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Upgrade TP on SODIC East repricing; Top pick

Overweight; our top pick in Egypt. We upgrade our TP by 15% to EGP26.5/share, implying an upside of c42%. Our TP primarily benefits from: i) a 25% hike to SODIC East’s villas starting price (EGP20k/sqm upon launch vs. initial guidance of EGP16k/sqm), ii) higher sales upon launch (EGP1.8bn vs. EGP1.0bn guided), triggered by higher demand for the project, and iii) increased net cash in 3Q17 (+EGP0.2bn). This, however, is slightly offset by a one-year extension to SODIC East’s payment plans (8 years), with the project launching on a 7.5-year plan.    

SODIC still trades at a steep discount. SODIC’s current share price implies an EV of cEGP920/sqm, trading at a c35% discount to the average for active developers in Egypt. We believe this discount is unjustified due to: i) SODIC’s strong track record, ii) clarity of monetisation and development, and iii) strong positioning in the market ahead of the excess liquidity, flowing from the banking and treasury markets into the property sector, given our interest rate cut expectations over 2018 and potential ceasing of high-yielding CDs on offer since Nov-2016.

Increasing exposure in West Cairo. We estimate SODIC’s residual land at c5.3mn sqm, including the agricultural Al-Yosr plot, with only c440k sqm of undisputed residual land remaining in West Cairo (exc. Al-Yosr). That said, SODIC’s bids in the last co-development offering by NUCA, where SODIC bid for four plots in West Cairo, highlighted the company’s intentions to increase exposure in the area. The sizes of these plots ranged from 144 feddans to 1k feddans. We view this positively, as we believe that SODIC is already well-covered in the east with SODIC East, and, potentially, in the North Coast with the 300-feddan MoUs.  

Upsides to valuation. Despite the upside of c42% on our current TP, we see several further upsides to our valuation, stemming from not-yet-official events. These primarily include: i) MoUs signed in the North Coast for the co-development of two 300-feddan plots (could add cEGP4.8/share), ii) the acquisition of the 100-feddan extension to Caesar (could add cEGP2.1/share), and iii) the potential rezoning of Al-Yosr land to a residential plot, after recently being included in the new Sheikh Zayed boundaries (could add cEGP2.9/share). Any news on success in the bids to NUCA would pose further upside to our current valuation.