Talaat Mostafa Group - Talaat Moustafa Group

Transcription

MENA Equity Research
07 June 2010
Initiation
Overweight
Talaat Mostafa Group
TMGH.CA, TMGH EY
Price: £E7.99
Play Cairo RE the TMG way - Initiate with OW
Price Target: £E10.70
• We initiate coverage of Talaat Mostafa Group Holding (TMG) with an
OW rating and Dec 2010 SOTP based PT of EGP10.7; we also add the
stock to the Analyst Focus List (AFL). At current prices, we see 34% upside
in the stock, which trades at a 34% price to NAV discount. TMG is up 16%
YTD, outperforming the benchmark EGX30 Index by 15%. However, we
expect stock price momentum to continue and the price to NAV discount to
narrow with better upcoming QoQ results on the back of planned handovers
and a further pick up in new sales momentum.
• Strong domestic driven housing demand benefits TMG’s Cairo-heavy
landbank: Targeting Egypt’s middle (35%) and upper middle (12%)
income segment, which accounts for c. 47% of the country’s total
population, TMG is the largest listed developer on the Cairo Stock
Exchange with 50mn sq m in its landbank. About 86% of TMG’s landbank
is Egypt based, with the rest located in Saudi Arabia – a market with strong
demand dynamics similar to Egypt. We forecast Cairo’s housing shortfall to
reach 264k units by end-2010, with demand for middle and upper middle
income segments estimated at 125k units. TMG plans to launch off-plan
sales in Riyadh, Saudi Arabia in 4Q10.
• Strong sales backlog at EGP24bn and self-funded business model:
Current sales backlog of EGP24bn provides TMG with high visibility on 3yr earnings – the highest within our MENA coverage universe. The
company has historically and continues to rely on a self-funded business
model, with construction costs funded through cash-based off-plan sales.
Given this, TMG’s balance sheet position is healthy with net debt/equity at
23% at end-1Q10 – at the favorable lower end of the net debt/equity range
for its GCC peers.
• Key risks: The downside risks to our OW rating could come from weaker
than forecast revenue from planned handovers in 2010-2012, weaker than
forecast margins on residential units, lower than expected demand for
housing and a poor response to the off-plan sales launch in Saudi Arabia.
Talaat Mostafa Group Holding Company (TMGH.CA;TMGH EY)
2009A
2010E
FYE Dec
2008A
Adj. EPS FY (£E)
0.71
0.53
0.77
Sales FY (£E mn)
5,421
4,822
7,109
Sales growth (%) FY
-11%
47%
EBITA FY (£E mn)
1,715
1,240
1,949
Net profit FY (£E mn)
1,442
1,106
1,566
Net profit growth(%) FY
-23.3%
41.5%
P/E FY
11.2
15.1
10.4
P/BV FY
0.7
0.7
0.7
Net D/E FY
19.6%
23.7%
20.7%
Source: Company data, Bloomberg, J.P. Morgan estimates.
2011E
0.87
9,024
27%
2,226
1,775
13.4%
9.1
0.6
16.0%
2012E
1.35
10,914
21%
3,571
2,748
54.8%
5.9
0.6
11.1%
Property
Muneeza Hasan
AC
(971) 4428-1766
[email protected]
JPMorgan Chase Bank, N.A., Dubai Branch
Christian Kern
(971) 4428-1789
[email protected]
JPMorgan Chase Bank, N.A., Dubai Branch
Harm Meijer
(44-20) 7325-9248
[email protected]
J.P. Morgan Securities Ltd.
Price Performance
9.0
7.5
£E
6.0
4.5
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
TMG - Landbank by location
8%
14%
78%
Cairo
Outside Cairo
Saudi Arabia
Source: Company reports
Company Data
Price (£E)
Date Of Price
Price Target (£E)
Price Target End Date
52-week Range (£E)
Mkt Cap (£E bn)
Mkt Cap (US) ($ bn)
Shares O/S (mn)
Free Float
3Mnth Avg daily value (US$
MM)
7.99
03 Jun 10
10.70
31 Dec 10
8.63 4.50
16.2
2.9
2,030
45.0%
9.99
See page 50 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table of Contents
Play Cairo RE the TMG way.....................................................3
Initiate with OW and Dec 2010 SOTP based PT of EGP10.7 .....................................3
Strong domestic driven housing demand benefits TMG's Cairo-heavy landbank .......3
Strong sales backlog at EGP24bn (1Q10)....................................................................4
Self-funded business model; low gearing ....................................................................5
Strong valuations underpinned by robust underlying fundamentals ............................5
TMG in Saudi Arabia – Off-plan sales to be launched in 4Q10 ..................................6
Recurring revenue to account for c. 7% cumulative revenue.......................................7
Key downside risks to our rating and PT .....................................................................7
Valuations – OW TMG with Dec 2010 SOTP based PT of
EGP10.7.....................................................................................8
Key drivers of TMG’s SOTP fair value.......................................................................9
TMG – Strong valuations with 34% price to NAV discount .....................................11
Egypt – 11% of MENA GDP; 28% of MENA population .......14
Egypt – MENA’s most populated country.................................................................15
Egypt property market ...........................................................17
High demand for housing amid low affordability levels............................................17
Housing deficit in upper middle, middle & low income segment…..........................18
…but affordability levels remain low ........................................................................18
Cairo – Residential shortfall to reach 264k units by end
2010 .........................................................................................20
Over 550k marriage contracts signed annually; another way to gauge housing
demand.......................................................................................................................20
Cairo – among the world’s top 10 most populated cities ...........................................21
Cairo's rapidly developing suburban communities ....................................................21
Residential prices have been relatively stable for middle income housing................23
Cairo Commercial - Office space remains undersupplied ..25
Cairo Retail and Hospitality...................................................27
Cairo Retail – limited GLA for high-end retail..........................................................27
Hospitality..................................................................................................................28
Key players - TMG is the largest ...........................................29
Talaat Mostafa Group - Changing Cairo's landscape..........32
Management...............................................................................................................33
Self-funded business model – core in Egypt..............................................................34
Key Projects - Madinaty is the largest ..................................36
Madinaty – 62% of TMG’s SOTP .............................................................................37
Al Rehab 1 and 2 – 12% of TMG’s SOTP value .......................................................38
Al Rabwa 2 – 2% of TMG’s SOTP value..................................................................39
TMG’s first international project – Nasamat Al Riyadh; 5% of the SOTP................40
Hotels and Resorts – 20% of TMG’s SOTP ..............................................................41
Revenue outlook – 3-yr revenue CAGR of 31% ...................43
EBITDA and net profit outlook .................................................................................43
Cash flows and balance sheet ..............................................45
Low gearing with liquidity likely to improve going forward.....................................45
Valuation Methodology and Risks ........................................48
2
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Play Cairo RE the TMG way
Initiate with OW and Dec 2010 SOTP based PT of EGP10.7
Table 1: TMG EPS - JPM vs. Bberg
consensus
EGP
Bberg Conc
JPMorgan
2010E
0.96
0.77
2011E
1.45
0.87
We initiate coverage of Talaat Mostafa (TMG) with an OW rating and Dec 2010
SOTP based PT of EGP10.7. We also add TMG to the CEEMEA Analyst Focus List.
Targeting Egypt’s middle (35%) and upper middle (12%) income segment, which
accounts for c. 47% of the country’s total population, TMG is the largest listed
developer on the Cairo Stock Exchange with 50mn sq m in its landbank and
experienced management with a good track record of on time deliveries (c. 25,000
residential deliveries since inception). About 78% of the company's landbank is
located in Cairo, 8% outside Cairo, while the rest is located in Riyadh and Jeddah,
Saudi Arabia – a market with equally strong demand dynamics as Egypt.
2012E
1.80
1.35
Source: Bloomberg and J.P. Morgan estimates
Talaat Mostafa is Egypt’s largest
listed developer with 50mn sq m
in its landbank, 78% of which is
located in Cairo
The stock trades at a 34% discount to 2010E NAV and our price target implies 34%
upside from current levels. Offering a 3-yr revenue and net income CAGR of 31%
and 35%, respectively, on our estimates, TMG is also one of the most attractively
valued stocks in terms of P/B when compared to its regional peers with similar
underlying demand dynamics.
Planned handovers during 2H10,
landbank revaluation by CBRE
and the launch of off-plan sales
in Saudi Arabia in 4Q10 should
be key near- to medium-term
triggers for stock performance
Key near- to medium-term catalysts include upcoming quarterly earnings for 2010
driven by planned handovers, landbank revaluation by CBRE (last valuation carried
out in June 2008), completion and launch of the Nile Hotel in Cairo and the Nasamat
Al Riyadh (Saudi Arabia) off-plan sales launch in 4Q10. The downside risks to our
OW rating could come from weaker than forecast revenue from planned handovers in
2010-2012, weaker than forecast margins on residential units, lower than forecast
demand for housing and a poor response to the off-plan sales launch in Saudi Arabia.
Strong domestic driven housing demand benefits TMG's
Cairo-heavy landbank
TMG owns roughly 50mn sq m in its landbank of which nearly 78% is concentrated
in Cairo, Egypt. Being the commercial hub and the capital of Egypt, Cairo attracts a
significant number of local migrants with nearly 1,000 people moving into the capital
every week according to a UN development report.
Figure 1: Egypt and Cairo’s housing shortfall
1,000
Egy pt
'000
800
Figure 2: TMG - Egypt's largest developer by landbank
Cairo
Outside Cairo
800
8%
600
400
405
134
200
Cairo
282
264
78%
93
96
32
19 6
Upper
Lux ury
Saudi Arabia
14%
0
Ov erall
Low
Middle
shortfall
Source: Company reports and J.P. Morgan estimates
Middle
3
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
We estimate Cairo’s residential
housing shortfall to reach 264k
by end-2010. Of this, the
shortfall for middle to upper
middle income segment is
estimated at 125k units
Bursting at the seams, the city is amongst the world’s top 15 densely populated cities
with nearly 18mn people. Despite the new developments coming on stream within
the new suburban communities surrounding Cairo, the city’s housing pressures are
unlikely to subside with the urban population estimated to grow at a much faster rate
than rural given relatively better employment prospects and lifestyle. Hence, given
continued strong growth in Cairo’s population, we estimate Cairo’s housing stock
deficit to reach 125k for the middle to upper middle income segment by end-2010
with the overall housing shortfall reaching 264k.
Strong sales backlog at EGP24bn (1Q10)
Current sales backlog of EGP24bn provides TMG with high visibility on 3-yr
earnings – the highest within our MENA coverage universe. The tough global
environment in 2009 has had a modest impact on TMG sales, where customer
contract cancellations peaked in 1H09 and currently account for less than 5% of the
total backlog. These have been more than offset by new sales generated in 2H09 and
1Q10. The company generated new sales of EGP1.2bn in 1Q10 and plans to maintain
the overall backlog at EGP25bn for 2010; implying new sales of EGP3bn in 2010,
according to our estimates. TMG plans to further increase its sales backlog to
EGP30bn (net of revenue recognition of units being completed in 2011) by end2011; implying new sales of EGP4bn.
Figure 3: TMG - Landbank by project and location
10%
TMG's current sales backlog of
EGP24bn provides 3-year
earnings visibility – the highest
within our MENA universe
2%
14%
66%
8%
Madinaty (Cairo)
Al Rehab (Cairo)
Riy adh and Jeddah
Hotel projects (Egy pt)
Al Rabw a (Cairo)
Madinaty is TMG's largest
development project and once
completed in 2020 will become
MENA’s largest integrated
community complex
4
Madinaty is TMG’s largest project by landbank with nearly 33mn sq m accounting
for 66% of the company’s total landbank and 62% of our SOTP based value. Divided
into 6 overlapping phases, the Madinaty project is due for completion by 2020,
where the first set of handovers is planned for 2H 2010. Once completed in 2020,
Madinaty will become MENA’s largest integrated community style development.
This is followed by the Al Rehab project located in the New Cairo region with nearly
4mn of incremental land area under development.
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Self-funded business model; low gearing
TMG relies largely on a self-funded business model with little upfront funding
requirement to develop city and community complexes. The payment for purchased
land parcels does not entail an initial cash outlay and is typically settled in kind in the
form of residential apartments to the Ministry of Housing (e.g. Madinaty and Al Rehab).
The upfront costs involving development plan and initial infrastructure are funded via
equity or debt, while the overall project construction cost is financed through customer
advances that are typically linked to phased cash outflow. Given the restrictions on
mortgage financing, commercial banks cannot fund off-plan sales directly; thus the selffunded, off-plan sales model has worked well for TMG. Given this, the company’s
balance sheet is healthy with net debt/equity of 23% as of 31st March 2010 – at the
favorable lower end of the net debt/equity range for its GCC peers.
