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Page 1 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Madinet Nasr for Housing & Development Initiation of Coverage
Equities | Real Estate | Egypt
Sunday, 9 August 2015
Stock Performance & Details
MNHD (EGP) vs. EGX30 Rebased
Sto ck D etails
Last price (EGP) 24.090
52-W High (EGP) 32.100
52-W Low (EGP) 19.940
6M -ADVT (EGPmn) 9.785
% Chg: M oM -3.6
% Chg: YoY -13.4
% Chg: YTD 1.8
M ubasher Ticker M NHD.EGX
Bloomberg Ticker M NHD EY
C apital D etails
No. of Shares (mn) 250.0
M kt Cap (EGPmn) 6,022.5
M kt. Cap (USDmn) 769.3
Free Float (%) 46.2%
-
0.50
1.00
1.50
2.00
2.50
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb
-15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Volume (RHS) MNHD EGX30 Rebased
Significant turnaround story supported by a valuable land bank: Madinet Nasr for Housing & Development shifted towards a more efficient business model after a takeover by Beltone Private Equity in December 2006, which transformed the company into a competitive market player. MNHD managed to solve all outstanding land disputes, shifting toward an off-plan sales model and tapping into the upper-middle income segment after halting undeveloped land sales. We like MNHD’s sizeable, dispute-free, prime and unleveraged land plot portfolio with no mandatory development schedule.
Strong operational performance on rising pre-sales and revenues, but margins will contract with more unit sales handover: Handover of Tag Sultan and Primera units as well as the launch of the first phase of KM45 and second phase of Teegan should drive top-line and pre-sales growth. However, profitability margins will likely decline on unit sales handover as opposed to land-share revenues. We expect standalone revenues to grow at a 3-year CAGR (2014-2017) of 45%, with Tag Sultan
handover kicking off in Q4 2015. We forecast pre-sales of EGP543mn in 2015, EGP2.01bn in 2016 and EGP1.84bn in 2017.
Initiate with BUY/LOW RISK; PT EGP42.51 (+76%): We set a price target (PT) for MNHD at EGP42.51/share, using a DCF-based, sum-of-the-parts (SOTP) valuation model, where our base case scenario assumes MNHD will develop all its unutilized land plots in addition to its current developments. We expect these projects to be developed by MNHD alone except for the first two phases in KM45 (to be co-developed with Palm Hills Developments and other developers). To account for any possible changes in MNHD strategy over the coming years, we ran four other scenarios which resulted in a valuation between EGP36.10-42.70/share, using a WACC of 17.5%. We estimate MNHD’s NAV at EGP34.2/share as end of 2014, implying a P/NAV of 0.7x based on current stock price and 1.2x based on our PT. With a 76% upside to current price, we are initiating coverage on MNHD with a BUY/LOW RISK rating.
Madinet Nasr for Housing & Development (MNHD), established in 1959, was partially privatized in 1996 and fully privatized in 2007. MNHD’s main activities include real estate and land development. The company’s land bank stands at 8.9mn sqm, including several key projects. Teegan, its mixed-use development project, spreads over 3.5mn sqm east of Cairo where the company launched Tag Sultan (0.3mn sqm) as part of it. KM45, a mixed-use development project spreads over a total area of 5.5mn sqm on the Cairo-Suez Highway. MNHD also has other small developments, such as Hayy El Waha and Primera in Nasr City. Furthermore, the company is developing a low-income housing project, Hadayek El Nasr west of Cairo.
Company Profile
Source: Company reports, MubasherTrade Research estimates
Unlocking land value is key — Initiate with a BUY
Mahmoud Ibrahim Senior Equity Analyst
BUY
LOW RISK
Price Target: EGP42.51
Expected Total Return: 76%
EGP mn (Standalone basis) 2013a 2014a 2015e 2016e 2017e
Pre-sales 815 1,051 543 2,013 1,843
Revenues 374 439 425 1,148 1,350
Net Income 160 187 149 451 550
Revenues Growth (%) 59.0% 17.2% (3.1%) 170.3% 17.5%
Net Income Growth (%) 99.2% 16.9% (20.4%) 203.6% 21.8%
Gross Profit Margin (%) 75.5% 78.8% 58.5% 66.7% 62.3%
Net Margin (%) 42.7% 42.6% 35.0% 39.3% 40.7%
Net Debt (Cash) (28) (58) (37) (182) (627)
EPS (EGP) 0.64 0.75 0.59 1.81 2.20
BVPS (EGP) 2.35 3.01 3.60 5.41 7.61
PER (x) 19.6x 31.7x 40.5x 13.3x 11.0x
PBV (x) 5.3x 7.9x 6.7x 4.5x 3.2x
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 2
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Corporate Profile
Timeline of important events
Date Event
1959 Established in 1959 by the government.
1996 MNHD was privatized in 1996 through an IPO (65% offered).
2006 The government reduced its stake to 15%.
2007 Beltone Private Equity-managed investment vehicles acquired 31% of MNHD in 2007
2008 The Civil Aviation Authority (CAA) approved a ceiling of 180 meters above sea level for Teegan project
March 2009 Setting partnership with Orascom Development & Management (ODM) to develop Teegan project (previously known as “Hadayek El Nasr” project)
April 2010 MNHD received KM45 land plots with gross land area of 5.5 mn sqm
April 2010 MNHD settled its dispute with The Egyptian Ministry of Defense regarding Teegan project.
16 January 2012
Cancelling the partnership with Orascom Development & Management (ODM).
October 2012
Launching of Tag Sultan project.
31 March 2015
Setting MoU with Palm Hills Developments (PHD) (PHDC.EGX) to co-develop 433,643 sqm out of MNHD’s 5.5 mn sqm in KM45 project.
25 May 2015 Setting MoU with Fawaz Abdul Aziz Al Hokair (4240.TDWL) to develop mega commercial mall in Teegan over 100,000 sqm. Under the proposed usufruct deal, Alhokair will own and operate the mall for 50 years before transferring it to MNHD.
5 July 2015 MNHD and PHD announced the final signature of Co-development agreement that related to 433,643 sqm in KM45 project.
Source: MNHD Source: MNHD, MubasherTrade Research
Madinet Nasr for Housing & Development (MNHD) was established in 1959 by the state. It was partially privatized in 1996 then fully in 2007 sold via a public tender offer through an unsolicited bid. MNHD’s main activities include real estate and land development. The company’s land bank, standing at 8.9mn sqm, is an attractive, dispute-free land portfolio and one of the sector’s oldest. MNHD’s development properties are concentrated mainly in the following locations:
(1) Teegan: A mixed-use development project on 3.5mn sqm at the intersection of the Ring Road and Cairo-Suez Highway east of Cairo. Despite the cancellation of an agreement with Orascom Development & Management (ODM) to develop the Teegan project, MNHD succeeded in launching Tag Sultan (0.3mn sqm), which is part of the Teegan project.
(2) KM45: A mixed-use development project with a total area of 5.5mn sqm, located adjacent to Talaat Moustafa Group Holding (TMG)’s Madinaty project.
(3) MNHD has other small developments, such as Hayy El Waha and Primera, in the Tenth District on the outskirts of Nasr City.
(4) Furthermore, the company develops budget housing project Hadayek El Nasr west of Cairo.
MNHD is the major shareholder in construction and infrastructure companies, owning a 52.5% stake in Al Nasr for Civil Works (NCCW.EGX) and a 97.52% stake in Al-Nasr for Utilities & Installation. MNHD’s largest stakeholder is Beltone Financial, which controls a total of 31% of the company, through Beltone Investment Group (24.14%) and Beltone Capital (7.04%). MNHD’s second largest shareholder is the National Company for Construction & Development, which owns 15.06% and represents the Egyptian government.
Shareholder Structure
Beltone Investment
Group24.1%Beltone Capital
7.0%
The National Company for
Construction and Development
15.1%
Banque Misr6.1%
Other investors 1.5%
Free float46.2%
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 3
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Project Valuation
methodologyEV (EGP mn)
per share
(EGP)%
Ongoing projects 1,020 4.08 9.6%Tag Sultan DCF 375 1.50 3.5%Primera DCF 81 0.32 0.8%Hadayek El-Nasr DCF 46 0.18 0.4%Hayy Al Waha DCF 329 1.31 3.1%Legacy land scattered in Nasr City DCF 189 0.76 1.8%
KM45 3,862 15.45 36.3%Co-development with PHD DCF 380 1.52 3.6%Co-development with another developer DCF 335 1.34 3.1%Remaining phases (solo-development) - Residential DCF 2,036 8.15 19.2%Non-residential (solo-development) DCF 1,111 4.44 10.5%
Teegan 5,198 20.79 48.9%Residential * DCF 2,315 9.26 21.8%Non residential DCF 2,883 11.53 27.1%
Garages DCF 344 1.38 3.2%Enterprise Value 10,423 41.69 98%Market value of NCCW (MNHD stake) Market Value 54 0.22 0.5%Other investment BV 92 0.37 0.9%Net cash BV 58 0.23 0.5%Equity Value 10,628 42.51 100%No of outstanding shares 250 2.4%
PT per share (EGP/share) 42.5
Valuation & Recommendation
Our valuation came in at EGP10.6bn, implying a PT of EGP42.51/share (a 76% upside potential): Using a DCF-based SOTP valuation model, we are initiating coverage on MNHD with a BUY/LOW RISK rating and a PT of EGP42.51/share, implying 76% upside potential to the current share price, according to our base case scenario. Moreover, we ran four other scenarios using a DCF- and NAV-based SOTP. These scenarios resulted in a price target between EGP36.10-42.7/share. We set all our entire scenarios using the following general assumptions:
• Cost of Equity (COE): 18.1%. • Adjusted beta: 1.13. • WACC: 17.5%.
