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1 Jul-1 5 Aug -15 Sep -15 Oct-1 5 Nov-15 Dec-15 Jan-16 Feb-16 Ma r-16 Apr-1 6 Ma y-16 Jun-16 Heliopolis Housing & Development Egypt Equities Real Estate Initiation of Coverage A conditional turnaround story in the making Initiate with Buy/High Risk Sizeable, prime-located land bank is the primary valuation driver in our view. Old concerns (inefficient business model, slow land monetization) starting to abate but key concerns remain: the government control and unclear strategy. Presales and revenues to grow by 7-year CAGRs of 65% and 26%, respectively. We estimate HELI s NAV at EGP62.2/share, implying a P/NAV of 0.80x. We initiate coverage on HELI with Buy/High Risk and PT of EGP86.2/share (ETR: +73%), 85% of which comes from unlaunched land. Business model has long been inefficient mainly due to slow land monetization: Heliopolis Housing & Development (HELI.EGX) has long had an inefficient business model, thus missing significant opportunities to exploit the booming real estate sector in Egypt over the last few years. Today, we think HELI s strategy is still inefficient given that: Land sale is the main source of revenues and its maintaining a high dividend payout ratio, which would negatively affect its cash cycle. This strategy had forced the company to depend on short-term borrowing to finance the construction of its small development properties. It would take HELI some 138 years to totally develop its 25.2mn sqm, assuming its historical rate of land monetization remains the same. thus, some steps were taken, suggesting a turnaround story could be in the making: HELI started to shift its strategy towards a more efficient business model, which could shape its turnaround story over the coming years. This shift is evident in: Agreeing with SODIC (OCDI.EGX) to co-develop 655 feddans in New Heliopolis City. Also, attracting new co-developers for its other land plots will positively affect HELI s valuation. Adopting an off-plan sale model and planning to double its paid-in capital. Paying EGP135mn to execute part of the external infrastructure works in Helio Park. Page 1 Initiate with Buy/High Risk; PT EGP86.2/share (+73%): We set a price target (PT) for HELI at EGP86.2/share (+73% upside), using a DCF-based sum-of-the-parts (SOTP) valuation model with a WACC of 20.1%. Our base case scenario assumes that HELI will develop or co-develop its remaining unlaunched land bank. To account for any possible change in HELI s strategy over the coming years, we examined worst and best case scenarios, resulting in a valuation range between EGP63.7/share and 111.8/share, respectively. We also estimated HELI s NAV at EGP62.2/share, implying a P/NAV of 0.80x based on the current stock price, and 1.42x based on our PT. Thus, we initiate coverage on HELI with a Buy/High Risk rating. We see room for further PT upgrades if the company takes serious steps to complete its turnaround story by monetizing its land bank at a faster rate. Major investment rationales: (1) Sizeable, freedisputed land bank without mandatory development schedule, (2) shifting to a more efficient business model (off-plan sale and co-development agreements), and (3) benefiting from strong demand for middle-income housing units. Key risks: (1) Slow land monetization with unclear strategy for most of the remaining raw unlaunched land bank, (2) high exposure to change in land prices, and (3) concentration risk. Buy High Risk HELI (EGP) vs. EGX30 Rebased Volume (RHS) HELI EGX30 Rebased mn PT: EGP86.2 ETR: +73% Sto ck D etails Last price (EGP) W High (EGP) W Low (EGP) M -ADVT (EGPmn) 5.57 % Chg: M om 12.1 % Chg: YoY % Chg: YTD -0.1 M ubasher Ticker HELI.EGX Bloomberg Ticker HELI EY C apital D etails No. of Shares (mn) M kt Cap (EGPmn) 5,545.1 M kt. Cap (USDmn) Free Float (%) 27.1% EGP mn 2013a 2014a 2015a 2016e 2017e 2018e Pre-sales ,090 1,950 Revenues Net Income Revenues Growth (%) 36.3% 24.2% 14.5% 42.2% (21.1%) 50.4% Net Income Growth (%) 25.0% 35.7% 11.4% 68.1% (55.3%) 117.0% Gross Profit Margin (%) 59.9% 60.5% 62.7% 69.8% 70.0% 85.2% Net Margin (%) 40.1% 43.8% 42.6% 50.4% 28.5% 41.2% Net Debt (Cash) EPS (EGP) BVPS (EGP) PER (x) 16.4x 23.4x 30.4x 14.6x 36.0x 16.6x PBV (x) 5.8x 9.4x 12.2x 7.0x 7.9x 5.8x * Fiscal year ends in June Source: Company reports, MubasherTrade Research estimates Mahmoud Ibrahim Senior Equity Analyst Mubasher International Mahmoud.Ibrahim@MubasherFS.com

2 Table of Contents Corporate Profile 3 Corporate Structure 3 Land bank 4 Financial Summary 5 Projects Details 6 New Heliopolis City 6 Helio Park 7 Land scattered in Heliopolis 8 Nozha El-Obour 8 Investment properties 9 Project locations 10 Valuation feddans land plot (co-development with SODIC) 14 New Heliopolis City (NHC) after excluding 655 feddans land plot 15 Helio Park 17 land plots and developments in Heliopolis district 19 Nozha El-Obour 19 Investment properties 20 Net Asset Value (NAV) 21 Investment rationale and key risks 23 Business Model 24 Appendix Legal Disputes 26 Page 2

