10-Aug-2017
Palm Hills Developments (PHD) - 2Q17 results: Good contracted sales number; with decent contribution from commercial sales
Rating: Buy
Target Price: EGP3.63
Closing Price: EGP3.09
Contracted sales number, with a commercial component
Palm Hills Developments (PHD) reported its 2Q17 financial and operational results. Net contracted sales were strong, coming in at EGP2.5bn in 2Q17 (+156.2% Y-o-Y, -18.0% Q-o-Q) bringing 1H17 total to EGP5.6bn (+84.9% Y-o-Y). The 2Q17 sales figure was driven by new launches at West Cairo (The Crown, with sales at EGP420mn in 2Q17), the North Coast (Hacienda West, sales: EGP430mn), commercial units (Palm Central and Palm Valley Mall, sales: EGP0.5bn). This is in addition to more sales at the company’s relatively recent launch, Palm Hill New Cairo. East Cairo contributed 52% of net new sales in 1H17 (36% in 1H16), West Cairo: 32% (57% in 1H16), while the North Coast brought in 16% of the net new sales (7% in 1H16). Average selling prices rose by 68% Y-o-Y, 47%, and 37% for BuA of standalone units, BuA of apartments, and land, respectively, since the beginning of 2017. Management has reiterated its 2017 contracted sales target of EGP9.5bn (EGP9.4bn in our numbers).
Good set of reported numbers, despite a miss on bottom-line
Reported numbers were good. Revenue came in at EGP1.64bn (+51.5% Y-o-Y, +3.2% Q-o-Q, -1.7% vs. EFGe). Net income came in at EGP137.0mn (+114.4% Y-o-Y, -35.5% Q-o-Q), missing our estimate (EFGe: -41.7%) on lower-than-expected margins (GPM at 27.9% in 2Q17, 2Q16: 26.4%, 1Q17: 30.7%) due to a change in sales mix more towards apartments (compared to higher contribution of villa sales in total in 1Q17) along with the delivery of legacy projects (having lower margins). 1H17 revenue came in at EGP3.2bn (+49.3% Y-o-Y), net income at EGP349.3mn (+106.3% Y-o-Y). Leverage on the balance sheet was stable over the quarter (net-debt-to-equity: 0.50x in Jun-17), with expectations that it would drop in the short to medium term with the roll-out of the company’s securitisation plan (second phase worth cEGP1bn planned before the end of 2017).
Strong sales momentum to continue in 2017-18e, but land, debt obligations are a concern
We have a Buy rating on PHD. We expect strong sales in 2017-18 of EGP9.4bn and EGP11.4bn, respectively, with sales driven by new projects, including The Crown and Palm Hills New Cairo. We note, however, that the company’s recent two land agreements entail heavy minimum payments to NUCA (New Cairo: EGP10bn over 10 years, West Cairo plot: EGP25.2bn over 17 years). This represents a downside risk to our cash flow and valuation, in our view, in the scenario of a slowdown in market sales activity.
Mai Attia
Sara Boutros
Target Price: EGP3.63
Closing Price: EGP3.09
Contracted sales number, with a commercial component
Palm Hills Developments (PHD) reported its 2Q17 financial and operational results. Net contracted sales were strong, coming in at EGP2.5bn in 2Q17 (+156.2% Y-o-Y, -18.0% Q-o-Q) bringing 1H17 total to EGP5.6bn (+84.9% Y-o-Y). The 2Q17 sales figure was driven by new launches at West Cairo (The Crown, with sales at EGP420mn in 2Q17), the North Coast (Hacienda West, sales: EGP430mn), commercial units (Palm Central and Palm Valley Mall, sales: EGP0.5bn). This is in addition to more sales at the company’s relatively recent launch, Palm Hill New Cairo. East Cairo contributed 52% of net new sales in 1H17 (36% in 1H16), West Cairo: 32% (57% in 1H16), while the North Coast brought in 16% of the net new sales (7% in 1H16). Average selling prices rose by 68% Y-o-Y, 47%, and 37% for BuA of standalone units, BuA of apartments, and land, respectively, since the beginning of 2017. Management has reiterated its 2017 contracted sales target of EGP9.5bn (EGP9.4bn in our numbers).
Good set of reported numbers, despite a miss on bottom-line
Reported numbers were good. Revenue came in at EGP1.64bn (+51.5% Y-o-Y, +3.2% Q-o-Q, -1.7% vs. EFGe). Net income came in at EGP137.0mn (+114.4% Y-o-Y, -35.5% Q-o-Q), missing our estimate (EFGe: -41.7%) on lower-than-expected margins (GPM at 27.9% in 2Q17, 2Q16: 26.4%, 1Q17: 30.7%) due to a change in sales mix more towards apartments (compared to higher contribution of villa sales in total in 1Q17) along with the delivery of legacy projects (having lower margins). 1H17 revenue came in at EGP3.2bn (+49.3% Y-o-Y), net income at EGP349.3mn (+106.3% Y-o-Y). Leverage on the balance sheet was stable over the quarter (net-debt-to-equity: 0.50x in Jun-17), with expectations that it would drop in the short to medium term with the roll-out of the company’s securitisation plan (second phase worth cEGP1bn planned before the end of 2017).
Strong sales momentum to continue in 2017-18e, but land, debt obligations are a concern
We have a Buy rating on PHD. We expect strong sales in 2017-18 of EGP9.4bn and EGP11.4bn, respectively, with sales driven by new projects, including The Crown and Palm Hills New Cairo. We note, however, that the company’s recent two land agreements entail heavy minimum payments to NUCA (New Cairo: EGP10bn over 10 years, West Cairo plot: EGP25.2bn over 17 years). This represents a downside risk to our cash flow and valuation, in our view, in the scenario of a slowdown in market sales activity.
Mai Attia
Sara Boutros