At 23% (1Q10), TMG’s net
debt/equity is at the lower end
relative to its MENA peers
Figure 4: TMG enjoys one of the lowest net debt/equity ratios among its GCC peers
490%
454%
390%
290%
190%
190%
110%
90%
45%
23%
22%
-4%
-10%
Barw a -
Aldar - UAE
Palm Hills - Dar Al Arkan TMG - Egy pt Emaar -UAE
Qatar
Egy pt
Sorouh -
- KSA
UAE
Net Debt / Equity
Source: Bloomberg, Company reports and Zawya
Strong valuations underpinned by robust underlying
fundamentals
Despite the recent run up, TMG’s
valuations remain attractive with
the stock trading at 9x 2010E
earnings and at a 34% discount
to 2010E book
In Feb 2009, TMG's stock hit a low of EGP2.37, down 81% from its 2008 peak of
EGP12.51. We believe that this was a combination of 1) general lack of appetite for
and risk aversion from equities, where real estate developers among others across the
globe hit their trough valuations and 2) legal proceedings against the former
chairman of TMG (these charges have recently been dropped as per Bloomberg).
However, following better than expected macro numbers, limited default from local
real estate investors driven by limited speculative demand and better than expected
sales and earnings announcements by the company, the stock has seen a sharp
recovery from its mid 2009 lows, where it’s up 44% in 12 months.
Figure 5: TMG Price performance since listing (rebased)
140
120
100
80
60
40
20
0
Dec-07
Apr-08
Aug-08
Dec-08
TMG
Apr-09
Aug-09
Dec-09
Apr-10
EGX 30 Index
Source: Bloomberg
5
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Despite this recovery, the stock still trades at a 34% discount to 2010E NAV and 9x
2010E earnings. TMG is by far the only stock within our MENA universe that offers
a 34% discount to 2010E NAV despite the strong underlying demand dynamics of
the Cairo real estate. In Saudi Arabia where underlying demand dynamics are equally
strong and speculative buying remains non-existent, the largest real estate developer
by market cap, Dar Al Arkan, trades at a 5% discount to 2010E book (Bloomberg
consensus).
Figure 6: MENA Large Cap Real Estate developers on P/B 2010E
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
81%
Discount// Premium to P/B
62%
31%
20%
-5%
-14%
-22%
-34%
-39%
-58%
Jabal Omar -
DLF Ltd. -
Barw a -
KSA
India
Qatar
Palm Hills
Dar Al Arkan
Saudi RE -
- KSA
KSA
Sorouh
TMG
Emaar -UAE
Aldar
Source: Bloomberg and J.P. Morgan estimates, Priced on June 03
TMG in Saudi Arabia – Off-plan sales to be launched in
4Q10
14% of TMG’s landbank is
located in Saudi Arabia – a
market with equally strong
underlying fundamentals as
Egypt
6
TMG has picked Saudi Arabia (KSA) to develop its first mixed used project as part
of the company's geographical diversification strategy. KSA offers a blend of both
strong domestic demand, with its largest population base of 28mn in the GCC, and
strong macros driven by oil backed revenues. Riyadh is Saudi Arabia’s fastest
growing housing market with annual population growth averaging at 2.2%.
According to the Riyadh Development Authority, Riyadh needs nearly 18,000 units
of annual supply over the next 20 years to fill up the housing deficit. With high pent
up demand, Riyadh has been one of the few places where residential prices and rents
have remained stable in the prime residential areas. TMG is a JV partner in Nasamat
Al Riyadh project with a total of 4mn sq in land area (TMG’s share is estimated at
2mn sq m – 50% of the total), where the company plans to launch off-plan sales
during 4Q10. TMG’s share in this project is at 5% of our SOTP value. Apart from
this project, the company owns additional landbank of 2.8mn sq m (TMG’s share is
50% of that) in Jeddah, which will be developed going forward after master
development plans are finalized.
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Recurring revenue to account for c. 7% cumulative revenue
TMG’s hotels and resorts
portfolio accounts for 20% of our
combined SOTP with recurring
revenues representing 7% of the
consolidated topline
TMG currently has 3 operational hotels with 684 room keys through its hotels and
resorts management subsidiary Arab Company for Hotels and Tourism Investment
(ICON). The fourth hotel, Nile Hotel with 191 room keys, is due for completion by
3Q10, while the company plans to raise this to 5,000 room keys in 5 years of which
1,725 room keys are committed and under development. We only take into account
the committed and under development hotel room keys when calculating our DCF
from the hotel and resort portfolio. The company’s hotel and resort portfolio benefits
from reasonable occupancy levels and healthy operating margins given robust visitor
traffic into Egypt annually. The existing portfolio allows TMG to tap the business
and tourism traffic flow particularly into Cairo and Sharm el-Sheikh (Egypt’s key
tourist destination). With three operational hotels and five hotel and resort projects in
the pipeline, the company’s hotels and resorts portfolio accounts for 20% of our
TMG SOTP value. However, with development revenues from Madinaty and Al
Rehab accounting for a sizable proportion of the company’s consolidated revenues,
the contribution from hotels and resorts at the revenue level is c.7% on average
(2010-2012), as per our estimates.
Key downside risks to our rating and PT
Weaker than forecast revenue for planned handovers
The revenue from villa sales is split into two stages, where TMG records revenue
from the land area for underlying villas upon sales generation and contract
reservation, while revenue from the built up area (BUA) for villas as well as
apartments is recorded only upon handover. Hence, if the company generates lower
than expected new villas sales, it could lead to weaker than estimated revenues over
our forecast period. Similarly, revenues from land sales are also recorded upfront,
hence lower than forecast land sales to Mega Developers in any quarter can result in
lower than estimated revenues from this segment.
Poor response and potential delay in launch of off-plan sales in Riyadh
TMG’s share in Nasamat Al Riyadh is 50%, where the project represents 5% of the
company’s combined SOTP on our estimates. We estimate TMG to achieve 5% sales
of the total BUA in Nasamat Al Riyadh when the project is launched in 4Q10. This
assumption is already below the company’s planned launch at 10% BUA of the total
for 2010. However, the downside to our PT could come from poor response from
Saudi investors thus leading to weaker than forecast new sales in the company’s
Saudi project.
Slowdown in residential demand in Cairo
Assuming annual 2% growth in Egypt’s population, we estimate the residential
shortfall in Cairo to reach 264K in 2010. However deterioration in Egypt’s macro
fundamentals driven by continued weakness in global macro fundamentals could
result in reduced investor risk appetite leading to lower demand and limited
affordability for housing.
7
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Valuations – OW TMG with Dec 2010
SOTP based PT of EGP10.7
At current prices, our SOTP
based Dec 2010 PT of EGP10.7
implies 34% upside
The largest contribution to our TMG SOTP comes from the Madinaty, a large
community complex with target population of 600K and construction tenure of 20
years (to be completed in 6 overlapping phases over the course of its construction).
Madinaty accounts for 62% of our TMG combined SOTP, followed by Al Rehab (1
& 2) accounting for c. 12% of the company’s SOTP value. We exclude TMG’s
landbank from our SOTP calculation, as we forecast cash flows from all of TMG
projects including Madinaty and Al Rehab for their entire construction period. We
also exclude TMG’s land plot in Jeddah (2.8mn sq m), where construction plans have
not yet been finalized. Slicing our SOTP according to development type, the
development proportion of the company’s SOTP represents 80%, while the
remaining 20% contribution comes from existing investment portfolio and potential
cash flows from planned hotel and resorts projects.
Table 2: TMG - SOTP valuation summary
TMG's share
of project
NPV 2010
(EGP mn)
Per
share
(EGP)
As % of
total
481
2,822
489
17,441
1,368
2,827
2,700
0.2
1.4
0.2
8.6
0.7
1.4
1.3
2%
10%
2%
62%
5%
10%
10%
28,129
13.9
(+) Other assets
(-) Liabilities
23,326
-29,654
11.5
(14.6)
TOTAL
21,801
Project
Mixed used projects
Al Rehab 1
Al Rehab 2
Al Rabwa 2
Madinaty
Nasamat Al Riyadh - KSA
Hotel projects
Hospitality Portfolio
Development
status
Completion
date
Construction stage
Construction stage
Construction stage
Construction stage
Pre-construction
Construction stage
Completed
2012
2017
2013
2020
2012
2015
Shares outstanding (mn)
Valued
interest
Discount
rate
Total project
value 2010
(EGP mn)
100%
100%
100%
100%
50%
100%
100%
15.3%
15.7%
15.3%
15.7%
15.5%
15.5%
14.8%
481
2,822
489
17,441
2,737
2,827
2,700
2,030
NAV/share
Target discount
10.7
0%
Target NAV
10.7
8
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Figure 7: TMG – SOTP breakup by property type
Figure 8: TMG – SOTP breakup by projects
4.9%
20%
10.1%
9.6%
62%
80%
Master developments
11.7%
1.7%
Investment portfolio
Al Rehab
Madinaty
Hospitality Projects
Al Rabw a 2
Nassamat Al Riy adh - KSA
Key drivers of TMG’s SOTP fair value
We calculate our SOTP using
base case WACC of 14.8%,
derived via base cost of equity at
16.5%, after tax cost of debt at
9.6% and target debt to capital of
25%
We rate TMG OW with Dec 2010 SOTP based PT of EGP10.70. We do not apply a
discount to our SOTP, as we find Egyptian property market dynamics rather robust
with the residential demand largely driven by domestic population rather than expats.
However, we use a high WACC of 14.8% to reflect low affordability levels and high
interest & inflation (11.4% as of May 2010) rate environment in the country.
Table 3: TMG — J.P. Morgan WACC calculation
Egyptian 1yr Treasury bill
Equity Market Risk Premium (EMRP)
Base cost of equity
10.5%
6.0%
16.5%
Current Cost of Debt
Income Tax Rate
After Tax Cost of Debt
12.0%
20.0%
9.6%
Debt to Total Capital (Target)
25.0%
Weighted Average Cost of Capital
14.8%
Project and tenure wise discounting guide
Yielding properties
Construction stage
Preconstruction stage
Projects 3 years out
Projects 6 years out and beyond
14.8%
15.3%
15.5%
15.8%
16.0%
16.3%
16.5%
Source: J.P. Morgan estimates
Our WACC is calculated using Egypt's benchmark 1 year Treasury bill rate
(currently at 10.5%) to which we add an equity risk premium of 6%, resulting in our
base cost of equity of 16.5%. We use 12% as our base cost of debt, which reduces to
9.6% after we apply a 20% corporate tax rate. Using a target debt to capital of 25%,
we calculate our base WACC at 14.8%. We use our base cost of WACC to discount
cash flows from TMG’s operational investment properties. However, for properties
under construction, we apply an average WACC of 15.3% and for projects that are
still in the preconstruction stage, we add a further 25bps to our construction stage
WACC to discount potential cash flows.
9
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
For Madinaty Phase 5 and 6 that we estimate to be completed in 2017 and 2020,
respectively, we add an incremental 25bps for each phase to our pre-construction
WACC of 15.5%. This takes our Madinaty Phase 5 and Phase 6 WACC of 15.8%
and 16%, respectively and results in a phase BUA-weighted WACC of 15.75%. We
use a 2% terminal growth rate to discount cash flows from TMG's recurring income
generating investment properties
Table 4: TMG - WACC range across projects
Projects
Al Rehab 1
Al Rehab 2
Al Rabwa 2
Madinaty
Nasamat Al Riyadh - KSA
Hotel projects
10
Stage
Construction stage
Construction stage
Construction stage
Construction and pre construction stage
Pre-construction
Construction and pre construction stage
Completed
Completion
2012
2020
2013
2020
2012
2015
WACC range for phases
Low
High
15.3%
15.3%
15.3%
16.0%
15.3%
15.3%
15.3%
16.5%
15.5%
15.5%
15.5%
15.5%
14.8%
14.8%
Average
15.3%
15.6%
15.3%
15.7%
15.5%
15.5%
14.8%
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
TMG – Strong valuations with 34% price to NAV discount
The stock is up 16% YTD and
15% relative to the benchmark
EGX30 Index. However we
expect momentum to continue,
with improved upcoming QoQ
earnings through planned
handovers and positive
response from off-plan sales in
Saudi Arabia
TMG – offering a favorable mix vs. its peers
Trading at a 34% discount to NAV (average since 2008) and underpinned by strong
residential demand fundamentals, TMG makes a compelling buy case when
compared to its regional emerging market peers in our view. The housing demand
dynamics within Egyptian real estate are more comparable to Saudi Arabia, India and
Malaysia among other emerging markets, where real estate developers are trading at
close to or at a premium relative to their 2010E NAVs.
Take, for example, Dar Al Arkan, Saudi Arabia’s largest RE developer by market
cap with similar demand dynamics i.e. residential housing shortfall and under
penetrated mortgage market, trades at an average 5% price to NAV discount.
Similarly, DLF Limited, India’s largest listed developer, is trading at a 66% premium
to its 2010E book. In contrast, while TMG’s UAE peers trade at comparable price to
NAV discounts, we note that the two countries, in our view, differ on the basis of
underlying demand fundamentals.
TMG is up 16% YTD and 15% relative to its Cairo based benchmark EGX30 Index.
In Feb 2009, TMG's stock hit a low of EGP2.37, down 81% from its 2008 peak of
EGP12.51.
