Medinet Nasr Housing. Awakening Giant. Initiation of Coverage 4 May 2010

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1 Research Department Egypt Real Estate Medinet Nasr Housing Initiation of Coverage 4 May 2010 Awakening Giant With a large Cairo-based land bank, Medinet Nasr Housing fits well into our Egyptian real estate theme The imminent launch of the Nasr Garden project to accelerate value unlocking with the company s zero leverage position adding impetus We initiate on MNHD with a Buy rating and a TP of EGP50/share, giving a potential 39% upside Medinet Nasr Housing (MNHD) has one of the largest land banks at 10.1 million sqm, located entirely in Cairo. MNHD evolved from a purely government-based company specializing in mid-income housing to a largely privatized real estate developer by 2006 when Beltone s private equity arm acquired a c30% stake in it. Since then, the company has undergone managerial restructuring and resolved major land-bank related issues, previously hindering land utilization MNHD is shifting its business model from on-completion sales to offplan sales. To capitalize on the prime location of its land in central Cairo, new developments will target the high-mid income segment from its current midincome focus. We believe mandating ODM for construction management and marketing clearly signals a shift in the company s approach to development. With direct exposure to the primary home market in Cairo, MNHD scores high on our land model for Egyptian real estate. We maintain the view that Cairo based land banks are likely to reflect improvements in sector fundamentals ahead of second-home-based plays (please refer to our sector update note Land in Focus published 4 May). The imminent launch of the Nasr Gardens project should accelerate value unlocking, in our view. In addition, the company s liquidity position is comfortable, with minimal leverage and cash of EGP79.7 million as of 31 December 2009, should provide further impetus. We initiate on MNHD with a Buy recommendation and a TP of EGP50/share, implying a potential upside of 39%. We value real estate companies using a combination of DCF and land valuation. We conduct an indepth land bank valuation analysis by adopting a relative approach, which we label the sister land approach. This allows us to evaluate the market implied land valuation s deviation from its fair value, identifying the most undervalued land portfolios. To be conservative, we exclude future projects from our valuation at this stage and apply a 50% discount to the land bank. We value MNHD at a 43% discount to its 2010e NAV of EGP85/share. The higher discount to NAV reflects the company s maturity profile with a larger portion of its value coming from land. The key catalyst for the company is the imminent launch of the Nasr Garden project in Cairo. The biggest risk is the company s ability to successfully manage its shift into high-mid residential segment. However, since most future projects are still in the design stage we exclude them from our DCF. Instead we use land valuation, which should limit the downside risk given its prime land location in central Cairo. KPIs (EGP mn) 2009a 2010e 2011e 2012e 2013e 2014e Revenue EBITDA EBIT NPAT a=actual; e/f=hc s estimates/forecasts; c=consensus estimates Buy Target Price (EGP) 50 Market Price (EGP)* 36 Upside 39% Listed On Bloomberg Code RIC EGX MNHD EY MNHD.CA Enterprise Value (EGP mn) 3,502 Net Debt (EGP mn) (79.7) Market Cap. (EGP mn) 3,550 Market Cap. (USD mn) 634 Number of Shares (mn) 100 Daily Turnover (EGP mn) 8.5 Daily Turnover (USD mn) 1.5 Shareholder Structure Free Float and Others 42% Beltone Private Equity 31% NCCD (Government) 15% ODH 7% Employee Association 5% Price Performance Chart *Price as of 29 April 2010 Ankur Khetawat ankur.khetawat@af-hc.com Majed Azzam EGX 30 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr majed.azzam@af-hc.com Nermeen Abdel Gawad ngawad@hc-si.com * Disclaimer: See page 19 MNHD Medinet Nasr Housing 1

