Building company Arabtec Holding's profit margins could shrink as much as 1.5 percentage points if Dubai heeds growing calls from construction workers for higher wages, Shuaa Capital said.

The UAE cabinet called last week for "urgent" action on pay for foreign labour, after workers protests shook Dubai's booming building industry.

Governments officials and diplomats visited an Arabtec construction site that was hit by a stoppage, state news agency WAM reported earlier.

Any pay hike would squeeze Arabtec's margins, although the UAE's largest construction company by market, would be able to pass on some of the costs to its property-developer customers, Shuaa, a Dubai-based investment bank, said in a note.

"Going into 2008, we expect a net profit margin impact of between 1-1.5 percent at the most as a result of labour cost inflation for the company," Shuaa said.

Arabtec's net profit margin in the first nine months of 2007 was 12 percent compared with 8.5 percent in 2006 and around 7 percent in 2005.  -Reuters