June 20, 2013 Saudi Arabia Real Estate - GulfBase.com...PHDC EY Equity Palm Hills Developments SAE NA 0.5 5.3 NA MNHD EY Equity Medinet Nasr Housing 27.1 5.7 5.2 20.0 OCDI EY Equity

Global Research

Sector – Real Estate

Equities – Saudi Arabia

June 20, 2013

Saudi Arabia Real Estate

Sector profit grows 31.1%QoQ in 1Q13

Improved policy framework and robust government budget to boost the sector

Housing segment to drive the overall real estate sector

Saturated office market poses a concern

Rating: BUY: Dar Al-Arkan, HOLD: EEC & Akaria

Saudi’s real estate has bounced back after bottoming out in mid-2012. The real estate sector earnings rose handsomely in 1Q13, beating the overall market growth. Rental rates and sales prices continue to rise across the market while occupancy rates have moved up simultaneously as well. The residential market continues to drive the real estate sector as a result of high supply shortage in the Kingdom. The government remains focused on reviving the sector with more favorable policies and boosting lending activity in the Kingdom. However, rising oversupply in the office market particularly in the central region of KSA is a little worrisome. Sector profit grows 31.1%QoQ in 1Q13

Consolidated profit of KSA’s real estate sector grew 31.1%QoQ, indicating a recovery in the

sector. However, the profitability level remains considerably down (32.1%YoY) from 1Q12.

The real estate sector outperformed TASI’s earnings that grew 11.1%QoQ. As the real

estate sector continues to see rise in prices and rates along with higher occupancy rates,

we expect the growth in sector profits to continue.

Residential market to drive the overall real estate sector

KSA’s real estate sector bottomed out around mid-2012 and has been recovering since

then. The sector is primarily driven by the residential market due to the considerable

housing shortage in the Kingdom. The government also continues to push the sector with

the mortgage law and the additional-loan-program. Overall, the sector continues to recover

with rental and sales prices increasing across the Kingdom.

Improved policy framework and robust government budget to boost the sector

The KSA government has continuously working towards implementing the new mortgage

law to provide for affordable housing. At the same time, the “Additional Loan Program” is

expected to provide further boost to the residential segment. Apart from this, the

government’s strong spending plan on infrastructure and construction projects is expected

to augur well for the real estate sector.

Oversupply to weigh on the Office market in Riyadh

The Saudi office segment is experiencing an oversupply situation, mainly in the central

region of KSA. As a result, vacancy rates have gone up, pushing down rental rates in the

segment. With around 1.44mn sqm of spaces to be added over the coming three years,

office rental market is expected to remain under pressure.

Dar Al-Arkan remains the most attractive among peers

Dar Al-Arkan remains our top pick owing to its ongoing revenue diversification efforts and

aggressive capital expenditure plans. At the same time, the company’s successful raising of

new debt provides it with ample liquidity for acquisitions and development of existing assets.

The stock currently offers the highest upside among Global Research Saudi Real Estate

sector and we have a BUY rating on the stock.

Saudi A

rab

ia

Real E

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Faisal Hasan, CFA

Head of Research [email protected] Tel: (965) 2295-1270 Hettish Karmani

Manager [email protected] Tel: (965) 2295-1281 Global Investment House www.globalinv.net

Global Research – Saudi Arabia Real Estate

2

Valuation Methodology We adopt a SOTP approach to arrive at a 12 month fair value target for Saudi real estate equities. We construct our valuation methodology based on the following criteria:

We assigned a RFR of 2.18% and MRP of 7.81%.

For investment properties, we utilize a two-stage DCF approach valuing each project according to its respective credentials and discounting it at the project’s WACC before arriving at a terminal reversion value based on available market capitalization rates on the fourth year of our forecast horizon.

For development properties, we utilize a one-stage DCF approach extended over the life of the project. We discount each project’s FCF by the relative WACC and build our assumptions for selling prices and margins based on management guidance and prevailing market trends.

Where management guidance is not available on land sales, we use historical patterns and current market trends as basis to our forecasts. Individual prices and margins of land plots differ based on our assessments of factors including location, state of development and available information on comparable sales.

We value land bank at historical cost based on its reported book value opting to stay on the conservative side.

Market trends of listed real estate equities vary largely across MENA markets. Further, different accounting practices impede the construction of peer valuations. Accordingly, we do not incorporate relative valuations in our fair value targets.