2 Business Model and Strategy Medinet Nasr Housing has one of the largest land banks at 10.1 million sqm, located entirely in Cairo MNHD is shifting its business model from on-completion sales to off-plan sales; new developments to target the high-mid income segment from its current mid-income focus Mandating ODM for construction management and marketing clearly signals a shift in MNHD s approach to development Medinet Nasr Housing and Development was established in 1959 by a governmental decree with a land bank of around 10 million sqm to develop present day Nasr City. MNHD evolved from a purely government-based company specializing in mid-income housing to a largely privatized real estate developer by 2006 when Beltone s private equity arm acquired a c30% stake in the company. Since then, the company has undergone managerial restructuring and resolved major land bank related issues, previously hindering land utilization. The government s stake currently stands at 15% through the National Company for Construction and Development. Chart 1 MNHD at a Glance Land Bank Nasr Gardens 3.8 mn m 2 KM mn m 2 Waha District 0.1 mn m 2 MNHD Sixth of October 0.7 mn m 2 Subsidiaries El Nasr for Utilities (97.5%) El Nasr for Civil Works (52.5%) Source: MNHD, HC Research Prior to restructuring, the company s business model depended on construction first then sales, usually done through newspaper advertisements on an auction-bidding basis. Although this worked previously, with the rise in competition and as part of MNHD s new strategic restructuring, branding, and marketing efforts, the company will adopt the off-plan model going forward. In addition to a sales portfolio consisting of high rise buildings, semi-furnished units, and land plots, the company also has a property portfolio, which is based on the old rent control system, where rents have been fixed since the 1970 s at rates as low as EGP20/month in what can be considered key locations. However, the government is taking initiatives to gradually remove the rent control system, which we believe might unlock the value. Apart from that, the company operates in construction works through its subsidiaries. We understand that the business plan and strategy for both subsidiaries are being reviewed; therefore, we exclude a detailed analysis at this stage. Restructuring Medinet Nasr Housing Beltone has a strategic vision for streamlining the company s operations with a private sector mindset. The reorganization involves two key phases stretching over six years ( ). The first phase focuses on broader issues that previously hindered the company from utilizing its full potential, as detailed below, while the second phase builds on the first phase of restructuring focusing on detailed execution and operational advancement for MNHD. The first phase is expected to conclude at the end of Most, if not all, of the milestones within this phase have been achieved. Medinet Nasr Housing 2

3 Secure key properties: MNHD managed to secure its flagship project, Nasr Gardens, as well as its KM45 land plot, which previously faced utilization restrictions. These land plots are the core of the company s land bank due to thier strategic location. Phase I Structural Changes Resolve urgent issues: Nasr Gardens faced army height restrictions due to its proximity to a military base, which have now been lifted. The company has also managed to raise height restrictions imposed by the airport authority to 36m (G+11 floors), as the radar level has been elevated to 181m from 134m. According to management, KM45, which was previously restricted due to issues with the military, has been handed over to the company in full. Management restructuring: The company reshuffled its management and appointed new executive managing directors from the private sector. Acquire new land: MNHD s first land purchase in 2008 of 718,000 sqm in 6th of October was designated for a national housing project. Sign development management agreement with ODM: MNHD signed in 2009 an agreement with a subsidiary of ODH, Orascom Development and Management, to develop and manage its Nasr Gardens project. Since MNHD is specialized in mid-income housing, ODH s expertise in high-end developments, will help the company venture into this segment. Restructuring Turn around the company: Thecompanyseeksto(i)focusproactivelyonthecustomerby providing clients with a showroom and a one-stop shop to facilitating registration of properties, (ii) launch independent projects with a strong focus on process management, (ii) rebrand and relaunch MNHD by highlighting the company s name which is associated with Nasr City (roughly 20% of Cairo) as well as emphasising MNHD s track record of developing around 150 million sqm BUA, and (iv) positioning MNHD in the low-income segment by replicating sucessful models employed in developed countries. Phase II Operation and Execution Changes Pursue all legacy land: Part of the new management s mission is to document, identify, and utilize forgotten land. Some plots have been encroached upon by nurseries and warehouses in Nasr City and others have been contested by the Cairo governorate and the Ministry of Interior. Operational development: MNHD s board of directors became non-executive in 2001, giving the new CEO all executive powers. This facilitates decision making, where previously the board had to approve minute details of operations and executions. According to management, the restructuring will involve a new organizational matrix with key departments including sales and marketing, investor relations, and human resources. Buy land outside Cairo: MNHD sees potential opportunities in other governorates thatlack supply, especially in the low income segment. The company plans to buy land outside Cairo given the demand-supply gap that exists in other governorates. Corporate social responsibility: Seeing the growing importance of CSR, MNHD intends to maintain its relationship with the Nasr City community by providing infrastructure and utilities to the area as well as set up a development fund. Medinet Nasr Housing 3

