Combined Group Contracting (CGC) reported its 4Q financial results, the main highlights were: i) record-high revenue of KWD68.0 million (+17% EFGe); ii) a record-low gross profit margin (3.7%); iii) Y-o-Y and sequential drops in G&A, breaking the recent trend of high G&A rises; iv) slight relief to balance sheet leverage; and v) barely positive cash flow from operations, on pressured working capital.   Main positives: 1) Record revenue for the quarter at KWD68.0 million, beating our estimate of KWD58.2 million by 16.9% and up 3.2% Y-o-Y and 22.4% Q-o-Q. 2015 revenue grew a robust 26.6% to reach KWD251.2 million (+4.1% EFGe); 2) recent trend of strong rise in G&A contained in 4Q2015, with G&A down 15.7% Y-o-Y and 47.7% Q-o-Q in 4Q, but up 21.8% Y-o-Y in 2015; 3) 4Q net income beat at KWD1.39 million (EFGe: KWD0.45 million). 2015 net income was KWD4.1 million, down 20.8% Y-o-Y (EFGe: +30.0%); 4) Slight sequential relief on balance sheet leverage. CGC’s debt-to-equity ratio hit 1.19x (0.81x in December 2014, 1.21x in September 2015), whilst its net-debt-to-equity ratio hit 0.96x (0.55x in December 2014, 1.08x in September 2015)   Main negatives: 1) weak gross profit margin (GPM) averaging 3.7% (4Q2014: 5.8%, 3Q2015: 8.0%, EFGe: 6.3%). 2015 GPM averaged 6.0% (EFGe: 6.8%). We expect this drop to come on the back of a one-off adjustment to the books. We await further clarity from management on this regard; and 2) negative change in working capital in 2015 on rising receivables balance, but the company still managed to post a positive cash flow from operations for the year, which came in at KWD1.9 million, down from KWD15.6 million in 2014   Our view: We like the company’s strong ties with the major public sector entities in Kuwait and the UAE as well as its multi-sector experience. This has reflected positively on its ability to secure new awards, which has allowed it to post above-peer revenue growth in 2015, which we expect will continue through 2017 on the back of decent inflow of awards in 2014-15. While 4Q offered some comfort, particularly with the drop in G&A and the sequential slight relief in leverage ratios, we continue to be concerned about its ability to manage its operating costs, cash cycle, and the high leverage on the balance sheet. We maintain our ‘Neutral’ rating on the stock, with it trading roughly at our FV (downside potential: 6%). CGC trades at a PER of 21.6x and EV/EBITDA of 8.7x for 2016e. (Company disclosure, Mai Attia, Sara Boutros)