Risks to Valuation

Land sales are highly volatile and unpredictable and form a key risk factor in forecasting revenues for Saudi real estate developers.

The application and the impact of the new package of laws concerning credit extension to real estate developers and the mortgage law could impact future dynamics.


3

Dar Al-Arkan Valuation Our valuation for Dar Al-Arkan has yielded a SOTP fair value of SAR11.47/share. With the company currently trading at SAR10.30/share, our fair value target results in an 11.4% upside. Accordingly, we issue a BUY recommendation on Dar Al-Arkan stock.

DAAR – Equity Valuation

Value (SAR 000) /share Methodology

Retail Lease 1,553,954 1.44 Capitalization method 8.5%

Commercial Lease 74,082 0.07 DCF

Residential Lease 468,328 0.43 DCF

Development Sales 4,404,535 4.08 DCF

Land Sales 8,473,770 7.85 DCF

Total NPV 14,974,669 13.87

Add: Investments 744,657 0.69 Book value 1Q13

Add: Cash 834,614 0.77 Book value 1Q13

Less: Debt 4,146,401 3.84 Book value 1Q13

Less: Provision end-of-service indemnity

16,928 0.02 Book value 1Q13

Total Equity Value 12,390,611 11.47

CMP

10.30

Upside / (Downside)

11.4%

Source: Company accounts and Global Research


4

Emaar The Economic City (EEC) Valuation Our valuation on EEC has yielded a SOTP fair value of SAR9.12/share. Our fair value target is 8.4% below the stock current market price of SAR9.95/share. Accordingly, we issue a HOLD recommendation on EEC stock.

Emaar The Economic City – Equity Valuation


Development Sales 297,534 0.35 DCF

Investment Properties 3,527,429 4.15 DCF


Total NPV 9,038,372 10.63


Add: Cash 3,913,020 4.60 Book value 1Q13


Less: Minority Interest 81 0.00 Book value 1Q13

Total Equity Value 7,749758 9.12

CMP

9.95

Upside/(Downside)

-8.4%



5

Saudi Real Estate Co. (Akaria) Valuation We utilize a SOTP approach to arrive at a fair value target for Akaria. Our fair value target of Akaria is SAR31.18/share implying an 5.0% upside potential from the current share price of SAR29.70. We, accordingly, issue a HOLD recommendation on the stock.