• SG&A to pre-sales: 5%. • Tax rate: 25% starting 2017+. • Annual price and cost escalation rate: 10%. • Land share revenue (25% of total value) is
recognized upon the sales. • We consider the market value of MNHD stake
in NCCW, meanwhile, we overlooked MNHD’s stake in Al Nasr for Utilities and Installation.
Base case scenario (PT EGP42.51/share): In this scenario, we used a DCF model to value master planned projects, namely Tag Sultan, Hayy Al Waha and Hadayek El Nasr, Teegan and KM45, as well as the sellable land plots owned by the company. We believe that the company has the capability to develop all of its unutilized land
bank particularly after succeeding in launching Tag Sultan—the first phase of Teegan. Also, MNHD successfully signed an agreement with Palm Hills Developments (PHDC.EGX) to co-develop 433,643 sqm land plot in MNHD's KM45 project. Therefore, we assigned a 100% weight for this scenario. In our base case scenario, we assumed the following:
• MNHD will complete all developments in progress (Tag Sultan, Hayy Al Waha, Primera and Hadayek El-Nasr).
• MNHD will develop all Teegan phases without signing co-development agreements with other developers.
• MNHD will co-develop one more phase in
KM45 with another developer, while the remaining phases in KM45 will be developed solely by MNHD.
Considering the previous assumptions, our base case scenario yielded a price target of EGP42.51/share, implying an upside potential of 76%. On a project basis, 50% of our valuation came from Teegan (excluding Tag Sultan) and 39% from KM45. On a segment basis, 61% of our valuation came from residential development properties.
Although we used a tax rate of 25%, if this rate changes to 22.5% (as expected), our valuation will increase by 5.2% to EGP11.2bn or EGP44.7/share.
DCF Valuation Base Case Scenario Valuation by Project
* Excluding Tag Sultan and garages Source: MubasherTrade Research estimates Source: MubasherTrade Research estimates
EGP mn, except per-share figures 2015e 2016e 2017e 2018e 2019e 2020-2041e
Pre-sales 543 2,013 1,843 3,375 3,713 225,011
Land share revenues 105 526 483 900 990 56,331
Handover revenues 271 562 845 328 1,211 175,265
Deferred profit and interest on installment 59 68 39 49 40 2,641
Gross revenues 434 1,157 1,368 1,277 2,241 234,237
Less: Deferred payments (9) (8) (18) (11) (24) (2,459)
Net revenues 425 1,148 1,350 1,266 2,217 231,778
Gross profit 249 766 841 1,082 1,597 132,507
EBIT (1 - t) 153 465 561 684 1,058 90,935
Gross Cash Flow 156 467 563 686 1,060 90,945
Change in Operating Working Capital (119) (285) (94) (373) (508) 1,990
Free Cash Flow to the Firm (FCFF) 36 182 468 313 552 92,935
Present Value of FCFF 34 145 317 180 271 9,475
DCF Enterprise Value 10,423
Net Cash/(Debt) 58
Market value of NCCW (MNHD stake) 54
Other investments 92
DCF Equity Value 10,628
Price Target (EGP) 42.51
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 4
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Valuation & Recommendation (Cont.’d)
Teegan valuation estimated at EGP5.3bn, 50% of MNHD’s total valuation SOTP
*Excluding Tag Sultan All projects include its garages valuation Source: MubasherTrade Research estimates
* Include available for sale land plots and Garages ** Non residential segment include Retail, Office, Medical and Hotel segments Source: MubasherTrade Research estimates
60% of MNHD’s valuation comes from the Development Properties segment Scenario analysis of selling price annual escalation rate vs. cost escalation rate
Source: MubasherTrade Research estimates, * Co-development agreement with another developers, ** Only residential segment, *** Market value of MNHD stake in NCCW
Source: MubasherTrade Research estimates
KM45EGP4,100mn
39%
Teegan*EGP5,284mn
50%
Tag Sultan
Primera
Hadayek El-Nasr
Hayy Al Waha
Legacy land
KM45
Teegan*
Market value of NCCW(MNHD stake)Other investment
Net cash
Equity Value of EGP10.6bn
Development properties*
EGP6,429mn60.5%
Non residential**EGP3,993mn
37.6%
Market value of NCCW (MNHD
stake)EGP54mn
0.5%
Other investmentEGP92mn
0.9%
Net cash EGP58mn
0.5%
Equity Value of EGP10.6bn
8% 9% 10% 11% 12%
12% 19.06 25.22 31.95 39.29 47.30
11% 24.61 30.78 37.51 44.85 52.86
10% 29.61 35.78 42.51 49.85 57.86
9% 34.11 40.28 47.01 54.35 62.36
8% 38.17 44.33 51.06 58.40 66.41
Selling price escalation rate%
Co
st e
scal
atio
n r
ate
%
2,3
15
2,8
83
38
0
33
5
2,0
36
1,1
11
37
5
81 46
32
9
34
4
18
9
10
,42
3
58 54 92
10
,62
8
0
2,000
4,000
6,000
8,000
10,000
12,000
Tee
gan
- R
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Tee
gan
- N
on
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KM
45
co
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ith
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KM
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an
oth
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KM
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rem
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(So
lo-d
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**
KM
45
No
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Tag
Sult
an
Pri
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Had
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Hay
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Gar
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Lega
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EV
Net
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NC
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***
Oth
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vest
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Equ
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valu
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EGP
mn
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 5
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Below is our detailed valuation of company’s projects based on the valuation assumptions used in our base case scenario:
Teegan (excluding Tag Sultan)
We valued the Teegan project (excluding Tag Sultan) using a DCF model, assuming that the project will be utilized over 10 years starting 2016. This is in contrast to MNHD’s estimates of seven years starting Q4 2015. Our valuation for the residential portion of the project resulted in an enterprise value (EV) of EGP2.3bn (EGP9.3/share). On the other hand, our valuation for the non-residential portion came in at EGP2.9bn (EGP11.5/share). We based our valuation for Teegan on the assumption that its residential and non-residential portions will be solely developed by MNHD. We outline our main DCF valuation assumptions below:
Apartments and villas are expected to be sold at EGP8,250/sqm and EGP13,750/sqm, respectively. We believe that the other phases of Teegan will be sold at premium of 10% versus Tag Sultan due to the former's better location and its proximity to Ring Road.
Property prices are expected to increase annually by 10% over projects’ life time, based on a sustainable estimate of Egypt's inflation rate.
Construction and infrastructure costs stand at EGP2,100/sqm and EGP700/sqm, respectively. We assigned a cost escalation rate of 10% per annum.
25% of the properties’ value will be collected in the first year of sale, while the remaining will be collected in equal installments over the following five years.
Units will be delivered three year from sale.
We used an SG&A-to-total pre-sales of 5%.
Non-residential area (retail, office, medical and hotel) is estimated to be utilized over ten years starting 2020.
KM45 We valued the KM45 project using a DCF model, which yielded a total valuation of EGP3.6bn (EGP16.4/share). This valuation was calculated according to the following :
1) Using the DCF method, we evaluate the 433,643 sqm area that will be co-developed with PHD at an EV of EGP380mn (EGP1.5/share) based on the following assumptions:
Sales start in 2016 versus company estimates in Q4 2015.
Sales will be extended over six years, with the project completed in 2025.
No. of units: 2,880 apartments.
Apartment price of EGP6,500/sqm with external infrastructure costing EGP100/sqm. MNHD will only incur external infrastructure costs. As a result, the company will be entitled to 36% of revenue in exchange for the land and external infrastructure.
We assume no construction cost will be incurred.
Property prices will increase by 10% every year over the project's lifetime.
25% of the property's value is collected in the first year of sale, while the remaining is collected in equal installment over the following five years.
Handover will start in 2020.
2) We assume that MNHD will co-develop another phase (estimated at 433,643 sqm) with another mega local or regional developer. We concluded this after our meeting with MNHD management, and we believe that this makes sense as the company will need another co-development agreement to accelerate KM45 land utilization. Therefore, we assume that the upcoming phase in KM45 will also be co-developed, based on the same assumption of the first co-development agreement with PHD. Sales of this upcoming phase will kick off in
2018. We evaluated this new phase using the DCF method, which resulted in an EV of EGP335mn (EGP1.3/share).
3) We assumed that the remaining phases (around 4.6mn sqm) in KM45 project will be solely developed by MNHD. Furthermore, we believe that all non-residential areas will be developed through solo-development as well. Based on the DCF model, we evaluate KM45 remaining phase in the residential segment at EGP2bn (EGP7.5/share), while our valuation for the non-residential segment in KM45 project comes in at EGP1.1bn (EGP4.4/share). We base our DCF valuation on the following assumptions:
Sales will be start in 2020, over ten years.
Equal BUA will be sold each year.
Estimated prices are concluded from our current assumptions of EGP6,500/sqm with an annual escalation rate of 10%.
Current construction and infrastructure cost of EGP2,100/sqm and EGP536/sqm, respectively, will increase at an annual rate of 10%.
Units are expected to be delivered four years from sale.
25% of property value is collected in the first year of sale, while the remaining is collected in equal installment over the following five years.
Non-residential sales in the project will commence in 2020 and last 15 years until the land inventory is sold out.
Tag Sultan We evaluated the Tag Sultan project using a DCF method, assuming the project's pre-sales will be completed in 2017 and handover will be completed in 2020. Our valuation model yielded an EV of EGP375mn for the residential portion of the project (EGP1.5/share), excluding the valuation of garages. We base our DCF valuation on the following assumptions:
Apartment price of EGP7,500/sqm with construction and infrastructure costs of EGP2,100/sqm and EGP700/sqm, respectively.
