ANALYST CERTIFICATIONS AND REQUIRED DISCLOSURES BEGIN ON PAGE 07 Aldar Properes PJSC (ALDAR) Moderate Top-line Growth, While Profit Margin Felt the Heat. Aldar Porolio Connue to Outperform Wider Abu Dhabi Market. Rang Retained at Overweight. Fair Value Esmate at AED3.31 Per Share. Recurring Business Yas Mall trading occupancy stabilized at 98% with no notable change QoQ. Hotel occupancy rate dropped by 6% during the first half of 2016, resulng in a net loss for the segment of AED20.5mn in 2Q16 vs. a profit of AED8.9mn in 1Q16. 93% occupancy across office porolio slightly lower than 97% in 1Q16 and yet higher than 2015. Thanks to Daman House acquision. New School (Repton School) to be added in 2017 to the Company’s Porolio. S&P: upgraded Aldar to BBB/STABLE from BBB-/POSITIVE. Property Sales and Development Business Strong off-plan sales to provide more visibility for the future. 2Q16 revenues were supported by two (2) plots sales in Shams Abu Dhabi (liſted revenues by AED524mn). Gross margin for the quarter ahead of our full year esmated margin and 400bps above 1Q16. Launch-to-Sales rao increased by 400bps from 70% in 1Q16 to 74% at the me of this report.
7
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Aldar Properties PJS (ALDAR)...Aldar Portfolio ontinue to Outperform Wider Abu Dhabi Market. Rating Retained at Overweight. Fair Value Estimate at AED3.31 Per Share. Recurring usiness
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ANALYST CERTIFICATIONS AND REQUIRED DISCLOSURES BEGIN ON PAGE 07
Aldar Properties PJSC (ALDAR)
Moderate Top-line Growth, While Profit Margin Felt the Heat. Aldar Portfolio Continue to Outperform Wider Abu Dhabi Market. Rating Retained at Overweight. Fair Value Estimate at AED3.31 Per Share.
Recurring Business
Yas Mall trading occupancy stabilized at
98% with no notable change QoQ.
Hotel occupancy rate dropped by 6%
during the first half of 2016, resulting in a
net loss for the segment of AED20.5mn in
2Q16 vs. a profit of AED8.9mn in 1Q16.
93% occupancy across office portfolio
slightly lower than 97% in 1Q16 and yet
higher than 2015. Thanks to Daman House
acquisition.
New School (Repton School) to be added
in 2017 to the Company’s Portfolio.
S&P: upgraded Aldar to BBB/STABLE from
BBB-/POSITIVE.
Property Sales and
Development Business
Strong off-plan sales to provide more
visibility for the future.
2Q16 revenues were supported by two
(2) plots sales in Shams Abu Dhabi
(lifted revenues by AED524mn).
Gross margin for the quarter ahead of
our full year estimated margin and
400bps above 1Q16.
Launch-to-Sales ratio increased by
400bps from 70% in 1Q16 to 74% at the
time of this report.
Market Data, Last trade as of 09 June 2016
Market Code:
Bloomberg Code:
Reuters Code:
ALDAR
ALDAR UH
ALDR.AD
Sector Property
Last Price (AED) 2.81
One Day Price Change (%) (0.71)
30d Average Daily Volume 8,952,887
52w High Price (AED) 2.99
52w Low Price (AED) 1.87
Market Capitalization (AEDbn) 22.094
Key Data (based on 09 June 2016 Market Price)
Shares Outstanding (bn) 7.86
Forward PE Ratio (x) 8.35
Price to Book Ratio (x) 0.94
Dividend Yield (%) 3.53
(ROE) Return on Equity ( %) 11.22
Interim Results: Three month ended
(AED mn) 30-June-2016 30-June-2015 % Δ
Revenue 1,696 1,106 53%
Gross Profit 693 494 40%
Finance Cost -59 -62 -4%
Net Profit 654 601 9%
(AED mn) 30-June-2016 31-Dec-2015 % Δ
PPE 3,000 2,936 2%
Cash Balances 5,571 6,260 -11%
Sukuk 2,757 2,755 0%
Bank Borrowings 3,196 3,191 0%
Wednesday, August 10, 2016
Equity Research Update:
Aldar Properties PJSC (ALDAR)
Source: Market Data, courtesy of Bloomberg
Model Update:
We updated our model to reflect material changes in value drivers as of 30 June
2016. In that respect, we took into account the recent pressure on net margin,
specifically for the segment of hospitality and leisure. We also fine-tuned main fair
value drivers to reflect marginal changes in Aldar’s investment properties’
performance, and the better-than-expected margin on sales and development
segment. And last but not least, our estimates were adjusted to reflect cover latest
pressure on Aldar Investment Properties, as well as strong off-plan sales across
several projects.