Akaria - Equity valuation

Value (SAR mn) /share Methodology

Retail Lease 501,852 4.18 Capitalization method 8.5%


Residential Lease 1,161,803 9.68 DCF

Land Sales 11,939 0.10 Book value 1Q13

Total NPV 2,467,233 20.56

Add: Investments 1,263,374 10.53


Less: Debt - - Book value 1Q13

Less: Minority Interest - - Book value 1Q13

Total equity value 3,741,017 31.18

CMP

29.70

Upside potential

5.0%

Source: Global Research


6

Peer Group Comparison

Ticker Name of the Company PE(x) PB(x) EV/Sales EV/EBITDA

Saudi Arabia

EMAAR AB Equity Emaar Economic City 48.1 1.1 16.8 37.3

ALARKAN AB Equity Dar Al Arkan Real Estate Development 10.3 0.6 4.3 12.2

SRECO AB Equity Saudi Real Estate Co 18.1 1.1 10.9 16.1

TIRECO AB Equity Taiba Real Estate Co 20.7 1.5 11.6 21.2

ADCO AB Equity Arriyadh Development Co 17.6 1.5 8.9 12.0

Kuwait

SRE KK Equity Salhia Real Estate Co KSC 21.7 1.3 6.8 14.9

MABANEE KK Equity Mabanee Company SAKO 13.8 3.2 9.9 14.1

UAE

EMAAR UH Equity Emaar Properties PJSC 15.3 1.0 4.6 12.1

ALDAR UH Equity Aldar Properties PJSC 17.7 1.1 4.3 10.9

SOROUH UH Equity Sorouh Real Estate Co 12.0 1.0 2.1 8.1

DEYAAR UH Equity Deyaar Development 16.0 0.6 2.6 17.8

UPP UH Equity Union Properties PJSC 5.3 0.5 2.6 10.8

RAKPROP UH Equity RAK Properties PJSC 11.3 0.3 3.0 13.5

Qatar

BRES QD Equity Barwa Real Estate Co 8.0 0.8 11.9 NA

Egypt

TMGH EY Equity Talaat Moustafa Group 11.6 0.3 2.0 8.7

AMER EY Equity Amer Group Holding 3.8 NA NA NA

HELI EY Equity Heliopolis Housing 17.0 NA 12.2 NA

PHDC EY Equity Palm Hills Developments SAE NA 0.5 5.3 NA

MNHD EY Equity Medinet Nasr Housing 27.1 5.7 5.2 20.0

OCDI EY Equity Six of October Development 4.7 0.6 0.9 3.9

Source: Bloomberg & Global Research

Values are on 1-year forward basis


7

Saudi Arabia Real Estate Sector

Investors’ sentiment turns positive towards the real estate sector Saudi real estate equities traded at a historical PBv average discount of 43% to TASI between June, 2008 and June, 2013. Currently, TASI PBv stands at 1.9x whereas real estate equities (RE index) trade at 1.3x at a 34% discount. This has been a considerable improvement over the past one year when the real estate equities were trading at a multi-year low discount of almost 55%. The rise in valuation of real estate equities indicates the market is finally factoring in the strong prospects of the real estate sector.

TASI PBv & RE Index PBv January 2008 – May 2013

Source: Bloomberg

Akaria, EEC & DAAR Premium/Discount to BVPS 1Q10 – 1Q13

Source: Bloomberg

Sector profit grows 31.1%QoQ, but remains down 32.1%YoY Real estate listed companies continued to outperform TASI’s earnings growth by recording a 31.1%QoQ rise in earnings in 1Q13, while TASI’s earnings grew 11.1%QoQ rise. This comes after the real estate sector outperformed the TASI in the years 2011 and 2012, clearly signaling a recovery in the real estate sector from the lows seen during the 2008 financial crisis. The rise in 1Q13 earnings was led by Akaria and Arriyadh Development. Meanwhile, EEC also saw a dip in earnings during 1Q13. Despite the stronger performance by the real estate sector, TASI continues to yield a higher return (ROE) than the real estate sector in 2012. All the stocks listed on TASI together yielded a return of 13.1% in 2012 while the real estate stocks together yielded a return of 7.2%. However, TASI’s ROE declined in 2012 from 14.1% recorded in 2011, while that of the real estate stocks rose in 2012 from 5.4% in 2011. Furthermore, the real estate stocks have

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Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13

TASI PB (LHS) RE Index PB (LHS)

RE Index Discount to TASI (RHS) Historical Average Discount (RHS)

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1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

DAAR EEC Akaria


8

witnessed a steady growth in ROE since 2010. We expect the ROE to improve further in 2013 as the industry continues to witness uptrend. TASI Earnings, Real Estate Earnings & Real Estate Index Performance 2007-12

Source: Bloomberg, Reuters TASI & Real Estate Listed Equities ROE 2007-12

Source: Bloomberg In terms of price performance, Saudi listed real estate equities continue to underperform TASI over the past five years since June, 2008 through to June, 2013, even though both the indices declined during this period. TASI declined 24.7% while the Real Estate Index fell 29.4%. However, the indices have gained considerably since the lows of 2008-09. Meanwhile, both the indices (TASI and Real Estate Index) underperformed the S&P 500 that gained almost 19.6% over the last five years. TASI, RE Index & S&P 500 2008-13

Source: Bloomberg

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2007 2008 2009 2010 2011 2012

TASI Earnings (LHS) Real Estate Earnings (LHS) Real Estate Index Performance (RHS)

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15%

2007 2008 2009 2010 2011 2012

TASI Real Estate Equities

25

45

65

85

105

125

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13

S&P 500 TASI Real Estate


9

Growing population to drive demand for the residential market Saudi Arabia’s population has been growing steadily over the past few years, especially with the inflow of expatriate workers rising every year. The Kingdom’s population stood at 29.2mn at the end of 2012, up from 25.8mn in 2007. Total expatriate population has grown to 9.4mn in 2012 from 6.7mn in 2008. As per the latest IMF estimates, the Kingdom’s population is expected to rise up to 32.7mn by 2018. Majority of the current population resides in the regions of Makkah (26%) and Riyadh (25%), followed by the Eastern Province (15%). Going, forward, with the expectation of rise in the Kingdom population the demand for residential market is estimated to improve further. Saudi National & Expatriate Population (mn) – 2008-2012 Saudi Population by Geographic Distribution 2012

Source: Central Department of Statistics & Information Saudi Population 2008-2018