The price of BUA increases by 10% p.a. until the project is sold out. This is notably below management assumption of 15%.
The handover will kick off in October 2015.
Primera Using the DCF valuation method, our EV of Primera came in at EGP81mn (EGP0.3/share). Our main DCF valuation assumptions are:
The project's pre-sales and handover will be completed in 2016 and 2019, respectively.
We assume selling price of EGP4,600/sqm, increasing by annual rate of 10%.
We assume construction costs of EGP1,900/sqm.
Units are expected to be delivered three years from sale.
Hadayek Al Nasr The DCF model incorporates the project’s master plan data provided by the company. We valued Hadayek El Nasr at EGP46mn (EGP0.2/share). Conservatively speaking, we considered Phase 1 only (708 units). The main assumptions are:
The dispute will be settled in 2015, and sales will restart in 2016.
All of the project’s units will be sold out by 2019.
We assume a selling price of EGP2,050/sqm, increasing by 10% p.a.
Construction and infrastructure costs are assumed at EGP1,500/sqm and EGP300/sqm, respectively.
Valuation & Recommendation (Cont.’d)
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 6
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Valuation & Recommendation (Cont.’d)
Hayy Al Waha Using a DCF valuation method, our EV of Hay Al Waha project was EGP329mn (EGP1.3/share). We assumed that the project’s construction and sales will end in 2017. We also assumed a selling price of EGP3,800/sqm with payment terms extending over three years. Our construction costs are estimated at EGP1,900/sqm.
Legacy Land Plots in Nasr City Based on a DCF valuation method, we value MNHD's land plots scattered in Nasr City at EGP189mn (EGP0.8/share, EGP5,000/sqm). Our main DCF valuation assumptions are: Land plots will be sold over five years, ending
in 2020.
Equal areas of land will be sold each year.
Price of land plots increase by 10% p.a. throughout our forecast horizon.
33% of land value is collected as down payment upon land sale, while the remainder is collected in equal installment over the following two years.
Construction Subsidiaries We value MNHD stake (52.5%) in Al Nasr for Civil Works (NCCW.EGX) according to its market value, which is EGP54mn (EGP0.2/share), based on a closing price of EGP17.08/share as of 30 July 2015. On the other hand, we did not consider the value of Al Nasr for Utilities & Installation in our valuation due to its weak and inefficient performance. It is worth mentioning that MNHD had booked an impairment charge of EGP15.9mn by end of December 2014 for most of its stake in Al Nasr for Utilities & Installation.
Rental Portfolio MNHD owns a portfolio of old rental properties, including c.1,000 residential and commercial units leased under the old rent law. Moreover, MNHD rents four office buildings to the government under the same law. As a result, all aforementioned units and buildings generate negligible revenues to MNHD. Hence, we did not include this rental portfolio in our valuation.
Services Rendered We did not consider revenues from services rendered in our valuation and pro-forma as this business line generates minor revenues from cancellations or other negligible services such as auction services.
Other scenarios: price target range of EGP36.1-42.7/share
We run four other scenarios beside our base case scenario, which resulted in price target range of EGP36.1-42.7/share. Although we did not assign weights to any of these four other scenarios, we believe they capture any possible change in MNHD strategy over the coming years.
We note that MNHD’s major shareholders are Beltone Capital and Beltone Investment Group (a jointly-own combined stake of 31%) at an adjusted acquisition cost of around EGP6.12/share (according to our estimates), which creates an incentive for them to sell their stake—particularly given their private equity activity. Therefore, we ran these different scenarios to depict the effect of any possible strategy changes on our valuation. The below tables depict scenario details and their resulting valuation.
The following table depicts our valuation for each project according to their development model:
* Excluding Tag Sultan
** NAV (gross land area - GLA) of other development is related only to raw land in Hadayek El-Nasr and legacy land scattered in Nasr City.
Source: MubasherTrade Research estimates
DCF (solo -
development)
DCF (Co -
development)NAV (NLA) NAV (GLA)
Teegan
Residential * 2,315
Garages 88
Non residential 2,883 1,796
KM45
Co-dev with PHD 380
Garages co-dev with PHD 16
Another phase 354 335
Garages of another phase 33 14
Remaining phases 2,036 1,925
Garages of remaining phases 208 81
Non-residential 1,111 1,044 624
Other Developments
Tag Sultan 375
Garages of Tag Sultan 15
Primera 81
Garages of Primera 4
Hadayek El-Nasr ** 46 12
Hayy Al Waha 329
Legacy land scattered in Nasr City ** 189 152
Total EV of our base case scenario
Our base case scenario
4,109
Project
Valuation method
3,672
10,423
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 7
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
EGP mn, except per-share figures 2015e 2016e 2017e 2018e 2019e 2020-2023e
Pre-sales 289 218 13 0 0 0
Net revenues 209 510 610 214 162 14
Gross profit 106 189 221 92 72 10
EBIT 92 178 220 92 72 10
EBIT (1 - t) 64 125 165 69 54 7
Gross Cash Flow 64 125 165 69 54 7
Change in Operating Working Capital (100) (137) (61) 141 172 285
Free Cash Flow to the Firm (FCFF) (35) (12) 105 211 226 292
Present Value of FCFF (33) (9) 71 122 111 114
DCF Enterprise Value 375
DCF Enterprise Value (EGP/share) 1.50
Valuation & Recommendation (Cont.’d)
KM45 remaining phases (Residential) – Solo development
Tag Sultan valuation
Source: MubasherTrade Research estimates
Source: MubasherTrade Research estimates
KM45 Phase 1 (Co-development agreement with PHD)
Teegan valuation (excluding Tag Sultan) (Residential segment) – Solo development
Source: MubasherTrade Research estimates
Source: MubasherTrade Research estimates
EGP mn, except per-share figures 2016e 2017e 2018e 2019e 2020-2032e
Pre-sales 1,204 1,325 2,634 2,897 29,177
Net revenues 301 331 658 1,615 34,332
Gross profit 298 329 654 1,150 20,087
EBIT 236 261 520 1,004 18,619
EBIT (1 - t) 165 195 390 753 13,964
Gross Cash Flow 167 197 392 754 13,974
Change in Operating Working Capital (212) (206) (431) (732) 1,629
Free Cash Flow to the Firm (FCFF) (44) (9) (39) 22 15,602
Present Value of FCFF (35) (6) (22) 11 2,368
DCF Enterprise Value 2,315
DCF Enterprise Value (EGP/share) 9.26
EGP mn, except per-share figures 2016e 2017e 2018e 2019e 2020-2028e
Pre-sales 228 251 276 304 702
Net revenues 57 63 69 76 1,498
Gross profit 56 62 68 75 1,385
EBIT 45 50 55 60 1,350
EBIT (1 - t) 32 37 41 45 1,012
Change in Operating Working Capital (34) (4) 28 64 (50)
Free Cash Flow to the Firm (FCFF) (3) 33 69 109 963
Present Value of FCFF (2) 22 40 54 266
DCF Enterprise Value 380
DCF Enterprise Value (EGP/share) 1.52
EGP mn, except per-share figures 2020e 2021e 2022e 2023e 2024e 2025-2036e
Pre-sales 4,125 4,538 4,991 5,491 6,040 40,560
Net revenues 1,031 1,134 1,248 1,373 4,560 56,398
Gross profit 1,028 1,131 1,244 1,369 2,418 24,436
EBIT 822 904 995 1,095 2,117 22,408
EBIT (1 - t) 616 678 746 821 1,587 16,806
Change in Operating Working Capital (766) (408) (517) (705) (1,144) 3,572
Free Cash Flow to the Firm (FCFF) (149) 270 230 116 444 20,378
Present Value of FCFF (62) 96 70 30 97 1,806
DCF Enterprise Value 2,036
DCF Enterprise Value (EGP/share) 8.15
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Page 8
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Valuation & Recommendation (Cont.’d)
Details of other valuation scenarios
Source: MubasherTrade Research estimates
Investment Rationale
Undisputed, debt-free land bank of 8.9mn sqm in prime locations (99% of which is located east of Cairo). Access to vast unutilized land bank without a
mandatory development schedule. KM45 project is located near the New Capital
city which will enable MNHD to utilize the project’s land faster and more efficiently. Well-established presence in the growing
middle-income housing segment, which enjoys favorable supply-demand dynamics, particularly in the region east of Cairo where 99% of company land bank is located. Recording impressive off-plan sales in the Tag
Sultan project ensures strong top-line growth over the coming years. Strong, liquid, balance sheet with low leverage
and efficient receivables collection. Offering affordable products with a range of
installment schemes beyond five years. MNHD usually tenders off its construction
contracts to several contractors in order to diversify its execution risk. Financing through mortgage companies with no
recourse on MNHD, hence minimizing the risk of not collecting receivables. Moreover, ownership of the unit is transferred to the buyer upon completion of payments. MNHD has a strong track record with excellent
reputation and credibility. Diversifying into different residential market
segments (the upper middle income class via the Tag Sultan project and setting up a partnership with PHD, the middle income class via Hayy Al Waha and Primera projects, and low-income housing via Hadayek Al Nasr project). MNHD projects have a bigger footprint and BUA
relative to overall land area versus comparable projects. MNHD is set to benefit from any upward
revision in land prices due to its sizeable unutilized land bank. Disputed land plots represent an upside risk to our valuation if MNHD regains some areas.