4 Projects and Land Bank Chart 2 92% of land bank concentrated in East Cairo Nasr Gardens (3.5 mn sqm) Cairo Suez Road KM45 (5.5 mn sqm) Cairo Suez Road Waha District Nasr City (0.1 mn sqm) Low-Budget Housing 6 th of October (0.7 mn sqm) Source: Google Maps, HC Research Table 1: Projects and Product Mix Project Land Area mn sqm BUA mn sqm Unit Size sqm EGP Price/sqm EGP Cost Estimates/sqm Implied Margins Status* Delivery New Cairo (i) Nasr Gardens Villas/Mansions/Duplex TBD TBD - Downtown Residential TBD TBD - Commercial and Retail 0.5 Hospitality and Others 1.2 Subtotal M/P 2020 (ii) KM Raw Land 6 th of October Low-Cost Housing ,800-2,000 1,700 7% Commercial Housing ,000 1,100 45% Subtotal % U/C 2014 Medinet Nasr Housing Al Waha District Finished Apartments ,500 1,500 57% Semi-Finished Apartments 35K ,110 63% Subtotal % U/C 2012 Total Source: MNHD, HC Research * M/P=Master Plan, U/C=Under Construction Medinet Nasr Housing 4

5 As shown on the map in chart 2, c90% of MNHD s land bank is concentrated in strategic locations in East Cairo. The company s product portfolio is mainly skewed towards the residential sector as highlighted by its largest master planned project Nasr Gardens (see chart 4). MNHD used to offer finished apartments, but its upcoming projects will have a mixture of both core and shell and finished units, which will speed up the delivery process and reduce costs. Considering construction costs only, since land was granted for free except for its 6 th of October land, MNHD s implied margins range between 7% on its low budget housing units and 63% on its semi-finished units in Al Waha District (see table 1). Apart from the previously mentioned projects and products, MNHD has managed to secure a couple of plots and units in Nasr City, which belonged to the company but were either encroached upon or forgotten. A total of 70,338 sqm and 1,060 units have been identified and documented by the new management. Table 2: Legacy Land and Properties Land Area sqm Status Properties Units Status Plant Nursery 9,138 Identified and Documented Leased Apartments 546 Identified and Documented Warehouse 9,000 Identified and Documented Leased Shops 395 Identified and Documented Other Nasr City land 52,200 Identified and Documented Vacant Shops 119 Identified and Documented Total 70,338 1,060 Source: MNHD, HC Research Given current prevailing selling prices, we believe Nasr Gardens and KM45 are MNHD s core value drivers with further room for upside as land rerates. Chart 3: Value Drivers EGP price/sqm (y-axis), Land Bank (x-axis mn sqm), Value (bubble) 10,000 9,000 8,000 7,000 Value Drivers Nasr Gardens 6,000 5,000 KM 45* 4,000 3,000 2,000 Waha District National Housing Project 1,000 Source: MNHD, HC estimates *KM45 is raw land Medinet Nasr Housing 5