3 Corporate Profile Heliopolis Housing & Development (HELI.EGX), a 72.3% subsidiary of government-owned the National Company for Construction & Development, was established as a real estate developer in HELI s operations include land reclamation and subdivision, residential real estate development and management, and real estate properties purchase, sale and rental. Currently, HELI, one of Cairo s oldest developers, is shifting its business model from a pure land seller to a developer with progressive land monetization and clear strategy. HELI s shares have been listed on the Egyptian Exchange (EGX) since May At present, HELI has an authorized capital of EGP200mn and a paid-in capital of EGP111mn distributed over 111mn shares at a par value of EGP1/share. We see HELI organized under two key segments: development properties and investment properties. I. Development Properties: HELI has 25.2mn sqm of well-located and dispute-free land bank, located in East Cairo. The company has four key projects: (1) New Heliopolis City, (2) Helio Park, (3) legacy land plots scattered in Heliopolis, most of which are located in the eastern side of Almaza Airport, and (4) Nozha El-Obour. II. Investment Properties: HELI generates rental income from (1) Merryland Park, (2) Tivoli Heliopolis, and (3) other properties subject to the old rental law. Key milestones Date Page 3 Event 1906 The establishment of HELI HELI obtained ownership of the New Heliopolis City land by virtue of Presidential Decree No. 193 for May-95 Oct-03 Aug-08 Feb-13 Feb-14 Jun-14 Oct-14 Mar-15 May-15 May-15 Jul-15 Sep-15 Dec-15 Jan-16 Mar-16 Jun-16 HELI was floated on EGX. The government allocated 1,695 feddans of land plot to HELI to construct the Helio Park project. Magic Dreams stopped paying HELI due rent of the Merryland Casino. Magic Dreams stopped paying HELI due rent of the Child Park. HELI obtained a ministerial approval on Helio Park's first project plan. HELI revealed its intention to double its paid-in capital. Halting raw land sales. Source: Company reports HELI s BOD approved to enter into co-development agreements. HELI signed a preliminary settlement to end the dispute with Magic Dreams (the old tenant of Merryland Casino). HELI launched an auction to co-develop 655-feddan land (via a revenue-sharing agreement). Court verdict to hand over the National Democratic Party s (NDP) building to HELI. HELI secured approval of the Egyptian Environmental Affairs Agency to continue in the development works in Merryland Park. SODIC was awarded HELI s project for developing a 655-feddan land in New Heliopolis City. HELI co-founded a real estate marketing company with a 5% stake. HELI signed the contract to co-develop 655-feddan land with SODIC. HELI evicts Magic Dreams from Merryland Casino. Corporate structure Development Properties New Heliopolis City (NHC) Nozha El-Obour Source: Company reports Heliopolis Housing & Development 655 feddans (co-developed with SODIC) Remaining land in NHC Helio Park Heliopolis Square 1258 Fourth Neighborhood Eastern side of Almaza Airport Investment Properties Merryland Park Merryland Casino Showland Casino Child Park Tivoli Other Properties (Old Rental Law)

4 (mn sqm) Heliopolis Housing & Development Egypt Initiation of Coverage Corporate Profile (Cont. d) Land bank HELI has an undeveloped land bank amounting to 25.2mn sqm of unutilized land (excluding the disputed land bank). This land bank is distributed as follow: 71% in New Heliopolis City, 28% in New Cairo Helio Park 1% in Heliopolis. We highlight that 100% of HELI s land is located east of Cairo where the demand is solid. HELI s land bank is recorded on its balance sheet at minimal historical cost with no land development requirements. This enhanced the profitability margin of HELI versus its local peers as the company was focusing on land sales during the previous years. Land bank details Land Location Total gross land area (sqm) Total net land area NLA to GLA Utilized gross land area (sqm) Utilized Net land area (sqm) Roads, gardens and streets (sqm) Disputed GLA (sqm) Disputed NLA (sqm) Remaining unutilized GLA (sqm) Remaining net sellable land area (sqm) (1) (2) (3) (4) (5) (6) (7) =(1)-(3)-(6) =(2)-(4)-(7) New Heliopolis City Al-Shorouk 24,729,600 14,837,760 60% 3,411,255 2,046,753 9,891,840 3,305,400 1,983,240 18,012,945 10,807,767 El-Obour City El-Obour 393, ,789 50% 509, , Helio Park New Cairo 7,119,050 5,337,864 75% ,781, ,119,050 5,337,864 Square 1258 Heliopolis 263, ,556 59% 259, , , ,855 2,261 Fourth Neighborhood Heliopolis 1,703 1, % ,703 1,703 Eastern side of Almaza airport Heliopolis 138,000 79,644 58% 14,725 8,498 58,356 21,659 12, ,616 58,646 Total (sqm) 32,645,431 20,608,316 63% 4,194,719 2,462,093 12,037,115 3,327,059 1,995,740 25,239,169 16,208,240 The availability of sizeable prime-located land bank is the main value driver: HELI is one from the largest listed Egyptian developers in term of land bank as the company owns 25.2mn sqm land area in Heliopolis, New Cairo and New Heliopolis. If the company accelerated its land monetization rate, we believe that HELI s land bank would suggest a potentially strong operating performance and growth over the coming years due to 1) sizeable prime located land bank without a mandatory development schedule, which give the company time to explore and exploit good opportunities more efficiently, 2) Debt-free land bank, thus lowering the financial burden on the company. However, concentration risk remains a concern: HELI has a sizable land bank concentrated in the eastern part of Cairo that can be developed over the coming 20 years. Furthermore, most of HELI s revenues are primary related to the residential segment with minimal contribution from recurring revenues and without any exposure to the second-home segment of the market. Source: Company reports, MubasherTrade Research estimates (for determining unutilized net and gross land area Breakdown of HELI s unutilized GLA Heliopolis City 0.1mn sqm 1% Helio Park 7.1mn sqm 28% Source: company s reports Total GLA 25.2mn sqm New Heliopolis City 18.0mn sqm 71% Breakdown of HELI s unutilized NLA Heliopolis City 0.1mn sqm 0% Helio Park 5.3mn sqm 33% Source: company s reports Total NLA 16.2mn sqm New Heliopolis City 10.8mn sqm 67% HELI is the second largest listed developers in term of land bank size Source: company s reports TMG HELI PHD MNHD EMFD SODIC Page 4

