EUR 101.64 For Business Accounts Only

DEWA UH | Valuation full: Initiate at Neutral

Trading slightly above global peers. DEWA trades on a 2022e EV/EBITDA of 11.7x, falling to 11.1x in 2023e, representing 15.5% and 19.1% premium to global peers. This is despite its EBITDA CAGR of 7.1% over 2022e-24e vs. 8% for peers. The stock offers a decent dividend yield of 4.8%, surpassing 3.6% offered by industry peers. This is likely to keep supporting the stock despite its stretched valuation. DEWA is a potential candidate for inclusion in MSCI EM Index in November 2022.

Steady demand growth ahead,… DEWA is the exclusive provider of electricity and water services in Dubai. We look for low single-digit consumption growth of 3.5% and 3% for electricity and water, respectively, over 2022e-32e. This is supported by population growth, post pandemic pick-up in expats, and supportive regulatory and visa reforms. DEWA is accommodating rising long-term demand through 48% capacity growth, mainly in renewable energy projects, over 2022e-30e, enabling continued supply security and supporting profitability.    

…but finance costs and taxes to weigh on short-run earnings. We expect net income to jump 21.5% in 2022e due to a one-time tariff adjustment. However, we look for mild pressures over 2023-24e on rising finance costs and tax introduction. Beyond 2024e: steady demand growth, margin expansion due to rising efficiency, and deleveraging should support 4.5% earnings growth p.a. over 2025e-32e.     
 
Low risk profile. As a utility player, DEWA’s operations are stable, as any fuel cost increases are passed on to the end consumer, leaving limited potential for upside/downside. Otherwise, population growth would need to average 6.3% p.a. over 2022-23e to alter our recommendation to OW.