6 Land Bank Overview (i) Nasr Gardens Located at the intersection of the Cairo Suez Road and the Ring Road, the 3.8 million sqm land plot was granted to MNHD with the aim of utilizing land outside the Cairo district. The land remained idle until new management resolved height restrictions. Despite its location in the New Cairo area, which restricts height to G+3, MNHD has permission for G+11 buildings (c36m) as it abides by the rules of the Cairo municipality rather than the New Urban Community Authority. Under Cairo governorate regulations, the footprint is 40% as opposed to 23% for New Cairo areas. Master planned as a mix-use project, Nasr Gardens will cater to the residential, commercial, and hospitality segments. MNHD signed an agreement in early 2009 with ODM, a subsidiary of ODH, to promote and manage the project. Terms of the agreement entitles ODM to 2% of booked revenues and 10% of net profit. Instead of a gated community concept, which has become increasingly popular among Egyptians, Nasr Gardens will be more of an open community resembling the Zamalek area, as per the master plan. According to the tentative master plan, roughly 65% of total BUA of 3.8 million sqm with a FAR of around 1.1 will be dedicated for the residential segment, 15% for retail and commercial, 6% for hospitality, and the remaining 14% for other purposes including the downtown area. The project timeline is expected be 10 years. The first phase of the project will cover a BUA of 600,000 sqm (c20% of total BUA) with expected deliveries in Land plots will be sold to sub developers who will be developing c41% of phase I mainly the commercial, retail, and hospitality segments. The first phase will include 1,100 hotel rooms (20% of planned room capacity), mostly two-three star hotels. Nasr Gardens is likely to offers a diverse product portfolio, deviating from MNHD s standard finished and semi-finished units. Also, high end luxury units are likely to be introduced to the company s product mix. The chart below demonstrates Nasr Garden s preliminary units to be offered. We understand that all units in Nasr Gardens will be semi-finished except for the Downtown Residential units, which will be sold fully furnished. Chart 4: Nasr Gardens 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Nasr Gardens Master Plan 14% 16% 6% 15% 65% 10% 32% 42% 41% Developed by sub-developers Developed by MNHD 59% Master Plan Phase I Phase I Development Scheme Residential Commercial and Retail Hospitality Others Source: MNHD, HC Research Nasr Gardens Residential Mix Mansion Duplex DT Res. Villas Res. Blocks Lux Res. Blocks Number of units(lhs) Average unit Size sqm (RHS) Source: MNHD, HC Research 1, (ii) KM45 Spread over an area of 5.5 million sqm, KM45 is MNHD s largest land plot and is strategically located on the main Cairo-Suez Road next to TMG s Madinaty project. The land was granted to the company in 2003 instead of previously owned plots occupied by the government. The land plot remained unutilized due to entitlement issues with the army. The company was handed over the KM45 land in April The project is at a very early stage of development. The company has started initial studies for the required infrastructure, including water, electricity, and waste management. (iii) 6 th of October: Low-cost housing This land plot marks the company s first purchase in 2008 at EGP70/sqm. It is located between Oasis Road and Fayoum Road in West Cairo. The land is mainly dedicated to a low-budget housing project (c70% of units) while the balance will be directed to commercial housing. Earlier, MNHD s cost of developing a unit of EGP199,000/unit was higher than its intended selling price of Medinet Nasr Housing 6

7 EGP115,000/unit inclusive of the EGP15,000 government subsidies to clients. We understand that the selling price is expected to be range bound for the affordable housing segment (e.g. ODH sells units at EGP115,000). The new management has been working on cost reduction (see chart 5). MNHD is focusing on cost cutting by reducing the construction, land, and utilities cost per unit. Construction costs are expected to decline c43% by redesigning units and buildings as well as using alternative materials. Land and utilities costs are expected to fall roughly c55% after MNHD changes its building permit to G+5 from G+1, and re-measuring units as per prevailing practices in Cairo. The company is currently engaged in the first phase of the project, which makes up c28% of total area of 718,000 sqm. The first phase is expected to be delivered by 2011, consisting of 709 units for the National Housing Program and 432 for commercial housing. MNHD plans to purchase an extra 2.9 million sqm for the project. Chart 5: 6 th of October First phase (1,141 units) to be delivered by 2011 Costs down c50%/ unit 250, ,000 Remaining Area 79% First Phase 21% National Housing 13% Commercial Housing 8% 150, ,000 50,000 0 Intital Cost Current Cost Construction Cost Roads & Utitlities Land Overhead Marketing Source: Company data, HC Research Source: Company data, HC Research (iv) Al Waha District Al Waha District represents mostly the remaining portion of the company s Nasr City land, which is scattered plots ranging between 1,000 sqm and 10,000 sqm located in the 10 th District within the extension of Nasr City. An inventory of 60 apartments is still in stock with an area of 9,898 sqm and a selling price of EGP3,500/sqm for finished units. Going forward, the company s strategy is to sell off-plan, semi-finished units instead of finished ones, decreasing the financial burden and cutting delivery time by around one year. Prices are expected to range between EGP3,200 and EGP3,250/sqm. According to management, MNHD is planning to sell 1,776 units within the next three years. Medinet Nasr Housing 7

