The stock has gained c45% since the free-floatation of the EGP on 3 November, outperforming all its listed peers. We attribute such outperformance to the stock being a laggard YTD. We upgrade our valuation on higher land prices for commercial land plots, while maintaining our assigned discount to NAV at 50% as we continue to believe property stocks in Egypt, in general, deserve to trade at average cycle discount. We re-iterate our Buy rating on the stock and increase our FV to EGP12.4/share (from EGP10.3).
• What is in our new numbers?
Higher prices for commercial land in Rehab and Madinaty. We upped our selling prices for both plots by EGP1,000/sqm to EGP7,000/sqm for Rehab and EGP6,000/sqm for Madinaty. We believe that despite such increase in assumed prices, we still have room for upgrades, with the company concluding transaction deals in Rehab at EGP15,000/sqm and indicating that it would be selling plots in Madinaty at cEGP10,000/sqm. We note that the margins on land sales would be in the range of 85-90%; thus, we have a high probability of upgrades once land transactions are concluded. Developments in the New Capital City would act as a positive factor that would result in increased probability of new attractive land transactions in Madinaty being concluded. Moreover, more traffic in general in the East side is creating more value to the land bank, in our view.
Maintain our sales estimate almost unchanged, however, increased construction costs. We believe TMG’s target segment would be affected negatively by higher selling prices, with increased affordability concerns. This will be further inflated should the company assume higher interest rates in setting units prices that are purchased on longer instalment option. Thus, we believe the company will not be able to pass on all construction cost increases, which we estimate at 20%; hence, placing pressure on its margins. We keep our contracted sales numbers unchanged, estimating EGP6.7bn in 2017 and EGP6.9bn in 2018. We think that should the company be able to launch the ‘Downtown’ area in Madinaty, which targets the high end primarily; this would offer an upside to our numbers.

Mai Attia
Sara Boutros