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Morgan Stanley
Rates Arabtec 
an ‘Equal-Weight’

DUBAI - Morgan Stanley has rated Arabtec Holding an ‘equal-weight’ in its initial coverage of the UAE construction heavyweight. It targets a share price of Dh2.80, saying the timing of new contract wins could affect the company’s growth prospects.

An equal weight rating means a stock’s return is expected to be in line with the average total return of the industry over the next 12-18 months.

Shares of Arabtec which are listed at the Dubai Financial Market, rose for three straight sessions to cap the week with gains of 18.3 per cent.

Morgan Stanley said Arabtec is positioned to benefit from growth outside Dubai, particularly in Saudi Arabia, given the government’s large planned spending and a strong local partner, the Bin Laden Group.

“However, timing on new order wins in Saudi Arabia and Abu Dhabi is unclear, and we need more clarity on margins and working capital needs,” said Morgan Stanley in a
 note to clients.

It said while demand for contractors in Saudi Arabia and Qatar should benefit the company’s margins, higher interest expense and re-tendering of UAE projects may reduce net margins. Morgan Stanley has forecast net margins to decline to 8.1 per cent in 2009 from 9.9 per cent in 2008 which it said, was in line with management’s guidance. The potential catalysts for Arabtec would be the announcement of new contract wins in Saudi Arabia 
and Abu Dhabi.

Saudi Arabia’s share of new contract awards in the Middle East and North Africa (MENA) has risen to 42 per cent in 2009 from 26 per cent in 2007, with total construction and infrastructure projects growing to $10.1 billion this year from $6.7 billion
in 2008.

Morgan Stanley is forecasting revenue from Saudi Arabia to reach Dh4 billion by 2012, and an additional Dh3billion from contract wins in Abu Dhabi. Arabtec revenue from other markets in the Middle East and North Africa is expected to be marginal, representing just 6 per cent of revenue in 2010.


rocel@khaleejtimes.com