• 2017: De-risk Aykon, while villa launches in Akoya Oxygen would support margins We expect 2017 launches to come with a primary focus in Aykon City, with an aim to cash de-risk the project, being the company’s most recent addition. Focus will also be on Akoya Oxygen, which requires six-nine additional months of cash de-risking, based on management’s estimates, and also to bring in relatively higher profitability margins through more villas launches. We expect contracted sales level to be roughly unchanged Y-o-Y, at AED6.8bn, failing to recover from a weak 2016. Moreover, we do not see an imminent need to replenish the land bank; hence, our expectation of a quiet year with regard to land acquisitions. Guidance for dividends for 2017 onwards is still to be discussed by the board and communicated by management; yet, our numbers incorporate a dividend cut to AED0.15/share for 2017, implying a dividend pay-out ratio of c30% (2015-16 average: 38%) and a dividend yield of 7.1%.
• Adjust assumptions slightly; no change to FV and rating We raised our net income estimate for 2016e c6% to incorporate the lower-than-expected SG&A in 3Q16, while maintaining the other underlying assumptions for 2016 and the years thereafter roughly unchanged. The stock has underperformed the DFM YTD to reflect such weakness (-9.5% vs. +5.0% for DFM), which we expect will continue, in the absence of positive triggers over the medium term. We note that, while the stock’s trading multiples are undemanding (PER 2017e: 4.1x), and dividend yield is decent (7.1%), they come with high level of uncertainty on limited visibility on earnings and cash inflows. We maintain our FV at AED2.30/share.
• High risk profile does not bode well amidst increased uncertainties DAMAC’s high risk profile, given its full dependency on property sales and high representation of GCC/Saudi investors within its buyers base, does not bode well for a healthy year ahead, in a backdrop of increased macroeconomic uncertainties in the GCC. On the upside, regained confidence in the real estate sector in Dubai would reflect positively on the company’s contracted sales numbers, and in turn, on its reported numbers and its ability to grow its dividend payments.

Mai Attia
Sara Boutros