5 Financial Summary Balance Sheet (EGP mn) Per-Share Data FY End: June 2013a 2014a 2015a 2016e 2017e 2018e 2013a 2014a 2015a 2016e 2017e 2018e Current Assets Price Cash & Cash Equivalent # Shares (WA,in mn) Accounts & Notes Receivable 1,718 1,870 1,829 1,825 1,309 1,498 EPS Other Current Assets ,026 1,077 DPS Total Current Assets 2,073 2,255 2,267 2,222 2,376 2,634 BVPS Fixed Assets (net) & IP Other Non-Current Assets Valuation Indicators Net Intangibles a 2014a 2015a 2016e 2017e 2018e Total Assets 2,096 2,300 2,284 2,274 2,462 2,714 PER (x) 16.4x 23.4x 30.4x 14.6x 36.0x 16.6x Liabilities & Equity PBV (x) 5.8x 9.4x 12.2x 7.0x 7.9x 5.8x Short-Term Debt EV/Sales (x) 7.1x 10.8x 13.4x 7.5x 11.0x 7.0x Current Portion of LT Debt EV/EBITDA 17.1x 23.9x 27.6x 12.6x 24.1x 12.4x Accounts Payable Dividend Payout Ratio 69.8% 60.5% 67.9% 50.0% 50.0% 50.0% Other Current Liabilities 1,345 1,414 1,269 1,021 1,082 1,340 Dividend Yield 4.3% 2.6% 2.2% 3.4% 1.4% 3.0% Total Current Liabilities 1,696 1,828 1,756 1,538 1,744 1,739 Long-Term Debt Profitability & Growth Ratios Other Non-Current Liabilities a 2014a 2015a 2016e 2017e 2018e Total Liabilities 1,710 1,844 1,773 1,558 1,764 1,759 Minority Interest Revenue Growth 36.3% 24.2% 14.5% 42.2% (21.1%) 50.4% Total Equity EBITDA Growth 32.8% 34.8% 23.6% 75.5% (40.1%) 85.8% Total Liabilities & Equity 2,096 2,300 2,284 2,274 2,462 2,714 EPS Growth 25.0% 35.7% 11.4% 68.1% (55.3%) 117.0% EBITDA Margin 41.5% 45.0% 48.6% 60.0% 45.5% 56.2% Income Statement (EGP mn) Net Margin 40.1% 43.8% 42.6% 50.4% 28.5% 41.2% 2013a 2014a 2015a 2016e 2017e 2018e ROAE 37.0% 43.7% 42.3% 56.1% 21.8% 40.4% Total Revenue ROAA 6.9% 8.4% 8.9% 15.1% 6.5% 12.9% COGS (135) (166) (179) (207) (162) (120) GP Liquidity & Solvency Multiples Other operating (exp.)/ Inc. (62) (65) (68) (67) (132) (236) 2013a 2014a 2015a 2016e 2017e 2018e EBITDA D&A, Others (2) (2) (1) (1) (4) (7) Net Debt/(Cash) Net finance exp., taxes (3) (3) (28) (64) (87) (115) Net Debt/Equity 45.3% 44.1% 44.0% 19.0% 52.6% 12.6% NP Before XO & MI Net debt to EBITDA 1.2x 1.1x 1.0x 0.3x 1.5x 0.3x XO & Minority Interest Debt to Assets 0.1x 0.1x 0.1x 0.1x 0.2x 0.1x Net Income Current ratio 1.2x 1.2x 1.3x 1.4x 1.4x 1.5x Cash Flow Statement (EGP mn) Consensus Estimates 2013a 2014a 2015a 2016e 2017e 2018e 2016e 2017e 2018e Revenues Cash from Operating MubasherTrade Research vs. Consensus 28.5% 10.0% 49.0% Cash from Investing (3) (24) 27 (37) (37) (1) Net Income Cash from Financing (57) (16) (125) (124) (35) (323) MubasherTrade Research vs. Consensus 31.1% (31.3%) 35.3% Net Change in excess Cash (3) 0-68 (51) 18 PER (x), Last Price 14.6x 36.0x 16.6x PER (x), Price Target 27.9x 62.5x 28.8x Capex (3) (2) (1) (37) (37) (1) DY (%), Last price 1.8% 0.8% 1.7% Source: Company data, MubasherTrade Research estimates Fiscal year ends in June a = Actual; e = Estimate Share price at 21-Jul-16 Page 5

6 Projects Details I. New Heliopolis City Location Land area Master plan Development strategy New Heliopolis City (NHC) is located next to Al-Shorouk City, bordered by the Cairo-Suez Road from the south and the Cairo-Ismailia Road from the north and in front of Madinaty City constructed by Talaat Mostafa Group Holding (TMGH.EGX). NHC s land was allocated to HELI by Presidential Decree No. 193 for NHC s land extends over an area of 24.7mn sqm, and the company seeks to develop the city in a way that resembles the Heliopolis area in Cairo. NHC is expected to accommodate a population of 250,000 once it is completed. HELI had previously pointed out that the land area of NHC will be developed based on the following plan: 50% residential area. 28% public roadways and parking garages. 12% public parks. 7% commercial, offices and services area. 3% small environmental friendly industrial zones. Over the last years, HELI had sold 1.9mn sqm land plots within NHC. Moreover, it had developed 0.21mn sqm, which in turn indicates that the project is still in its preliminary stage; HELI has only developed so far 8.5% of NHC s total area. The company started to implement NHC s first phase, covering 6.5mn sqm, only in January An area of 3.5mn sqm of the project s first phase is allocated for residential purposes. HELI planned to finish the first phase within only five years (at a development rate of 1.3mn sqm p.a.), but was unsuccessful. HELI commenced planning of the project s second phase in H after it had finished its plans for the city s ninth district, which is considered the first step in developing NHC s second phase. In October 2014, the Holding Company for Construction & Development (HCCD), which owns 72% of HELI, suspended land sales after adopting a new strategy aiming to develop the lands instead of selling them. This land development will be implemented through HELI itself and/or setting joint agreements with other real estate developers. In view of that, we believe that the development rate in NHC will accelerate in the future following the company s new development-oriented strategy in addition to the launch of the new administrative capital city. In March 2016, Sixth of October for Development & Investment Company (SODIC) (OCDI.EGX) and HELI signed a contract to co-develop a 655-feddans (2.8mn sqm) land. The project is planned to be developed over ten years in four phases and will comprise over 8,600 residential units in addition to the retail and commercial area and a sporting club. The project is expected to generate revenues of EGP30.35bn. SODIC will be responsible for handling the whole development and marketing operations in return for a 70% share of revenues from the residential units and 69.8% share of the commercial/retail area. HELI will be entitled to the remaining 30.0% and 30.2% of the value of the residential units and the commercial/retail area, respectively, in return for the land contribution with a minimum revenue share estimated at EGP5.01bn over the project s life span. HELI estimates that its revenue share will amount to EGP10bn as real estate prices will continue rising in the future. HELI s chairman stated earlier that its venture with SODIC boosted the value of the lands surrounding the NHC project. HELI expects that the first phase to be launched in January The project s first phase covers a space of 164 feddans (0.69mn sqm). Since the start of development operations in NHC through June 2015, HELI has constructed 125 buildings, comprising 1,728 residential units out of which 1,688 units were sold for a total value of around EGP594mn. Moreover, the company sold 1,351 land plots covering a total area of 1.9mn sqm for a total value of EGP1.64bn, and constructed 162 villas, almost 70% of which was sold. As per the units under development, HELI is currently establishing a housing compound in the Ninth District comprising 28 residential buildings (558 residential units) at an investment cost of c.egp159mn. Meanwhile, the company is currently constructing five buildings comprising 60 units in the city s Fifth Neighborhood at an investment cost of EGP32mn. In April 2016, the company s chairman unveiled a plan to offer 40,000 sqm services land at an estimated value of EGP100mn. Meanwhile, the company has a plan to develop an area of 500,000 sqm residential area over the upcoming years. The company is currently studying the possibility of utilizing the south side of the city at the project s entrance from the Cairo-Suez Road by establishing an entertainment area. In 2016, HELI signed a contract with the National Company for General Contracting & Supplies to carry out the installation of the electricity grids in NHC at a total cost of around EGP228mn. The company also plans to establish a wastewater treatment plant with a total cost of around EGP200mn, in addition to establishing a large water pipeline from the Tenth of Ramadan City Water Station for EGP160mn. Page 6

