EUR 49.15 For Business Accounts Only

EMAAR UH | Diversified, quality play on Dubai recovery

Non-resident flows to take front seat. Recovery is underway across different real estate segments, so far mostly driven by residents, who are: i) leading demand for residential units, capitalising on low pricing and interest rates, ii) resuming retail activities, as consumer confidence improves, and iii) increasing staycation activities. The return of flows from key international markets into the residential segment (incl. Saudi Arabia and China for Emaar) is expected to be the theme for FY22. Similarly, the return of international guests to Dubai is seen to reflect positively on Dubai’s retail and hospitality segments (together contributing 55.2% to our Emaar’s SoTP valuation), on which Emaar can well benefit from.

Attractive valuation, decent DY compliment story. Emaar trades at a c43% discount to NAV (vs. its 15-year average of c48%, our applied 20% discount), in light of the ongoing multi-segmental recovery. Also unjustified, in our view, is the discount between Emaar’s market cap and that of the aggregate shares in subsidiaries (at c25% vs. historical average of c18%), considering the improved prospects of Emaar’s non-listed operations, including hospitality, entertainment, and the unlisted international operations. Emaar’s DY for FY21e stands at 3.1% (vs. DFMGI: 3%).

Retail business to return to pre-pandemic levels in FY22e. Retail KPIs, incl. footfall and tenant sales, displayed improvement, with a come-back to turnover rent in 3Q21, after four quarters of absence. The full acquisition of Emaar Malls allows for full exposure to the recovery. Moreover, should the plans for the partial sale of Namshi materialise (not in our numbers), this would imply: i) lower revenue, ii) improved profitability margins, and, potentially, iii) special dividends, yielding up to 6-7%.

Development business in FY22e: Still positive, but FY21e likely peak year. We expect contracted sales to drop by 18% y-o-y from an exceptional FY21, albeit c50% higher than FY16-19 average. Several factors, which shaped a stellar year for the development segment (+7.6% y-o-y in selling prices in Oct-21), are expected to wither in FY22, including the: i) impact from pent-up demand after a slow post-pandemic period, ii) accumulation of wealth for residents, and iii) desire for bigger housing space on WFH/online schooling trends. We favour a diversified exposure through the parent over a direct one through Emaar Development [N | TP AED5.10].