EUR 106.81 For Business Accounts Only

Diversified access to premium assets in Dubai; Initiate with Overweight

Solid underlying assets outperform the market. We initiate coverage on Emaar Properties with a target price of AED7.45/share, implying 47% upside, warranting an Overweight rating. Emaar’s subsidiaries have been standout performers in a weak Dubai market, which we expect to stabilise, showing signs of recovery over the next 18 months. This comes on: i) government initiatives to improve the investment environment (visas on arrival, residency, etc...), ii) events in the region (Expo, Qatar WC), and iii) favourable demographics (3.4% population growth by 2022, 5.2% rental yields).  

Risks exist, but Emaar has taken solid steps. The main risks we see for Emaar are: i) oversupply in the residential and retail market, and ii) major concentration in Dubai. That said, we believe Emaar has taken solid steps with its strategy, adjusting to market pressures, such as: i) product diversification, ii) cutting capex plans (from AED40bn to AED25bn), and iii) the sale of non-core assets (AED2.2bn generated from the sale of 5 hotels).

Trading dynamics strongly linked to subsidiaries. Emaar currently trades at a 67% discount to NAV, compared to a historical discount of 60%, while trading at a c12% discount to the SoTP of its listed subsidiaries. That said, based on historical trading dynamics, the subsidiaries are likely to rerate at a quicker pace, with Emaar following suit, as highlighted by Emaar’s rerating from its lowest point in the past 18 months (40%) vs. its subsidiaries (50%). Accordingly, we believe Emaar’s rerating strongly hinges on the performance of its subsidiaries, before closing the current gap with its historical discount to NAV and rerating further.

Emaar Dev. still our top pick in the GCC. Despite the strong upside in Emaar Properties, we continue to view Emaar Dev. [Overweight | TP AED7.45] as our top pick among our GCC coverage. This comes primarily on: i) a more favourable dividend outlook over the coming two years (yield of 12% vs. 3% for Properties), ii) cheaper valuation (2020e P/E of 4.7x vs. 5.1x), and iii) Emaar Dev.’s asset-light model, resulting in a more liquid balance sheet (net cash of AED3bn vs. net debt of AED11bn).