Table 5: TMG vs. Key Emerging markets RE developers (>1bn in Mkt cap)
Company
Country
DLF Ltd
Emaar Prop
Dar Al Arkan Rea
Unitech Ltd
Jabal Omar Development
Growthpoint Prop
TMG Holding
Barwa Real Estate
Redefine Property
Aldar Properties
DBRealty Ltd
Emaar Economic C
Housing Development
Uem Land Hldg
Sorouh Real Estate
Average
India
UAE
Saudi Arabia
India
Saudi Arabia
South Africa
Egypt
Qatar
South Africa
UAE
India
Saudi Arabia
India
Malaysia
UAE
Market Cap
US$ bn
P/B
X
Total Return YTD
%
10.2
5.3
3.9
3.8
3.2
3.1
2.8
2.9
2.5
2.2
2.1
1.9
1.8
1.5
0.7
1.66
0.61
0.96
1.54
1.81
1.03
0.65
1.31
0.93
0.42
2.72
1.00
1.08
2.72
0.78
1.28
-25
-17
-3
-15
-6
10
12
-7
0
-37
-11
-38
16
-14.8
-9.7
Source: Bloomberg and J.P. Morgan estimates, Priced on June 02
Hence, we believe that TMG's 34% price to NAV discount should further narrow
moving forward supported by near-term triggers including upcoming quarterly
results for 2010 on the back of planned handovers in Madinaty, a pick up in sales
(1Q10 new sales recorded at EGP1.2bn) and 4Q10 off-plan sales in Riyadh.
11
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Figure 9: TMG price performance vs. top MENA peer average
TMG
Emaar
Barw a
140
120
Dar Al Arkan
Sorouh
Figure 10: TMG P/B historical trend
Aldar
Palm Hills
100
80
60
40
20
0
Jun-08
Oct-08
Source: Bloomberg
12
Feb-09
Jun-09
Oct-09
Feb-10
Jun-10
Price/Book
av g+2std
av g+1std
1.3
av g-1std
av g
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
Jan-08 May -08 Sep-08 Jan-09 May -09 Sep-09 Jan-10 May -10
Source: Bloomberg
07 June 2010
Egypt Property Market
Muneeza Hasan
(971) 4428-1766
[email protected]
13
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Egypt – 11% of MENA GDP; 28% of
MENA population
Egypt economy grew 5% in
2009—3rd highest within MENA
driven by continued FDI flows,
remittances and tourism
revenues
Located in Northern Africa, bordering the Mediterranean Sea, Egypt is one of the
largest economies within the MENA region accounting for 11% of the combined
MENA GDP of US$1.7Tr (2009). Despite the challenging global macro dynamics,
Egypt has managed to weather the storm, posting the third highest GDP growth
within the MENA region at 5% in 2009. Our regional economist expects the positive
growth trend to continue well into 2010 with an estimated real GDP growth of more
than 5%. Based on these forecasts, we expect Egypt to achieve GDP per capita of
US$ 3,100 in 2010, up from US$2,500 in 2009. Egypt’s manufacturing, Oil&Gas
and agricultural sectors are the key contributors to GDP, accounting for an aggregate
46% and 17%, 15% and 14%, respectively. The Suez Canal revenues are 3% of
Egypt’s GDP.
Figure 11: Egypt - key sectors' contribution to GDP (2008-09)
Figure 12: MENA GDP by major economies
40%
Iran
15%
UAE
20%
14%
17%
3%
11%
Oil, Gas & Others
Agriculture, Forests & Fishing
Suez canal
Saudi Arabia
Egy pt
22%
11%
Kuw ait
14%
Manufacturing
Wholesale & Retail Trade
Others
Others
Qatar
20%
Source: CAPMAS
7%
6%
Source: CIA factbook
The Egyptian pound is a freely floating currency ($1=EGP5.5) but has been fairly
stable for the last few years vs. peer emerging market economies. The country’s
inflation peaked at 20% in 2008, dropping to 10% in 2009. J.P. Morgan estimates
Egypt’s inflation to contract further to 7.4% for 2010.
Figure 13: MENA economies GDP per capita (2009)
80,000
GDP per Capita (US$)
75,978
70,000
60,000
Figure 14: MENA economies real GDP growth (2009)
46,582
50,000
32,488
40,000
30,000
24,353
20,000
10,000
18,718
14,871
2,450
Qatar
14
UAE
Kuw ait Bahrain Oman
KSA
Egy pt
Kuw ait
Saudi Arabia
United Arab
Iran
Liby a
Jordan
Sy rian Arab
Bahrain
Oman
Yemen
Iraq
Egy pt
Lebanon
Qatar
-2%-1%
0%
-5%
1%
2%
0%
3%
3%
3%
4%
4%
4%
5%
5%
7%
11%
10%
15%
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Egypt – MENA’s most populated country
Despite faster urban population
growth compared to rural, 57%
of Egyptians are still living in
rural areas
With its large indigenous population base of 75mn, Egypt accounts for 28% of the
combined population of the MENA region at 281mn. Over the years, Egypt's
population has been growing at a natural rate of 2% making infrastructure
maintenance and improvement all the more challenging for the government.
Agriculture is the main identifiable source of income generation and, according to
the government statistics, 11% of the country’s workforce is employed in the
agricultural sector. This is followed by manufacturing and related services at 5%.
Despite high economic growth, living conditions for Egyptians remain modest with
c.57% of Egypt's population dwelling in rural areas despite faster urban population
growth rate at 2.3% vs. 0.7% growth in the rural population. Poverty is concentrated
in rural areas and in Upper Egypt with nearly 20% (CIA factbook) of Egyptians
living below the poverty line.
Figure 15: Population - Egypt ranks no. 1 in MENA (281mn)
Iran
Iraq
27%
11%
Figure 16: Egypt’s population growing steadily at 2%
85
2.4%
2.2%
2.0%
1.8%
1.6%
1.4%
1.2%
1.0%
80
Sy ria
7%
75
70
Yemen
9%
65
8%
60
Rest of the
Egy pt
MENA
28%
10%
Source: CIA Factbook
20
05
20
06
20
07
20
08
20
09
20
10
E
20
11
E
20
12
E
20
13
E
20
14
E
Saudi Arabia
Population
Grow th
Source: CIA Factbook
On a positive note, the country boasts one of the youngest populations in the world
with an average age of 24 years. According to the Ministry of Investment, over 52%
of Egypt’s population is aged between 5-30 years and only 13% is aged above 45
years.
Figure 17: Egypt’s population split
Figure 18: Egypt – 52% population is aged between 5-30 years
45-75 y ears
Less than 5
13%
y ears
11%
Urban
Population
43%
30-45 y ears
Rural
24%
Population
5-20 y ears
57%
32%
20-30 y ears
20%
Source: CAPMAS
Source: Ministry of Investments Egypt
15
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
The family culture, particularly in urban areas, is rapidly evolving where the concept
of dual income households among the middle and the upper middle class population,
which represents over 48% of the population, is slowly becoming more common
given low affordability levels of quality living. The middle income segment accounts
for 35% of Egypt’s population, while c.12% represents the upper middle segment
and only 2% constitute the high income segment based on the housing data provided
by Central Agency for Public Mobilization and Statistics use (CAPMAS).
Figure 19: Egypt - One of the youngest populations in the world
50
44
Income
29
30
Middle
Av erage age
40
40
Figure 20: Egypt - Income segments based on housing types
35%
24
20
Upper Middle
10
12%
Source: : Ministry of Investments
16
ca
Af
ri
51%
High Income
2%
So
ut
h
Br
az
il
ex
ic o
M
So
ut
h
um
Ko
re
a
Low Income
Be
lgi
Ge
rm
an
y
0
Source: CAPMAS
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Egypt property market
High demand for housing amid low affordability levels
• Egypt’s housing demand is driven by indigenous population growth and rapid
urbanization.
• We estimate Egypt’s housing deficit to reach 800k in 2010.
• Of this, the housing shortfall for middle and upper middle income accounts for
378K.
We estimate Egypt's housing
shortfall to reach 800K by end2010 and calculate Cairo's share
in the total shortfall at 264k units
Contributing almost 32% to Egypt’s combined GDP and close to 25% to Egypt’s
population, Cairo attracts the highest level of investment and interest in its real
estate market. However, with close to 40% of Cairo's population living in informal
settlements, the data on residential and commercial real estate is patchy. We rely on
information provided by Egypt’s Ministry of Investments, Central Agency for Public
Mobilization and Statistics use (CAPMAS), CIA Factbook, IMF, UN Development
reports and a handful of real estate agencies that provide insight into Cairo’s real
estate market including Jones Lang LaSalle, Colliers and ColdWell Banker based in
Egypt.
Figure 21: Cairo's informal settlements
Source: Egyptian-German Participatory Development Programme in Urban Areas (PDP)
17
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Housing deficit in upper middle, middle & low income
segment…
Existing housing stock in
Downtown Cairo is more than 30
years old, where infrastructure
constraints make further
expansion challenging
We forecast residential shortfall
for Egypt’s middle income
segment at 282K and calculate
Cairo’s share in this at 93K units
Catering to a large urban population as well as being home to local, national and
multinational corporates, Cairo retains its place in Egypt as the commercial hub and
the most active and attractive real estate market. The demand for housing comes
mostly from local home buyers with over 60% being cash based purchases, as the
mortgage market remains largely untapped. Given the less structured expansion and
limited infrastructure in Downtown Cairo, the middle, upper middle and high income
segment has been actively moving away from the centre and towards Greater Cairo,
i.e. the western and eastern extensions of Cairo city. Existing stock of housing is
more than 30 years old and development within Downtown Cairo is nearly
impossible given space limitations. Given low affordability levels and the under
penetrated mortgage market, the new developments have been focused largely on the
upper middle and high income customer segment.
We expect Egypt’s housing deficit to reach 800K in 2010
We calculate Egypt’s overall housing deficit to reach 800K units in 2010 based on a
population growth of 2% and an average household size of 4.5 (see Table 6). Of this,
we forecast around half of the housing deficit equal to 405K units in the low income
segment which represents 51% of Egypt's overall population base. We calculate
housing deficit for the middle income segment, with 35% weight in Egypt’s
population, to reach 282k units in 2010, while we expect the housing deficit for the
upper middle income segment, 12% of the population, to reach 96k units in 2010.
Table 6: Egypt residential market forecast
2008
74,400
2.1%
2009
75,888
2.0%
2010E
77,406
2.0%
2011E
78,954
2.0%
2012E
80,533
2.0%
4.5
4.5
4.5
4.5
4.5
16,388
15,875
16,715
16,060
17,050
16,250
17,391
16,440
17,739
16,630
Demand (000')
Actual annual supply (000')
366
175
328
185
334
190
341
190
347
190
Surplus/ (Deficit) (000')
-513
-656
-800
-951
-1,109
Population (000')
Y/Y
Household/unit
Required units (000')
Supplied units (000')
Source: CAPMAS, UN development report, Ministry of Investments and J.P. Morgan estimates
…but affordability levels remain low
Mortgage market remains
untapped with real estate loans
accounting for less than 1% of
the country's GDP - amongst the
lowest vs. peer emerging market
economies
18
With real estate loans accounting for less than 1% of Egypt's combined GDP, most
home purchases are cash based or with 30-60% cash and the balance financed over 5,
7, 10 or 15 years mostly by the real estate developer itself.
Bank lending for real estate remains low on the back of 1) Central bank’s restriction
on real estate lending by commercial banks for off-plan units, 2) high interest rates
(14-15%) and 3) lack of awareness among general population with regards to
alternative modes of funding. Egypt's mortgage loans as a percentage of GDP are
also amongst the lowest when compared to other emerging markets with similar
income and population dynamics.
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Figure 22: Egypt - Real estate loans as a % of GDP
EGP M n
3000
Figure 23: Egypt – mortgage lending as a % of GDP
Mortgage Finance Companies
Banks
Mortgage as % of GDP
14%
0.4%
2500
0.4%
2000
0.3%
1500
0.3%
1000
0.2%
4%
2%
500
0.2%
0%
0
0.1%
2005-06 2006-07 2007-08 2008-09
1Q10
Source: CAPMAS
12.0%
12%
10%
8.0%
8%
6%
4.0%
UAE
4.0%
3.0%
2.5%
1.0%
0.4%
India IndonesiaTurkey Qatar Russia Saudi
Egy pt
Arabia
2Q10
Source: Central banks, IMF and J.P. Morgan estimates
Table 7 highlights average annual income and housing affordability levels across
different income segments prevalent in Egypt. According to a study done by
USAID, 2% of the population belonging to the high income segment draws an
average annual income of EGP820K and given the relatively high savings rate of
35% can afford luxury accommodation ranging between EGP2-7.5mn (US$360K1.2mn). At the other end of the spectrum is the low income segment representing
51% of the population with average annual income of barely EGP90K (US$16K) and
a savings rate of close to 3%.
Table 7: Egypt - Housing affordability levels across various income segments
Income categories
High income
Upper Middle
Middle
Low Income
Household
size
3.8
4.0
4.6
5.0
Ave. annual
Family income
EGP
820,800
384,000
165,600
90,000
Housing type
Luxury
Above average
Economic
Low cost / subsidized housing
Unit size
(sq m)
170-500
115-200
80-120
40-70
Price Ranges (EGP
sq m)
12,000-15,000
6,500-9,500
4,500-6,500
750-1,000
Unit Price range (EGP )
2mn-7.5mn
750K-1.9mn
360K-780K
30K-70K
Source: USAID, Mortgage and Real Estate Advisory Services Project TAPR and J.P. Morgan Estimates
19
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Cairo – Residential shortfall to reach 264k
units by end 2010
• We calculate Cairo’s housing deficit at 264k unit based on its 32% share in Egypt’s GDP.
