One top-flight client not enough for MMG

Contracts from Saudi Aramco not enough to help share values

The Saudi industrial construction firm Mohammad Al-Mojil Group (MMG) is mostly dependent on one client - and even though that client is top-shelf, the company's inability to acquire other contracts is weighing on the stock. The firm, with a market capitalisation of 2.3 billion riyals, is comparable in size to Dubai's Drake & Scull International (DSI).

But MMG has struggled to diversify beyond its existing portfolio. In the first quarter, the company's profit fell 96 per cent to 5.4 million riyals, down from 143m riyals in the first three months of last year. The company has traditionally relied on the state-run oil and gas producer Saudi Aramco for construction contracts. At the moment, 80 per cent of MMG's backlog is for Aramco projects that are scheduled to expire within another two to three years.

Although Aramco has said it planned to increase capacity, the scope of the work was likely to be limited compared with the past, said Roy Cherry, an analyst with Shuaa Capital. The stock is trading at 18.30 riyals, down 22.7 per cent since January. Mr Cherry rates it as "sell", with a target price of 16.60 riyals a share. He said it was encouraging that the contractor was bidding for several large civic projects, but worrisome that competitors such as DSI and Arabtec Holding had been gaining market share within the kingdom.

For the share price to rebound, MMG would need to win contracts for at least 1bn riyals and start to sign up for projects much faster. "Until that happens, if you want to tap into Saudi Arabia it seems you are better off in buying Arabtec or DSI because they're doing a lot better in the kingdom," Mr Cherry said. MMG went public in May 2008. The stock has risen more than 10 per cent since then. [e-mail]