7 Projects Details (Cont. d) II. Helio Park Location Land area Master plan Development strategy Helio Park project is located in New Cairo City, alongside the Cairo-Suez Road and neighboring Talaat Moustafa Group Holding (TMG) s (TMGH.EGX) flagship project, Madinaty, in East Cairo. Helio Park covers a gross land area of 7.12mn sqm with a net land area of 5.34mn sqm. This land was allocated to HELI in 2003 as a compensation by the government for HELI due to the reallocation of another land to Cairo Airport. In 2008, HELI announced that Helio Park project will be developed in six stages, providing a land s preliminary master plan, entailing a residential area (64.84%), a commercial area (4.42%), a services area (3.83%), an educational area (1.89%), a leisure area, gardens and other services (8.38%), main roads (10.33%) and easement of high-pressure electricity lines (6.31% ). This master plan may change over the subsequent years if the company succeeds to move the electricity towers which could save around 70 feddans. HELI announced that this project could accommodate around 100,000 residents once completed. Throughout the last years, HELI set many plans to develop the Helio Park project, such as subdividing the land into 5,700 small plots to be offered for sale and developing the remaining area to include 24,000 units. Later, this plan was changed to include another option of a co-development agreement (a revenue-sharing scheme) with other mega local or regional developers. Along the sidelines of the Egypt Economic Development Conference (EEDC) held back in March 2015, HELI had announced that it sought to co-develop Helio Park as this project requires sizeable investment outlays for setting its external infrastructure and for the pre-launches process. However, HELI did not sign any agreement to co-develop this project yet. HELI attributed this notable delay in utilizing this project to the following: The huge cost requirement by the government for the project s external infrastructure, water, and sanitation to the external borders of the project s land: EGP821mn. Moving the high-pressure electricity towers to be located outside the project s borders has an estimated cost of EGP60mn. Political unrest and security disruptions prevailing in Egypt from 2011 to Nonetheless, HELI seeks to overcome these obstacles by the following: Negotiating with the government to reduce the cost of building infrastructure from EGP821mn to EGP270mn as the company will set its own desalination stations. HELI aims to schedule the payment of this cost over several years. Assigning the infrastructure works to one or more subsidiaries of the Holding Company for Construction & Development HCCD (HELI s majority shareholder) that are specialized in setting infrastructure works. These subsidiaries could be entitled to land plots in Helio Park in exchange for setting the project s infrastructure cost. Moreover, HELI could pay the cost of this infrastructure over several years. In February 2014, HELI announced that it secured the government s approval to develop the first phase of the Helio Park project which includes: Service area of 0.97mn sqm (represents 10.7% of project s total area). Public gardens, club and residential area of 1.1mn sqm (representing 15.9% of project s total area). We note that the residential area stands at 0.55mn sqm in phase one. In November 2015, HELI s chairman announced that the company already paid EGP135mn for the execution part of the infrastructure works, indicating that the company targets to launch the first phase of this project in H Page 7

8 Projects Details (Cont. d) III. Land scattered in Heliopolis Location and land area HELI still owns available-for-sale lands plots with a net space of around 63,000 sqm. These lands are located behind Fairmont Heliopolis Hotel (Formerly: Sheraton Heliopolis) and east of Almaza Airport. Furthermore, the company owns a land plot that is extended over an area of 11,000 sqm in Ghernata City in front of the Merryland Park, but the company failed to secure the building s construction permits due to the presence of historic buildings over the land. Development strategy By end of June 2015, HELI unveiled the development of seven properties that are allocated behind Fairmont Heliopolis Hotel (191 residential units) with an estimated cost of EGP34mn. The company also announced that it is currently establishing five properties (60 units) with an estimated cost of EGP32mn. IV. Nozha El-Obour Location and land area HELI bought feddans (393,578 sqm) in El-Obour City, the Eighth District, from the New Urban Communities Authority (NUCA) for the purpose of establishing an integrated housing community (Nozha El-Obour). The project enjoys a location at a favorable altitude above the ground and close to the city s main routes. Master plan The project is composed of four-story buildings with residential units with floor spaces ranging from sqm each. Meanwhile, the company owns the services lands that are available for sale. The green space, routes and parking areas account for 40% of the project s total space. HELI started land utilization of this project in Development strategy In October 2015, the company revealed that it intends to sell nine land plots in El-Obour City for EGP34mn (EGP3,579 per sqm). The land plots serve both commercial and offices purposes, whereas the prices of both the commercial and administrative spaces amount to EGP4,500/sqm and EGP2,500/sqm, respectively. By the end of June 2015, HELI announced that it had finished the development of 384 residential units at a total investment cost of EGP93mn. Page 8

