• Strong sales figure for 1Q16; reported figures in line TMG Holding (TMG) reported its headline figures for 1Q16. Contracted sales was EGP2,278mn, the strongest in at least eight quarters (+25% Y-o-Y, +110% Q-o-Q). Growth was driven by sales at Madinaty, on relief in the building permits there, while challenges for building permits at Rehab persist. Only PHD and Emaar Misr reported their contracted figures for the quarter to date (the latter through the parent). Growth in contracted sales for PHD is, so far, the strongest (+62% Y-o-Y), while Emaar Misr witnessed a -18% Y-o-Y. Reported revenue was EGP1,214mn (+6% Y-o-Y, -8% versus EFGe), gross profit was EGP352mn (+13% Y-o-Y), translating into a gross profit margin of 29.0% (1Q15: 27.3%). Net income was in line with our forecast, coming at EGP207mn (+11% Y-o-Y, -1% vs. EFGe).  
• 2016 outlook: Not too rosy, with rising affordability concerns… While we are encouraged by the resolution of the building permit issues at Madinaty in 4Q15 (and the resulting improvement in contracted sales in 1Q16), we note that TMG was the most hit last year, vis-a-vis its local peers, by affordability issues, given its focus on the middle-income segment, representing a risk to the company’s ability to grow sales volumes. These concerns are expected to continue through 2016, for which we are expecting EGP6.7bn in contracted sales (+6% Y-o-Y, -5% versus management guidance). We adjust our FV slightly upwards to EGP10.25/share.
• … but the market is discounting a bear set of assumptions We roll out a bull-bear case scenario for TMG to assess how our FV fares under different operating conditions. We choose to assign different values to TMG’s commercial land bank across Madinaty and Rehab, given its significance to our valuation (>50%). Under the bull case, we assign commercial land EGP6,000/sqm (vs. EGP4,000/sqm under our base case) and apply a discount-to-NAV of 30%; this yields a FV of EGP19.50/share. Under the bear case, we assign commercial land EGP3,000/sqm and increase our discount-to-NAV to 70%; this yields a FV of EGP5.50/share, reflecting a 12% only in discount to current market valuation.

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