Egypt Real Estate Sector - 2Q17 wrap-up: Quiet quarter on limited number of launches; PHD positively surprises. Expecting stronger activity in 2H17
PHD stood out on contracted sales in 2Q17
Aggregate contracted sales for our peer group in 2Q17 grew 21% Y-o-Y to reach EGP5.5bn, with growth mostly coming from PHD (45% share of 2Q17 total) on strong launch activity. Other than that, it was a quiet quarter for most developers especially given the month of Ramadan fell in the quarter. There were no new launches for TMG and MNHD while launches were very limited for SODIC and Porto. Aggregate 1H17 contracted sales were up for all names, with Medinet Nasr, PHD and TMG growing the most, SODIC and Porto the least. We expect an overall stronger 2H17 for SODIC (on launch of its co-dev. project with Heliopolis Housing), Medinet Nasr (on launch of T-Zone II and potentially another launch at Sarai by 4Q) and Porto (on more sales in the North Coast). TMG and PHD’s management indicated that initial sales guidance might be beaten. TMG plans to launch its final phase at Rehab Ext. and further commercial space in Madinaty; targeting EGP11.4bn (up from EGP9.4bn) of sales in 2017. PHD’s mgmt. indicated that its initial sales guidance of EGP9.5bn might be beaten by 10-15%.
Sales were mostly for primary homes, across the East and West of Cairo. Nevertheless, contracted sales for both PHD and Porto Group carried a fairly significant commercial component (c20% of total contracted sales for both names), as well as a secondary home component (c17% for PHD, c32% for Porto).
Revenue up for all, mixed-bag on margin
Revenue grew for all names, at an aggregate of c50% (Y-o-Y), on increased pace of execution and unit deliveries. Revenue from hotels for TMG continued to improve (+30% Y-o-Y in 2Q17 and 41% Y-o-Y in 1H17) driven by higher occupancy rates. GPM improved Y-o-Y for SODIC (on the conclusion of the delivery of the earlier low-margin batches at Eastown) and PHD (on higher villa component), but was flat for TMG, and down for Porto Group (on low-margin delivery at Porto New Cairo) and MNHD (in absence of new launches, hence: recognition of land component).
New land acquisitions for TMG and PHD
Land agreements took place during the quarter: i) TMG: 2.1mn sqm land plot at the New Capital City for a total cost of EGP4.4bn; and ii) PHD: signed contract for 12.6mn sqm land plot in West Cairo, on revenue-sharing basis. Moreover, a presidential decree for the extension of the borders of Sheikh Zayed City and Sixth of October was issued in Feb-17, boding well for the re-zoning of Al-Yosr plot (300-acre plot). MNHD management indicated that it is eyeing land acquisitions in West Cairo and the North Coast.