Source: IMF Improved policy framework and robust government budget to boost the sector The Saudi government realizes the importance of favorable policies to not only attract new investment but also meet the local demand. The demand in the real estate sector is primarily driven by the housing market and the government has come up with measures such as the new mortgage law and “Additional Loan Program” to cater to the current needs of the market. Strong budget and the “Housing Construction Program” to aid growth For 2013, the Kingdom has set almost USD219bn for budget spending, up 18.8%YoY from 2012. Out of this, almost USD76bn has been allocated for capital expenditure. The Kingdom remains focused on investing in road, railway, power, and housing projects. High oil prices remain an important driver for KSA’s economy, which will further drive the real estate sector. Despite a projected fall in oil prices in 2013, the forecasted prices are substantially higher than the estimates for KSA’s 2013 budget. Meanwhile, given the increasing housing shortage in the Kingdom, the Saudi government put forward a SAR250bn housing construction program in 2011. As a part of this program, 500,000 new housing units are planned to be built across the Kingdom. The Saudi government also continues to work towards more public-private partnerships in order to address the housing shortage in the Kingdom.

0

6

12

18

24

30

2008 2009 2010 2011 2012

Saudi National Expatriate

Makkah 26%

Riyadh 25% Eastern

Province 15%

Aseer 7%

Other 27%

0%

1%

2%

3%

4%

5%

20

23

26

29

32

35

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Population (mn) - LHS Growth rate (%) - RHS


10

New mortgage law to make a positive impact in the longer term The Saudi government introduced the new mortgage law that will facilitate funding options for the real estate market. The government recently released three of the five laws that make up the overall mortgage law while the other two laws are about to be finalized soon. The new mortgage law is expected to boost residential lending to the tune of USD30-32bn in the coming four to five years. REDF and “Additional Loan Program” to provide further support The government continues to support lending activity in the Kingdom through REDF and its recently started “Additional Loan Program”. In recent times, the REDF loan has seen a significant rise, jumping 19.8% to SAR94bn in 3Q12 from SAR79bn in 2011. Credit to Real Estate & Construction 2007-2012 REDF Loans (mn) and Loan Growth (%) – 2008-2018e

Source: SAMA Furthermore, the government has recently set up the “Additional Loan Program” for its citizens. As per the new program, all the nationals who get an approved loan from REDF, would be eligible to get additional loans from other partnering financial institutions and banks. National Commercial Bank is the first bank to have signed an MoU with the REDF and has already completed its first transaction under the program. Real estate loans have been increasing over the years, taking up a larger share of the Kingdom’s total loans. Real estate loans have grown to SAR38.0bn in 2012 from SAR29.3bn in 2011. At the same time, real estate loans as a percentage of consumer loans rose to 13.0% in 2012 from 12.1% in 2011, while as percentage of total loans, it rose to 3.8% in 2012 from 3.4% in 2011. Saudi Population Growth – 2008-2018e

Source: SAMA

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2007 2008 2009 2010 2011 2012

% of Total Credit Growth rate (%)

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20%

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60

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80

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100

2007 2008 2009 2010 2011 3Q12

REDF Loans (mn) - LHS Growth (%) - RHS

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6%

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15%

2007 2008 2009 2010 2011 2012

% of Consumer Loans % of Total Loans


11

Prices in the residential segment continues to grow We expect Saudi’s residential market to drive the overall Saudi real estate sector owing to the substantial housing shortage in the Kingdom. Demand for quality properties remains high, leading to a rise in rental rates and sales prices. During 1Q13, the Jeddah market saw villa prices coming in at the level of SAR4,500 per sqm, with the Western districts leading the market with prices standing at SAR6,300 per sqm. On the other hand, apartment prices grew in the range of 3-5%QoQ during the quarter, aided by better affordability in comparison to villas. Likewise, the Riyadh market also saw an increase in villa prices in the range of 1-2%QoQ around the level of SAR4,300 per sqm. Average price for apartments grew almost 2%QoQ to SAR2,860 per sqm, with strong activity seen in the Eastern, Southern and Western districts. Jeddah Average Villa Selling Prices (SAR/sqm) Riyadh Average Villa Selling Prices (SAR/sqm)