• Of the total deficit, we estimate the housing shortfall for the middle and the upper
middle income segment to reach 125k by 2010.
We calculate Cairo’s residential
shortfall using its 32%
contribution to Egypt’s total
GDP
Deriving Cairo's demand based on its 32% (in 2008 Cairo’s GDP contribution
accounted for 33% of Egypt combined GDP) contribution to Egypt's combined GDP,
we calculate Cairo housing stock deficit at 264k units for 2010E (see Table 8). We
see strong demand within the middle and upper middle income segment given the
under-leveraged market and growing housing deficit.
As a result, out of the overall housing deficit of 264k units, we forecast a housing
deficit of 125k units within the middle and upper middle income segment in Cairo
and a deficit of 6k units within the high income segment.
Over 550k marriage contracts signed annually; another way to gauge housing demand
According to CAPMAS, over 550k marriage contracts are signed in Egypt annually of which nearly 100k (JLLS estimates)
marriages take place in Cairo alone. While we do not take this into consideration when forecasting annual demand for
housing, it nevertheless strengthens our case for a housing deficit in the country.
Keeping our assumptions conservative, even if we estimate 20% of these married couples look for new housing given low
affordability levels, it still implies demand of nearly 132k units annually. Of this c. 62k represents housing demand in the
middle and upper middle income segment and 3k in the high income segment.
Figure 24: Egypt- Annual marriage contracts
700
Figure 25: Egypt- Housing demand from new marriages
000'
150
600
100
000' units
62
67
68
43
46
47
15
16
16
500
50
400
2002
2003
2004
2005
2006
2007
Annual registered marriage contracts
Source: CAPMAS
20
2008
-
2007
High Income
2008
Upper Middle
Source: CAPMAS and J.P. Morgan estimates
Middle
2009
Low Income
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 8: Egypt and Cairo's residential demand by income segments
Estimates in 000'
As a % of total demand
Overall shortfall
Egypt
Cairo
33% of Egypt
100%
housing deficit
2008
2009
2010E
2011E
2012E
513
656
800
951
1,109
169
216
264
314
366
Low Income
Egypt
Cairo
Middle Income
Egypt
Cairo
Upper Middle
Egypt
Cairo
High End
Egypt
Cairo
51%
51%
35%
35%
12%
12%
2%
2%
260
332
405
481
561
86
110
134
159
185
181
231
282
335
390
60
76
93
111
129
62
79
96
115
134
20
26
32
38
44
12
16
19
23
26
4
5
6
7
9
Source: CAPMAS, UN development report, Ministry of Investments and J.P. Morgan estimates; Note: Cairo demand based on Cairo’s contribution in Egypt's total GDP at 33%.
Cairo – among the world’s top 10 most populated cities
According to a UN development
report, nearly 1,000 people
migrate to Cairo per week with
40% of the people living in
informal settlements
Bursting at the seams, Cairo is amongst the world’s top 15 densely populated cities
and the largest within MENA with nearly 18mn people. Cairo is also Egypt's main
residential and commercial market given its strategic location, making it the second
most attractive location after Dubai in MENA. Being the commercial hub and the
capital of Egypt, Cairo attracts a significant number of internal immigrants with over
1,000 people moving into the capital every week according to a UN development
report. Nearly c. 40% of Cairo’s inhabitants live in informal settlements and the city
is home to 3 of the world’s 30 largest slums according to the same report.
Figure 26: World's most populated cities
Cairo
Los Angeles
Manila
Sao Paulo
New York
Mumbai
Delhi
Mex ico City
Seoul
Toky o
Population in Mn
18
21
22
33
5
10
15
20
25
30
35
Source: http://amolife.com/great-places/top-10-largest-cities-in-the-world.html
Cairo's rapidly developing suburban communities
Originally designed to accommodate 5mn people, Cairo has now become one of the
most populated cities in the world with over 18mn people and one of highest
densities at c. 34,000 inhabitants/sq km and going as high as 100,000 inhabitants/sq
km in certain areas. Hence, in the wake of geographic and infrastructural limitations,
the government initiated a plan to reduce the growing congestion in Cairo's
downtown and set up the New Urban Communities Authority (NUCA) in 1979.
21
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 9: Suburban communities surrounding Downtown Cairo and their target population
City
1
2
3
4
5
6
7
8
9
Targeted Number of Inhabitants
Land Area (sq m)
6th of October
New Cairo
Sadat
Obour
Sheikh Zayed
10th of Ramadan
Badr
15th of May
Shorouq
3,750,000
2,000,000
750,000
600,000
500,000
500,000
430,000
250,000
50,000
394,177,800
283290000
481,783,209
64752000
42088800
384,465,000
67584900
33590100
43707600
Total
8,830,000
1,795,439,409
Source: New Urban Communities Authority and JLLS
There are 9 satellite cities
surrounding Downtown Cairo
with 6th of October City and New
Cairo being the most preferred
locations for people relocating
out of Downtown Cairo
Figure 27: Cairo’s outskirts in the 1970s
Source: World Bank
22
The NUCA’s main objective is redistribution of inhabitants away from the narrow
strip of the Nile Valley running alongside Downtown Cairo by developing suburban
communities surrounding Cairo. According to Jones Lang LaSalle (JLLS), a leading
real estate agency, the ultimate plan is to accommodate 9 million people into these
suburban communities. There are currently 9 major satellite cities surrounding Cairo
– the western and the eastern extension of Downtown Cairo. Among these, 6th of
October City and New Cairo City with c. 677mn sq m in total land area are in heavy
demand with NUCA’s target population for the two cities ultimately at c. 5.7mn. See
Table 9 for details.
Figure 28: Developed suburban communities around Cairo by 2000s
Source: World Bank
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Residential prices have been relatively stable for middle
income housing
Residential prices have been
stable for middle income
housing given under supply,
while prices for high end
housing segment have come off
by 35-40% in the last 18months
Starting late 2008, the global financial crisis did trigger a correction in Cairo’s high
and upper income housing segment. However, prices within the middle income
segment have remained relatively stable, underpinned by the housing shortfall and
limited supply albeit limited affordability levels. TMG, which is the largest
developer catering to Cairo’s housing demand within the organized middle and upper
middle income segment, told us that despite demand slowed in 2009, the company
increased average prices by c. 3% and further by 6%YTD.
Figure 29: Cairo residential prices for select locations
EGP /Sq M
16000
15,000
14000
12,000
12000
10000
8000
6000
8,000
8,000
7,000
5,000
4000
6,500
4,000
3,000
6,000
4,000
3,000
2000
4,500
2,000
0
Zamalek
New Cairo
6th of
October
Mohandessin
High
Heliopolis
Maadi
Nasr City
Low
Source: JLLS
Contrary to this, Palm Hills Development that has historically been focusing
primarily on the high end market lowered its prices by as much as 40% in 2009 in
order to reach a larger target market in the face of more saturated demand from the
high end segment. However, given that the majority of the property transactions are
cash driven and for owner occupation, the number of contract cancellations (peaked
in 4Q08 and 1Q09) has remained relatively low.
Residential prices vary significantly across different regions in Cairo, where prices
for certain locations in Downtown are still at a premium despite infrastructural and
logistical challenges. For example, residential property in Zamalek and Mohandessin
in Downtown Cairo still trade at a premium relative to properties in some of the new
suburban communities in Cairo’s western and eastern extensions. Within Cairo’s
western extension, 6th of October (30-90 minutes from Downtown Cairo depending
on the flow of traffic) is a popular location for inhabitants relocating out of
Downtown. On the eastern front, New Cairo is home to a large number of working
class (see Table 8, Figure 27 and 28 for details). TMG's mega mixed-used
communities Madinaty (under early stages of construction) and Al Rehab (fully
developed community with a population of c. 120k, a commercial district with 6
banks, 3 local and 3 international schools as well as a large retail area) and Emaar's
projects are all located within New Cairo, while the majority of Palm Hills
Development are located in the western region in 6th of October City and beyond.
23
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Residential rents, like prices, also vary from one location to another. However,
average residential rents are high in Zamalek averaging at EGP750 sq m (US$136/sq
m). Zamalek is located along the narrow strip of River Nile and is the heart of
Downtown. In contrast Nasr City, which is further from the Cairo downtown, offers
one of the lowest residential rents averaging at EGP300/sq m p.a. (US$55/sq m p.a.).
Figure 30: Cairo rental rates for select locations
EGP Sq M p.a.
900
1000
800
600
720
720
600
480
660
480
400
540
540
360
360
6th of
Heliopolis
300
360
240
200
0
Zamalek
New Cairo
Maadi
High
Mohandessin Nasr City
Low October
Source: JLLS
Residential rents in 6th of October City, which is the largest suburban community,
range between EGP360-600/sq m (US$65-109/sq m). The rental yields across Cairo
and greater Cairo (western and eastern extension) vary between 8-15%, where yields
are particularly high in Maadi, which houses major oil and gas multinationals,
embassies and diplomatic agencies.
24
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Cairo Commercial - Office space remains
undersupplied
• Cairo’s commercial sector remains fragmented with limited supply of Grade A
office space particularly in Downtown Cairo.
• Demand for prime commercial space remains high with less than 1% vacancy
rate and rental yields in the range of 12-15%.
• Over the next 4 years, we estimate c.1.4mn of new supply to come on stream,
which should be able to offset the deficit in the sector.
Commercial space within
Downtown Cairo remains limited
with vacancy rates at less than
1%
The demand for the commercial sector in Egypt is characterized by Egypt’s stable
GDP growth of 5+% and large population base that continues to attract inflow of
major multinational and regional corporates into the market. The country is
increasingly seen as the preferred destination of major multination corporates and
regional businesses given its positioning as the mid point between Africa and the
Middle East offering access to nearly 280mn people within the MENA region.
Egypt’s capital, Cairo, serves as the commercial hub, however availability of prime
space within Downtown Cairo is constrained and the supply remains fragmented
across Downtown and greater Cairo with favorable vacancy rates of less than 0.5%.
Table 10: Cairo - Existing office supply for select locations
Name
Nile City
City Stars
Smart Village
Pyramids Heights
WTC
Rent in USD /
sq m / month
68.4
45
34.2
28.8
25.2
GLA (sq m)
100,000
70,000
390,000
180,000
19,000
Sample
Occupiers
Orascom, AIG, P7G
Booz & Co, Maersk
Oracle, Vodafone
KPMG, IBM
Australian Embassy
Location
Nile Corniche
Nasr City
Cairo-Alex, Desert road
Cairo-Alex, Desert road
Downtown
Type
Mixed-use
Mixed-use
Business park
Business park
Tower
Source: JLLS and J.P. Morgan estimates
We estimate new office supply of
1.5mn sq m to come on stream
over the next 4 years
Given infrastructural constraints in Downtown Cairo, an increasing number of
multinational and local companies are relocating towards Cairo’s western and eastern
extensions. Cairo has nearly 800k sq m of Grade A office space of which over 570k
sq m office space is located within Smart Village and Pyramids Heights in the 6th of
October City (30-90 minutes from Downtown Cairo). Many local corporates still
located in Downtown Cairo are looking to move facilities and their staff to greater
Cairo in order to avoid traffic congestion and infrastructure constraints within
Downtown Cairo.
Table 11: Cairo - Future supply of Grade A commercial space
Location
Eastown /Westown
Smart Village Phase 3
Stone Park
Cairo Festival City
Capital Business Park
Park Plaza
GLA (sq m)
920,000
293,000
150,000
70,000
50,000
15,000
Expected Year of Completion
2013 onwards
2012 onwards
2013
2011
2012
2012
Developer
SODIC /Solidere
Smart Villages Company
Rooya Group
Al Futtaim
Cayan Investment / Dorra Group
Al Arabia / Al Ahly
Source: JLLS
25
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
An estimated 1.5mn sq m of new Grade A office supply in the pipeline is expected to
come on stream over the next 4 years. We expect this to be absorbed with robust FDI
flows and continued inflow of new corporates setting up presence in Cairo. Egypt’s
Foreign Direct Investment (FDI) flows have remained robust despite the global
financial crisis, where it attracted nearly US$8bn in 2009 after a peak of US$13bn in
2007-08. About 41% of the FDI flows in the last 5 yrs have been spent on
establishing new corporates, where Egypt has seen nearly 6k new companies being
set up on average annually in the last 5 years. YTD 3,500 new companies have
already been registered according to the Ministry of Investment.
Figure 31: Egypt - Number of newly established corporates
10
8
'000
8
6
6
6
4
Figure 32: Egypt - FDI flows
6
4
3
3
2
0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
1H10
14
12
10
8
6
4
2
0
13
11
8
6
4
2
2003-04
2004-05
Number of new ly established companies
Source: Ministry of Investments
26
2005-06
2006-07
FDI Flow s (US$Bn)
Source: Ministry of Investments
2007-08
2008-09
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Cairo Retail and Hospitality
• Egypt’s capital Cairo faces a shortage of destination malls, where per capita
retail space at 0.03/sq m is the lowest in GCC+Egypt.