8 Financials and Valuation Since projects are yet to be launched, our revenue forecast does not include any new sales, instead we value the underlying land, in line with our approach across the MENA real estate sector We conservatively value MNHD s land bank at EGP423/ sqm, at least 40% lower than comparable land auction data We initiate on MNHD with a Buy rating and a TP of EGP50/share, giving a potential 39% upside Financials Like most developers, MNHD recognizes revenue on delivery. However, it treats sales made in cash differently than sales made in installments. For cash sales, the company recognizes revenue once the cash amount is received upon delivery. As for sales on installments, the company only recognizes the amount due and defers recognition on installments as deferred revenues, which progressively declines as installments are made. Revenue recognition is spread over the period of the installment (tenor of years at an effective interest rate of 13% 14% applied on the outstanding reducing balance). Table 3: Revenue Recognition Process On Sale On Installments DR CR DR CR 1. Cash (down payment) Receivables (Remaining value of sale + interest) Cash Revenues (Value of sale + interest) Receivables 2. Deferred Income from installment (I/S) (Gross profit of remaining value of sale + interest) Deferred income from installments (Liability) Deferred Liability Revenues Source: Company data Given the company s limited sales approach, revenues is dominated by contribution from its subsidiaries for civil works and utilities. The real estate business makes up c30% of revenue, while subsidiaries account for the rest. Although our revenue forecasts do not include any new sales, as projects are launched we expect the revenue mix to shift in favor of the real estate business. Chart 6 Revenue Breakdown (LHS) Land Bank Breakdown th of October Al Waha Nasr Gardens KM Source: Company data Sales Civil Works revenues Utilities Revenues MNHD s liquidity position is comfortable with net cash of EGP79.7 million with minimal leverage. This should help the company successful tap the debt market when needed as its expansion plan gains momentum. We expect debt requirements to be modest, however, as the company shifts to the pre-sales model, which is self-financing. The largest item on MNHD s balance sheet is customer receivables worth EGP644 million as of 31 December They are mainly installment payments on the company s sales as well as rent collection that will be recognized as revenue when periodic payments Medinet Nasr Housing 8

9 are due. Given the significance of this amount, it is important to look at default rates. We understand that delinquency rates (including any overdue customers) on receivables were highest on land sales at 27% and lowest on apartment sales at 2.3% and 11% for shops. To address the high default rates, MNHD has restricted commencement of construction work until a significant portion of the outstanding balance is received. Additionally, land registration is subject to MNHD s approval. That said, we remain cautious about the high delinquency rates, but keep an eye on the effectiveness of the implemented procedures. Valuation We value real estate companies using a combination of DCF and land valuation. Where a final master plan is available, we use DCF. Otherwise, we use land valuation only. To be conservative, we exclude future projects from our valuation at this stage and apply a 50% discount to the land bank. We initiate on MNHD with a Buy recommendation and a target price of EGP50/share, implying an upside potential of 39%. The main value driver for the company is its land bank, making up 85% of our overall target price, while DCF accounts for the rest. We only include launched projects in our DCF. As such, we exclude any future projects and sales, while accounting only for sold units at this stage. Nasr Gardens (valued at EGP28/share) and KM45 (valued at EGP10/share) are the main value drivers, contributing roughly 90% of our overall valuation. Despite their prime location, we opt to be conservative at this stage, estimating a value of EGP1,500/sqm for Nasr Gardens and EGP375/sqm for KM45, and apply a further 50% discount to the value. To put these projects into perspective, the table and map in chart 9 demonstrates 2007 land auction prices in New Cairo. As we prefer central land banks over secondhome land (see our note Land in Focus published on 4 May), we believe land rerating is likely to first impact Cairo-based land companies as the market continues to recover. Table 4: Land Valuation Project Location Land Area Value PSM Total Value (EGP mn) Value After 50% Disc. (EGP mn) KM45 New Cairo ,067 1,034 Nasr Gardens New Cairo 3.8 1,500 5,689 2,844 6 th of October 6 th of October Waha District Nasr City 0.1 4, ,520 4,260 No. of Shares mn 100 Value/share (EGP) 42.6 Source: HC estimates Chart 7: Valuation Land bank contributes c85% to overall valuation Nasr Gardens, main value driver for land DCF Land Bank 5 - Nasr Gardens KM 45 6th of Oct Waha District Source: HC estimates Source: HC estimates Table 5: MNHD FCF Year 2008a 2009a 2010e 2011e 2012e 2013e 2014e 2027TY Medinet Nasr Housing 9