Key Risks
There is a concentration risk because 99% of the company's unutilized land bank is located east of Cairo, and the company's operations are concentrated in the primary home segment. Moreover, The company has no recurring income in its revenue structure, which exposes it to the cyclicality of the property sector. The delay in launching Teegan's second phase
negatively affects pre-sales growth. Slow construction progress relative to current
pre-sales could expose the company to execution risk. Consolidating contracting companies exposes
MNHD’s earnings to the volatile performance of its own contractors, which could depress its profitability. The company has no plan to expand and
diversify its land bank. Rising building materials prices resulting from
the devaluation of the EGP and higher energy prices could depress profit margins in the future. A small and conservative mortgage market in
Egypt could hinder demand. A large footprint (the area enclosed by the
building's perimeter at ground level) could lead to fears of overcrowding, which could reduce the attractiveness of projects. Delays in launching the new capital project in
Egypt could reduce the attractiveness of KM45 project for co-developers, thus lengthening its utilization period. Beltone acquired most of its MNHD stake
(26.25% of MNHD) in December 2006. Considering the historical stock split, cash and stock dividends, we estimate Beltone’s adjusted acquisition price is c.EGP6.14/share. This could be a major incentive for Beltone to sell its stake in MNHD in view of Beltone’s private equity activity. This may affect MNHD’s long-term investment plan.
Scenario Details Evaluation methodEquity Value
(EGP mn)
Price Target
(EGP/share)
Weight
%
Scenario 1 The only difference between this scenario
and our base case scenario is that we
assumed that all KM45 phases will be
developed through solo-development
agreement for its residential and non-
residential land, except the first phase that
will be co-developed with PHD.
- DCF for all projects. 10,666 42.7 0%
Base case
Scenario
Developing all land bank (Residential & Non-
residential) through solo-development
except the first phase in KM45 (co-
developed with PHD) added to another
phase which might be developed with
another developer.
- DCF for all projects. 10,628 42.5 100%
Scenario 2 The only difference between this scenario
and our base case scenario is that we
assumed that all KM45 phases will be
developed through co-development
agreement for its residential and non-
residential land.
-DCF for all projects. 10,323 41.3 0%
Scenario 3 Developing all residential land bank through
solo-development except the first phase in
KM45 (co-developed with PHD), added to
another phase, which might be developed
with another developer. However, we
assumed non-residential land bank will be
sold to other developers
- DCF for all
Residential projects.
- NAV using net land
area for non-
Residential land bank.
9,055 36.2 0%
Scenario 4 Developing only current ongoing projects
(Tag Sultan, Hayy Al Waha, Primera and
Hadayek Al-Nasr added to sellable legacy
land scattered in Nasr City).
- DCF for all currently
operating projects.
- NAV for Teegan
(excluding Tag Sultan)
using GLA.
- NAV for KM 45
project using GLA.
9,024 36.1 0%
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Page 9
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Sunday, 9 August 2015
75
1
8,5
56
12
7
68
7,9
45
54
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
MNHD equity (31December 2014)
BV of land BV of subsidiaries Mubashervaluation of land
Market value ofsubsidiaries
MNHD NAV
EGP
mn
Valuation & Recommendation (Cont.’d)
Net Asset Value (NAV)
We estimate MNHD’s NAV at EGP8.6bn (EGP34.2/share), which implies a P/NAV of 0.7x. Our estimates for NAV implies an upside potential of 37%. Furthermore, our price target implies a P/NAV of 1.2x. To estimate MNHD's NAV, we estimate the current market value of assets of the company, including land owned at the end of 2014, and then adjust debt and other liabilities to derive NAV. Accordingly, we adjust MNHD’s equity value at the end of 2014 as follows:
Excluding the book value of MNHD’s subsidiary (NCCW and Al Nasr for Utilities & Installation).
Adding the market value of MNHD’s stake in NCCW (52.5% owned by MNHD), according to the most recent market price on EGX.
Excluding the book value of the company's undeveloped land.
Adding land valuations, which were estimated according to our land valuation model based on recent prices of land transactions. Our land valuation model resulted in total value of land at EGP7.9bn, implying EGP896/sqm for the entire unutilized land bank, which reflects our conservative valuation for MNHD’s land. In the same context, we highlight that MNHD's unutilized land bank (8.9mn sqm) is concentrated east of Cairo, which is witnessing solid demand at present and where the land prices average around c.EGP2,000-2,500/sqm as per latest auctions by the New Urban Communities Authority (NUCA).
• For Teegan, we used a price of EGP2,046/sqm with an annual increase of 10%, considering the last auctions for prime locations east of Cairo. We assume a utilization period of 10 years, resulting in a 31% discount rate.
• For KM45, the starting land price is EGP1,547/sqm, according to the latest
transaction in Future City that is adjacent to the project and implied price from co-development agreement with PHD and sub developers model assuming gross profit margin of 20%. We assume a utilization period of 15 years with land prices increasing at a rate of 10% p.a.
• Regarding raw land in Hadayek El Nasr project, we estimated land prices at EGP309/sqm, according to a sub-developer model.
• As for legacy land plots scattered in Nasr City, we used EGP5,000/sqm for the "available for purchase" land.
Conservatively, we did not add the gross profit that could be achieved from completed units in Hadayek El Nasr, which would have had minimal effect. Additionally, we did not adjust the value of pre-sold development according to expected gross profit could be achieved from it.
We did not consider all disputed land, given that we do not expect to see these conflicts to be resolved in the short term.
We applied different discount factors for each project depending on their utilization periods:
• Teegan (22%, 10 years).
• KM45 (32%, 15 years).
• Hadayek El Nasr (18%, 5 years).
• Legacy land (27%, 7 years).
This was based on a WACC of 17.5% and a 10% annual increase in land prices.
MNHD's Net Assets Value (NAV)
Land is the largest contributor to MNHD net asset value
Our land valuation model resulted in total value of land at EGP7.9bn, implying EGP896/sqm
Source: Company reports, MubasherTrade Research estimates
Source: Company reports, MubasherTrade Research estimates
Source: Company reports, MubasherTrade Research estimates
Project
Area
(GLA)
(mn sqm)
price
(EGP/sqm)
Gross
value of
land (EGP
mn)
Net value
after SG&A
and taxes
(EGP mn)
Utilization
period
(Year)
Discount
factor
(%)
Discounted
net value
(EGP mn)
Discounted
net value
(EGP/share)
Teegan (excluding Tag Sultan) 3.2 2,046 6,615 4,713 10 22% 3,672 14.7
KM 45 5.5 1,547 8,531 6,078 15 32% 4,109 16.4
Hadayek El nasr 0.1 309 20 14 5 18% 12 0.05
Legacy land in Nasr City 0.1 5,000 294 209 7 27% 152 0.6
Total 8.9 15,459 11,015 28% 7,945 31.8
EGP mn
Equity (31 December 2014) 751
Less:
BV of land 127
BV of subsidiaries 68
Add:
MTR valuation of land 7,945
Market value of subsidiaries 54
NAV 8,556
No. of outstanding shares (million shares) 250
NAV per share (EGP/share) 34.2
Market price (EGP/share) 24.09
Upside (downside) potential 42%
P/NAV (X) 0.7
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 10
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Financial Summary (Stand-Alone Basis)
Balance Sheet (EGP mn) Per-Share Data
FY End: December 2012a 2013a 2014a 2015e 2016e 2017e 2012a 2013a 2014a 2015e 2016e 2017e
Current Assets Price 23.53 23.22 29.70 24.09 24.09 24.09
Cash & Cash Equivalent 39 66 136 162 344 801 # Shares (WA,in mn) 115 135 199 250 250 250
Accounts & Notes Receivable 549 599 645 509 831 918 EPS 0.70 1.18 0.94 0.59 1.81 2.20
Other Current Assets 382 556 705 953 989 894 DPS 0.00 0.00 0.00 0.00 0.00 0.00
Total Current Assets 971 1,221 1,485 1,625 2,164 2,613 BVPS 3.83 4.36 3.77 3.60 5.41 7.61
Fixed Assets (net) & IP 26 26 28 26 24 22
Other Non-Current Assets 68 68 72 72 72 72 Valuation Indicators
Net Intangibles - - - - - - 2012a 2013a 2014a 2015e 2016e 2017e
Total Assets 1,065 1,315 1,585 1,722 2,260 2,707
PER (x) 33.7x 19.6x 31.7x 40.5x 13.3x 11.0x
Liabilities & Equity PBV (x) 6.1x 5.3x 7.9x 6.7x 4.5x 3.2x
Short-Term Debt 19 6 22 15 14 12 EV/Sales (x) 11.5x 8.3x 13.4x 14.1x 5.1x 4.0x
Current Portion of LT Debt 0 4 4 20 34 49 EV/EBITDA 24.1x 15.1x 22.2x 27.0x 8.8x 7.2x
Accounts Payable 86 126 78 80 135 148 Dividend Payout Ratio 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other Current Liabilities 448 461 565 550 544 415 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total Current Liabilities 553 597 670 665 727 624
Long-Term Debt 15 16 37 76 100 100 Profitability & Growth Ratios
Other Non-Current Liabilities 56 113 127 81 81 81 2013a 2014a 2015e 2016e 2017e
Total Liabilities 624 726 834 822 908 805
Minority Interest - - - - - - Revenue Growth 59.0% 17.2% (3.1%) 170.3% 17.5%
Total Equity 440 589 751 900 1,352 1,902 EBITDA Growth 82.3% 28.5% (16.1%) 200.9% 12.5%
