Abdullah A. M. Al-Khodari Sons Company (Al-Khodari) has reported a mixed set of results for 1Q2016. New awards were - unsurprisingly - very weak during the quarter, coming in at a negligible SAR16 million, a trend we have seen since 2Q2015. This leaves the company’s backlog at its weakest levels since 3Q2014, which does not bode well for revenue growth. On a positive note, the gross profit margin recovered from a record low in 4Q2015, averaging 5.6% on saving in manpower costs. We expect further (albeit diminishing) benefit from lower manpower costs through 2016, as the company benefits from lower headcount (-56% lower direct headcount in March-December 2015). We are also pleased to see operating costs continuing its downtrend (falling 27.2% Y-o-Y, 17.2% Q-o-Q). Net income was in the black, a product of improved gross margin, lower operating cost, and income from the refund of work permits under the HRDF scheme.   Main positives: Gross profit margin (GPM) recovered from a record low in 4Q2015, averaging 5.6% in 1Q2016. This compares to 10.7% in 1Q2015 and 3.8% in 4Q2015 S,G&A continued its downtrend (-27.2% Y-o-Y, -17.2% Q-o-Q), which management attributed to lower advertising and tendering cost EBIT was in the black, coming in at SAR5.5 million (1Q2015: 26.8 million, 4Q2015: 3.8 million in loss), helped by the improvement in gross margin and the lower S,G&A costs Return to net profits, reporting SAR4.1 million for the quarter (1Q2015: SAR14.0 million, 4Q2015: 1.0 million in net loss). The company reported SAR11.9 million in other income, of which SAR9.1 million were from the refund of work permits under the HRDF scheme     Main negatives: Revenue came in weak, as expected, totalling SAR372 million (-16.4% Y-o-Y, -3.5% Q-o-Q), albeit 4% higher than our estimate   Higher financing costs, recording SAR13.2 million (+1.8% Y-o-Y, +24.3% Q-o-Q) on higher SIBOR Weak awards for the quarter, as expected, coming in at SAR16.2 million (1Q2015: SAR1,099.9 million, 4Q2015: SAR12 million) in line with the weakness seen starting 2Q2015 Backlog shrank for the fifth consecutive quarter, on weak new awards. The company’s backlog hit SAR3,510 million (March 2015: 5,027 million, December 2015: SAR3,899 million)                                                           We reiterate our concerns over the company’s high leverage (net debt-to-equity at 1.1x in December 2015) and rising unbilled receivables balance (100% to revenue 2015, total receivables at 142%). We expect the slowdown in the Saudi construction sector seen in 2H2015 to continue through 2016, with a slowdown in the bidding and award process, slowdown in project execution and tightening liquidity on slower receivable collection. The stock trades at a 2016e EV/EBITDA ratio of 10.2x. We have a Neutral rating on the stock. (Company disclosure, Mai Attia, Sara Boutros)   Abdullah A. M. Al-Khodari Sons Company: SAR12.22 as of 18 April 2016, Rating: Neutral, FV: SAR10.90 per share, MCap: USD173 million, ALKHODAR AB / 1330.SE