• Key retail outlets and open retail spaces occupy c. 314k sq m of GLA vs. 3mn sq
m of retail GLA in Dubai.
• Over the next 3 years, we estimate c. 500k sq m of retail space to come on stream,
taking Cairo’s retail GLA per capita to 0.044/sq m.
Cairo Retail – limited GLA for high-end retail
Cairo’s retail GLA at 0.03 sq m
per capita is amongst the lowest
vs. its GCC peers
Unlike Dubai, Egypt does not have any major destination malls with the existing
Gross Leasable Area (GLA) for the high end segment at only close to 314k sq m vs.
Dubai retail GLA at over 3mn sq m. The lack of retail space can be gauged by retail
space per capita, which, at 0.03 sq m per capita, is well below Riyadh at 0.52 sq m or
Qatar at 1 sq m, and with Dubai being at the other end of the spectrum with the
highest retail space per capita in MENA region at 1.9 sq m. The City Stars in Cairo is
the largest mall with a total built up area (BUA) of over 700k sq m but GLA of only
close to 150k sq m.
Figure 33: Retail GLA per capita across GCC
Dubai
1.90
1.06
1.07
Bahrain
Qatar
Abu Dhabi
0.87
0.52
Riy adh
Kuw ait
0.30
0.14
Oman
0.03
Cairo
0
0.2
0.4
0.6
0.8
1
1.2
1.4
GCC Retail Mall GLA per capita (2010)
1.6
1.8
2
Source: JLLS, Cairo and J.P. Morgan estimates
Table 12: Cairo - Existing retail GLA
Name
CityStars
Dandy Mall
Maadl City Center
Nile City
First Mall
GLA (sq m)
150,000
90,000
25,000
12,000
10,000
Rent in USD /
sq m p.a.
700-900
672-888
583-842
691-886
691-907
Location
Nasr City
Cairo-Alex road
Maadi
Nile Corniche
Giza
Description
Regional mall
Community mall
Community mall
Small annex o office complex
Speciality luxury goods mall
Source: JLLS, Colliers and J.P. Morgan estimates; Note: The above is note an exhaustive list of retail space across Cairo
Over 500k sq m of high end retail GLA is in pipeline with planned delivery over the
next 3 years. Beyond 2013, SODIC/Solidere are set to start phased delivery of the
retail space in ‘Eastown and Westown’ within the 6th of October City in Cairo. With
a total GLA of over 377k sq m, this incremental GLA takes Cairo’s retail
development pipeline to nearly 1mn sq m over the next 4-5 years. Rents for the high
end retail space ranges between US$580-900/sq m per annum.
27
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 13: Cairo and Greater Cairo - Future retail supply
Name
Eastown & Westown
Mall of Africa
Cairo Gate
Cairo Festival City
GLA (sq m)
377,000
176,000
250,000
160,000
Developer
SODIC / Solidere
Fawaz El Hukair
Emaar
Al Futtaim
Type
Two city centers
Shopping mall
Shopping mall
Mixed-use
Location
6th October / New Cairo
6th October
Cairo-Alex Desert Road
New Cairo
Year of Completion
2013 onwards
2010
2012 onwards
2011
Source: JLLS, Colliers and J.P. Morgan estimates
Hospitality
13mn people visited Egypt in
2009 helping Egypt generate
US$13bn in tourism revenues
As Egypt’s business hub as well as a popular tourist destination, Egypt attracts
business as well as leisure travelers, where annual visitor traffic into Egypt reached
13mn in 2009 up from 4mn in 2002. Close to 73% of these represent travelers from
European countries, while Arab travelers account for 15% with American travelers at
4%. Given the high number of travelers, Egypt’s tourist receipts totaled US$13bn in
2009, up from US$8bn in 2006.
Figure 34: Egypt - Annual leisure and business visitors
100%
Mn
80%
60%
69%
40%
20%
0%
Figure 35: Egypt - Tourism revenues
72%
75%
17
12
73%
7
21%
18%
15%
15%
2006
2007
2008
2009
Arabs
Americans
Total
2
14
11
9
10
8
8
6
4
Europeans
Others
Source: CAPMAS
13
12
2006
2007
2008
2009
Tourism Receipts (US$ Bn)
Source: CAPMAS
According to Colliers, there were a total of 175 hotels in Cairo with close to 14,600
room keys in 2008. 3 star hotels account for 32% of the total hotels supply at 46 3
star hotels followed by 27 5 star hotels. However, in terms of room keys, 5 star hotel
rooms has the largest share at 59% and c. 8,600 room keys followed by 4 star hotel
room keys at 2,400 accounting for 17% of the total hotel rooms supply. Occupancy
levels in 5 star hotels remain above 85% with average room rate at US$125-150 per
night.
Figure 36: Cairo - Hotel room keys
Source: Colliers
28
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Key players - TMG is the largest
Housing development from the
organized sector account for
10% of the total housing
development in Egypt where
TMG has historically been the
only developer within the
organized sector targeting
largely the middle and upper
middle income segment
According to the 2008 Egypt Housing Survey, about 90% of the country's housing
supply is built informally by what the market refers to as the secret competition.
According to the survey only 10% of the housing supply has been built by
professionals. Within the organized real estate sector, TMG is the leading Egyptian
community real estate developer in terms of total land bank at 50mn sq m, sales
backlog at EGP25bn and housing development of 57,000 units (out of this 32k units
are sold units under construction). This is followed by Palm Hills Development,
Egypt’s upscale developer, with a total land bank of 49mn sq m. Six of October
Development and Investment Company (SODIC) is relatively small with total
landbank of 5.8mn sq m and development concentrated in Greater Cairo. Emaar
Properties’ Egyptian subsidiary, Emaar Misr, is one of the leading international
investors in Egypt’s real estate market with a total development portfolio of
US$5.55bn.
Table 14: TMG - Competitive landscape
Market Cap
US$ bn
Talaat Mostafa
Palm Hills
Six of October Dev. & Inv. C.
Comparative valuations
Ave. Traded Value
P/B
P/E
US$ mn (6Mnth) 2010E x 2010E x
2,780
1,064
523
8.92
1.68
1.75
0.61
1.24
1.17
Business mix
Land Bank Development
sq m mn type
Target
market
8.1
7.2
14.8
Middle & Upper middle
High-end
High end
50 City & community complexes
49 Villas
5.8 Residential & commercial
Source: Company reports, Bloomberg and J.P. Morgan estimates
Figure 37: Geographical distribution of land for Egypt's top 3 real estate developers
100%
80%
7%
4%
14%
49%
60%
40%
100%
89%
20%
37%
0%
TMG
PHD
Cairo
Outside Cairo
SODIC
International
29
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
This page is intentionally blank
30
07 June 2010
Talaat Mostafa Group Holding:
Company Background
Muneeza Hasan
(971) 4428-1766
[email protected]
31
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Talaat Mostafa Group - Changing Cairo's
landscape
Company background and shareholder structure
Talaat Mostafa Group (TMG) is Egypt’s largest real estate developer with a total
landbank of 50mn sq m and 20-year track record in property development. TMG
develops large scale integrated city and community complexes mainly located in the
Greater Cairo region. Apart from integrated community complexes, TMG also develops
and manages luxury hotels and resorts. It currently has 3 hotels with 684 room keys and
plans to raise this to 5,000 room keys in 5 years, of which 1,725 room keys are committed
and under development. The group has completed development of 3 community
complexes, while 2 other community complexes (Al Rehab 1 and Al Rabwa 1) are
partially competed with development of their subsequent phases currently under way.
Figure 38: TMG - Organization structure
Source: Company annual report
32
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
TMG was created in June 2007 as a holding company for TMG group’s various real
estate related subsidiaries. As a result of the organizational restructuring, the Arab
Company, Alexandria Real Estate and San Stefano were consolidated into a new
Holding company called TMG.
TMG was formed as a result of
organizational restructuring
completed in Sep 2007
subsequent to which its shares
were listed on the Cairo Stock
Exchange in Nov 2007
In November 2007 following the organizational restructuring process, TMG offered
395mn shares through a retail offering (IPO). The institutional and international
investors were offered 330mn shares at EGP11.6/sh, while the retail offering for
65mn shares was made at EGP11/sh. The institutional and international offering was
17x over subscribed, while the retail offering was oversubscribed by 41x. Within the
real estate development sector in Egypt, TMG is the largest listed player with a total
market cap of US$2.8bn and average daily traded value of US$9mn (6-month
average).
TMG RE and Tourism Investment, which include the Talaat Mostafa family and the
Saudi group (Bin Laden, Saudi Arabia), owns a 49.85% stake in TMG. Apart from
the strategic shareholders, other prominent shareholders include Misr Insurance
Company and Banque Misr with 4% and 3% ownership in the company,
respectively. The stock is fairly liquid with a free float of c.43%.
Talaat Mostafa Family and Saudi
Bin Laden group each own 25%
strategic shareholding in TMG
Figure 39: TMG Shareholding structure
Others
43%
Banque Misr
3%
TMG Inv estments
(Including Talaat
Misr Insurance
Moustafa family and
Company
Saudi Group)
4%
50%
Source: Company reports and Bloomberg
Management
TMG is recognized as a strong
brand name in Egypt with its
long history of development and
timely delivery of committed
units
The TMG group’s history goes back 38 years, when Mr. Talaat Mostafa started his
construction business with his three sons. The real estate division was established in
the late 80s when Talaat Mostafa’s youngest son Mr. Hisham Talaat Mostafa saw the
growing opportunity within the real estate sector and formed the real estate arm. The
formation of the real estate division coincided well with the Egyptian government's
programme to expand Cairo and relocate Downtown inhabitants towards Cairo's
suburban outskirts. Talaat Mostafa’s eldest son Mr. Tarek Talaat Mostafa took
control of the construction business, while the second son ventured into the
agricultural division.
33
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
In September 2008, Tarek Talaat Mostafa was appointed as Chairman and Managing
Director of Talaat Mostafa Group Holding. Prior to that, he was the Chairman and
Managing Director of Alexandria Construction Company, one of the largest
contractors in the MENA Region. He is also the Executive Chairman of other
companies such as Alexandria for Electrical Works, Alexandria for Glass
Manufacturing, Alexandria for Tunnels and Alexandria for Construction and
Decoration, in addition to being a board member of a number of the real estate
development companies in the group. He is an elected member of the Egyptian
Parliament and chairs its Housing and Infrastructure Committee, a member of the
National Democratic Party, the Board of the Egyptian Construction Contractors
Union, and the National Union of the Chambers of Commerce. Over 3,000 people
are employed directly at TMG with about 60,000 on-site workforce.
Self-funded business model – core in Egypt
Mortgage financing remains
untapped in Egypt where the
company’s self-funded off-plan
business model has worked well
TMG relies largely on a self funded business model with little upfront funding
requirement to develop city and community complexes. The payment for purchased
land parcels does not entail initial cash outlay and is typically settled in kind in the
form of residential apartments to the Ministry of Housing (e.g. Madinaty and Al
Rehab).
The upfront costs involving development plan and initial infrastructure are funded
via equity or debt, while the overall project construction cost is financed through
customer advances that are typically linked to cash outflow.
The company does not start construction unless a considerable portion of the planned
units in a particular phase of the project are sold out in order to ensure liquidity
headroom for at least 12-15 months ahead of construction. The customer payments
on sold units are structured to coincide with the planned construction expenses.
Table 15: TMG - Sold BUA and customer advances for key projects
Madinaty*
Al Rehab 1 & 2
Al Rabwa
Total
Total BUA
sq m mn
17.1
2.8
0.12
Sold BUA
sq m mn
4.8
1.2
0.01
Sold BUA
As a % of total
29%
43%
59%
Customer advances
EGP mn
15,628
4,310
315
20.02
6.01
31%
20,253
Source: Company reports. * Madinaty BUA includes district and sector services but excludes land for Mega developers
About 87% of the unit sales in Madinaty are made using one of the long-term
financing arrangements offered by TMG and backed by local and regional banks,
allowing customers to pay in installments. The customer payments depend on
applied financing schemes. Following the contract signing, the customer deposits a
series of post dated cheques with TMG that represent the monthly and annual
installments that add up to the remaining price of the purchased unit including
financing cost. The payments by means of post-dated cheques are structured so that
the instalments during the initial 4-year period prior to delivery of the unit generally
cover all of TMG’s construction outlays.
