• Contract for co-development agreement with SODIC is signed… The official signing of Heliopolis Housing’s co-development agreement with SODIC was announced in March, 2016. The contract covers a 2.7 million sqm land plot, at the company’s New Heliopolis project in El Sherouk City. The total expected sales revenue of the project is estimated at EGP30 billion, according to the two company’s disclosure. Heliopolis Housing is entitled to 30% of the company’s sales revenue, in exchange for its land contribution. The contract sets EGP5 billion as the minimum return to Heliopolis. We expect the project to be launched in early 2017.
• … another milestone towards migration from original business model Signing this contract represents yet another major step towards the company’s migration from the original business model towards off-plan sales; hence, enabling faster monetisation of its land bank. In our latest note, we highlighted: i) lower sales of land plots and completed units; and ii) the closure of receivable factoring contracts as early signs confirming the slow-but-sure migration from the old model. The timing of the signing of the contract (three months following the receipt of the letter of award, as guided by SODIC’s management), is an additional positive surprise, in our view. Associating the project with the fast-track-developer, SODIC, gives us some comfort on the speed of the project’s launch-construction-delivery cycle, despite the novelty of the concept for both names.
• Current stock price is more inclined to our bear case scenario Our fair value (FV) is set at EGP74.4/share, based on an unchanged 0.3x 2016e NAV. We introduce bull-bear scenarios, to gauge the sensitivity of our FV to different market conditions. Under the bull case, we assign higher selling prices to the company’s land bank and apply a lower discount-to-NAV of 60%. We also include the co-development agreement with SODIC, which almost doubles our revenue and net profit estimates, on average, over the three-year period between 2017/18e and 2019/20e. Our bull case yields a value of EGP130/share, whilst our bear case yields EGP40.6/share. Under the bear case, we assign lower selling prices to the company’s land bank and apply a higher discount-to-NAV of 80%.

Mai Attia
Sara Boutros