Al Hassan revenues rise 17% as projects continue

Al Hassan is looking for larger EPC contracts to retain margin.

RELATED ARTICLES: Al Hassan net rises 13% as payment rolls in | Increased demand for pre-stressed concrete in Oman | Abu Dhabi, Oman sign deal to build refineries

Al Hassan Engineering Company saw contract revenues hit OR 13.9m for the first three months of 2011, up 17.2% against the OR 11.9m in the same period last year as net income remained steady.

Gross profits rose 7.4% to OR 1.7m though other income fell against last year and finance charges rose to give an after-tax profit of OR 591,000, down 0.7%. The company’s net profit margin fell from 5% to 4.23% in the period against last year.

The Omani contractor said it has secured new projects “in line with the anticipated market phasing” to add to its extensive portfolio of current projects, Hassan bin Ali Salman, chairman, told investors in the financial results, with number of major projects to be completed throughout the year.

This quarter it completed the construction work for the Nimr-C Full Field Water Injection Project for PDO, on the back of a revised schedule. Commercial operations will start this quarter. It is also working on an EPC contract to build the Amal power station, also for PDO, which it expects to finish in the second half of the year.

Al Hassan’s balance sheet shows that work in progress rose more than 92% in value against last year, up to OR 22.84m against OR 11.86 million. Its expected payment from contracts rose 50.5% against last year to OR 13.4m. Net assets rose 11.8% to OR 14.646m.

Story continues below

Advertisement

FEATURED COMMENT Please click here to comment on this article

Kanaga Sundar, an analyst at Gulf Baader Capital Markets, said margins have been squeezed since the last year due to increasing tendering competition on projects, even though the company is managing to secure payment.

“The top line is above our estimate, but the bottom line is below what we expected,” he said. “The tender values are not so far down, but Al Hassan works on medium sized projects, and the company also works as a sub-contractor on a lot of projects. So there is a smaller order backlog.”

He added that a rise in material prices is a likely cause in the fall in net profits, with the cost of executing a project likely to have increased by around 18%. Higher wages, following a decree by the government, is also likely to have reduced its income, he said.

Al Galfar Engineering & Contracting Company, another listed contractor, had stated in its end-of—year financial results that an increase in manpower costs were part of the reason for the “erosion” in its margins. After-tax profits reached OR 6 million, up from OR 3.754 million the previous year.

Al Hassan is believed to be focusing on bigger projects, such as EPC contracts, to retain margin. “Competition is very strong - you can see a good amount of contractors coming in from outside the country, meaning the margins will shrink,” said Sundar. “There’s a possibility the government might help the local players to secure projects.”

Al Hassan shares remained static yesterday at OR 0.48.

Meanwhile, McDermott International, the energy services firm which covers engineering, procurement and facilities management among others, said revenues rose 78% in the first quarter to $899.2m, against $504.9m in last year’s first quarter. Income from continuing operations rose a third to $68.8 million from $51.6m.