Rated Overweight, Fair Value Set at AED 3.31 vs. AED3.20 in The Last
Update.
We retain our rating on Aldar with an overweight stance. Our TP of AED 3.31 share
offers 17.84% upside to current price level. We have used the SoTP methodology to
arrive at our TP, with Investment Properties and the Adjacent business contributing
the highest 70% to our Enterprise Value, followed by the Company’s existing and
future development projects at 20%.
Al Ramz Takeaway on 2Q16 Financials:
Mixed results exhibit the cyclicality of the business and current market conditions.
There are lot of developments to be watchful for in the upcoming quarters.
However, we still strongly believe that Aldar’s outlook remains favorable. The
hospitality business came under pressure, while the sales and development
segment was boosted by plot sales. Finally, we think that the school business is one
area where the Company can add value, giving a promising outlook for the sector.
Potential Challenges:
As we anticipated in our pervious investment updated on Aldar (dated 08 June
2016). Hotel revenues per room and occupancy rate came under pressure, hence
this segment may continue to be of prime concern to Aldar, at least in the
foreseeable future.
In Abu Dhabi, the average occupancy rate according to JLL’s most recent report
stabilized YoY. However, with supply set to increase by ~11% in the second half of
2016 and RevPAR trending downward, due to the decrease in corporate demand,
Aldar’s hotel portfolio might suffer further. Although the quality of the room is
important, competition is very high. Generally speaking, tourists-the main arrivals
on the island nowadays– tend to have lower spending compared to corporate
clients. Furthermore, the government of Abu Dhabi imposed a new 4% municipality
fee and a AED15 charge per night. All in all, these new fee and charges along with
current circumstances might drag the segment’s margin lower and may increase
rivalry among competitors.
In the aftermath of lower oil prices, the government of Abu Dhabi is set to be on a
relatively tight budget for the foreseeable future. Therefore, spending cuts may
likely continue with a possibility of spillover to the private sector. This, in turn,
might impose greater business challenges to achieve preset NOI targets.
Share Price Vs. Index
Equity Research Update ALDAR August 2016 Page 3
Sum of the Parts (SOTP) Valuation Summary
(AEDmn) Contribution in EV Notes
Existing and Future Development Projects 5,305.29 19.90% PV of cash flows from already launched projects
Operating Businesses 18,793.19 70.48% PV of cash flows from operating businesses
Associates and JVs 744.40 2.79% Valued at 80% of book value, as od 30 June 2016
Receivables from Government of Abu Dhabi 1,822.33 6.83% PV of future cash flows
Enterprise Value (EV) 26,665.21 (WACC)
Calculation
(Net Debt, as of 30 June 2016) (5,969.22) Risk-free Rate 3.8384%
(Minority Interest, as of 30 June 2016) (234.86) Beta 1.6029
Cash, as of 30 June 2016 5,570.52 Market Risk 6.2500%
Fair Value of Equity 26,031.64 Country Risk 1.0703%
Shares Issued 7,862.63 Cost of Equity 14.9266%
Fair Value per Share 3.31 Cost of Debt 3.7257%
Market Price, as of 09 August 2016 2.81 (WACC) 12.3226%
Potential Upside (Downside) 17.84%
ALDAR: Rating at overweight, Fair Value at AED3.31 per Share. We have valued Aldar stock using SOTP as the Company has different business models across segments. Our valu-
ation model includes the PV of EBITDA margin of 58% from recurring businesses, and an EBITDA margin of 34%
from launched property development projects and estimated value of its land bank. We have also factored in the
contribution from receivables from the government of Abu Dhabi, which will be received by 2016-17 and Aldar’s
investment in associates and joint ventures with 20% liquidity discount.