9 Projects Details (Cont. d) V. Investment properties Leasing portfolio Historical performance of leasing portfolio Preliminary settlement to end the dispute with Magic Dreams has failed HELI owns a wide range of recurring revenue-generating assets, namely: Merryland Casino - Merryland Park Showland Casino - Merryland Park Child Park - Merryland Park Tivoli - Almaza Square, Heliopolis A group of units and buildings that are leasable based on the old rental law (residential units, schools, hospitals, and clubs). Although the investment properties are located in prime-rated locations in Heliopolis, HELI failed to reap decent profits from most of its recurring revenuesgenerating assets, especially from the Merryland Park that comprises a number of leasable assets (Merryland Casino, Showland Casino and Child Park) due to the legal disputes with Magic Dreams (the tenant of the Merryland Park s assets). Meanwhile, the investment plan for developing the Merryland Park was disrupted by the Ministry of Environment and civil society organizations, which led to the suspension of the development works in the park as it comprises a number of historic landmarks. Thus, this had a significant negative impact on both the financial and operational performance of Merryland Park. Also, HELI suffered from operating losses on the back of incurring labor wages and water costs without generating any revenues from the park. Concurrently, Magic Dreams did not pay accrued rent to HELI for many years. Also, HELI has a number of units and buildings rented to governmental bodies as well as individuals, based on the old rental law, which generate minimal rental income. The receivables due from Magic Dreams, for renting both Merryland Casino and Child Park, reached EGP125.3mn by the end of March Moreover, Magic Dreams did not pay its dues for renting Child Park since February In May 2015, HELI and Magic Dreams reached a preliminary settlement, stipulating the following: The late payment penalty on accrued rents and the gradual increase in rental value will be waived. Rescheduling the remaining amount related to renting Merryland Casino, after waiving both late payment penalty and the gradual increase in rental value. The accrued amount to HELI would reach EGP55.6mn for the period from 1 August 2008 through 31 December HELI bypassed the period of time spent by Magic Dreams for securing the required permits from August 2010 unti May 2012 (22 months). HELI also deducted an amount of EGP12mn in return for building a 120-vehicle parking garage next to the existing 110-vehicle garage. Extending the duration of Merryland Casino s new contract to expire on 31 December 2028, with an annual increase of 10% and a monthly rent of EGP1,001,000. Magic Dreams will pay accrued amount to HELI of of EGP2.7mn for renting the Child Park, and will sign a new five-year contract at a monthly rent of EGP71,748 and annual increase of 10%. According to that settlement, total dues to HELI from Magic Dreams amount to EGP58.3mn. This amount represents the total rental value of both Merryland Casino and Child Park that Magic Dreams should pay in monthly installments over four years at an annual interest rate of 7% starting from January So far, Magic Dreams did not commit to pay its obligations. Moreover, all the development operations stopped at the Merryland Park by mid-2015 upon a decision made by the Cairo governor following a complaint by civil society organizations which opposed the establishment of a parking garage within that area. In September 2015, HELI announced that it had secured the approval of the Egyptian Environmental Affairs Agency to continue the development works related to the Merryland Park, but the project did not get off the ground until March 2016 as Magic Dreams showed no seriousness in fulfilling its obligations. Therefore, HELI evicted Magic Dreams from Merryland Casino. In July 2016, HELI awarded an EGP30mn contract to El-Nasr Building & Construction Company (EGYCO) to develop the first phase (22 feddans) of Maryland Park by reclaiming the park s green area and adding sales points over four months. Moreover, HELI announced that it will start developing the remaining second phase in Merryland Park (23 feddans) after final closure of its dispute with Magic Dreams. Page 9

10 Projects Details (Cont. d) Project locations Nozha El-Obour New Heliopolis City Merryland Park Heliopolis Tivoli Square 1258 Almaza Airport Cairo Airport Helio Park Madinaty Nasr City I City AUC 5 th settlement New Capital City Source: Company reports, Google Maps Page 10

11 Valuation In valuing HELI, we used two main models, DCF and NAV. However, we set our PT based on our DCF valuation which in our view reflects the underlying cash flow generation capacity of the company as a going concern. Base case scenario PT of EGP86.2/share (+73% upside): Using a DCF-based SOTP valuation model, we reached a price target (PT) of EGP86.2/share, implying a 73% upside potential to the current share price, according to our base case scenario. Thus, we initiate coverage on HELI with a Buy/High Risk rating. Moreover, we ran two other scenarios, resulting in a valuation range of EGP111.8/share (+124% upside) for the best case scenario and EGP63.7/share (+28% upside) for the worst case scenario. We applied the following general assumptions for all scenarios: Cost of equity (COE) is 23.9%, calculated as follows: US 10-year Treasury yield of 1.55%, inflation differential (between Egypt and USA) of 8.72%, re-levered beta of local peers of 1.29, US equity risk premium (ERP) of 6.27%, Egypt s country risk premium (CRP) of 5.52% as implied by its 5-year credit default spread (CDS) of 4.25%, levered up by 30% to account for inherent volatility in equity returns. WACC: 20.1%, Tax rate: 22.5%. SG&A to presales: 5% for land sales and 8% for upcoming off-plan sales development activities. segment constitutes 88% of our EV : On a segmental basis, 87.6% of our valuation of HELI is driven by the residential segment (EGP8.6bn), while commercial, and other non-residential segment accounts for 10.9% and 1.5% of our valuation, respectively. Considering the company s projects, NHC s valuation came in at EGP5.3bn (54.1% of total valuation), while the valuation of Helio Park, Heliopolis, Nozha El-Obour, and leasing portfolio stood at EGP3.5bn (35.8%), EGP0.62bn (6.3%), EGP0.26bn (2.6%), and EGP0.12bn (1.2%), respectively. and unlaunched raw land constitutes 85%: As for development type, 85.4% of our valuation of HELI is attributed to unlaunched land bank (EGP8.4bn), while the valuation of work in progress and investment properties reached EGP1.3bn (13.4%) and EGP.12bn (1.2%), respectively. Settlement of HELI s disputed land area could raise our base case PT by 9.5% to EGP94.5/share: We have singled out the disputed land area from our valuation scenarios. However, if the company were to regain its disputed land (3.3mn sqm in NHC, 2.26mn sqm on the northern/southern Cairo-Suez Road and 21,659 sqm on the eastern side of Almaza Airport), our base case PT would increase by 9.5% or EGP8.2/share to EGP94.5/share (+90% upside potential). Please refer to Appendix (pages 26-27) for more details about the disputed land area and our valuation. Page 11 Base case scenario valuation by project Project/segment EV (EGP mn) EV/share (EGP) % of EV New Heliopolis City 655 acres % 655 acres % Total 655 acres 1, % development 3, % development % Services and educational land % Industrial land % Completed units % Under construction units % Total New Heliopolis City (excluding 655 acres) 4, % Total New Heliopolis City 5, % Helio Park 3, % % Educational land % Services land % Total Helio Park 3, % Heliopolis City - upcoming launches % Completed units % Under Construction units % Total Heliopolis Ctiy % Nozha El Obour Completed units % Under construction units % Total Nozha El Obour % Investment properties Tivoli % Properties (old rental law) % Showland Casino % Merryland Casino % Child Park % Al Montazah Garden % Total investment properties % Total enterprise value (EV) - base case valuation 9, % Add: Excess Cash Less: Total debt Total equity value (EGP mn) 9,