Total Liabilities & Equity 1,065 1,315 1,585 1,722 2,260 2,707 EPS Growth 69.7% (20.8%) (36.5%) 203.6% 21.8%
EBITDA Margin 54.9% 60.2% 52.1% 58.0% 55.5%
Income Statement (EGP mn) Net Margin 42.7% 42.6% 35.0% 39.3% 40.7%
2012a 2013a 2014a 2015e 2016e 2017e ROAE 31.1% 27.9% 18.0% 40.1% 33.8%
Total Revenue 235 374 439 425 1,148 1,350 ROAA 13.4% 12.9% 9.0% 22.7% 22.1%
COGS (62) (92) (93) (176) (382) (509)
GP 173 282 345 249 766 841 Liquidity & Solvency Multiples
Other operating (exp.)/ Inc. (60) (77) (82) (27) (100) (91) 2012a 2013a 2014a 2015e 2016e 2017e
EBITDA 113 205 264 221 666 749
D&A, Others (1) (2) (2) (2) (2) (2) Net Debt/(Cash) 8 (28) (58) (37) (182) (627)
Net finance exp., taxes (31) (44) (75) (71) (213) (198) Net Debt/Equity 1.9% (4.8%) (7.7%) (4.1%) (13.5%) (33.0%)
NP Before XO & MI 80 160 187 149 451 550 Net debt to EBITDA 0.1x (0.1x) (0.2x) (0.2x) (0.3x) (0.8x)
XO & Minority Interest - - - - - - Debt to Assets 0.0x 0.0x 0.0x 0.1x 0.1x 0.1x
Net Income 80 160 187 149 451 550 Current ratio 1.8x 2.0x 2.2x 2.4x 3.0x 4.2x
Cash Flow Statement (EGP mn) Consensus Estimates
2012a 2013a 2014a 2015e 2016e 2017e 2015e 2016e 2017e
Revenues 895 1,076 1,456
Cash from Operating (3) 80 61 (10) 160 455 MubasherTrade Research vs. Consensus (52.5%) 6.7% (7.3%)
Cash from Investing 19 (33) (9) 0 0 (0) Net Income 264 309 418
Cash from Financing 10 (19) 15 37 22 2 MubasherTrade Research vs. Consensus (43.7%) 46.3% 31.6%
Net Change in excess Cash 26 29 67 26 182 457 Fwd PER (x), Last Price 40.5x 13.3x 11.0x
Fwd PER (x), Price Target 71.5x 23.5x 19.3x
Capex (9) (2) (4) 0 0 (0) Fwd DY (%), Last price na na na
Source: Company data, MubasherTrade Research estimates a = Actual; e = Estimate Share price at 5-Aug-15
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Page 11
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Business Model
Source: MNHD, MubasherTrade Research
Projects Locations (Zoomed Out) Projects Details (Raw land)
Source: MNHD, MubasherTrade Research
Projects Summary
MNHD’s development properties are concentrated mainly in the following locations:
1) Teegan (raw land) is a mixed use development project on 3.5mn sqm at the intersection of the Ring Road and Cairo-Suez Road highway in Eastern Cairo. The company already launched the first phase in this project (Tag Sultan) in October 2012 with expected handover kick off in Q4 2015.
2) KM45 (raw land) is a mixed-use development project with total area of 5.5mn sqm, located adjacent to TMG’s Madinaty project.
3) Other small developments (in progress) such as Hayy Al Waha and Primera are located in the Tenth District within the extension of Nasr City in East Cairo, and the company is developing the budget housing project Hadayek El Nasr in West Cairo.
We highlight that the company’s un-utilized land bank spreads over 8.9mn sqm (99% of it is located in East Cairo). Furthermore, 98.6% of the company’s land bank is concentrated in Teegan and KM45 projects, representing 89% of our valuation.
We will shed more light on MNHD’s business model through the following sections:
1) Project Details and Locations.
2) Land Bank.
3) Subsidiaries.
4) Revenue Recognition.
5) Sales System.
6) Operational and Financial Performance.
Project Teegan (excluding Tag
Sultan)KM45
Gross Land area (mn sqm) 3.2 5.5
Net land area (mn sqm) 2.1 3.5
Built up area (BUA) (mn sqm) 3.4 5.7
Footprint % 40% 25%
Non-residential BUA (mn sqm) 1.3 1.0
Location East Cairo East Cairo
Price (EGP/sqm/BUA) of apartment 8,250 6,500
Target market Upper middle income Upper middle income
Sales commenced Q4 2015 Q4 2015
Handover start date Q4 2018 Q4 2019
Target completion date * 2026 2034
MTRe valuation (EGP mn)** 5,285 4,100
MTRe valuation (EGP/share) 21.1 16.4
* According to MNHD estimates
** MTRe valuation includes garages valuation
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Page 12
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Business Model (Cont.’d)
Projects Details (in progress)
Note: MNHD projects are not proportionally scaled. Source: MNHD, MubasherTrade Research
Projects Locations (Zoomed In)
KM45
Teegan
Tag Sultan
Hayy Al Waha &
Primera
Hadayek El Nasr
Project Tag Sultan Hayy Al Waha Primera Hadayek El Nasr
Gross Land area (sqm) 300,300 na 10,322 na
Built up area (BUA) (sqm) 306,306 na 56,957 na
Location East Cairo East Cairo East Cairo West Cairo
Total no. of units 1,700 na 392 708
Cumulative no. of sold units * 1,397 na 140 140
Available for purchase no. of units 303 524 252 568
Price of apartment (EGP/sqm)* 7,500 3,800 4,600 2000
Target market Upper middle income Middle income Middle income Budget housing
Sales commenced Oct-12 na Oct-14 2016
Starting of handover Oct-15 na Oct-17 2016
Target completion date 2018 2016 2018 na
MTRe valuation (EGP mn)** 389 329 85 46
MTRe valuation (EGP/share) 1.6 1.3 0.3 0.2
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Business Model (Cont.’d)
Teegan The Teegan project is a mixed-use development situated in a prime location east of Cairo at the intersection of the Ring Road and the Cairo-Suez Highway, opposite the Marriott Mirage Hotel & Gold Club and close to the Cairo International Airport. Teegan was previously known as Hadayek El Nasr; however, this name is currently used for MNHD’s low-income housing project in the Sixth of October City. The Teegan project was historically delayed due to height restriction issues. However, these disputes have been resolved with the Civil Aviation Authority (CAA), who had approved a ceiling of 180 meters above sea level in 2008. Teegan’s other dispute was with the Egyptian Armed Forces regarding the buffer zone between the project’s land and the adjacent military base. This conflict was resolved in 2009.
The project is spread over a land area of 3.5mn sqm with a BUA of 3.7mn sqm (including the Tag Sultan project) and non-residential (office, retail, medical and hotel) BUA of 1.3mn sqm. Teegan caters to the upper middle-income segment. It is worth noting that Tag Sultan, which has already been launched in October 2012, is part of Teegan. MNHD had requested to amend its master plan of Teegan, but this request is pending approval of the High Council of Urban Development. Tag Sultan, on the other hand, was launched according to the old, approved, master plan.
In March 2009, MNHD signed an agreement with Orascom Development Holding (ODH), under which, ODH was responsible for managing, marketing and construction activities of Teegan project in return for 2% of sales and 10% of profits as a management commission. However, this agreement was cancelled in January 2012.
The project's footprint is 40%, which is higher than comparable nearby projects. Although this footprint increases the BUA, and consequently the valuation of this project, it might reduce the
project’s attractiveness due to fears of overcrowding. According to management estimates, Teegan will have ten phases developed over seven years at an investment cost of EGP10bn. Expected revenues should total EGP20bn based on current prices. However, the project revenues could amount to EGP40bn, according to future prices. MNHD announced that the second phase of Teegan could be launched by the end of 2015, backed by sales proceeds from Tag Sultan. Teegan's second phase will be developed over 350,000 sqm at an investment cost of EGP1bn with expected revenues of EGP2bn, according to management. We highlight that Teegan's infrastructure is almost complete with the sewage network completed, water supply approved, and electricity expected to be approved within weeks.
Tag Sultan (part of Teegan) The Tag Sultan project, launched in October 2012, is part of Teegan. It spans 300,000 sqm and BUA of 306,000 sqm. Tag Sultan project consists of 1,700 units, 90%+ of which is residential apartments. The company adopted an off-plan sales model in developing this project with a delivery period of three years for pre-sold units. The project is situated in a prime location east of Cairo on an exit off the Ring Road, close to Nasr City, Heliopolis and Cairo International Airport. We note that the company had launched this project according to the old master plan of Teegan that was approved in 1998, and handover to owners is expected to start in October 2015.
Despite its small size relative to MNHD’s total land bank, Tag Sultan’s successful launch proves the company’s ability to efficiently develop its land bank and provide assurance of the company’s successful move toward an “off-plan sales” model.
This is evident by:
Booking pre-sales of EGP1.6bn since the project's launch in October 2012 until the end of 2014. We expect that project’s total pre-sales could top EGP2bn by the end of sale horizon in early 2017.
Tag Sultan sale prices increased by 67% since its launch, reaching EGP7,500/sqm at the end of 2014, up from EGP4,500/sqm in 2012.
We highlight that Tag Sultan has cumulative pre-sales of EGP1.7bn with 1,471 units sold at end of May 2015.
KM45 KM45 project is located on the outskirts of Cairo, on the Cairo-Suez Highway neighboring TMG’s flagship project Madinaty east of Cairo. KM45 project spreads over a gross land area of 5.5mn sqm with a net sellable land area of 3.5mn sqm. According to MNHD’s management, this mixed-use project will have a BUA of 5.7mn sqm, targeting the upper-middle income class. The project will feature apartments, villas and townhouses in addition to commercial and retail spaces.
