Cash-strapped construction companies and contractors in Saudi Arabia are carefully parsing government assurances on contractual payments as they await developments in the next few weeks. A minister last week said the government had paid 70% of contractors’ delayed dues and would pay up to 98% of those amounts within two weeks; however, the reaction on the ground amongst the construction industry is of healthy skepticism. “If 70% was paid on all outstanding construction dues, there would have been euphoria in the market,” said Terry Smith, chief executive of the Riyadh-based consultancy firm Bluewater Global Advisors. Nagib G. Al-Alam, Vice-President of Saudi Arabian Trading & Construction Company (SATCO), said the past seven months were the worst he had seen in the sector. “No payments were made for seven months straight and few contractors have received more than 50% on dues last month,” he added. Some companies said they had been receiving payments in installments. “We are told a payment of 50% of all total dues will be made in second half of April,” said an engineer at Saudi Binladen Group (SBG), who preferred to remain anonymous. (Argaam)   Almarai 1Q2016 earnings flattish, as expected, hit by higher energy costs and poultry losses and lower subsidies   Net income:  SAR309 million +1% Y-o-Y, -36% Q-o-Q, +5% versus EFGe Revenue: SAR3,450 million +14% Y-o-Y, -4% Q-o-Q, +2% versus EFGe Operating profit: SAR403 million +7% Y-o-Y, -30% Q-o-Q, +1% versus EFGe   Almarai posted a 1Q2016 net income of SAR309 million, coming in flat Y-o-Y (+1%) and broadly in line with our forecast (+5% versus EFGe). The results set came with limited surprises – the company cited changes in fuel and electricity prices, no subsidy collection and higher poultry losses as the key drags on its net income for the quarter.   Revenue grew 14% Y-o-Y and was also broadly in line (+2% versus EFGe): The largest categories, dairy & juice, showed a 12% Y-o-Y revenue increase. Net profit before minority for the segment, however, was flattish, due to higher energy costs and the lack of subsidy (the government delayed paying imported animal feed subsidies)   Bakery revenue growth was strong at 28% Y-o-Y, bolstered by newly-added capacities and new product launches; net profit grew 184% Y-o-Y Poultry revenue slowed to an all-time low of 7% Y-o-Y due to pressure from imported frozen products, while net losses widened (+69% Y-o-Y to SAR104 million) for the first time after five consecutive quarters of improvement, with added pressures from higher energy costs and lack of subsidy The company’s home market, Saudi Arabia, revenue grew 13% Y-o-Y, while other GCC countries showed an increase of 14%; IDJ’s (Egypt and Jordan) revenue growth slowed to 14% marred by currency weakness   Margins contracted across the board; gross and EBIT margin narrowed Y-o-Y by c110bps and 80bps to 35.5% and 11.7%, respectively. Accordingly, gross profit grew 10% Y-o-Y, while operating profit increased a tamer 7% Y-o-Y. This marks the first Y-o-Y gross margin contraction in six quarters, which the company attributed to an increase in fuel and electricity costs, as well as an unfavorable product mix. The company noted that below-EBIT items (share of profit from associates, others expenses, net finance costs, zakat and taxes, minority charges) had an unfavourable impact of SAR23.1 million on earnings due to a weak performance at 52%-owned IDJ, principally from Egypt, as well as FX losses.   We reiterate our Neutral rating on Almarai, as we expect the rest of the year to prove challenging, given plans to gradually phase out green fodder cultivation, as well as lower fuel and energy subsidies that will continue to pressure margins. The poultry division’s weakness is also a red flag, particularly as the division was expected to turn profitable in 2016, which we now see as difficult, especially given the competition from imports that will make reaching the breakeven run rate of 110 million birds difficult. Also, the stock trades at a rich 2016 P/E of 23x. (Earnings release, Hatem Alaa, Nada Amin)   Almarai: SAR56.07 as of 07 April 2016, Rating: Neutral, FV: SAR48.75 per share, MCap: USD11,962 million, ALMARAI AB / 2280.SE