34
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 16: TMG - Typical payment plan
Cash Price - Four Years
Unit Reservation
Contract signing
Annual instalments
Delivery instalment
Monthly instalments
Tenure
Ten year payment scheme
Unit Reservation
Contract signing
Annual instalments
Annual instalments
Delivery instalment
Monthly instalments
Tenure
+3 months
+12 months
+45 months
+3 months
+12 months
+48 months
+45 months
%
collected
10.50%
10.50%
10.50%
10.50%
# of
instalments
1
1
4
1
48
Cumulative
collection
10.50%
10.50%
42.00%
10.50%
26.50%
100.00%
%
collected
7.0%
7.0%
7.0%
4.8%
7.0%
# of
instalments
1
1
4
6
1
48
72
Cumulative
collection
7.00%
7.00%
28.00%
29.00%
7.00%
11.20%
10.80%
100.00%
Customer installments are linked
to construction cost outlays
thus allowing TMG to keep its
gearing at reasonable levels
The post-dated cheques relating to payments falling due after the scheduled date of
delivery of the unit represent a combination of an embedded finance charge covering
TMG’s costs of providing the financing arrangement and TMG’s profit on the sale. If
TMG does not utilise the cheques in connection with these facilities, TMG retains the
embedded finance cheque for its own account. TMG has entered into arrangements
with local and regional banks that allow it to provide financing to purchasers of its
residential units for periods over 4 years and up to 10 and/or 15 years, which are
longer periods than is typical in Egypt. TMG has entered into two types of financing
facilities that support these financing arrangements. If these financing arrangements
are used, the purchase price includes an embedded finance charge.
35
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Key Projects - Madinaty is the largest
The Madinaty project, in New
Cairo, represents 66% of TMG’s
land bank and 62% of our SOTP
value
In its 20-year track record, TMG has completed construction and handover of over
25,000 units, implying 4mn sq m in BUA providing accommodation to over 130,000
inhabitants residing in the Greater Cairo region. Among the company’s completed
projects, the largest is Al Rehab 1 (Ph 1-5) City located in New Cairo with over
22,000 units and 120k inhabitants.
Figure 40: TMG - Landbank split by project
Figure 41: TMG - Landbank split by geography
10%
Outside Cairo
2%
8%
14%
Cairo
78%
66%
Saudi Arabia
14%
8%
Madinaty (Cairo)
Riy adh and Jeddah
Al Rehab (Cairo)
Hotel projects
Al Rabw a (Cairo)
Al Rehab 1 (Phases 1-5) was completed in 2007 and is a completely self sufficient
city within the New Cairo region. Among the key ongoing projects, Madinaty is by
far the largest with a total land area of 33mn sq m, accounting for 66% of the
company’s total landbank. Madinaty was launched in 2006 with the first set of
residential handovers due in 2H 2010.
Table 17: TMG - Projects snapshot
Completed projects
May Fair
Al Rawda Al Khadra
Virgenia Beach
Al Rehab 1 (Ph 1-5)
Al Rabwa 1
Built Up
Area sq m
Sold BUA
as % of total
Residential
type
Total
units
592,200
84,000
365,400
3,000,000
201,190
100%
100%
100%
100%
100%
Villas
Villas&Apartments
Villas
Villas&Apartments
Villas
253
1,185
368
22,758
649
19,421648
2,728,855
118,320
1,214,075
29%*
43%
59%
Sales exp.
in 4Q10
Villas&Apartments
Villas&Apartments
Villas
Villas&Apartments
107,158
15,060**
340
4,315
Start
date
1996
1994
Expected
Population
Completion
Location
2005
1987
1995
2007
2008
El Sherouk in New Cairo
Alexandria
North Coast
New Cairo
Sixth of October City, Cairo
1,265
6,245
N.A.
120,000
3,240
2020
2011/2017
2012
2012
New Cairo
New Cairo
Sixth of October City, Cairo
Riyadh, Saudi Arabia
600,000
80,000
1,725
16,800
Ongoing Projects
Madinaty
Al Rehab 1 (Ph6) & 2
Al Rabwa
Nasamat Al Riyadh
2006
1996/2006
2006
2009
* Madinaty – BUA also includes land for Mega developers but sold residential BUA calculated as a % of total residential BUA which is 16mn sq m
** Al Rehab - Includes units under construction for Phase 6 of Al Rehab 1 and Phases 7-10 in Al Rehab 2. Also includes 600k sq m Land for Mega developers
Madinaty and Al Rehab account for the majority of TMG’s SOTP at 74%. Nasamat
Al Riyadh in Saudi Arabia accounts for 5% of the combined SOTP, while Al Rabwa
represents 2%. Hospitality residential projects and the hospitality portfolio account
for the remaining 20%.
36
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
At end 1Q10, TMG’s sales backlog reached EGP24bn with total customer advances
against this sale at EGP20bn. The customer advances from Madinaty at end 1Q10
totaled at EGP15bn followed by Al Rehab (1&2) at EGP4.3bn.
Figure 42: TMG - Ongoing projects heat map
Source: Company prospectus
Madinaty – 62% of TMG’s SOTP
Once completed in 6 overlapping
phases by 2020, Madinaty will be
home to 600k people with over
100k apartments and c. 6,700
villas
With total land area of 33.6mn sq m and BUA of 19mn sq m (excludes attributable land
area for villas and includes land for Mega developers), TMG launched Madinaty in mid
2006. The construction is planned in 6 overlapping phases with the first set of
handovers within phase 1 due for completion and handover starting 2Q 2010. Madinaty
entails construction and handover of c. 100k apartments and 6,793 villas over the next 9
years with final completion by 2020. The payment for the allotted land parcel for this
project will be made to the Ministry of Housing in kind in the form of completed
residential units accounting for 2.7mn BUA of the total project’s residential BUA of
16.8mn Sq. This cost will be recognized pro rata at the end of each phase. According to
the most recent results, 29% of the residential BUA in Madinaty has already been sold
with roughly EGP15bn in advances from customers against this sale.
29% of Madinaty's total
residential BUA is already sold
Revenue and project costs
We use EGP11,900/sq m (US$2164/sq m) as blended villa prices and average of
EGP5,900/sq m (US$1073) for apartment sales across Phases 1-6 in Madinaty. Furthermore,
inline with management guidance, we use villa gross margin at 45% and apartment margin at
30%. Unlike some of the other TMG projects, Madinaty is not exempt from tax, hence we
apply a 20% corporate tax to the company cashflows to derive our DCF value.
37
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 18: Phased revenue recognition from Madinaty
EGP mn
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Phase 6
Total Residential
2010E
3,412
3,412
Revenue on Residential units and land for Mega developers
2011E
2012E
2013E
2014E
2015E
2016E
2017E
4,523
3,412
5,635
11,194
1,711
1,711
3,423
5,990
4,279
566
566
6,127
5,844
6,127
6,410
1,422
1,067
1,067
3,595
2,339
4,523
Land for Mega Developers
Total revenue
3,412
4,523
2018E
Total BUA*
sq m mn
3.52
2.68
2.94
1.70
1.10
1.47
13.42
3,978
7,913
20,455
10,334
13,184
16,622
5,490
3,274
2,056
10,821
3,300
3,300
3,300
6,600
6,600
6,600
9,900
6.6
7,278
11,213
23,755
16,934
19,784
23,222
20,721
20.02
Phase BUA**
as % of total
29%
16%
23%
17%
6%
9%
100%
* BUA excludes BUA of 2.7mn sq m attributable to the Ministry as land cost
** Phase BUA calculation excludes BUA allocated for Mega developers
To discount cash flows from
Madinaty, we use a phaseweighted WACC of 15.75%
At EGP17.4bn, Madinaty accounts for 62% of our TMG cumulated SOTP value. We
use a weighted average cost of capital to discount cash flows from Madinaty that
ranges between 15.3% - 16.5% depending upon planned completion. For example the
cash flows from Phase 6 which is due for completion by 2020 are discounted using a
WACC of 16.5%, while Phase 1, which is due for completion by 2013, is discounted
using a WACC of 15.3%.
Figure 43: Madinaty - Projected Cash flows
30,000
EGP Mn
10,000
8,000
20,000
6,000
10,000
4,000
-
2,000
(10,000)
-
(20,000)
(2,000)
2010E
2011E
2012E
Cash Inflow
2013E
2014E
Cash Outflow
2015E
2016E
2017E
2018E
Net Change in cash
Source: J.P. Morgan estimates
Al Rehab 1 and 2 – 12% of TMG’s SOTP value
Al Rehab 1 complex is TMG’s first fully-integrated community with over 22k
residential units and c. 120k residents. It has 3 local and 3 international schools, 6
banks, 2 shopping malls and small area allocated for commercial use. The final
phase 5 in Al Rehab 1 was completed in 2007, while Phase 6 with 633 villas and a
BUA of 224k sq m will be completed by 2011. Subsequent to the completion of
Phase 1-5 and launch of Phase 6, TMG also initiated Al Rehab 2 under Phases 7-10
with total residential BUA of 2.1mn sq m and planned completion by 2017.
38
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 19: Al Rehab 1 (Phase 6) and Al Rehab 2 (Phase 7- 10) Projected revenue recognition
EGP mn
Phase 6
Phase 7
Phase 8
Phase 9
Phase 10
Total Residential
Land for Mega Developers
Total revenue
2010E
1,341
777
84
2,202
Revenue on Residential units and land for Mega developers
2011E
2012E
2013E
2014E
2015E
2016E
2017E
1,455
777
777
724
84
84
1,123
1,123
1,155
156
156
880
1,460
1,025
744
744
744
2,317
861
2,004
1,280
2,779
2,203
1,769
1,137
1,137
Total BUA*
sq m mn
0.22
0.48
0.58
0.51
0.32
2.12
2018E
381
992
611
1,369
739
1,501
1,130
837
499
0.61
2,583
3,309
1,472
3,372
2,019
4,280
3,334
2,606
1,636
2.73
Phase BUA**
as % of total
11%
23%
27%
24%
15%
100%
Source: Company reports and J.P. Morgan estimates; BUA only reflects the residential part of the project
Al Rehab 1 which was completed
in 2007, is TMG's largest
completed community complex
housing over 120,000 people
Post completion of Al Rehab 2, the total population of this community complex is
expected to reach 200k inhabitants. Upon completion of Al Rehab 2, the total
covered area for this integrated complex will reach 10mn sq m with a total BUA of
5.7mn sq m including land for Mega developers. Up to 1Q10, Al Rehab 1 Phase 6
was 29% sold, while Al Rehab 2 (Phases 7-10) is 43% sold with first set of
handovers starting end 2Q 2010 onwards.
For Al Rehab 1 (Phase 6), we use blended villas prices of EGP13,000/sq m
(US$2,364/sq m), while for Al Rehab 2 (Phase 7-10), we use blended villa prices of
EGP12,500/sq m (US$2,273/sq m) and average apartment prices of EGP5,360/sq m
(US$975/sq m).
Figure 44: Al Rehab 1 (Phase 6) and Al Rehab 2 (Phase 7-10) projected cash flows
4,000
EGP Mn
2,000
3,000
1,500
2,000
1,000
1,000
(1,000)
500
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
-
(2,000)
(3,000)
2018E
Cash Inflow
Cash Outflow
Net Change in cash
(500)
Al Rehab 1 (Phase 6) and Al Rehab 2 (Ph 7-10) account for 12% of our TMG
consolidated SOTP value. For our DCF calculation, we use a Phase-weighted WACC
of 15.6%.
Al Rabwa 2 – 2% of TMG’s SOTP value
Al Rabwa 2 is 59% sold with
planned completion in 2012
Al Rabwa 2 is an extension to Al Rabwa 1 with a relatively small BUA of 119k sq m
translating into 340 units. Al Rabwa 1, which was completed and handed over in
2004, is an exclusive compound, with 649 villas, built for the high end market. Al
Rabwa 2, which is due for completion by 2012, is 59% sold. The project accounts for
less than 1% of TMG’s planned BUA across various projects and 2% of the
company’s combined SOTP value.
39
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 20: Al Rabwa 2 – Projected revenue recognition
EGP mn
Total Residential
Rental income
Total
2010E
322
2011E
322
322
322
Revenue on Residential units and rental income
2012E
2013E
2014E
2015E
2016E
1,250
2
3
4
4
5
1,252
3
4
4
5
2017E
2018E
5
5
Total BUA*
sq m
119,071
4,558
5
5
123,629
Phase BUA**
as % of total
96%
4%
TMG’s first international project – Nasamat Al Riyadh; 5%
of the SOTP
Nasamat Al Riyadh, in Saudi
Arabia, is a first step towards
geographical diversification. The
project accounts for 4% of
TMG’s total landbank and 5% of
the company’s SOTP value
TMG formed a 50:50 Joint Venture with Saudi Arabia’s Al Mehedeb, AlFwazan and
Al Oula Development Co. through its Saudi based subsidiary, Areez Limited in order
to pursue geographical diversification. Nasamat Al Riyadh is TMG’s first
community style project in Riyadh, Saudi Arabia with a total residential BUA of
1.4mn sq m translating into c. 2,031 villas and 2,112 apartments. The planned project
stretches over 3mn sq m of land and the company owns additional 1mn adjacent to
the project, which is yet to be designed. Apart from the above, the company also
owns a 2.8mn sq m of land plot in Jeddah put aside for future development. We
calculate TMG's share of this land bank at 1.4mn sq m based on its 50% share in the
Saudi Joint Venture though we exclude this from our valuations as development
plans on this land bank have not yet been finalized.
The company picked Saudi Arabia as the first market for geographical diversification
given its strong underlying demand dynamics with a young indigenous population.