We note that the project’s land was granted through a presidential decree to MNHD in 2003 in lieu of previously-owned plots occupied by the government. MNHD had previously planned to divide KM45's land plot into 50 parcels and offer them for sale to small local developers. However, owing to the notable hikes in property and land prices resulting from higher inflation and local currency devaluation over the past few years, MNHD chose to monetize KM45 land by signing co-development agreements with local and regional mega-developers to develop portions of this project over the coming years. In April 2015, MNHD signed an MoU with PHD to co-develop a 433,643 sqm land plot in KM45 with a BUA of 484,100 sqm. According to our discussion with management, we concluded that the company may sign another co-development
agreement to develop another phase in this project. However, we believe that the company will develop the remaining phases on its own. Restrictions on the height of buildings (no more than four floors) and a limited construction footprint of no more than 25% of total land negatively affected this project’s progress. Moreover, MNHD is negotiating with Cairo Electricity Company for the relocation of the high-voltage cables located on the Cairo-Suez Highway which negatively affected the project. Meanwhile, the company hired guards to protect against possible trespassing.
According to MNHD’s management, the project's master plan has been completed by global architect Benoy. The project includes 30,000 residential units spreading over 80% of the project’s net land area with footprint of 25%. Meanwhile, the other 20% will include office, retail and hospitality spaces. According to management estimates, the project will be developed over 10 years at a total cost of EGP25bn at future costs (EGP12bn in present value terms) with expected total revenues of EGP60bn at future prices (EGP25bn in present value terms). Most of the project will be financed from internal sources. Approval to lay infrastructure and utilities are being negotiated with NUCA. As it stands, water and sewage were approved, electricity is still under discussion with North Cairo Electricity Company. According to management estimates, this co-development agreement is expected to generate revenues between EGP4.6-5.5bn over the coming 9-10 years, which will be shared between both MNHD and PHD. The latter will receive 64% of the revenues in exchange for designing, developing, financing, delivering, and marketing the project. Meanwhile, MNHD will be entitled to 36% of the revenues in exchange for the land and external infrastructure that it will provide.
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Page 14
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Sunday, 9 August 2015
Business Model (Cont.’d)
On 5 July 2015, MNHD and PHD announced the signing of the co-development agreement with expectation that construction would kick off in Q4 2015. We believe this agreement is positive as it will enable MNHD to accelerate its land monetization and enhance the project's valuation. We believe that the high land prices in this area of Cairo helped MNHD reach an agreement at preferential terms. Furthermore, we believe MNHD can potentially reach another agreement at preferential terms in the upcoming phase of the project.
Hayy Al Waha Hayy Al Waha is a residential project located in the Tenth District in Nasr City on its outskirts close to the Ring Road. This project, which was launched in 2007, has apartment buildings (ground + 10 floors) plus mixed-use land plots for commercial and educational purposes. The project is mainly targeting the middle income segment. The project has 524 units (214 already built + 217 under construction + 93 under design) at the end of 2014. According to MNHD management estimates, the remaining undeveloped units will be completed and sold by the end of 2016. In this project, MNHD is adopting a “ready-for-sale unit” model. The company has sold some semi-finished units during the last period to accelerate revenue recognition for this project.
Primera Primera is the first gated community in Nasr City, located in the heart of Hayy Al Waha. MNHD launched this compound in October 2010, spreading over the remaining un-developed land, representing 20% of Hayy El Waha (10,322 sqm). The compound includes 392 units, 252 units of which are still available for sale at the end of 2014. MNHD estimates this project will be fully developed at a total cost of EGP140mn, generating revenues of EGP330mn over the coming three years. The company adopts an off-plan sales model in this project. The handover to owners is expected to kick off in Q4 2017, while the completion date will be in 2018.
Hadayek El Nasr (affordable housing) Hadayek El Nasr project is located in the Sixth of October City, near the Ring Road. The land was acquired from the Egyptian government for c.EGP81/sqm back in 2007 as part of the National Housing Project program, which was adopted by government at the time. This project is a mixed-use development, mainly targeting low-income housing, comprising 708 units, 408 units of which are ready-for-sale completed units which are sold as “core and shell”. So far, 140 units have been sold, while the remaining 568 units are still available for sale (268 units of
which are completed). The average unit area is 63 sqm. Previously, the project spread over 659,400 sqm, comprising 9,100 residential units. The first phase of this project, which includes 708 units, was launched in 2011. MNHD had originally planned to divide the project between low-income housing and middle-income housing. However, the company froze these plans after the entire project was put on hold as a result of numerous restrictions, pricing terms and delays in providing the necessary infrastructure for the project by the government. Therefore, the company decided to develop the first phase only. We believe this decision was mainly due to the usually lower profit margins of budget housing projects. According to MNHD, this project will be resumed in 2015 after the government sets up the infrastructure.
Legacy Land Plots These land plots are scattered in Nasr City, covering a total combined area of 63,176 sqm. The company sells these plots as raw land parcels with an average price of EGP5,000/sqm. We estimate that 58,713 sqm were available for sale at the end of 2014.
Disputed Land Plots* MNHD has disputed land plots of c.4mn sqm, of which 3.4mn sqm will not be easily or quickly resolved as this area is located in slum areas of Ezbet Al Arab and Ezbet Al Hagganah. The remaining area is occupied by the military, government and individuals, whose relocation will be difficult, if not impossible. We note that MNHD does not count these land plots in its land bank figures, so we excluded them from our valuation. However, these disputed plots represent an upside risk to our valuation if MNHD were to regain some of them. Although excluded, we estimated the valuation for the minor and mildly disputed land to determine the potential upside for this land. The current status of these disputed land, according to MNHD in 2011, are indicated in the following table.
MNHD disputed land details (excluded from land bank figure and our valuation)
Source: MNHD, MubasherTrade Research
Category Area (sqm) (as of October 2011) No of plots DescriptionMTRe Valuation
(EGP mn)
MTRe Valuation
(EGP/share)
Minor Disputes 29,255 9 Disputes close to being resolved 97 0.39
Mild Disputes 579,872 15 Resolution is possible yet difficult 422 1.69
Difficult Disputes 3,297,000 14 Include: Ezbet Al Haganah and Ezbet Al Arab na na
Total 3,906,127 38 519 2.1
* c.4mn sqm, excluded from MNHD’s land bank.
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Page 15
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Business Model (Cont.’d)
MNHD has unutilized free disputed land bank of 8.9mn sqm, without development schedule
Source: Company reports
99% of the company’s unutilized land bank is concentrated in Eastern Cairo
Source: Company reports
MNHD EV/sqm (un-utilized), is lower than its peers average by 5% according to current stock market price
Source: MNHD, MubasherTrade Research * MTRe EV/sqm (un-utilized) is based on consensus target price for SODIC and HELI
Land Bank
MNHD has an undeveloped land bank amounting to 8.9mn sqm of unutilized land without any legal disputes. Almost 99% of its land is located east of Cairo where demand is solid. MNHD’s land bank is recorded on its balance sheet at its historical cost close to USD1/sqm with no land development requirements which allows for booking land revenues. This enhances the profitability of MNHD versus its local peers. We note that these land plots were transferred to MNHD through three presidential decrees; thus, they are immune from litigation.
We see availability of dispute-free sizeable and debt-free land bank as the main value driver: MNHD undisputed, prime-located, land bank makes it an attractive investment and puts it on the radar screen with other local mega-developers. Accordingly, we believe that MNHD’s land bank suggests a potentially strong operating performance over the coming years due to the following:
1) MNHD has a sizeable land bank of 8.9mn sqm in prime locations (most of the east of Cairo), all of which provide a positive outlook for successful developments.
2) Undisputed land bank eliminates legal risk, putting MNHD in a strong position among all Egyptian developers.
3) MNHD’s land bank is free of a mandatory development schedule which gives the company time to explore and exploit good opportunities more efficiently.
4) MNHD land bank is debt free.
Today, MNHD’s EV/sqm (un-utilized) is still cheaper relative to its local peers: Roughly speaking, MNHD’s EV/sqm (un-utilized) stands at EGP689/sqm, coming 5% lower than its peers’ average. At our price target, MNHD’s EV/sqm (un-utilized) is EGP1,175/sqm, only 2.2% higher than local peers’ average.
However, concentration risk remains a concern along with the lack of any plans to replenish this land: Despite MNHD having a sizable land bank that can be developed over the coming 10-15 years, this land is concentrated in the eastern part of Cairo. Furthermore, all of MNHD land is related to the primary residential segment without any exposure to the second-home segment of the market. As for new land acquisition, we highlight that the company had previously planned to acquire land plots north of Egypt; however, this plan was put on hold.
Teegan (excluding Tag Sultan)
3.2 mn sqm36%
KM 455.5 mn sqm
62%
Hadayek El nasr0.1 mn sqm
1%
Legacy land scattered in Nasr City0.1 mn sqm
1%
1,260
759 662 584185
1,830
1,3991,175
1,059
312
0
500
1,000
1,500
2,000
Emaar Misr SODIC* Madinet NasrHousing
TMG Holding Heliopolis Housing*
EGP
/sq
m
EV/sqm (un-utilized) (EGP/sqm) MTRe EV/sqm (un-utilized) (EGP/sqm)
31 30
1310
9
4
0
5
10
15
20
25
30
35
TMG Holding Heliopolis Housing Palm HillsDevelopments
Emaar Misr Madinet NasrHousing
SODIC
(mn
sq
m)
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 16
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
… however, NCCW and Al Nasr for utilities has 9% and 1% gross profit contribution, respectively.
