Emaar: Adjusting Deliveries, Maintain Buy

Revisit delivery forecasts on latest company guidance. Spread
international deliveries, but bring forward deliveries in Dubai. We now
assume delivery of 3,900 units in 2009e (3,700 previously), 4,500 units in 2010e
(4,800 previously), and 2,200 units in 2011e (9,700 previously, which we now
spread over 2012/13e). While we revise downwards deliveries in 2010e by 6%, we
raise our revenue number by 12% due to higher contribution from Dubai.
Increase retail occupancy, mainly Dubai Mall’s, from a weighted average
of c50% in 2009e to 95% in 2010e. We now understand that Dubai Mall is
currently operating at 95% capacity and so adjust our numbers from 80% in 2010e
previously. Considering an expected improvement in tourism activity in 2010 driven
by the global recovery, we feel that both retail and hotel occupancy are likely to
show improvement this year. Also, the opening of Burj Khalifa should be supportive
of activity in that area.
Raise 2010e EPS estimates by 51%, but cut 2011e by 18%. We increase our
2010e earnings by 51% on the back of (i) higher revenues (+12%), ii) margin
expansion (+3 pc) driven by stronger contribution from Dubai deliveries and
recurring income (+18%), and (iii) positive associate contribution on deliveries in
India in 1H10 ahead of the Common Wealth games. That said, the bulk of
international deliveries are now expected in 2012/13e instead of 2011e, accordingly,
we cut our 2011e EPS estimates by 18%, but raise our estimates by 10% for 2012e
and 19% for 2013e.
Amlak impairments in 4Q09 unlikely. Since we understand that the
restructuring process is still underway and hence the outcome is unclear, we feel
impairments in 4Q09 might be premature. Total exposure is AED2.1 billion.
Emaar remains our preferred exposure. We maintain our Buy rating but
raise our TP to AED6.6/share from AED6.5/share. We remain cautious about
the domestic demand story in the UAE as the restructuring process unwinds. Our
preferred play is Emaar (Buy, TP 6.6) given its exposure to the tourism sector
through its hospitality and retail portfolios as well as its geographic diversification.
Also, the company’s liquidity position remains comfortable with net debt/equity at
18% and operating cash flows sufficient to meet short-term obligations of AED4.4
billion. Emaar currently trades at 0.3x 2009e NAV (Aldar at 0.3x, Sorouh at 0.5x)
and 0.7x 2009e BV (Aldar at 1.2x [ex-reval.], Sorouh at 1.2x).