Rating: Buy
Target Price: EGP14.2
Closing Price: EGP10.8

Set TP at EGP14.2, based on 0.4x 2017e NAV; initiate with a Buy 
We set our TP at EGP14.2/share, showing decent upside potential of 32%. To arrive at our TP, we assigned a 60% discount to our calculated NAV of EGP35.6/share. Our NAV is derived primarily based on: i) similar land transaction prices for the unlaunched portion of the land bank (80% of NAV, 7.1mn sqm out of the total of 9mn sqm, of which 1.6mn sqm are designated to commercial space; hence, priced at a premium to the residential land bank); and ii) DCF valuation for launched projects, covering the remaining 1.9mn sqm, in Sarai and Taj City. Faster monetisation of the land value, and, in turn, higher contribution from project development to the calculated NAV, would unlock the value of the company’s land bank; hence, allowing us to assign a lower discount-to-NAV. Our assigned discount of 60% comes only after ERC (75%) and Heliopolis Housing (70%) within our real estate coverage universe.  
 
Access to low-cost prime-located land, albeit with an inevitable need for borrowing  
We favour the company’s low-cost, undisputed and prime-located land bank, which will continue to appreciate in value, in our view, in a backdrop of high-inflationary environment and increased scarcity of land plots in prime locations. That said, we note that sales had outpaced construction activity in the past two years, with EGP2.1bn worth of sales in Tag Sultan and EGP5.2bn in T-Zone and Sarai, to date, while only c50% of construction work was completed in Tag Sultan and none in the latter two. This, together with the lenient payment terms introduced at Sarai along with commitment to complete the basic infrastructure in Sarai within the coming three years creates a liquidity squeeze, which makes bank borrowing inevitable. The company secured EGP2.1bn debt facility, where we expect withdrawal by 4Q17. 
 
Delay in securing Taj City masterplan blemishes an otherwise stellar 2017
2017 started off on a strong mode, with its, so far, single launch this year (Sarai II) recording EGP1.8bn in contracted sales and carrying forward the momentum seen in 2016, in which EGP3.4bn worth of contracted sales were concluded, up from EGP883mn in 2015. It has been relatively quiet for MNHD in 2Q17 (EFGe: EGP600mn in contracted sales), with delay in securing the masterplan for Taj City disturbing the launch roll-out plan for the year; however, a new launch is planned in August, with a total size of EGP1.5bn. We expect management’s sales target (excl’ Capital Gardens) of EGP5bn (EFGe: EGP4.7bn) to be somewhat challenging.

Mai Attia

Sara Boutros