The Saudi industrial construction firm Mohammad Al-Mojil Group (MMG) is mostly dependent on one client - and although that client is top-shelf, the company's inability to acquire other contracts is weighing down the stock.
The company, with a market capitalisation of 2.3 billion Saudi riyals, is comparable in size to Dubai's Drake & Scull International (DSI).
But MMG has struggled to diversify beyond its existing portfolio. The company has relied on the Saudi Arabian Oil Company (Aramco), a state-run oil and gas producer, for construction contracts. At the moment, the company has 4 billion riyals worth of contracts on its books, most of which are awards from Aramco. But MMG has faced fierce competition from the UAE's Arabtec Holding and DSI, which have been gaining market share within the kingdom.
"These stocks are trading at heavy discounted valuations when compared to local contractors, and offer better exposure to the industry in Saudi Arabia," said Roy Cherry, an analyst at Shuaa Capital in Dubai.
The contractor on Saturday said it was expecting "substantial losses" that would exceed 10 per cent of assets from "additional costs of materials, equipment and manpower of some of the ongoing projects in excess of the approved budgets." Investors were left in the dark, triggering a 10 per cent drop in MMG's share price. MMG said it was postponing the release of its fourth-quarter results until it identified how big those losses were.
"This brings to mind bad memories from 2009 and 2010 when provisions against doubtful receivables kept stealing the limelight - not the type of replay investors were hoping for," said Mr Cherry.
"Given the track record evident from previous negotiations on receivables - unfortunately we have to assume the worst.
"Until we know more from management on the receivables and the probability of new spikes in contract costs, we are sellers," he added.
MMG went public in May 2008. The stock has declined more than 68 per cent since then.
