EUR 27.46 For Business Accounts Only

EMAARMLS UH | A play on UAE shift to normalisation; Overweight

Positioned to benefit from brewing U-shaped recovery. We maintain our Overweight rating on EMG, with a potential upside of 31%. We lower our TP by 8%, on the impact seen on 2020e operations having a trickle on effect for the coming few years. EMG provides strong exposure to the gradual normalisation of the activity post-COVID era. That said, with 3Q20 numbers showing promise, we expect the recovery to be U-shaped from here, on: i) expected tourism recovery post-pandemic (potential vaccine + Expo), ii) lower interest rates (125 bps cut y-t-d), and iii) Namshi’s strong growth potential (2020-25e EPS CAGR of 17%) amid growing e-commerce interest in the GCC.

Valuation levels unjustified; Expect DPS to normalise in 2022e. EMG trades on a 2021e P/E of 12.5x, a 30% discount to global peers. This discount is unjustified, in our view, given Dubai Mall’s strong positioning and Dubai’s exposure to a well-diversified tourism base. Further news flow on easing of travel restrictions, progress on vaccination, and positive reported numbers would act as triggers for the stock. That said, we foresee no DPS for 2020e, despite limited capex earmarked for the next 18 months, and resumption expected in 2021e (AED0.07/share, yielding 4.3%) and back to 2018 levels in 2022e (AED0.10/share, yielding 5.8%).

Decent recovery q-o-q following reopening of malls in 3Q20. Revenue dropped by 27% y-o-y, weighed down by the rent relief policy, placed in a bid to retain tenants and keep occupancy rates at favourable levels (c91% in Sep-20). This policy was extended until year-end, however, management remains positive on the rest of the year, with the holiday season coming up and footfall numbers already edging towards normalised levels. Revenue from Namshi was up 35% y-o-y in 9M20, on a stronger appetite for online shopping during the lockdown. We expect 2021 to witness significant improvement (+50% y-o-y for rental income), but look for full recovery in 2022e (+25% y-o-y), with the Expo at end-2021 likely providing the final push for the full recovery, in our view.

Risks and concerns. The main concerns, in our view, would be: i) a second wave forcing another global lockdown (for every 5% change in occupancy, our valuation increases/decreases by 10 fils), ii) delayed introduction of a COVID-19 vaccine, and iii) prolonged economic turbulence affecting consumer spending power.