Business Model (Cont.’d)
Subsidiaries MNHD is the major shareholder of two local
construction and infrastructure companies. Al Nasr for Civil Works (NCCW.EGX) (52.5% owned by MNHD), a listed company, and Al Nasr for
Utilities & Installation (97.52% owned by MNHD). These subsidiaries are civil engineering firms specializing in supply and installation of
mechanical equipment for sewage and water plants. Accordingly, both companies act as contractors for MNHD. We highlight that these
subsidiaries had a combined backlog of EGP1bn at the end of 2014.
Consolidating contractors' results inflates revenues but hits margins: Both companies significantly enhance MNHD’s top-line
performance, contributing 41% of MNHD’s total revenues in 2014. However, these two subsidiaries have little impact on MNHD’s
profitability, contributing only 9.8% and 4.9% of gross profit and net profit, respectively, in 2014. This depresses MNHD margins. Overall, profit
margins generated from the construction sector are significantly lower than that of real estate development. On a stand-alone basis, MNHD’s
gross profit margin (GPM) stood at 79% in 2014 compared to 17% and 1.4% for NCCW and Al Nasr for Utilities & Installation, respectively.
Consolidating the results of these subsidiaries depressed MNHD's consolidated GPM to 52% in 2014. We highlight that MNHD is adopting a
turnaround strategy to improve performance of these subsidiaries.
Al Nasr for Civil (52.5%) Al Nasr for Civil Works, established in 1965, is the general contractor for MNHD. NCCW is
specialized in executing civil construction work, acting as an in-house contractor for MNHD.
MNHD holds a 52.46% stake in NCCW which is a listed company with a paid-in capital of EGP30mn, distributed over 6.05mn shares at a
par value of EGP5/share. NCCW’s market cap stood at EGP103mn (used in our valuation) as of 5 August 2015. Besides MNHD’s stake in NCCW,
the government indirectly owns a 19.3% stake through the National Company for Construction & Development. MNHD is adopting a plan to
improve NCCW’s performance by implementing human capital improvement programs, training programs, performance management systems
and salary restructuring. Al Nasr for Utilities & Installation (97.52%)
Al Nasr for Utilities & Installation, established in 1964, is specialized in civil construction, supply and installation of mechanical equipment for
sewage and water plants. The company acts as the infrastructure contractor for MNHD. We note that MNHD had impaired the full value of
this company on its balance sheet due to its weak performance. The company was delisted from the EGX in 2008. To improve its
performance, MNHD hired a new management team to lead the turnaround process under close supervision and support from MNHD.
NCCW and Al Nasr for Utilities contributed 41% of MNHD’s total revenues in 2014…
Source: Company reports
Consolidating contractors subsidiaries depress gross profitability margin
186 235374 439
164187
228211
5372
115 91
1.0
1.1
1.3 3.4
0
100
200
300
400
500
600
700
800
2011 2012 2013 2014
EGP
mn
Net revenues of MNHD - standalone Revenues of NCCW
Revenues of Al Nasr for utilities and installation Other reveneues
Source: Company reports
67%73% 75% 79%
17% 18% 16%17%
(18%)
(5%)
7%1%
44%
29%18%
7%
36%
41%46%
52%
(30%)
(10%)
10%
30%
50%
70%
90%
2011 2012 2013 2014
MNHD GPM -standalone
NCCW GPM
Al Nasr for UtilitiesGPM
Other activities GPM
MNHD GPM -consolidated
Source: Company reports
164 187228
211
28 34 36 37
41%38%
32%
28%
19%17%
11%9%
0%
10%
20%
30%
40%
50%
0
100
200
300
400
500
2011 2012 2013 2014
EGP
mn
Revenues of NCCW
Gross profit of NCCW
Revenues contribution
Gross profit contribution
5372
115
91
(9) (4)
8 1
13% 14%16%
12%
(6.6%)(1.7%)
2.4%0.3%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-30
0
30
60
90
120
150
180
210
2011 2012 2013 2014
EGP
mn
Revenues of Al Nasr for UtilitiesGross profit of Al Nasr for UtilitiesRevenues contributionGross profit contribution
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 17
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Business Model (Cont.’d)
Revenue Recognition With the start of 2011, MNHD shifted its fiscal
year to end in December instead of June (which was adopted when the government was the major shareholder). This step enables us to
compare between MNHD and its locally-listed peers as their fiscal years also end in December. Generally, MNHD recognizes its cash sales of
land, commercial and residential units as revenues upon sale.
As for off-plan sales (such as its Tag Sultan project), MNHD recognizes the value of sold land (c.25% of total transaction value) as
immediate revenues, while the balance reflecting the value of BUA is recognized upon handover to buyers. As for its ready-made units
(such as Hay Al Waha project), MNHD records the value of sold units when signing the contract as revenues. Meanwhile, the interest-
bearing portion is recorded as revenues upon collection. Therefore, the company recognizes "the profit gained from installments that were
previously deferred" in its gross revenues during the current period once cash from installments is collected. Meanwhile, MNHD
does not recognize “the profit generated from installments that are still uncollected” because the collection of these installments will be
recorded in future periods. Therefore, MNHD subtracts this profit from its gross revenues, resulting in the company’s net revenues.
Meanwhile, MNHD fully consolidates the financial statements of its two construction
subsidiaries using the "percentage of completion” method to report their revenues. Although this consolidation inflates MNHD’s top
line, it usually has a negative effect on MNHD’s bottom line due to these companies’ lower
profit margins and high leverage (i.e. higher interest expense).
All estimates in this report are reported on a stand-alone basis: Accordingly, the assessment of the performance of MNHD’s real estate
business line could only be conducted by analyzing MNHD’s stand-alone financial statements. Accordingly, all of our estimates
and historical data are reported on a stand-alone basis.
Sales System According to MNHD’s management, the
company generally collects 25-30% of the property's contract in the first year, 16% in the second year, 25% in the third year, and the rest
in semi-annual installments over the following two years. Sometimes, MNHD extends the installment period to six years without interest.
Furthermore, the company has variable installment programs above six years, but with interest.
As for land sales, the company collects 40% of the land value upfront, while the remaining 60%
is collected in semi-annual installments over two years. MNHD unit prices vary by project as it has a diversified portfolio of housing projects.
As for the upper middle-income housing project (Tag Sultan), the average price per unit is EGP7,500/sqm. On the other hand, the average
price per unit for middle-income housing projects (Hayy Al Waha and Primera) ranges from EGP3,800-4,600/sqm. Meanwhile, the unit
price of Hadayek El Nasr is around EGP2,000/sqm.
Operating and Financial Performance
Significant rebranding, turnaround and notable shift towards a more efficient business model
after Beltone acquisition: MNHD was historically disadvantaged by its relationship with the government. This changed when Beltone Capital, a private equity firm, acquired a 30.8% stake in MNHD between 2006 and 2007. MNHD’s business witnessed a notable
shift towards more efficiency, making it a competitive market player. Currently, the company aims to unlock the hidden value of its
assets and accelerate the monetization of the its land bank. We note that this ongoing restructuring is evident by:
Solving all outstanding land disputes and having a land bank ready for development.
Launching ambitious well-planned
developments, such as Tag Sultan.
Setting plans to diversify the company’s portfolio to include assets that generate
recurring income (office and retail space).
Shifting the business model towards off-plan sales rather than ready-made unit sales.
Reducing the construction period from 36 months to between 12-18 months to accelerate revenue recognition and avoid
cost over-runs.
Establishing a more efficient sales department by hiring top caliber marketers
and sales people.
Revenues from real estate development became the main source of revenues rather
than revenues realized from land sales.
Halting sales of residential land plots until they are developed by MNHD. On the other
hand, the company sells its commercial land
plots only in its small development like Hayy Al Waha.
All of MNHD’s historical disputes with local
institutions, such as the Army, have been resolved; thus, its land bank has no legal issues to date.
The company began rebranding itself and establishing a call center to reach a wider market as well as implement an active sales
strategy with a commission-based sales force.
Previously, MNHD’s clientele were in the
mid-to-low income segments. However, the company started to target the upper-middle income segment by launching Tag Sultan.
This trend has been affirmed after signing a co-development agreement with PHD to develop 433,643 sqm in KM45.
Hiring international master planners for the company’s projects.
Introducing efficient schemes for cash flow
management by introducing construction finance and receivables securitization.
Obtaining approval for the KM45 master plan
(5.5mn sqm) and working on finalizing Teegan’s new master plan over the coming months.
Simplifying the company's hierarchy and attracting young talent from top universities to join the company.
Planning to improve the company’s human capital and hiring a new management team to improve the performance of MNHD’s in-
house contractors (NCCW and Al Nasr for Utilities & Installation). Additionally, MNHD awards contracts to these two subsidiaries to
strengthen their financial position.
For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document.
Page 18
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Self-financing sales after completion “Ready for sale units”.
Small developments and selling raw land plots.
Focusing on middle to lower middle income clientele.
Focusing only on residential segment.
Auction based sales and passive sales.
Selling residential and commercial land plots.
Developing only finished units.
Rigid payment system with high down payment.
40% down payment & 7% lending rate & 15 years duration.
No customers credit assessment & No post-dated checks.
Old business
model Off plan sale model.
Ambitious well planned developments.
The company is tapping upper middle income housing particularly after launching tag Sultan project.
Planning to diversify into the segments that generates recurring revenues.
Marketing sales through more efficient sales department and active sales strategy.
Selling only commercial land plots in small developments.
Developing semi-finished units.
Smart payment system with high flexibility and lower down payment.
25%-30% down payment Mortgage with no recourse on MNHD.
Post-dated checks with customer credit assessment.
