1Q16 results highlights: Net Income:  SAR25.2mn -4% Y-o-Y, -26% Q-o-Q, +71% vs. EFGe; Revenue: SAR535mn +0% Y-o-Y, -3% Q-o-Q, -10% vs. EFGe; Operating Profit: SA39.6mn +8% Y-o-Y, -13% Q-o-Q, +45% vs. EFGe   We reiterate our Neutral rating on Nadec as we expect earnings growth headwinds to strengthen over the coming year given plans to gradually phase out green fodder cultivation as well as lower fuel and energy subsidies that will continue to pressure margins. Mitigating this will become increasingly difficult, in our view, if its top-line momentum remains at these levels.   Nadec posted 1Q16 net income of SAR25.2mn down 4% Y-o-Y, coming in 71% ahead of our forecast on stronger than expected margins. We had expected changes in fuel and electricity prices and subsidies to have a more palpable impact but the company’s disclosure noted that lower input costs offset some of these pressures. Also, zakat and other below-EBIT costs increased Y-o-Y.     Revenue was flat Y-o-Y as some growth in dairy and juice (+4% Y-o-Y) was wiped out by a 34% increase in agriculture revenues. Revenue came in 10% below our forecast, reporting the weakest revenue growth in five quarters for the dairy and juice division, despite 1Q2015 serving as a low-base.   Margins expanded across the board: gross margin packed on 480bps to 42.6% on favourable commodity prices and sales mix according to the company. This comes in significantly higher than our expectation of 38.0% that had factored in higher OPEX. Accordingly, gross profit grew 13% and was in line (+1%) with our forecast as the top-line miss was compensated for by the better margin. The company is likely facing similar pressures to Almarai with regards to collecting subsidies on imported animal feed, in our view. However, this is in part masked by differing accounting policies as Nadec books its subsidy on an accrual basis.     EBIT margin widened slightly by 50bps Y-o-Y to 7.4% as SG&A expenses grew 14% Y-o-Y. EBIT increased 8% Y-o-Y and was 45% above our estimate mainly as SG&A costs came in below our expectation. (Company disclosure, Nada Amin and Hatem Alaa, CFA)   NADEC: SAR20.76 as of 11 April 2016, Rating: Neutral, FV: SAR16.36 per share, MCap: USD469 million, NADEC AB / 6010.SE