12 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 EGP/share EGP mn Heliopolis Housing & Development Egypt Initiation of Coverage Valuation (Cont. d) Major valuation assumptions Project Best Case Base Case Worst Case New Heliopolis City 655 feddans Success of co-development agreement with SODIC. Land utilization period of 10 years. Annual price escalation rate of 10%. Success of co-development agreement with SODIC. Land utilization period of 10 years. Annual price escalation rate of 5%. Failure of co-development agreement with SODIC. Subdivision development over 20 years. Remaining land in NHC Self-development of residential and commercial land. Selling other non-residential land. Adopting off-plan business model. Launching more modern development (Gated compounds). Land utilization period of 15 years. Annual price escalation rate of 10%. Self-development of residential and commercial land. Selling other non-residential land. Adopting off-plan business model. Launching more modern development (Gated compounds). Land utilization period of 20 years. Annual price escalation rate of 5%. Subdivision development over 20 years. Helio Park Co-development of residential and commercial area. Selling other non-residential land. Land utilization period of 10 years. External infrastructure cost of EGP270mn. Self-development of residential and commercial area. Selling other non-residential land. Land utilization period of 15 years. External infrastructure cost of EGP821mn. Subdivision development over 15 years. Heliopolis City The upcoming launch will be sold out over 3 years. Annual price escalation rate of 10%. The upcoming launch will be sold out over 5 years. Annual price escalation rate of 5%. Subdivision development over 5 years. Recurring business Success of old settlement with Magic Dreams. Collection of old receivables from Magic Dreams. Capex: EGP61mn. Terminal growth rate: 5%. Failure of old settlement with Magic Dreams. Failure to collect old receivables from Magic Dreams. Capex: EGP73mn. Terminal growth rate: 3%. Failure of old settlement with Magic Dreams. Failure to collect old receivables from Magic Dreams. Dropping Merryland properties from our valuation. Terminal growth rate: 2%. HELI trades below our worst case scenario PT NHC has the largest contribution for our EV Page 12 Stock performance (EGP/share) Best case PT (EGP/share) Base case PT (EGP/share) Worst case PT (EGP/share) EGP111.8/shar Best case PT EGP86.2/share Base case PT EGP63.7/share Worst case PT 14,000 12,000 10,000 8,000 6,000 4,000 2,000 4,891 7,770 4,511 5,308 0 Best case Base case scenario scenario * Including 655 feddans (co-development with SODIC) 2,930 4,380 Worst case scenario Other New Heliopolis City *

13 By development type By segment By project Heliopolis Housing & Development Egypt Initiation of Coverage Valuation (Cont. d) Valuation (EV) breakdown Best case Base case Worst case Helio Park EGP3,818mn 30.2% Land scattered in Heliopolis district EGP667mn 5.3% Helio Park EGP3,515mn 35.8% Land scattered in Heliopolis district EGP620mn 6.3% Helio Park EGP2,039mn 27.9% Land scattered in Heliopolis district EGP594mn 8.1% NHC * EGP7,770mn 61.4% El-Obour EGP259mn 2.0% Investment properties EGP148mn 1.2% NHC * EGP5,308mn 54.1% El-Obour EGP259mn 2.6% Investment properties EGP118mn 1.2% NHC * EGP4,380mn 59.9% El-Obour EGP259mn 3.5% Investment properties EGP38mn 0.5% EGP10,958mn 86.6% EGP1,409mn 11.1% Services, educational and industrial EGP293mn 2.3% EGP8,598mn 87.6% EGP1,069mn 10.9% Services, educational and industrial EGP152mn 1.5% Mixed use land EGP5,735mn 78.4% EGP1,538mn 21.0% EGP38mn 0.5% Raw land development EGP11,196mn 88.4% Development properties EGP1,317mn 10.4% Investment properties EGP148mn 1.2% Raw land development EGP8,385mn 85.4% Development properties EGP1,317mn 13.4% Investment properties EGP118mn 1.2% Raw land development EGP5,956mn 81.5% Development properties EGP1,317mn 18.0% Investment properties EGP38mn 0.5% * including the valuation of 655-feddan plot that will be c-developed with SODIC, Note: commercial valuation includes leasing portfolio;. Page 13

14 Valuation (Cont. d) Valuation assumptions of 655 feddans land plot (co-development with SODIC) segment represents 78% of our valuation Best Case Base Case Worst Case Success of co-development agreement P P Valuation method DCF DCF NAV - NLA Utilization period 10 years 10 years 20 years Non- EGP234mn 22% Starting date of utilization Development plan July-17 July-17 July-17 Non- July-20 July-20 July-20 Non- Co-development Co-development Subdivision development EGP817mn 78% Floor to area ratio* 100% 100% Zero Selling prices ** Down payment - Apartment EGP6,600/sqm - BUA EGP6,000/sqm - BUA EGP2,000/sqm - NLA - Villas EGP7,700/sqm - BUA EGP7,000/sqm - BUA EGP22,000/sqm - BUA EGP20,000/sqm - BUA EGP3,000/sqm - NLA 25% 25% 35% Non- 25% 25% 35% Our base case EV for 655 feddans (co-development with SODIC) amounted to EGP1,050mn Installment period 6 years 6 years 5 years (EGP mn) Total Valuation (EGP mn) Non- (EGP mn) Annual escalation rate * We assume that 90% of BUA will be allocated to residential development and 10% to commercial development; 85% of residential BUA will be allocated to apartments, while the remaining 15% will be allocated to standalone units. ** As for our best case scenario, we assume that the selling price will be 10% higher than that in our base case scenario with an annual escalation rate of 10%. ** As for our worst case scenario, the price of residential net land area is estimated at EGP2,000/sqm (matching Beit El-Watan land plots in Al-Shorouk City, which were offered for Egyptian expatriates at USD225/sqm). We assumed commercial and industrial land prices are 1.5x and 0.25x residential land prices, respectively. Other major assumptions We assume that 72% of HELI s revenue share will be recognized upon sale, while the remaining revenues will be recognized after four years (the same revenues recognition method adopted by MNHD for its Capital Gardens project in Sarai). Units will be delivered four years after sale. Price 10% 5% 5% Construction & Infrastructure cost 10% 5% 5% 1, , , Best Case Base Case Worst Case Page 14

