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دريك آند سكل إنترناشيونال
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Challenges Ahead But Growth Story Remains Strong
• 3Q 09 Results Weak but No Surprises; Seasonality + Holiday Period Impacted Productivity. DSI 3Q 09 turnover of AED 400mn was lower than our estimate of AED 429mn; however net income of AED 68.9mn came in slightly over our estimate of AED 66.2mn. MEP continues to be the largest contributor to revenues (59%), followed by Civil (23%) and IWP (18%). We do not expect the revenue mix to change until 2011, with 80% of the revenues coming from MEP and Civil.
• Attractive 2009 Margins Beat Our Estimates. However we foresee 2010 & 2011 margin sustainability to be a concern. Due to the cyclical nature of the business, we expect DSI’s growth to slow down and margins to soften in line with the market trend especially affecting contractors in the region. As a result of the lag impact of a solid 9m 2009 turnover & generous margins, we feel the firm is likely to close FY 09 with turnover growth 7% yoy, gross margins >20% and net margin > 15.3%. However, considering the increasingly difficult and competitive nature of the business in DSI’s domestic market as well as across the region, we believe margin sustainability will be concern in the near future. We expect the gross margins to decline to 17% and 15.4% in 2010 & 2011 respectively.
• Revising Target Price & FY 09 forecasts; Retain Rating. We revise our FY 09 revenue target as per management’s guidance to be AED 1.83bn & net margin to 15.3%. While raise the target price to AED 1.23, we retain our outperform rating on the stock.
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