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Emma Prop ar perties Equit Report ty

July 27, 2011

Em maar Prop pertie es


Buy
Target price

2Q11 resu ults up pdate

Dh3.50
Price

Dh2.86
Short term (0-60 days)

Q11 perform mance was largely in line with our ex xpectations, a although The 2Q Dubai Bank's Dh17 72m provision carries hea adline risk. Our constricti O ive view on Em maar's stock remains un nchanged as recurring revenue mo s omentum remain relatively robust and exceeded our expectations ns e s. Key fo orecasts
FY Y09A
Total property income (Dhm m) 8, ,413 1, ,510 2, ,028 0.05 53.30 0.00 0.00 4.70 4.70 39.20 9.09

n/a

Market view

No Weighting

FY10A
12,150 1,901 2,478 0.40 7.12 0.00 0.00 5.10 5.10 43.90 13.90

FY11F
8,546 1,996 2,244 0.33 8.56 0.00 0.00 5.33 5.33 46.40 12.30

FY12F
7,560 1,997 2,306 0.35 8.28 0.00 0.00 5.68 5.68 49.60 7.05

FY13F
5,673 2,002 2,287 0.34 8.36 0.00 0.00 6.02 6.02 52.50 1.64

ce Price performanc (1M) Price (Dh) Absolute (%) Rel market (%) Rel sector (%) Jul 09
12 10 8 6 4 2 0 EMAR.DU DFM General Ind dex

Net renta income (Dhm) al Normalise PTP (Dhm) ed (3M) 3.31 -13.6 -6.6 -15.5 (12M) 3.21 -10.9 -11.0 -24.8 Normalis sed EPS (Dh) Normalis sed PE (x) 3.03 -5.6 -4.0 -5.4 Dividend per share (Dh) Dividend yield (%) Adj NAV per share (Dh) NNNAV per share (Dh) p Disc/(prm to adj NAV (%) m) Net debt to tot ass (%) ng Accountin standard: IFRS Source: Company data, Kiza C ashi

Jul 1 10

Jul 11

Year till Dec, fu ully diluted

Market capital lization

Dh17.44bn ( 3.28bn)
Average (12M) daily turnove er

Dh50.93m (US$13.65m)
Sector: ADX Bank & Fin Index RIC: EMAR.DU, EM MAAR UH Priced Dh2.86 at close 27 Jul c 2011. Source: Bloo omberg

Solid 2 pro forma results 2Q Emaar reported 2Q11 revenue of Dh2, 032m (u 2.5% qoq a up and down 23.4 4% yoy), exceeding our forecast of Dh1, 925 and consen 5m nsus of Dh1, 9 971m. Net prof before fit the write-off related to Dubai Ban was Dh422 nk 2m (up 0.3% qoq and down 47.4% n yoy), e exceeding our f forecast of Dh3 397m. Although the gross ma argin was 220b below bp our expectation of 4 49.8%, the EP beat was m PS mainly due to higher-than-e expected revenue and SG&A e expense as a percentage of sales being 140bp lower t f than our forecas of 21%. The company also recognized impairment o Dh172m du st of uring the quarter as it complete wrote off it investment in its associate Dubai Bank. r ely ts e Recurr ring income p portfolio cont tinued to outp perform Althoug we expected a slight q gh qoq decline in Emaars recu urring revenue due to e seasonality in tourism it maintained its strong recurring income portfolio perf m, e formance, reportin revenue of roughly Dh8 ng f 833m, in line with 1Q11. However, reven H nue from propert for sale wa almost in line with our e ty as expectations, d driven by hand dovers of residen ntial units in Burj Khallifa and Umm Al Quw wain Marina an commercial space in nd l downto own Dubai. In t total, Emaar delivered about 244 units dur t ring the quarte vs 270 er, in 1Q11 and 612 in 2Q10. It expect to commenc handovers in its Jeddah ga and Al 1 ts ce n ate Khobar Lakes project in Saudi in 2H11. r ts Story r remains unch hanged We rem main constructi ive on the nam with a Buy r me rating and a Dh3.50 per shar target re price. We believe cu urrent price le evels offer an attractive en ntry point beca ause we expect the stock to m maintain its str rong recurring income portfolio performanc and to ce trade a a premium to its peers bac at o cked by relative better fund ely damentals. Valuat tion Using a SOTP appro an oach, we value the recurring income portfolio at Dh2.64 p share per (75% o TP), projects for sale at Dh of s h0.82 (24% of TP) and other assets at Dh0 f r 0.04 (1% of TP).