15 Valuation (Cont. d) Valuation assumptions of New Heliopolis City (NHC) after excluding 655 feddans land plot Best Case Base Case Worst Case Comment Valuation method DCF DCF NAV - NLA Utilization period 15 years 20 years 20 years Development plan Self-development Self-development Education & Services Industrial Subdivision Development Subdivision Development Subdivision development 16.2mn sqm - BUA 16.2mn sqm - BUA 9.0mn sqm - NLA Area 0.6mn sqm - BUA 0.6mn sqm - BUA 0.6mn sqm - NLA Education & Services 0.6mn sqm - BUA 0.6mn sqm - BUA 0.6mn sqm - NLA Industrial 0.5mn sqm - BUA 0.5mn sqm - BUA 0.5mn sqm - NLA - Apartment EGP4,000/sqm - BUA EGP4,000/sqm - BUA - Villas EGP5,000/sqm - BUA EGP5,000/sqm - BUA EGP2,000/sqm - NLA Selling prices EGP15,000/sqm - BUA EGP15,000/sqm - BUA EGP3,000/sqm - NLA Education & Services land plots EGP1,500/sqm - NLA EGP1,500/sqm - NLA EGP1,500/sqm - NLA Industrial EGP500/sqm - NLA EGP500/sqm - NLA EGP500/sqm - NLA - Apartment EGP1,450/sqm - BUA EGP1,450/sqm - BUA - Villas EGP2,650/sqm - BUA EGP2,650/sqm - BUA Construction cost EGP7,500/sqm - BUA EGP7,500/sqm - BUA Zero Education & Services Industrial Zero 250 Zero 250 Internal infrastructure cost Education & Services EGP250/sqm - NLA EGP250/sqm - NLA EGP250/sqm - NLA Industrial EGP250/sqm - NLA EGP250/sqm - NLA Down payment Installment period Annual escalation rate Education & Services 25% 35% 25% 35% Industrial 35% 35% Education & Services Industrial 6 years 5 years 6 years 5 years 5 years Price 10% 5% 5% Construction & infrastructure cost 10% 5% 5% 35% - As for our worst case scenario, the price of residential NLA is estimated at EGP2,000/sqm (matching Beit El-Watan land plots in Al-Shorouk, which were offered for Egyptian expatriates at USD225/sqm). We assumed commercial, educational and industrial land prices are 1.5x, 0.75x and 0.25x residential land prices, respectively. - As per the latest awards from HELI to contractors - Consultants and supervision fees represent 4.5% of total construction cost. - As for our base case and best case, we used the samy payment facility adopted currently by HELI. - As for our worst case scenario, we use the payment plan that related to Beit El-Watan land plots. Page 15

16 Valuation (Cont. d) Our base case EV for NHC (excluding 655 feddans) amounted EGP4,258mn (EGP mn) Non- (EGP mn) Total Valuation (EGP mn) 6, , ,948 5,552 3,857 3,948 segment (including current developments) represents 91% of our base case valuation for NHC (excluding 655 feddans that will be co-developed with SODIC) Under construction & completed units EGP684mn 16.1% development EGP3,173mn 74.5% development EGP315mn 7.4% Best Case Base Case Worst Case Industrial land EGP3mn 0.1% Services & educational land EGP82mn 1.9% Our base case EV for NHC (including 655 feddans) amounted to EGP5,308mn EGP7,770mn EGP5,308mn EGP4,380mn Best Case Base Case Worst Case Page 16 segment (including current developments) represents 88% of our base case valuation for NHC (including 655 feddans that will be co-developed with SODIC) development EGP3,989mn 75.2% Industrial land EGP3mn 0.1% Under construction & completed units EGP684mn 12.9% development EGP549mn 10.3% Services & educational land EGP82mn 1.5%

17 Valuation (Cont. d) Valuation assumptions of Helio Park Best Case Base Case Worst Case Comment Valuation method DCF DCF NAV - NLA Utilization period 10 years 15 years 15 years Start Date of utilization July-17 July-17 July-17 Non- Jul-21 July-21 July-21 Development plan Area* Selling prices Construction cost Internal Infrastructure cost Education Services 6.3mn sqm - BUA 6.3mn sqm - BUA 4.6mn sqm - NLA 0.3mn sqm - BUA 0.3mn sqm - BUA 0.3mn sqm - NLA Education 0.1mn sqm - BUA 0.1mn sqm - BUA 0.1mn sqm - NLA Services 0.3mn sqm - BUA 0.3mn sqm - BUA 0.3mn sqm - NLA - Apartment EGP8,017/sqm - BUA EGP8,017/sqm - BUA - Villas EGP15,950/sqm - BUA EGP15,950/sqm - BUA EGP4,000/sqm - NLA EGP35,000/sqm - BUA EGP35,000/sqm - BUA EGP6,000/sqm - NLA Education & services land plots EGP3,000/sqm - NLA EGP3,000/sqm - NLA EGP3,000/sqm - NLA EGP3,050/sqm - BUA EGP11,295/sqm - BUA Zero Zero Education Zero Services Zero EGP628/sqm - BUA Zero EGP628/sqm - BUA EGP837/sqm - NLA Education EGP837/sqm - NLA EGP837/sqm - NLA Services External infrastructure cost EGP270mn EGP821mn EGP821mn Moving electriciy towers EGP60mn EGP60mn EGP60mn Down payment Installment period Annual escalation rate Education Services Education Services Co- Development Subdivision Development Self - Development Subdivision Development Price 5% 5% 5% Construction & Infrastructure cost 5% 5% 5% * We assume that 85% of residential BUA will be allocated to apartments, while the remaining 15% will be allocated to villas. 15% 6 years Subdivision Development - We assume that HELI will be entitled to 36% of revenues in exchange for the land and external infrastructure cost. We set this assumption according to the agreement terms between NUCA, Mountain View Egypt and Sisban Holding signed in May 2015 to co-develop "icity" project. - We assume a floor-to-area ratio (FAR) of 100% (considering the master plan of Madinaty, Sarai and Taj City). As per BUA breakdown, we assume that 89% of BUA will be allocated for residential, 5% for commercial (average of Madinaty and Sarai) and 6% for other purposes. - Development prices were determined according to selling prices in Madinaty, Sarai and Taj City projects. - land price were assumed lower than Beit El-Watan project in New Cairo. - According to the cost related to Madinaty and Capital Gardens projects - Consultants and supervision fees: 4.5% of total construction cost. - As for our worst case scenario, the installement period were determined according to the payment plan of Beit El-Watan. - Units to be delivered after four years after sale. Other general assumptions In our base case scenario (self-development), we applied the full completed method for revenues recognition. In our best case scenario (co-development agreement), we assumed that 72% of HELI s revenue share will be recognized upon sale, while the remaining revenues will be recognized after four years (the same revenues recognition method adopted by MNHD for its Capital Gardens project in Sarai). We expect that the external infrastructure and moving electricity towers will cost EGP821mn and EGP60mn, respectively, to be expensed by the end of June % 35% 35% 6 years 5 years 5 years 35% 5 years Page 17

