Galfar Engineering & Contracting (GECS.OM)

Galfar Engineering & ContractingEBITDAJust like with the 2006-2009 GPM comparison, Galfar and MMG stand out as the only twogeneral contractors in our coverage universe with a negative net EBITDA margin trendduring the period.EBITDA, OMR '00050,00045,00040,00035,00030,00025,00020,00015,00010,0005,000-Comparative EBITDA margin table 2006-2009Company 2006 2007 2008 2009Arabtec Holding 10.64% 15.55% 14.51% 16.09%Drake & Scull International 13.4% 14.7% 12.1% 15.3%Mohammad Al Mojil Group 27.6% 32.7% 25.4% 17.4%Average of peers 17.2% 21.0% 17.3% 16.3%Galfar 17.1% 15.1% 12.7% 7.3%Source: SHUAA Capital, Company reportsSelling, general and administrative (SG&A) expenses are expected to remain at currentlevels, c. 2.1-2.3% of revenues. The partial GPM recovery from FY 09 onwards coupled withthe expected stability in SG&A expenses is forecasted to lead EBITDA up to OMR 40.0mn in2010, a strong 34.6% YoY growth. Moving forward, the continued recovery in gross marginwill lead EBITDA to OMR 47.0mn in FY 11 and OMR 44.7mn by FY 12-end.While the GPM is not expected to reach back to the FY 08 levels the EBITDA margin will,mainly on the reversal of the disproportionately high depreciation expenses as revenuesdecline.Galfar's EBITDA and EBITDA margin 2006-201228,09617.1%40,48815.1%Source: Galfar, SHUAA Capital45,99212.7%29,7567.3%40,04610.7%46,96012.9%44,6512006 2007 2008 2009 2010E 2011E 2012EEBITDA EBITDA margin50%45%40%35%30%13.3% 25%20%15%10%5%0%EBITDA marginNet profits reach bottom in 2009Net profits growthin 2010Galfar's bottom line expanded 38.2% between 2006 and 2008 from OMR 16.6mn to OMR22.9mn. This strong growth came to an abrupt end in 2009 which saw Galfar nosedivefrom its most profitable year ever in FY 08 to its all time low of OMR 3.8mn in FY 09 asmargins plunged and Q4 09 witnessed the company's first quarterly loss (OMR -5.9mn inQ4 09).Net profit OMR '000Galfar's Net profit and net profit margin 2006-201225,00022,15622,91320,00019,40916,57617,78915,00013,76110,0005,0008.3%3,83110.1%6.3%3.7%5.3% 5.3%0.9%-2006 2007 2008 2009 2010E 2011E 2012ENet profit Net profit margin50%45%40%35%30%25%20%15%10%5%0%Net profit marginSource: Galfar, SHUAA CapitalMarch 18th, 2010 22