Non-residential component takes centre-stage
Upgrade on improved outlook, reiterate Overweight. We upgrade our TP by 30% to EGP16.0/share (c40% upside), on two key developments. TMG is due to launch its project in the New Capital (8% of EV) this summer, with presales of cEGP4.0bn expected during the year. Secondly, TMG sold EGP3.6bn (+5.5x y-o-y) worth of commercial units during 2017, pointing to the start of a new era for the company. Recurring income grew by 64% y-o-y, with hotels (19% of EV) growing by 51% on a standalone basis. TMG has a backlog of cEGP30bn, bested only by Emaar Misr (EGP33bn), yet it trades at an EV of 1.1k/sqm, a 25% discount to peer average, despite a large portion of its residual land bank earmarked for the non-residential segment. Only SODIC boasts a more attractive valuation (EV of EGP1.0k/sqm).
Recurring income contribution on the rise. During 2017, recurring income comprised c25% of TMG’s top line, significantly higher than any other listed Egyptian developer, with hotels alone comprising c13%. Non-hotel recurring income, which mainly consists of retail income, services, and club subscriptions, grew by c82%, strongly driven by increased inhabitancy in Madinaty (c30k families) and Rehab (c32k families). TMG set a target of 40-45% gross profit contribution from recurring income (currently at 25%) by 2020, which will largely depend on opening of retail space in Madinaty, as well as new club subscriptions. Recurring income, inclusive of hotels, comprises c31% of our valuation.
New Capital launch the main catalyst for the stock. We expect presales of cEGP30bn from the project as a whole generated over a period of seven years, with a gross profit margin of c30%. We expect pricing in the project to be at a slight discount to Madinaty, with the New Capital seen as untested waters, and TMG considered a first-mover within our coverage into the area. This project currently adds cEGP1.20/share to our TP (8% of EV), and we view its launch as the main short-term catalyst for the stock.
Talaat Moustafa Group is the a community real estate developer in Egypt, with a land bank of 50 million square meters. Co. is engaged in "community development" through establishing self-sustained residential city and community complexes for the upper and middle classes. Co.'s prominent development projects include Al Rehab City, East of Cairo, and the "Madinaty" project spanning over 33.6 million sqm of land with 600,000 target residents. Co.'s developments also include compounds such as May Fair in Al Shourouk, East of Cairo and Al Rabwa I & II in Six of October City, West of Cairo. Co.'s activities also extend to the hotels and resorts.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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