DSI downgraded to ‘Hold’ from ‘Buy’

Global revises down Drake & Skull profit forecast for 2012 and 2013

Global Investment House on Monday downgraded construction major Drake & Skull International (DSI) from ‘Buy’ to ‘Hold’ and also lowered its fair value share from Dh0.95 to Dh0.73 per.

The company reported net income of Dh3.9 million in Q3 2012 as compared to Dh57.5m in Q3 2011 due to an overall slowdown in the construction sector as productivity rates dropped across all the projects in the GCC and Africa. While net profit for the first nine months of 2012 totalled Dh83 million.

Following Q3 results, Global reduced DSI’s 2012 net profit forecast to Dh92 million from earlier estimate of Dh194 million. For 2013, it reduced its net profit forecast to Dh118 million from Dh214 million as projected earlier.

The company also witnessed a continuous rise in expenses due to its ongoing geographical expansion and last but not the least the company extended its contract provisioning during the quarter.

“The contractor booked Dh15m in receivables provisioning during the quarter, and is expected to take further provisions in Q4 2012. Nevertheless, we expect Q4 2012 to fare better on a QoQ basis due to seasonality and also because of award of new contracts in Iraq, India and Qatar,” Global analysts said in a note on Monday.

Civil & WIP projects, comprise more than 60% of DSI’s Dh7.5 billion backlog at the end of Q3 2012. As per the management, they are facing considerable margin pressure on these two segments and hence are looking for newer businesses. Management cited higher competition, project delays and slow execution as the primary reasons for margin pressure in these two particular segments, Global said.

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