10 EBIT Tax Rate EBIT * (1-T) Depreciation & Amortization Capital Expenditure (2) (6) 0 - (10) (10) (10) (10) Revaluation of Investment Properties Changes in Working capital (67) (78) Free Cash Flow: Explicit Period Terminal Growth Rate 3% FCF: Terminal 3,492 FCF: Total ,881 Source: HC estimates For MNHD, we use a WACC of 14.5% based on a risk-free rate of 9%, country risk premium of 5.5%, and a beta of 1.0. Table 6: DCF and WACC Terminal Growth Rate 3.0% WACC NPV: FCF 546 Beta 1.0 Net Debt/ (Cash) (182) Risk Free Rate 9.0% Equity 728 Country Risk Premium 5.5% Outstanding Shares 100 Cost of Equity 14.5% DCF Value 7.3 Cost of Debt 10.0% After tax cost of debt 8.5% Weights (Amount in EGP mn) Equity Market Capitalization 3,600 Debt 12.3 Total 3,612 Tax Rate 15.0% WACC 14.5% Source: HC estimates Chart 8 Market Implied Land Valuation VS HC Land Valuation MNHD trades at a 59% Discount to NAV Market Implied land value at 33% Discount 0% -10% -20% % Market implied Land Valuation (EGP/sqm) 423 HC Land Valuation (EGP/ sqm) -40% -50% -60% -70% -80% -90% Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 Source: HC estimates Source: Bloomberg, HC estimates Our target price of EGP50/share implies a 43% discount to estimated 2010e NAV of EGP88/share. To derive the NAV we adjust MNHD s equity to reflect the market value of the land based on our sister land model. The higher discount to NAV reflects the company s maturity profile with a larger portion of its value coming from land. Table 7 MNHD 2010e NAV Medinet Nasr Housing 10

11 Forecasted Equity as of 2010e 332 Add: Market Value of Land 8,520 Less: Book Value of Land (72) 2010e NAV 8,780 Total Number of Shares 100 NAV per Share 88 Target Price 50 Implied (Discount)/ Premium to NAV -43% Market (Discount)/ Premium to NAV -59% Source: HC estimates We conduct an in-depth land bank valuation analysis by adopting a relative approach, which we label, the sister land approach. This allows us to evaluate the market implied land valuation s deviation from its fair value, identifying the most undervalued land portfolios. Accordingly, we estimate that MNHD s market price implies a discount of 33% to our fair land valuation. Table 8 Calculation of Market Implied Valuation of the Land Bank Current Stock price EGP/share (A) 36 Less: Backlog (as per DCF) (B) 7 Market implied land valuation (EGP per share) (A-B) 29 HC land valuation (EGP per share) 43 Market Discount to HC land valuation -33% HC Premium to the Market 48% Outstanding Shares Total HC land value (EGP mn) 4,260 Undeveloped Land Area (mn sqm) 10.1 Market implied Land Valuation EGP/sqm) 285 HC land valuation (EGP/sqm) 423 Market implied discount to HC Value -33% HC Premium to market 48% Source: HC estimates Company Specific Risks Land bank concentration: Since 92% of Medinet Nasr Housing s land bank is concentrated in New Cairo, which already has several projects, attracting new customers might be challenging. Value concentration: The main value driver for MNHD is highly dependent on the success of its high-end Nasr Gardens. Execution risk: the shift in strategy toward high-end developments may introduce execution risk, as the company s capabilities in this segment remain untested. Medinet Nasr Housing 11

