GCC Construction Sector

Operating Expense to Sales – 2Q13

Debt to Equity (x) – 2Q13

20.0%

210.0%

16.0%

170.0%

12.0%

130.0%

8.0%

90.0%

4.0%

50.0%
10.0%

0.0%
ARTC

DSI

AKS

ARTC DSI

NASS DEPA CGC GECP

ROE – 2Q13

AKS NASS DEPA CGC GECP

ROA – 2Q13

15.0%

4.0%

12.0%

3.4%

9.0%

2.8%

6.0%

2.2%

3.0%

1.6%

0.0%

1.0%
ARTC

DSI

AKS NASS DEPA CGC GECP

Cash as % of Assets – 2Q13

ARTC

AKS NASS DEPA CGC GECP

Cash as % of Debt – 2Q13

15.0%

150.0%

12.0%

120.0%

9.0%

90.0%

6.0%

60.0%

3.0%

30.0%

0.0%

DSI

0.0%

ARTC

DSI

AKS NASS DEPA CGC GECP

ARTC

DSI

AKS NASS DEPA CGC GECP

Depa 2Q13 numbers have been estimated.

September – 2013

7

Global Research - GCC

GCC Construction Sector

APPENDIX
DSI - Business Segments
Segments

Revenue Share (%)
Net Profit Share (%)

Mechanical,
Electrical &
Plumbing
43.4
55.6

Water & Power

Civil

7.5
-15.1

48.0
54.3

Procurement
1.8
2.6

Manufacturing
40.7
35.1

* 1H13 – Total might not add up because of eliminations.

DEPA - Business Segments
Segments
Revenue Share (%)
Net Profit Share (%)

Contracting
57.5
62.3

* As of 1H13

ARABTEC - Business Segments
Segments
Revenue Share (%)
Net Profit Share (%)

Construction

MEP

55.4
93.9

9.6
10.9

Oil & Gas, Infrastructure and
Power
36.3
-4.8

* As of 1H13 - Total might not add up because of eliminations.

Abdullah A. M. Al-Khodari Sons Company - Business Segments
Segments
Revenue Share (%)
Gross Profit Share
(%)

Contracting
99.5
99.5

Trading
0.5
0.5

* As of 1H13

September – 2013

8

Global Research - GCC

GCC Construction Sector

Order Receipts / New Awards – 2Q13

Drake & Scull International
Country

Segment

Project Name

KSA
India
KSA
Qatar

Engg.-MEP
Engg.-WP
CIVIL
Engg.-MEP

Mecca Government Complex
Cross Country Coal Conveying System
ITCC
Private Residential

Size (USDmn)
72
56
49
49

ARABTEC Holding
Country

Segment

Project Name

Size (USDmn)

Kazakhstan
Jordan
Jordan
UAE

Building & Construction
Building & Construction
Building & Construction
Building & Construction

Abu Dhabi Plaza
Saraya Aqaba
St. Regis Amman
Arabian Ranches

544
210
196
65

Abdullah A. M. Al-Khodari Sons Company
Country

Segment

Project Name

KSA
KSA
KSA

Contracting
Contracting
Contracting

KSA

Contracting

Ministry of Health (Qatif)
Ministry of Municipal & Rural Affairs (Riyadh)
Ministry of Municipal & Rural Affairs (Riyadh)
Ministry of Water & Electricity (General Directorate of Water
in Riyadh)

September – 2013

Size (USDmn)
108
80
42
29

9

Global Research - GCC

GCC Construction Sector

105

2,500

100

2,300

95

2,100

(USD/Ton)

(USD/bbl)

Factors Influencing Profitability

90

85

1,900

1,700

80

1,500
2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Aluminum

9,500

180

8,900

160

8,300

140

(¢/dmtu)

(USD/Ton)

Crude Oil, WTI

7,700

7,100

120

100

6,500

80
2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Iron ore

1,100

67.0

900

66.4

700

65.8

(USD/Ton)

(USD/Ton)

Copper

500

300

65.2

64.6

100

64.0

2006

2007

2008

2009

2010

2011

Steel Wire Rod

2012 1H13

1H11 9M11 2011 1Q12 1H12 9M12 2012 1Q13 1H13
Cement

Source: World Bank Pink Sheets & Glob al Research

September – 2013

10

Global Research - GCC

GCC Construction Sector

Disclaimer
This material was produced by Global Investment House KSCC (‘Global’),a firm regulated by the Central Bank of Kuwait. This document is not to
be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent permitted by
law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicit business
from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by
applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients.
Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not
independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no
reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document.
Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This
document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability
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restrictions. By accepting this report you agree to be bound by the foregoing limitations.

September – 2013

11

Global Investment House
Website: www.globalinv.net
Global Tower
Sharq, Al-Shuhada Str.
Tel. + (965) 2 295 1000
Fax. + (965) 2 295 1005
P.O. Box: 28807 Safat, 13149 Kuwait

Research
Faisal Hasan, CFA
(965) 2295-1270
fhasan@global.com.kw

Wealth Management - Kuwait
Rasha Al-Qenaei
(965) 2295-1380
alqenaei@global.com.kw

Brokerage
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(965) 2295-1700
fdarwish@global.com.kw

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P.O.Box 28807 Safat, 13149 Kuwait

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UAE

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Kingdom of Saudi Arabia

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P.O.Box 3268 Amman 11180,
Jordan

Global Wealth Manager
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