• Cut our FV by a third to incorporate a less-positive outlook on monetization timeline We cut our fair value (FV) by 34% to EGP0.74/share, implying 2.2% upside potential, and thus maintain our Neutral rating. 2016e NAV is lowered by 9% to EGP2.51/share (from EGP2.77/share), where we assume lower selling prices in valuing the company’s residual land bank (3.2 million sqm). We opt to use the four-year (2012-15) average selling price (cUSD100/sqm) rather than the 2015 average price (cUSD116/sqm) to reflect a slowdown in Egypt’s tourism activity, which might discourage further significant investments in the sector in the short term. We also assign a higher discount rate to our calculated NAV of 70% (up from 60%), the highest within our coverage, along with Heliopolis Housing. This is to reflect increased concerns over the company’s ability to monetise its land value and the timeline at which such value will be realised. The rise in our assigned discount to NAV explains around 75% of the cut in fair value.
• 2015 on track to mark a long awaited turn to profits We expect a sequential improvement in the company’s reported figures in 4Q2015, for which we expect revenue of EGP73.9 million and net income of EGP22.6 million, with further recognition of revenue from land sales completed in 1H2015. This will bring 2015 revenue to EGP390.1 million, surging almost eight-fold, pushing net income to the black for the first time in five years, at EGP194.6 million. ERC had recorded impressive land sales of USD74.4 million (cEGP568 million) in 1H2015 - levels that have not been seen since 2007.
• Less attractive versus peers despite price correction; remain Neutral We believe the stock offers a less attractive investment opportunity compared to its local peers, given that: i) it is a one-project company, with limited land bank; ii) the nature of its business model, as a master-developer, limiting its ability to fully leverage on the increased demand on secondary homes; and iii) its high-risk-profile, in light of its association with the vulnerable tourism segment. The stock performance has reflected such risks, in our view, falling 29% over the last three months, underperforming EFG Hermes Real Estate index (-21%).

Mai Attia
Sara Boutros