12 New Cairo: An Overview Table 9: New Cairo 2007 Land Auctions Data Developer/Project Area mn sqm EGP Price/sqm Total Value EGP mn Lake Side 0.4 4,005 1,345 Roiyah 1.9 1,228 2,488 Barwa (Qatar) ,099 Damac (UAE) ,740 Source: MNHD Chart Land Auctions (New Cairo) New Cairo Map Source: MNHD Medinet Nasr Housing 12

13 Financial Statements Table 10: Income Statement (EGP mn) Year to December 2008a 2009a 2010e 2011e 2012e 2013e 2014e MNHD Sales Nasr Civil Works Revenue Nasr City for Utilities Revenue Others (2) Revenue Cost of MNHD Sales (15) (5) (17) (27) (28) (30) (31) Cost of Nasr Civil Works Revenue (74) (215) (182) (134) (141) (148) (155) Cost of Nasr City for Utilities Revenue (78) (108) (85) (61) (64) (68) (71) Total Costs (166) (327) (284) (222) (233) (245) (257) % of sales 52% 65% 67% 50% 50% 50% 50% Gross Profit Margin 48% 35% 33% 50% 50% 50% 50% Operating Expenses: SGA Expenses (24) (25) (26) (26) (25) (24) (22) BOD Allowance (4) (5) (5) (5) (6) (6) (6) Other Operating Income Goodwill Amortization (5) (4) Net Provisions (10) (5) Operating Expenses (42) (39) (31) (32) (30) (29) (28) EBIT Margin 35% 27% 25% 43% 44% 44% 45% Net Financing Cost (4) (4) (3) Investment Income/Interest Income Profit Before Taxes Income Taxes (22) (27) (22) (30) (33) (37) (40) Minority Shareholder Interest Net Profit (Loss) Margin 33% 21% 19% 38% 40% 42% 44% Basic EPS Source: Company data, HC estimates Medinet Nasr Housing 13

14 Table 11: Balance Sheet (EGP mn) Year to December 2008a 2009a 2010e 2011e 2012e 2013e 2014e ASSETS Cash and Cash Equivalents Inventories Trade and Other Receivables (Current and Non Current) Customer Deposits Investments Development Properties (land) Work in Process Letter of Guarantee Development Properties (units) Current Assets Investments in Associates Other Financial Assets Non- Current Assets Intangible asset Deferred Tax Assets Property, Plant, and Equipment Projects in Progress Permanent Total Assets LIABILITIES Customer Deposits Creditors and Other Credit Balances Borrowings (OD Included) Utilities Liability Dividends Payable Provisions Deferred Revenue and installments Current Liabilities Borrowing and Long-Term Debt Suppliers Non-Current Liabilities Minority Interest in Subsidiaries Paid-Up Capital Statutory and Other Reserves Retained Earnings (12) (17) Shareholder Equity Total Liabilities and Equity Source: Company data, HC estimates Medinet Nasr Housing 14

15 Table 12: Cash Flow Statement (EGP mn) Year to December 2008a 2009a 2010e 2011e 2012e 2013e 2014e Net Profit before Minorities Depreciation and Amortization Change in Working Capital (67) (78) Interest Received (1) (1) Provisions Others (net) (2) - (0) Net Cash Generated from Operating Activities Investments Activities: CAPEX PPE (3) (7) - - (10) (10) (10) Interest/Dividend Received on Financial Assets Net Cash Generated from Investment Activities (2) (6) 0 - (10) (10) (10) Financing Activities: Dividends Paid (78) (96) Borrowings Repaid (8) (4) Others - (36) Net Cash Generated from Financing Activities (86) (136) Net Addition (Deduction) in Cash (8) (72) Cash at Beginning of Fiscal Year 6, Cash at End of Fiscal Year ,174 Source: Company data, HC estimates Medinet Nasr Housing 15

