• Set our fair value of AED10.3 on 0.6x 2016e; re-initiate with a Buy We set our FV for Emaar Properties at AED10.3, offering 45% upside; hence, our Buy rating. Our FV is based on 0.6x 2016e NAV, 10% premium to the average historical trading discount-to-forward looking NAV. We expect Emaar to report strong financial numbers, forecasting 2015-19e revenue CAGR of 13.8%, average gross profit margin of 53.4% and net income CAGR of 18.0%. We estimate total contracted sales of AED17.9bn in 2016, AED18.6bn in 2017 and AED19.9bn in 2018, with Dubai sales contributing 80%, on average, and international sales witnessing some weakness, mainly on slowdown in sales activity in Egypt. Emaar would spend an average of AED8.2bn annually on its development properties, in our estimates, to meet its ambitious delivery schedule that would drive revenue growth over the coming four years. The stock’s trading multiples are undemanding, with PER at 9.8x in 2016e and 8.1x in 2017e, with relatively strong earnings visibility.
• Cautious outlook on Dubai property market; Emaar set to outperform We believe Emaar will outperform the overall sector performance, in a backdrop of a market softness in 2016-17. Such outperformance is attributed to: i) the company’s buyers’ base being mostly UAE residents, which in turn reflected positively on the buying activity YTD in an operating environment with external factors negatively affecting major buyers’ power; and ii) the company’s product offering being highly recognised in the secondary market; both as a primary home and an appealing investment opportunity; this would in turn reflect on higher demand potential for new launches. We estimate local sales of AED14.5bn in 2016, AED14.7bn in 2017 and AED15.6bn in 2018.
• Our bear case scenario is only 2% lower than current stock price Emaar’s stock price is assuming extreme bear market conditions with our bear case FV of AED7.0/share only 2% lower than current stock price. Thus, the current stock price implies a bear scenario including: i) slump in Dubai property prices; hence, Emaar not selling in its primary market in 2017-18; ii) slowdown in sales activity in Egypt; iii) slump in tourism and retail activity over the coming two years; and v) investors assigning higher discount to NAV; which we calculate at 50%. Although such scenario was seen back in 2008-09, we believe this is highly unlikely in the current operating environment, given Emaar’s strong presence as a leading entity in the hotel and retail business, in addition to its property segment.

Mai Attia