Share Performance and Catalysts: Aldar’s relatively undervalued stock price beckoned foreigners. According to Abu Dhabi stock exchange, the
net change in foreign ownership (EXCLUDING ARABS and GCC) has surged to 19.48% at the end of July 2016.
Representing an increase of ~53% compared to the same period during 2015. Along with other factors, the
increase in foreign demand might explain the recent upward trend in the price. YTD return is more than
AED1.00 which represents 21.12% gain as of the closing of 09 August 2016. Technically speaking, Aldar’s stock
price had benefited from the recent emerging market rally and broke some important technical levels. Foreign
participation is also underpinned by the Company’s strong operating and cash flow position. After several
attempts, share price finally broke the AED2.81 strong resistance level and reached a preset short-term
technical target of AED2.99 on 27 July 2016. Meanwhile, consolidation is taking place around the mentioned
levels. In the mid-term, the chances remain high for breaking the AED2.91 level.
Equity Research Update ALDAR August 2016 Page 4
Note on IFRS 16. Aldar has opted for the early adoption of IFRS 16, mandatory in January 2019. The impact of such an early adoption, will effect the policy of the Group in relation to its lease contracts. The new standard will mainly impact the treatment and the classifications of the cash flow not the cash flow itself. As a Lessee, the Company will have a single accounting model for all leases, with two exemptions: low-value assets and short-term leases. As a Lessor, the accounting treatment is substantially unchanged. However, the new standard will require additional disclosures. Finally, as we discussed there was no cash impact on Aldar’s income statement nor cash flow position as of 30 June 2016. Though direct cost went up by AED15mn, fair value and finance cost equally offset the mentioned increase.
Peer Comparison analysis: The Following Section is for Illustrative Purpose Only and It Is Not Included In Our Fair Value Calculation.
The following table on page (5) has been created using market data provided by Thomson Reuters as
of the closing prices of 09 August 2016.
Sl. No Tickers Company Name
1 EMAR.DU Emaar Properties PJSC
2 UPRO.DU Union Properties PJSC
3 DEYR.DU Deyaar Development PJSC
4 EMAA.DU Emaar Malls Group PJSC
5 DAMAC.DU Damac Properties Dubai Co PSC
6 MANZp.AD Manazel Real Estate PJSC
7 ESHR.AD Eshraq Properties Co PJSC
8 RPRO.AD RAK Properties PJSC
IMPLIE
D V
ALU
AT
ION
Curr
ency
Unit
ed A
rab E
mir
-ate
s D
irham
Date
8/9/2016
C
om
pany C
om
p S
et
Com
pany N
am
e
LT
M T
ota
l R
evenue
LT
M E
BIT
DA
LT
M E
BIT
N
TM
Revenue
NT
M E
BIT
DA
LT
M B
asi
c E
PS
NT
M E
PS
LT
M T
angib
le B
ook
Valu
e/S
hare
A
ldar
Pro
pert
ies
PJSC
5,2
28.6
8
1,7
22.5
5
1,5
13.8
0
5,6
70.7
4
2,3
88.6
3
0.3
4
0.2
8
2.5
9
Edit
Valu
es
T
ota
l Ente
rpri
se V
alu
e