18 Valuation - EGP mn EGP/share EGP mn Heliopolis Housing & Development Egypt Initiation of Coverage Valuation (Cont. d) Expected cash flow evolution of Helio Park project 10,000 Cash inflow Cash outflow Net cash flow 8,000 6,000 4,000 2, ,000-4,000-6,000-8,000-10, Valuation of Helio Park based on different scenarios segment represents 87% of Helio Park valuation 6,000 5,000 4,000 3,000 2,000 1,000 EGP34.3/share EGP31.6/share 3,818 3,515 EGP18.3/share 2, EGP3,045mn 86.64% EGP402mn 11.45% Other EGP67mn 1.91% 0 Best Case Base Case Worst Case 0 Page 18

19 Valuation (Cont. d) Valuation of land plots and developments in Heliopolis district based on different scenarios Total EV (EGP mn) Total EV (EGP/share) , * The competed units in Heliopolis will be sold over two years with payment plan over 3 years. As for land plot located in the eastern side of Almaza Airport, we assumed land price of EGP8,000/sqm due to limited heights Our EV for Nozha El-Obour came in at EGP259mn across our three scenarios Valuation method Utilization period Development plan Selling prices Construction cost Internal Infrastructure cost Down payment Installment period Page 19 DCF 3 years Self development Services Subdivision development - Apartment EGP3,500/sqm - BUA EGP11,000/sqm - BUA Services land plots EGP3,579/sqm - NLA - Apartment EGP1,617/sqm - BUA EGP5,000/sqm - BUA Services land plots Zero - Apartment EGP200/sqm - BUA EGP200/sqm - BUA Services land plots EGP200/sqm - NLA - Apartment 30% 40% Services land plots 40% - Apartment 3 years 6 years Services land plots 6 years Best Case Base Case Worst Case Valuation method DCF DCF NAV - NLA Utilization period * 3 years 5 years 5 years Development plan Selling prices - Apartment - Apartment Self development EGP8,000/sqm - BUA Self development EGP8,000/sqm - BUA N/A N/A - land - land N/A N/A N/A N/A Subdivision Development EGP15,000/sqm - NLA Construction cost - Apartment EGP3,000/sqm - BUA EGP3,000/sqm - BUA Zero Internal Infrastructure cost - Apartment EGP50/sqm - BUA EGP50/sqm - BUA N/A - land N/A N/A EGP50/sqm - NLA Down payment Installment period - Apartment - land - Apartment - land 40% 6 years 40% 6 years 40% 3 years Annual escalation rate Price 10% 5% 5% Construction & Infrastructure cost 10% 5% 5% 73% of Nozha El-Obour valuation comes from under-constructed units Work in progress EGP190mn 73% Completed units EGP69mn 27%

20 Valuation (Cont. d) Valuation assumptions for investment properties Property Best Case Base Case Worst Case Merryland Properties - Merryland Casino - Showland Casino - Child Park Tivoli Other Properties (Old Rental Law) Total valuation. Details of HELI s investment properties Settlement with old tenants P Collecting old receivables P Start of operations Jul-16 Jun-18 Cost of development plan EGP61mn EGP73mn Rents annual escalation rate 10% 10% Terminal growth rate 5% 3% Enterprise Value EGP108mn EGP79mn Zero Rents annual escalation rate 7% 7% 7% Terminal growth rate % 5% 3% 2% Enterprise Value Rents annual escalation rate Zero Zero Zero Terminal growth rate % 5% 3% 2% Enterprise Value Enterprise Value EGP148mn EGP118mn EGP38mn EV/share EGP1.33/share EGP1.06/share EGP0.34/share Other general assumptions: Gross profit margin 73.0% Average G&A to revenues 9.7% WACC 22.5% Base case valuation Investment properties Tivoli EGP31mn 26%. Best case valuation Investment properties Showland Casino EGP36mn 24% Merryland Casino EGP53mn 45%. Tivoli EGP32mn 22% Merryland Casino EGP53mn 36% Worst case valuation Investment properties Showland Casino EGP22mn 19% Child Park EGP2mn 1% Properties (old-law rent) EGP7mn 6% Al Montazah garden EGP3mn 3% Properties (old-law rent) EGP8mn 5% Al Montazah garden EGP13mn 9% Child Park EGP5mn 4% Property Location Area (sqm) Source: Company s reports, MubasherTrade Research estimates. We assume rents of Tivoli according to the agreement signed with its tenants in July HELI had offered Showland Casino fore lease in June 2008 at monthly rents of EGP525,000, adjusted by assigning an annual escalation rate of 10%. Child Park rent concluded according to settlement with Magic Dreams. Page Annual rents (EGP mn) MTRe Merryland Casino Merryland Park 25, Showland Casino Merryland Park 5, Child Park Merryland Park 4, Tivoli Almaza Square - Heliopolis 4, Other properties (old rental law) (824 units) Scattered in Heliopolis N/A 2.18 Tivoli EGP31mn 81% Other properties (old rents) EGP7mn 19%