Riyadh is Saudi Arabia’s fastest growing housing market with annual population
growth averaging at 2.2%. According to the Riyadh Development Authority, Riyadh
needs nearly 18,000 units of annual supply over the next 20 years to fill up the
housing deficit. With high pent up demand, Riyadh has been one of the few places
where residential prices and rents have remained stable in the prime residential areas.
TMG also has 2.8mn sq m of
landbank in Jeddah, though we
do not include this in our
valuations, as the company is
yet to finalize development on
the same
TMG recently reported that the Saudi Real Estate authority has approved release of
off-plan unit sales in the Nasamat Al Riyadh project. As per the company release,
this makes TMG the first developer in KSA to be able to sell off-plan as approved by
the real estate development committee formed in mid 2009. We expect a phased
launch in Nasamat Al Riyadh to start from 4Q10 with a reported construction
timeline of 3 years post launch. With TMG’s share of EGP1.3bn in project DCF,
Nasamat accounts for 5% of our TMG combined SOTP value. To calculate our DCF,
we use a WACC of 15.5% and forecast revenue contribution to start flowing in from
end-2013 onwards.
Table 21: Nasamat Al Riyadh - Projected revenue recognition (TMG’s share in the JV at 50%)
EGP mn
Residential
Commercial
Rental Income
Total
2013E
1,316
34
25
1,374
40
Revenue on Residential units and rental income
2014E
2015E
2016E
2017E
1,316
1,356
34
35
87
119
121
159
1,437
1,509
121
159
202
Total BUA*
sq m
1,411,783
67,416
116,006
202
1,595,205
2018E
Phase BUA**
as % of total
89%
4%
7%
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Hotels and Resorts – 20% of TMG’s SOTP
TMG has 3 operational hotels
and resorts with c. 684 keys,
which is likely to increase to
2,600 room keys by 2015
TMG currently has 3 operational hotels with 684 room keys through its hotels and
resorts management subsidiary Arab Company for Hotels and Tourism Investment
(ICON). The fourth hotel, Nile Hotel with 191 room keys, is due for completion by
3Q10. The company plans to raise the total number of room keys to 5,000 of which
1,725 room keys are committed and under development. For our SOTP calculation,
we include only the committed and under development hotel projects.
Figure 45: TMG - Revenue from hotel and resorts
1750
1550
1350
1150
950
750
550
350
150
EGP Mn
2010E
2011E
2012E
2013E
2014E
Four Seasons Sharm Al Sheikh
Nile Plaza- 2004
Nile Hotel -2010
Others
2015E
2016E
2017E
2018E
San Stefano-2007
TMG’s hotel and resort portfolio benefits from reasonable occupancy levels and
healthy operating margins given robust visitor traffic into Egypt annually. The
existing portfolio allows TMG to tap the business and tourism traffic flow
particularly into Cairo and Sharm el-Sheikh – Egypt’s major tourist destination.
Table 22: TMG - Hotels and Resorts portfolio
Ownership
Location
Room Keys
CBRE Valuation*
Completion
Four Seasons
Sharm elSheikh
100%
Sharm el-Sheikh
200
2000
May-02
Four
Seasons
Nile Plaza
56%
Cairo
365
2440
Aug-04
San Stefano
Grand Plaza
85%
Alexandria
127
2360
Jul-07
Nile Hotel
100%
Cairo
118
524
2010
Sharm el
Sheikh
extension
100%
Sharm el-Sheikh
96
N.A.
2012
Four
Seasons
Luxor
100%
Luxor
191
N.A.
2013
Four Seasons
Marsa Alam
100%
Marsa Alam
250
N.A.
2013
TMG
Building
Hotel
100%
Cairo
198
N.A.
2014
Four
Seasons
Madinaty
100%
Cairo
230
N.A.
2014
Source: Company reports and J.P. Morgan estimates.* (EGP mn Jun 2008)
Banking on annual visitor traffic
of 13mn into Egypt, TMG enjoys
reasonable occupancy levels
and healthy margins on its
hotels in Cairo and Sharm elSheikh
As per 1Q10 reports, average occupancy levels of 66% at Four Seasons Cairo and
Sharm el-Sheikh are slowly recovering from pre 2009, where they had slipped to
58% down from 67% in 2008. During the same period, Average Room Rate (ARR)
for the Four Seasons Nile Plaza and Sharm el-Sheikh slipped to US$338/day and
US$460/day during 1Q10 vs. 2009 average of US$366/day and US$437/day.
However, better QoQ occupancy levels and higher revenue from the F&B (food and
beverages) business led to slightly improvement in Net Operating Margins, where
they averaged 49%, up from 47% in 4Q09. Occupancy levels and margins at Four
Seasons and San Stefano have been low at 43% and 12%, respectively, at end 1Q10.
41
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Feeling the pressure from the global financial crisis, Egypt's visitor volumes inched
up by only 1%Y/Y in 2009,but visitor volumes into Egypt have remained robust with
5-year average (2005-08) growth of 15%. Hence with a slow yet gradual recovery in
global dynamics, we expect tourism flows to improve further in 2010, where
occupancy levels for TMG's two key hotels in Cairo and Sharm el-Sheikh have
already started trending upwards closing at average 66% vs. 9MCY09 average of
54%.
Figure 46: Net Margins for Four Seasons Cairo and Sharm el-Sheikh
Figure 47: Occupancy levels at TMG’s operating hotels
60%
85%
55%
50%
75%
45%
55%
40%
45%
65%
35%
30%
35%
25%
25%
4Q08
1Q09
2Q09
Four Seasons Nile Plaza
3Q09
4Q09
1H08 9M08 2008 1Q09
Four Seasons Nile Plaza
Four Seasons San Stefano
1Q10
Four Sesons Sharm el Sheikh
1H09 9M09 2009 1Q10
Four Sesons Sharm el Sheikh
The hotel construction and development costs are partially financed through upfront
sale of high end luxury residential units attached to the hotel or resort. The difference
is funded via debt or equity. This effectively allows TMG to enhance net cashflow at
the start of the project and achieve target IRR of 18% on hotel complexes. The high
end luxury units are limited in number and grab significantly higher selling prices
and margin relative to average residential prices for development projects. Nile
Plaza Hotel, which was completed in 2004, had 131 residential units apart from 365
room keys. At end 2009, TMG had 5 remaining units in Nile Plaza Hotel, where
asking prices range between US$1.5-3mn with average margins in the range of 6875%. Within TMG’s hotel development pipeline, three out of its planned five hotel
projects have a residential component apart from room keys. The hotels and resorts
component within TMG's portfolio accounts for 20% of the company's combined
SOTP, where we use a WACC of 15.5% and a terminal growth rate of 2%.
The hotels and resorts portfolio
represents 20% of the
company's SOTP value
Table 23: TMG - Hotel and resorts revenue recognition schedule
EGP mn
Nile Hotel
Four Season Sharm Extension
Marsa Alam Ph 1
Luxor
Madinaty
Existing hotel revenue
Total
2010E
36
0
0
0
0
538
2011E
96
0
0
0
0
546
574
641
Source: Company reports and J.P. Morgan estimates;
42
Recurring revenue from hotel operations
2012E
2013E
2014E
2015E
2016E
112
129
131
133
135
0
342
1034
35
52
0
3742
4598
92
135
0
0
73
99
108
0
0
0
900
346
561
614
663
713
765
673
4,827
6,498
1,972
1,541
2017E
137
61
158
127
59
776
2018E
139
62
160
129
64
788
1,318
1,342
Residential
Units
114
750
100
964
Room
Keys
191
96
250
201
240
684
1,662
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Revenue outlook – 3-yr revenue CAGR of
31%
We estimate 3-year revenue
CAGR of 31% with a sizable
contribution coming from
revenue recognition on planned
handovers in Madinaty and Al
Rehab
With phased construction and handover spanning over the next 10 years, we expect
75% of TMG’s cumulative (2010E-2019E) revenue to come from Madinaty. This is
followed by Al Rehab, which is expected to account for 12% of TMG's cumulative
revenue during the same period. Starting 2010, TMG will recognize revenue on the
first set of residential handovers in Madinaty, where we estimate a 3-year (20102012) revenue CAGR of 31%. The current sales backlog of EGP24bn should cover
for revenues coming through over the next 3 years. However, sales projections
beyond 2012 assume revenue recognition from any future sales primarily within
Madinaty and Al Rehab's residential and commercial (mega developers) components.
We estimate 66% of the cumulative revenue during 2010E-2019E period to come
from property sales, followed by 26% contribution from land sales to mega
developers and 7% contribution from recurring revenue generated from hotel and
resort operations.
Figure 48: TMG - Sales breakup by project
40,000
Figure 49: TMG - Sales breakup by project %
100%
EGP Mn
30,000
80%
20,000
60%
10,000
40%
-
20%
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Al Rehab 1& 2
Al Rabwa
Madinaty
Residential (Hotel & resorts)
0%
8%
7%
83%
79%
5%
11%
6%
4%
3%
56%
73%
84%
22%
12%
36%
5%
6%
6%
62%
62%
66%
32%
31%
27%
7%
49%
43%
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Land
Residential
Hospitality revenue
Others
Source: Source: Company reports and J.P. Morgan estimates
EBITDA and net profit outlook
3-yr net profit CAGR is estimated
at 35% with better margins
expected on sales in Madinaty
and Al Rehab
Gross margin should improve moving forward with cheaper construction costs and
stable pricing mix, where we estimate TMG to record average gross margin of 34%
(2010E-12E); an improvement of 100bps vs. average for 2008-09 at 31%. Unlike
some high-end residential focused developers, TMG raised its prices by 3% in 2009
and has already raised prices by 6%YTD for sales in the remaining inventory on
launched phases within Madinaty and Al Rehab.
The tax holiday which TMG has enjoyed on some of its earlier projects, does not
apply to Madinaty and Al Rehab 2. As a result, with Madinaty handovers starting in
2010, we estimate net margin to reduce by 400bps to 24% vs. average 28% in 200809 with the company’s effective tax rate forecast to go up from average 10% in
2008-09 to average 20% for 2010E-12E period. Despite higher tax expense, we
estimate TMG to report a 3-year Net Income CAGR of 35% for 2010-2012.
43
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Figure 50: TMG - Gross margins likely to improve moving forward
15000
Mn
40%
35%
10000
30%
25%
5000
20%
0
15%
2008
2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E
Property sales
Services Revenue
Hotel operations
Gross Margin
Table 24: TMG - Profit and Loss statement
EGP mn, year-end December
2008
2009
2010E
2011E
2012E
Property sales
Rental Income
Service revenue
Total consolidated revenues
4,763
584
74
5,421
4,074
540
208
4,822
6,316
574
219
7,109
8,153
641
230
9,024
10,000
673
241
10,914
Property sales cost
Rental costs
Services cost
Total costs
-3,143
-327
-24
-3,494
-2,898
-317
-121
-3,336
-4,293
-314
-127
-4,735
-5,780
-354
-134
-6,268
-6,193
-373
-140
-6,706
Gross profit
Gross Margin
1,927
36%
1,486
31%
2,374
33%
2,757
31%
4,208
39%
Admin & General Expenses
Other income
Others
EBITDA
Depreciation & Amortisation
-157
35
2
1,807
-92
-233
32
56
1,342
-101
-355
33
1
2,052
-103
-451
35
1
2,341
-115
-546
37
1
3,700
-129
EBIT
1,715
1,240
1,949
2,226
3,571
141
72
50
101
179
EBT
Tax
1,856
-196
1,313
-113
1,999
-340
2,327
-459
3,750
-909
Net income ex. Minorities
1,442
1,106
1,566
1,775
2,748
0.71
0.00
0%
0.53
0.00
0%
0.77
0.00
0%
0.87
0.00
0%
1.35
0.20
15%
Shares outstanding (MM)
2,030
2,030
2,030
2,030
2,030
Growth (%)
Revenues
EBITDA
EPS
DPS
153%
3%
8%
n.a
-11%
10%
-25%
n.a
47%
2%
46%
n.a
27%
12%
13%
n.a
21%
13%
55%
n.a
Net financing income/cost
EPS (EGP)
DPS (EGP)
Payout ratio
44
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Cash flows and balance sheet
Low gearing with liquidity likely to improve going forward
Cashflow position is likely to
improve moving forward, as
planned handovers allow MTG to
receive final down payments on
sold units over the next 3 years
TMG's balance sheet remains underleveraged with a net debt/equity of 25% mainly
due to the company’s self-funded business model. This is unlikely to change over the
medium term, given strong underlying fundamentals of the Egyptian real estate
market, where 1) strong local population driven demand for housing and 2) high
proportion of cash based transactions given tight banking regulations should continue
to support TMG’s off-plan funding model, in our view. Following a slow 2009, the
company has already achieved EGP1.2bn (up 172%Y/Y) in new off-plan sales
during the first three months of 2010 with total sales backlog at EGP24bn. Moreover,
customer default risks remain low given stringent repayment policies followed by the
company, where customer contract cancellations that peaked in 1H09 remain less
than 5% of the total sales backlog. As the pace of handover in Madinaty and Al
Rehab picks up, we expect account receivables against the current backlog to
materialize into cash enabling TMG to pursue further land acquisitions inline with its
expansion strategy and accelerate pace of construction to take advantage of cheaper
construction costs.