Mult
iple
s
Pri
cin
g M
ult
iple
s
LT
M T
EV
/Tota
l R
evenues
LT
M T
EV
/EBIT
DA
LT
M T
EV
/EBIT
N
TM
TEV
/Forw
ard
Tota
l R
evenue
NT
M T
EV
/Forw
ard
EBIT
DA
LT
M P
/Dilute
d E
PS
Befo
re E
xtr
a
NT
M F
orw
ard
P/E
LT
M P
/TangBV
Hig
h
60.1
9x
3947.0
5x
88.4
8x
11.6
7x
645.6
3x
106.6
3x
33.4
0x
2.4
6x
Low
2.3
2x
4.1
0x
4.1
1x
1.9
9x
4.2
8x
3.2
5x
3.5
2x
0.3
3x
Mean
15.4
6x
677.2
4x
26.3
6x
4.8
2x
112.6
5x
22.0
4x
15.2
7x
1.0
1x
Media
n
6.8
1x
13.7
4x
11.3
3x
4.3
5x
16.9
0x
9.1
9x
14.2
3x
0.8
1x
Im
pli
ed E
nte
rpri
se V
alu
e
Hig
h
314,7
37.4
6
6,7
99,0
14.5
8
133,9
37.4
6
66,2
03.1
0
1,5
42,1
76.9
0
Low
12,1
10.3
7
7,0
60.8
9
6,2
23.0
3
11,2
82.1
0
10,2
23.9
5
M
ean
80,8
28.5
5
1,1
66,5
78.8
6
39,9
04.9
9
27,3
05.1
6
269,0
72.6
4
M
edia
n
35,5
81.2
1
23,6
72.8
6
17,1
48.3
3
24,6
77.9
0
40,3
72.7
4
+ T
ota
l C
ash
& S
T Invest
-m
ents
5,5
70.5
2
5,5
70.5
2
5,5
70.5
2
5,5
70.5
2
5,5
70.5
2
- T
ota
l D
ebt
6,4
55.1
5
6,4
55.1
5
6,4
55.1
5
6,4
55.1
5
6,4
55.1
5
-
Tota
l Pre
f. E
quit
y
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
-
Min
ori
ty Inte
rest
234.8
6
234.8
6
234.8
6
234.8
6
234.8
6
= Im
pli
ed E
quit
y V
alu
e
Hig
h
313,6
17.9
6
6,7
97,8
95.0
8
132,8
17.9
6
65,0
83.6
0
1,5
41,0
57.4
0
285,3
00.1
6
74,4
49.0
5
50,1
70.4
9
Low
10,9
90.8
8
5,9
41.3
9
5,1
03.5
4
10,1
62.6
0
9,1
04.4
5
8,6
87.1
8
7,8
46.6
3
6,7
09.9
4
Mean
79,7
09.0
6
1,1
65,4
59.3
7
38,7
85.5
0
26,1
85.6
7
267,9
53.1
4
58,9
72.4
6
34,0
28.5
9
20,6
66.3
7
Media
n
34,4
61.7
2
22,5
53.3
6
16,0
28.8
4
23,5
58.4
1
39,2
53.2
4
24,5
87.1
8
31,7
12.5
4
16,4
66.5
0
/
Share
s O
uts
tandin
g
7,8
62.6
3
7,8
62.6
3
7,8
62.6
3
7,8
62.6
3
7,8
62.6
3
7,8
62.6
3
7,8
62.6
3
7,8
62.6
3
= Im
pli
ed P
rice p
er
Share
Hig
h
39.8
9
864.5
8
16.8
9
8.2
8
196.0
0
36.2
9
9.4
7
6.3
8
Low
1.4
0
0.7
6
0.6
5
1.2
9
1.1
6
1.1
0
1.0
0
0.8
5
Mean
10.1
4
148.2
3
4.9
3
3.3
3
34.0
8
7.5
0
4.3
3
2.6
3
Media
n
4.3
8
2.8
7
2.0
4
3.0
0
4.9
9
3.1
3
4.0
3
2.0
9
M
ean E
quit
y V
alu
e A
cro
ss
Mult
iple
s Equit
y V
alu
e
Pri
ce P
er
Share
Hig
h
1,1
57,5
48.9
7
147.2
2
Low
8,0
68.3
3
1.0
3
Mean
211,4
70.0
2
26.9
0
Media
n
26,0
77.7
2
3.3
2
Financial Summary
ALDAR: Income Statement
(AEDmn) 2015 2016F 2017F 2018F 2019F 2020F
Revenue 4,586 5,398 5,638 5,900 6,186 6,494
Direct costs (2,380) (3,272) (3,613) (3,806) (4,028) (4,270)
Gross profit 2,206 2,126 2,025 2,094 2,158 2,224
Selling and marketing expenses (61) (51) (53) (55) (58) (61)
Staff costs (230) (270) (293) (310) (336) (365)
Depreciation and amortisation (210) (252) (198) (177) (209) (173)
Share of profit/(loss) from JVs and
Associates
161 125 142 160 182 206
Others 302 374 410 456 506 560
Finance income 98 94 121 122 131 145
Finance costs (240) (197) (205) (215) (225) (235)
Other income 694 640 647 653 660 666
Net Profit 2,560 2,465 2,454 2,568 2,627 2,761
Non-controlling interests 23 22 22 23 24 25
Net Profit to Shareholders 2,537 2,442 2,432 2,545 2,603 2,736