New business
model
Pre-Beltone acquisition Post-Beltone acquisition
Business Model (Cont.’d)
Kicking off KM45 land monetization—a positive step for MNHD and subsidiaries: We believe that this co-development agreement should mitigate
MNHD's major concern of slow land monetization and execution, as MNHD will benefit from PHD's strong track record and its brand in developing
mega real estate projects. On the other hand, we believe MNHD's two subsidiaries (NCCCW and Al Nasr for Utilities & Installation ) could
significantly benefit from this agreement as they are MNHD's contractors Thus, we expect MNHD to award considerable contracts to these two
firms to execute infrastructure works. Moreover, MNHD had announced its intention to sign similar co-development agreements with mega
local or regional developers to accelerate its land monetization, where MNHD would contribute land and the counter-party would be responsible
for construction and marketing activities.
Small differences between solo-development and co-development ensures MNHD success in utilizing KM45 land at preferential terms: Utilizing a DCF valuation method, we estimated the EV of the co-development with PHD in KM45
Phase 1 at EGP380mn (EGP1.5/share). However, if this development is evaluated as a solo-development, the valuation will increase slightly
by 4.9% to EGP399mn (EGP1.59/share). This small difference affirms MNHD's success to co-develop the KM45 project at preferred terms. Moreover,
we believe that this agreement will open the door for more successful agreements in the future.
MNHD’s operating performance pre and post Beltone takeover
Source: MNHD, MubasherTrade Research
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Page 19
Madinet Nasr for Housing & Development | Egypt| Initiation of Coverage
Sunday, 9 August 2015
Business Model (Cont.’d)
Tag Sultan impressive pre-sales ensures a successful shift towards using the "off-plan sale" model with declining share of land sales:
The successful launch of the Tag Sultan project in late 2012 with strong pre-sales (EGP1.7bn until the end of May 2015) is an indicator of
company’s capability to monetize its land bank efficiently. Although the company’s revenues were historically dominated by sales of
completed units and land sales, the contribution of off-plan sales to MNHD revenue started to increase. We highlight that ready-for-sale units
and land sales represented a combined 24% of total stand-alone revenues in 2013 then declined to 11% in 2014 We estimate its contribution to
decline further to 9% by 2016.
Revenues and pre-sales to grow at 3-year CAGRs (2014-2017) of 45% and 21%,
respectively, supported by Tag Sultan handovers and sales launch of the PHD co-developed land: We expect that Tag Sultan will put MNHD’s operations in a new perspective, leading to stand-alone revenues 3-year CAGR (2014-2017) of 45% with handover to buyers
kicking off in Q4 2015. Beyond 2015, we believe land-share revenues of PHD co-developed land and the second phase of Teegan will enhance
top line growth as well. We expect Tag Sultan will lead top line growth in 2016 and 2017, contributing 47% and 46%, respectively, of total
stand-alone revenues (excluding deferred payments). The current buoyant market conditions in middle and upper-middle income
housing should strengthen MNHD contracted sales to EGP543mn in 2015, EGP2.01bn in 2016 and EGP1.843bn in 2017. Accordingly, we expect
MNHD pre-sales to decline by 48% YoY in 2015 due to (1) delays in launching Teegan's second phase and (2) sales at Tag Sultan slowing down
as it draws to a close. However, we believe that launching sales in KM45 first phase (co-developed with PHD) in addition to launching
Teegan's second phase will improve pre-sales beyond 2015. Thus, we expect pre-sales could start to peak in 2016 and 2017 with a 3-year
CAGR (2014-2017) of 21%. We expect that Teegan and KM45 will jointly contribute 73% and 87% of total pre-sales in 2016 and 2017,
respectively.
Acquiring land at nominal prices and lower cost of land-share revenues should boost MNHD’s
GPM; however, margins would decline on higher handovers versus land sales: MNHD achieved a higher stand-alone GPM of 79% in
2014, mainly due to 1) A cheap land bank added to the low cost of sold land plots and 2) impressive profit margins when it comes to land
share revenues (representing c.25% of the value if an average sold property) that were reported upon sales at minimal cost. Going forward, we
believe GPM will decline as revenues from handovers to buyers (with a higher cost) dominate MNHD’s revenues. According to our estimates, we expect GPM to decline to 58% and 67% in 2015 and 2016, respectively. On a stand-alone basis, we expect this impressive sales
growth will filter down to earnings growth. We expect net income to grow at a 3-year CAGR (2014-2017) of 43% from EGP187mn in 2014 to
EGP550mn in 2017.
Strong balance sheet with low leverage: On a stand-alone basis, MNHD had low leverage with
interest-bearing debt of EGP64mn by the end of 2014. The ratio of debt-to-assets is 0.04x and net debt-to-equity is -0.2x (i.e. boasting a net cash
position). Furthermore, MNHD has access to securitization, which normally leads to efficient cash management and low default risk.
Furthermore, securitization could help MNHD exploit more attractive investment opportunities in the future.
Tag Sultan handover lead to standalone revenue 2014-2017 CAGR of 45%
Launching second phase in Teegan and executing co-development agreement with PHD will lead the pre-sales growth in 2016 and 2017
Source: MNHD, MubasherTrade Research
Gross profit margin will decline on skewing toward unit handover than land share revenues
Source: MNHD, MubasherTrade Research
0
500
1,000
1,500
2,000
2,500
2013 2014 2015 2016 2017
EGP
mn
Land sales Hayy Al Waha Primera Hadayek Al-Nasr Tag Sultan KM45 Teegan
0
200
400
600
800
1,000
1,200
1,400
2013 2014 2015 2016 2017
EGP
mn
Land revenue Al Waha Tag Sultan Primera Hadayek Al-Nasr KM 45 Teegan
Source: MNHD, MubasherTrade Research
23
5 37
4
43
9
42
5
1,1
48
1,3
50
17
3
28
2
34
5 24
9
76
6
84
1
80 16
0
18
7
14
9
45
1
55
0
73% 75% 79%
58%
67% 62%
0%
20%
40%
60%
80%
100%
0
400
800
1,200
1,600
2,000
2012 2013 2014 2015 2016 2017
mar
gin
%
EGP
mn
Net revenues Gross profit margin Net income Gross profit margin
Important Disclosures METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer’s intrinsic value on a per-share basis. In doing so, we follow both top-down and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation.
COUNTRY MACRO RATINGS: We analyze the four main sectors of a country’s macroeconomics, then we assign , , and star for low risk, moderate risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (25% weight), (b) Monetary Sector (15% weight), (c) Fiscal Sector (20% weight), (d) External Sector (20% weight), and (e) Credit Ratings (20% weight).
STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the “Neutral” borderline (below which is “Underweight”) as 20% of RRR for Country Macro Rating, 40% of RRR for Country Macro Rating, and 60% of RRR for Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year.
SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating – Overweight, Neutral, or Underweight – for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country.
Low
(1)
Moderate
(2)
High
(3)
Buy
(B)Higher than RRR Higher than RRR Higher than RRR
Hold
(H)
Between RRR
and 20% of RRR
Between RRR
and 40% of RRR
Between RRR
and 60% of RRR
Sell
(S)
Lower than 20%
of RRR
Lower than 40%
of RRR
Lower than 60%
of RRR
Not Rated
(NR)
Not Covered
(NC)
We do not currently cover this stock or we are
restricted from coverage for regulatory reasons.
Inv
es
tme
nt
Ra
tin
g
Risk Rating
We have decided not to publish a rating on the
stock due to certain circumstances related to the
company (i.e. special situations).
If
Total Return
is …
Disclosure Appendix
SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows “DCF” valuation model(s), (2) relative valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to scan the market for other analysts’ value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security’s expected total return (including both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return “RRR” as calculated using the Capital Asset Pricing Model “CAPM” and adjusted for the Risk Rating we attach to each security. Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow “DCF”), asset-based valuation models (e.g. Net Asset Value “NAV”), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), or a combination of them. In case we do not have our own valuation model, we use a weighted average of market consensus price targets and ratings. We review the investment ratings periodically or as the situation necessitates.
SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings (High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security’s average annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates.
Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities.
Analyst Certification I (we), Mahmoud Ibrahim, Senior Equity Analyst, employed with Mubasher International, a company under the National Technology Group of Saudi Arabia being a shareholder of Mubasher Financial Services BSC (c), and author(s) of this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report.
Head of Research Certification I, Amr Hussein Elalfy, Global Head of Research of Mubasher Financial Services BSC (c) confirm that I have vetted the information, and all the views expressed by the Analyst in this research report about the subject issuer(s) or security(ies). I also certify that the author(s) of this report, has (have) not received any compensation directly related to the contents of the Report.
Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mubasher Financial Services BSC (c) (‘MFS’) has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; MFS makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the document are based upon publicly available information at the time of publication and are subject to change without notice. This document is not intended for all recipients and may not be suitable for all investors. Securities described in this document are not available for sale in all jurisdictions or to certain category of investors. The document is not substitution for independent judgment by any recipient who should evaluate investment risks. Additionally, investors must regard this document as providing stand-alone analysis and should not expect continuing analysis or additional documents relating to the issuers and/or securities mentioned herein. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognized market, it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. References to ratings/recommendations are for informational purposes only and do not imply that MFS adopts, supports or confirms in any way the ratings/recommendations, opinions or conclusions of the analysts. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MFS or its affiliates to any registration or licensing requirements within such jurisdiction. MFS accepts no liability for any direct, indirect, or consequential damages or losses incurred by third parties including its clients from any use of this document or its contents.
Copyright © Copyright 2015, Mubasher Financial Services BSC (MFS), ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of MFS. MubasherTrade is a trademark of Mubasher Financial Services BSC. Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain.
Issuer of Report Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Website: www.MubasherTrade.com E-mail: [email protected]
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