Emmar Properties Equity Report


July 27, 2011

Income statement
Particulars (Dhm) Net rental income Prop development income Other revenue Total property income Other costs EBITDA DDA & Impairment (ex gw) EBITA Goodwill (amort/impaired) EBIT Associates (pre-tax) Net interest Other pre-tax items Reported PTP Taxation Minority interests Other post-tax items Reported net profit Dividends declared Tot normalised items Normalised EBITDA Normalised PTP Normalised net profit Source: Company data, Kizashi forecasts

FY09A
1510 6236 667.2 8413 -5358 3056 -635.7 2420 0.00 2420 -534.5 139.0 3.35 2028 23.5 37.9 -1762 327.3 0.00 0.00 3056 2028 327.3

FY10A
1901 9270 979.6 12150 -8715 3436 -804.6 2631 0.00 2631 -430.5 -90.0 367.8 2478 -1.44 -28.8 0.00 2448 0.00 0.00 3436 2478 2448

FY11F
1996 5327 1222 8546 -5429 3117 -724.6 2392 0.00 2392 -367.4 -50.1 268.9 2244 -6.74 -200.5 0.00 2037 0.00 0.00 3117 2244 2037

FY12F
1997 4352 1211 7560 -4735 2825 -700.3 2125 0.00 2125 -250.0 86.3 344.7 2306 0.00 -200.5 0.00 2106 0.00 0.00 2825 2306 2106

FY13F
2002 2453 1218 5673 -3255 2418 -671.4 1747 0.00 1747 -90.0 260.6 369.3 2287 0.00 -200.5 0.00 2086 0.00 0.00 2418 2287 2086 Year till Dec

Balance sheet

Particulars (Dhm) Cash & market secs (1) Props under dev Other current assets Investment prop Other non-current assets Total assets Short term debt (2) Long term debt (3) Other liabilities Total liabilities Total equity (incl min) Total liab & sh equity Net debt Source: Company data, Kizashi forecasts

FY09A 2797 31076 1388 8546 20338 64145 4500 4125 26641 35266 28879 64145 5828

FY10A 2468 26492 4170 8110 21264 62504 4455 6714 21794 31204 31300 62504 8701

FY11F 2299 25171 5061 7905 20452 60888 5003 4796 19915 27953 32935 60888 7500

FY12F 2655 23820 4981 7594 19713 58763 2503 4296 18484 23522 35241 58763 4144

FY13F 4630 23130 4901 7294 19051 59006


1903

3696 17641 2147 37528 59006 969.1 Year ended Dec

Cash flow statement

Particulars (Dhm) EBITDA Change in working capital Net interest (pd) / rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr / (decr) in equity Incr / (decr) in debt Ordinary dividend paid Preferred dividends (4) Other financing cash flow Cash flow from fin (5) Forex & disc ops (6) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2+4) Source: Company data, Kizashi forecasts

FY09A 3056 -5012 0.00 -3.00 327.4 -1632 -1866 6.42 -930.7 -2790 0.00 1196 -3.57 0.00 17.2 1210 -102.2 -3315 -3498

FY10A 3436 -3320 90.0 3.13 255.7 464.3 -778.8 606.5 -2626 -2798 0.00 816.5 -1.21 0.00 1444 2259 -11.9 -86.7 -314.5

FY11F 3117 -954.2 50.1 0.64 219.9 2433 -172.2 21.3 -578.5 -729.4 0.00 -3194 -0.08 0.00 1376 -1817 -9.30 -122.8 2261

FY12F 2825 199.5 -86.3 0.00 431.0 3370 -100.0 0.00 371.4 271.4 0.00 -3000 0.00 0.00 -285.1 -3285 0.00 355.9 3270

FY13F 2418 127.1 -260.6 0.00 629.9 2915 0.00 0.00 417.6 417.6 0.00 -1200 0.00 0.00 -157.0 -1357 0.00 1975 2915 Year till Dec

Emmar Properties Equity Report


July 27, 2011
Recommendation structure Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price and only reflects capital appreciation. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months. Market or sector view: This view is the responsibility of the strategy team and a relative call on the performance of the market/sector relative to the region. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside. Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from 'fair' value. Valuation and risks to target price Emaar Properties (RIC: EMAR.DU, Rec: Buy, CP: Dh2.86, TP: Dh3.50): We value Emaar Properties using a sumof-the-parts methodology, from which we derive our target price. Key risks to our target price include potential delays in raising domestic and international capital as core market stresses still prevail and we expect a continued decline in house prices.

Emmar Properties Equity Report


July 27, 2011

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Disclaimer The report is prepared on behalf of Kizashi Analytics. This report is not, or should not be, relied upon in any way as a promise or representation as to future results, earnings or events. Kizashi reserves the right to modify data without providing any reason for such modifications. Any information delivered by Kizashi in this report is not intended to provide the basis of any evaluation of the market trend and share prices and should not be considered as a recommendation that any prospective or actual investor should underwrite to shares on basis of the prices listed herein in the report. In making any investment decisions, prospective investors should not rely on this report or on any other information. Kizashi shall not accept any responsibility for updating this information. No agency, authority or exchange has passed upon the accuracy or adequacy of this report, or the merits of an investment in any product herein.