EUR 21.76 For Business Accounts Only

Land story materialising; Upgrade to Overweight

Land registration complete, monetisation to follow. On 2 Apr-18, Pachin finalised the legal registration of its vacant 53k sqm land plot in Obour District in Cairo, which has been vacant since 2013. Lack of registration was previously barring the company from monetising this land. Management plans to contribute 20k sqm of the plot within 3-6 months, into a residential project through a JV with an independent realtor. The remaining 33k sqm will take longer, we believe, with limited details currently disclosed. However, converting the land licence to residential and/or commercial use from industrial use is necessary for both plots, which management is presently pursuing.

Raise TP by c92%; upgrade to Overweight. We maintain our DCF-EV unchanged at EGP671mn (noting that the company’s core operations are heavily pressured by the limited affordability post the EGP floatation), but raise our TP by c92%, as we factor into our TP the value of the 53k sqm land, and hence upgrade our rating to Overweight from Underweight. The entire land was valued at EGP7k/sqm by an independent evaluator, and EGP20k/sqm by a state evaluator (both during end 2017). We choose to use the mid-point of EGP13.5k/sqm, net of transaction costs which implies reasonable density of c4x, putting the land value at EGP716mn. We note that the 33k sqm plot could be used in commercial projects, which would offer more upside vs. residential. Although we prefer an outright sale of the entirety of Pachin’s land, this appears to be unlikely as the state evaluator’s appraisal is, as per our understanding, what such state-owned firms would need to adhere to under a sale scenario.

Failure of land monetisation is the main downside. Failure to monetise the land would knock EGP36.0/share off our TP. Every 5% of higher/lower-than expected land value, and paints volume p.a., would add/deduct c3% and c4% to/from our TP, all else constant.