Table 25: TMG - Cash flow statement
Pre-tax profit
Depreciation
Others adjustments
Working capital changes
Cash flow from operations
2008
2017
103
(259)
(3,402)
(1,542)
2009
1313
101
(241)
(1,474)
(301)
2010E
1999
103
(93)
(458)
1,551
2011E
2327
115
(93)
307
2,656
2012E
3750
129
(93)
(33)
3,753
Purchase of property & equipment & Projects Under construction
Other investing cash flows
Cash flows from investing activities
Free cash flows
(4,285)
-1731
(6,016)
(5,568)
(225)
24
(202)
(285)
(750)
0
(750)
895
(1,221)
0
(1,221)
1,528
(1,324)
0
(1,324)
2,523
Equity raised
Debt raised/repaid
Dividends paid
Others adjustments
Cash flow from financing activities
5,568
1,296
1,995
8,859
(56)
(410)
(466)
(340)
(340)
(459)
(459)
(412)
(909)
(1,321)
Foreign Exchange Impact
Change in cash
Beginning cash
Closing cash
13
1,314
0
1,314
4
(964)
1,314
350
0
461
350
811
0
976
811
1,787
0
1,108
1,787
2,895
45
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Table 26: TMG - Balance sheet
Cash
Accounts and Notes Receivables
Development work in progress
Prepayments and Other debit balances
Investment debtors
Others
Current Assets
2008
1,425
18,152
10,306
2,636
1,320
481
34,320
2009
399
17,061
11,718
3,073
1,305
497
34,053
2010E
860
17,203
12,628
3,073
1,305
497
35,566
2011E
1,836
16,695
13,809
3,073
1,305
497
37,215
2012E
2,944
18,009
18,689
3,073
1,305
497
44,517
Property, plant and equipment
Projects under development
Goodwill
Others
Total fixed assets
Total assets
3,774
409
14,918
380
19,480
53,800
3,729
582
15,135
388
19,835
53,889
4,105
853
15,135
388
20,482
56,048
4,566
1,498
15,135
388
21,588
58,803
5,472
1,787
15,135
388
22,783
67,299
Trade and other payables
Current portion of loans and facilities
Customer advances
Accrued expense and Other credit balance
Others
Current liabilities
506
481
21,726
1,475
146
24,333
604
752
20,447
1,702
117
23,621
924
752
20,672
1,702
165
24,215
1,805
752
20,771
1,702
165
25,195
1,091
752
27,645
1,702
165
31,356
Loans and facilities
Long term liabilities
Deferred Tax liabilities
Long term liabilities
1,296
4,210
12
5,518
1,240
4,178
21
5,439
1,240
4,178
21
5,439
1,240
4,178
21
5,439
1,240
4,178
21
5,439
Minority Interest
1,994
1,685
1,685
1,685
1,685
Share capital
Legal and general reserves
Retained earnings
Treasury stock
Shareholders Equity
20,302
184
1,638
(170)
21,954
20,302
188
2,788
(134)
23,144
20,302
188
4,353
(134)
24,710
20,302
188
6,128
(134)
26,485
20,302
188
8,464
(134)
28,820
Total liabilities & shareholders' equity
53,800
53,889
56,048
58,803
67,299
10.81
624
5,506
6,131
11.40
866
5,418
6,284
12.17
915
5,418
6,333
13.05
915
5,418
6,333
14.20
915
5,418
6,333
11%
21%
12%
25%
11%
22%
11%
17%
9%
12%
Ratios and other data
Book value/ Sh
ST debt
LT debt
Total debt
Interest bearing debt / Capital (%)
Net (debt) or cash to equity (%)
46
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
47
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Valuation Methodology and Risks
Talaat Mostafa Group (Overweight; Price Target £E10.70)
Valuation Methodology
Our end Dec 2010 target price of EGP10.7 is based on sum-of-the-parts valuation
analysis and includes discounted cash flows from TMG's ongoing mixed-used
residential development and hotel projects. TMG's largest project, Madinaty,
accounts for 62% of its combined SOTP, followed by Al Rehab (1 & 2) accounting
for c. 12% of the company’s SOTP value. We exclude TMG’s landbank from our
SOTP calculation, as we forecast cash flows from all of TMG projects including
Madinaty and Al Rehab for their entire construction period. We also exclude TMG’s
land plot in Jeddah (1.4mn sq m – 50% of the total of 2.8mn sq m), where
construction plans have not yet been finalized. We do not apply a discount to our
SOTP, as we find Egyptian property market dynamics rather robust with the
residential demand largely driven by domestic population rather than expats.
However, we use a high WACC of 14.8% to reflect low affordability levels and the
high interest & inflation rate environment in the country.
Risks to Our View
The downside risks to our OW rating could come from weaker than forecast revenue
from planned handovers in 2010-2012, weaker than forecast margins on residential
units, lower than forecast demand for housing, and a poor response from the off-plan
sales launch in Saudi Arabia.
48
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Talaat Mostafa Group: Summary of Financials
Profit and Loss statement
£E in millions, year-end Dec
FY08A
FY09A FY10E FY11E FY12E Cash flow statement
Sales
% change Y/Y
Gross Profit
% change Y/Y
EBITDA
% change Y/Y
EBIT
% change Y/Y
Net Interest
Earning before tax
% change Y/Y
5,421
1,927
1,807
1,715
141
1,856
-
4,822
-11%
1,486
-23%
1,342
-26%
1,240
-28%
72
1,313
-29%
7,109
47%
2,374
60%
2,052
53%
1,949
57%
50
1,999
52%
After Tax Income ex Minorities
% change Y/Y
1,442
-
1,106
-23%
1,566
42%
Shares Outstanding
2,030
2,030
2,030
EPS (reported)
% change Y/Y
0.71
0.53
0.77
- (25.4%) 45.5%
9,024 10,914 EBIT
27%
21% Depreciation & amortisation
2,757 4,208 Change in working capital
16%
53% Other
2,341 3,700 Cash flow from operations
14%
58%
2,226 3,571 Purchase of property plant and equipment
14%
60% Gain from sale of assets
101
179 Other
2,327 3,750 Cash flow from investments
16%
61%
Equity raised
1,775 2,748 Debt raised/(repaid)
13%
55% Others
Cashflow from Financing
2,030 2,030
Change in Cash
0.87
1.35 Beginning cash
13.4% 54.8% Ending cash
FY08A
FY09A FY10E FY11E
2,017
103
(3,402)
(259)
(1,542)
1,313
101
(1,474)
(241)
(301)
(4,285)
1
(1,732)
(6,016)
1,999
103
(458)
(93)
1,551
FY12E
2,327
115
307
(93)
2,656
3,750
129
(33)
(93)
3,753
(225)
2
22
(202)
(750) (1,221)
0
0
(750) (1,221)
(1,324)
0
(1,324)
5,568
1,296
1,995
8,859
(56)
(410)
(466)
0
(340)
(340)
0
(459)
(459)
0
(1,321)
(1,321)
1,314
1,314
(964)
1,314
350
461
350
811
976
811
1,787
1,108
1,787
2,895
Balance sheet
FY08A
FY09A FY10E FY11E FY12E Ratio Analysis
FY08A
FY09A FY10E FY11E
FY12E
Cash and cash equivalents
Accounts receivable
Development work udner progress
Other
Current assets
Property plant and equipment
Projects under development
Others
Total assets
ST loans
Payables
Others
Total current liabilities
Long term debt
Other liabilities
Total liabilities
Minorities
Shareholders' equity
Total Liabilities & Shareholders Equity
1,425
18,152
10,306
4,437
34,320
3,774
409
15,298
53,800
624
506
2,101
24,333
5,506
12
29,852
1,994
21,955
53,800
399
17,061
11,718
4,875
34,053
3,729
582
15,524
53,889
866
604
2,571
23,621
5,418
21
29,060
1,685
23,144
53,889
35.5%
33%
31.6%
26.6%
2.9%
30.8% 33.4% 30.5%
28%
29%
26%
25.7% 27.4% 24.7%
22.9% 22.0% 19.7%
4.8% 5.0% 5.0%
38.6%
34%
32.7%
25.2%
5.0%
-11%
47%
27%
-26%
53%
14%
- (25.4%) 45.5% 13.4%
21%
58%
54.8%
860
17,203
12,628
4,875
35,566
4,105
853
15,524
56,048
915
924
2,620
24,215
5,418
21
29,654
1,685
24,710
56,048
1,836
16,695
13,809
4,875
37,215
4,566
1,498
15,524
58,803
915
1,805
2,620
25,195
5,418
21
30,634
1,685
26,485
58,803
2,944
18,009
18,689
4,875
44,517
5,472
1,787
15,524
67,299
915
1,091
2,620
31,356
5,418
21
36,794
1,685
28,820
67,299
Gross Margin
EBITDA Margin
EBIT margin
Net profit margin
SG&A/Sales
Sales growth
EBITDA growth
Adjusted EPS growth
Net debt to Total Capital
Net debt to Equity
Sales/assets
Assets/equity
ROE
ROCE
11.4%
19.6%
10.1
2.5
6.6%
5.8%
11.7% 11.3% 10.8%
23.7% 20.7% 16.0%
8.9
2.3
4.8%
4.1%
12.7
2.3
6.3%
6.1%
9.4%
11.1%
15.3
2.2
6.7%
6.6%
16.2
2.3
9.5%
9.9%
Source: Company reports and J.P. Morgan estimates.
49
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
•
Market Maker/ Liquidity Provider: JPMSL and/or an affiliate is a market maker and/or liquidity provider in Talaat Mostafa
Group.
Talaat Mostafa Group (TMGH.CA) Price Chart
21
Price(£E) 14
7
0
Nov
07
Feb
08
May
08
Aug
08
Nov
08
Feb
09
May
09
Aug
09
Nov
09
Feb
10
May
10
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it
over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research
analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE
All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s
coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying
analyst(s) coverage universe.
Coverage Universe: Muneeza Hasan: Aldar Properties (ALDR.AD), Emaar Properties (EMAR.DU), RAK Properties
(RPRO.AD), Sorouh Real Estate (SOR.AD), Union Properties (UPRO.DU)
50
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2010
JPM Global Equity Research Coverage
IB clients*
JPMSI Equity Research Coverage
IB clients*
Overweight
(buy)
45%
48%
42%
70%
Neutral
(hold)
42%
46%
49%
58%
Underweight
(sell)
13%
32%
10%
48%
*Percentage of investment banking clients in each rating category.
For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category.
Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on
any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on
the front of this note or your J.P. Morgan representative.
Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon
various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which
include revenues from, among other business units, Institutional Equities and Investment Banking.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US
affiliates of JPMSI, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMSI,
and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public
appearances, and trading securities held by a research analyst account.
Other Disclosures
J.P. Morgan is the global brand name for J.P. Morgan Securities Inc. (JPMSI) and its non-US affiliates worldwide. J.P. Morgan Cazenove is a
brand name for equity research produced by J.P. Morgan Securities Ltd.; J.P. Morgan Equities Limited; JPMorgan Chase Bank, N.A., Dubai
Branch; and J.P. Morgan Bank International LLC.
Options related research: If the information contained herein regards options related research, such information is available only to persons who
have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of
Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at
http://www.optionsclearing.com/publications/risks/riskstoc.pdf.
Legal Entities Disclosures
U.S.: JPMSI is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a
member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a
member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. Registered in England & Wales No.
2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg
Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated
by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd,
Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS
Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a
Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock
Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of
the National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of
India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of
Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock
Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock
Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores
Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a
member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission.
Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P)
020/01/2010 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the
Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the
MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a
Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in
Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and
Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorised by the Capital Market Authority of the Kingdom
of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number
35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi
51
Muneeza Hasan
(971) 4428-1766
[email protected]
07 June 2010
Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered
address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by
JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising
as a result of publication and distribution of investment research. Many European regulators require that a firm to establish, implement and
maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must
not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only
available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons
regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in
Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not
distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms
“wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is
distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are
regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end
satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities
and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from
two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan Structured
Products B.V. and listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website:
http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of
share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan
Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the
commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments
Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers
Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by
affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the
securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures
section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This
material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the
course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the
public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third
party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no
circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of
an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in
Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only
by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement
in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to
be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the
information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory
of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory
authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the
securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as
professional clients as defined under the DFSA rules.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan
Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any
disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as
of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this
material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or
solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual
client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to
particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments
mentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic
updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other
publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home
jurisdiction unless governing law permits otherwise.
“Other Disclosures” last revised March 1, 2010.
Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan.
52

Talaat Mostafa Group - Talaat Moustafa Group

Transcription

Similar documents

Festival for the Ages!

AncientWisdomTours.com Egypt

Le Pacha Egypt Cairo Zamalek - Saray El Gezirah

The history - Jardin des Dominicains du Caire

2 FOR 1

CV - Zahran

Egyptian alabaster lentoid flask New Kingdom. Mid to late 18th

Arch. Mohammed Hassan Khalil CV - cpas --

Adel El Siwi