EUR 21.76 For Business Accounts Only

Due projects already priced-in; maintain Neutral

TP upgrade on new SODIC East dynamics. We upgrade our TP by 13% to EGP38.5/share, implying an upside of 6.4%, still warranting a Neutral rating. This change comes wholly on the back of: i) higher starting prices in SODIC East (actual launch price of EGP20k/sqm vs. expected EGP16k/sqm), and ii) stronger-than-expected sales during the project’s launch (EGP1.8bn actual vs. initial guidance of EGP1.0bn). This, however, is weakened by the extended payment period (8 years vs. 7 previously), with all other assumptions left unchanged.   

Current valuation in line with peer average. Heliopolis Housing’s current share price implies an EV of cEGP550/sqm, relatively in line with the cEGP560/sqm average for land owners under our coverage. That said, in order to achieve this EV, assuming a density of 1.0x, at current sales prices and construction costs, a hypothetical developer would gradually acquire this land over 25 years on 4-year instalments, at a starting price of 2.6k/sqm (relatively in line with TMG’s 500-feddan acquisition price of EGP2.1k/sqm). This would imply a gross margin of 34% and a net margin of 21% for the developer, which we deem reasonable.

New projects already priced-in. Our SotP DCF valuation includes: i) New Heliopolis City, ii) HelioPark, iii) SODIC East, and iv) Sunville – the 100-feddan self-development expected to be launched during 1Q18. The company also stated that it is currently in the design phase for a new 650-feddan self-development. With Sunville expected to sell over five years, as per company guidance, we expect other sales in New Heliopolis City, inclusive of the 650-feddan project, to commence in FY2020/21, and accordingly, this project is factored into our TP. Any further higher-than-expected launch prices would reflect positively on our TP.

Monetisation timeframe key. We believe there is value stemming from Heliopolis Housing’s land bank, however, our main concern is the speed with which this land will be monetised, and the effect this will have on shareholders. Therefore, we choose to assume monetisation for this land bank, arriving at a c80% discount to NAV. Other risks include: i) potential cost overruns, as pricing is already at a discount to the market, while steep competition limits price increases, ii) lack of know-how in master development and off-plan model sales, and iii) minimal brand equity, with the market now opting for more established players.