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19 Rating Scale Recommendation Upside Buy Greater than 20% Hold -5% to 20% Sell Less than -5% Disclaimer This memorandum is based on information available to the public. This memorandum is not an offer to buy or sell, or a solicitation of an offer to buy or sell the securities mentioned. The information and opinions in this memorandum were prepared by HC Brokerage from sources it believes to be reliable and from information available to the public. HC Brokerage makes no guarantee or warranty to the accuracy and thoroughness of the information mentioned in this memorandum, and accepts no responsibility or liability for losses or damages incurred as a result of opinions formed and decisions made based on information presented in this memorandum. HC Brokerage does not undertake to advise you of changes in its opinion or information. HC Brokerage and its affiliates and/or its directors and employees may own or have positions in, and effect transactions of companies mentioned in this memorandum. HC Brokerage and its affiliates may also seek to perform or have performed investment-banking services for companies mentioned in this memorandum. Medinet Nasr Housing 19

20 HC Research Karim Khadr Regional Head of Research Tudor Allin-Khan, CFA Chief Economist/Strategist tudor.allin-khan@af-hc.com Amr Abdel Khalek Economist aabdelkhalek@hc-si.com Nadine Weheba Economist nweheba@hc-si.com NematAllah Choucri Telecoms nchoucri@hc-si.com Sarah Shabayek Telecoms sshabayek@hc-si.com Germaine Benyamin Banks & Financials germaine.benyamin@af-hc.com Janany Vamadeva Banks & Financials janany.vamadeva@af-hc.com Hatem Alaa Industrials halaa@hc-si.com Mennatallah El Hefnawy Industrials melhefnawy@hc-si.com Mai Nehad Industrials mnehad@hc-si.com Majed Azzam Real Estate majed.azzam@af-hc.com Ankur Khetawat Real Estate ankur.khetawat@af-hc.com Nermeen Abdel Gawad Real Estate ngawad@hc-si.com Lovetesh Singh Petrochemicals & Fertilizers lovetesh.singh@af-hc.com Rehaam Romero Editor rromero@hc-si.com Mohamed El Saiid, MFTA Head of TA Research msaeed@hc-si.com (Ext. 175) Wael Atta, CFTe Senior Technical Analyst wael.atta@af-hc.com Sameh Khalil, CFTe Technical Analyst skhalil@hc-si.com (Ext. 361) HC Brokerage Cairo, Egypt salesandtrading@hc-si.com Shawkat El-Maraghy Managing Director selmaraghy@hc-si.com Ext. 200 Mostafa Saad Local & Gulf Sales msaad@hc-si.com Ext. 213 Yasser Mansour Local & Gulf Sales ymansour@hc-si.com Ext. 217 Hossam Wahid Local & Gulf Sales hwahid@hc-si.com Ext. 206 Hassan Kenawi Local & Gulf Sales hkenawi@hc-si.com Ext. 300 Abou Bakr Shaaban Local & Gulf Sales ashaaban@hc-si.com Ext. 238 Nihal Hany Local & Gulf Sales nhany@hc-si.com Ext. 219 Mohamed Helmy Foreign Sales mhelmy@hc-si.com Ext. 207 Ahmed Nabil Fixed Income Trader anabil@hc-si.com Ext. 218 HC Brokerage Dubai, UAE Hassan Aly Choucri General Manager hassan.choucri@af-hc.com Mohamed Hegazy Head of Sales mohamed.hegazy@af-hc.com Mohamed Galal Head of Sales Trading mohammed.galal@af-hc.com Anne Marie Browne Foreign Institutional Sales annemarie.browne@af-hc.com Richard Frost Foreign Institutional Sales richard.frost@af-hc.com Medinet Nasr Housing 20