Source: Jones Lang LaSalle, Global Research The residential rental market also continued its uptrend in 1Q13 from 4Q12. The Riyadh market witnessed rental rates rise 2%QoQ for villas while that for apartments grew 1%QoQ. Rental rates in the Jeddah market advanced almost 4%QoQ for apartments; while villa rents stabilized during the quarter after having declined in 4Q12. Oversupply to put pressure on office rents The office market is currently seeing an oversupply situation and is expected to deteriorate further in the coming quarters. As a result, rental rates are expected to see downward pressure while the vacancy rates are expected to move up. The oversupply situation mainly remains a problem for the central region of the Kingdom. Riyadh is expected to see an addition of around 1.44mn sqm by 2015 and consequent impact is already visible in the market. Average prime rent in Riyadh declined 5%YoY decline in 1Q13 to SAR1,910 per sqm while vacancy rates rose to 16.0% in 1Q13 from 15.9% in 4Q12. On the other hand, the Jeddah market seems on a better foot with average prime rent rising 3.4%QoQ to SAR1,503 per sqm in 1Q13 while vacancy rates fell to 14.0% from 14.7% in 4Q12. Nevertheless, we remain concerned over the overall market prospects given the new addition of stock in the coming years. Jeddah Office Supply (‘000 sqm) Riyadh Office Supply (‘000 sqm)

Source: Jones Lang LaSalle, Global Research

4,100

4,600 4,500 4,500 4,500 4500

3,000

3,400

3,800

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4Q11 1Q12 2Q12 3Q12 4Q12 1Q13*

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4,236

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4300

2000

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4Q11 1Q12 2Q12 3Q12 4Q12 1Q13*

467 623 623

748 840

125

92 40

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200

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2011 2012 2013 2014 2015

Completed Future supply

1,669 1,883 1,883 2,490

3,029

607

539

296

-

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3,200

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2011 2012 2013 2014 2015

Completed Future supply


12

Demand continues to rise in the Retail segment leading to higher rentals In the retail market, Riyadh continues to see an upward trend in rental rates and occupancy rates. On the other hand, the Jeddah market has remained primarily stable. Both the markets have not witnessed any major addition of new stock, while demand has been steadily on the rise, especially in Riyadh. We expect Riyadh’s market to witness higher rents in the coming quarter, whereas the Jeddah market is expected to remain mostly stable. Jeddah Retail Stock (‘000 sqm) Riyadh Retail Stock (‘000 sqm)

Source: Jones Lang LaSalle, Global Research Hospitality segment remains mixed In the hospitality segment, Jeddah remained a strong performer, while Riyadh continued to struggle. In Jeddah, ADR jumped almost 5%YoY to USD234, with occupancy levels inching up to 82%. Conversely, Riyadh’s ADR declined 2%YoY to USD255, while occupancy fell to 56%. Meanwhile, the Makkah hospitality market could deteriorate in the medium term due to decline in pilgrims arriving this year. The Kingdom recently announced that it plans to reduce pilgrim from the domestic region by 50% and abroad by 20% in order to undertake expansion of the Holy Mosque. However, this is expected to prove beneficial in the long term as the current expansion will add almost 400,000 sqm to accommodate additional 2.2mn worshippers. Consequently, ADR and occupancy rates are expected to be boosted. Jeddah Hotel Performance – 2008-2013 (YTD) Riyadh Hotel Performance – 2008-2013 (YTD)

Source: Jones Lang LaSalle, Global Research Key concerns/risks Despite the bright prospects of the real estate sector, we reckon that a decline in oil prices, coupled with an extended period of project slowdown, could affect the sector.

1,138 1,214 1,214 1,332 1,498

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123

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ADR (USD) - LHS Occupancy (%) - RHS

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ADR (USD) - LHS Occupancy (%) - RHS


13

Saturation in the office market could hurt the sector Saudi’s office market is currently experiencing an oversupply situation, mainly in the central region of the Kingdom. We expect this to impact the overall office market and force down rental rates in the coming years. At the same time, vacancy rates are also expected to go up in the market. Decline in oil prices remains a concern Global oil prices have declined in the past few months as a result of rising supply coupled with concerns regarding global demand growth. Shale energy revolution in the US has been driving the current oversupply situation in the global markets. This has been further confirmed by the recent report from the IEA showing that the current oversupply situation has led to a decline in oil prices despite an upward revision in demand forecast. On the other hand, concerns over global oil demand have arisen due to a slowdown in demand from China. Furthermore, continued negative sentiment in the commodities market has been exerting pressure on oil prices. Slower project awards to could hurt the sector in the medium term The overall real estate and construction sector saw a considerable slowdown in projects awarded in the KSA in 2012. The government has struggled in taking forward projects from their bidding stages to the approval stages due to a staggering pipeline of projects. If the project awards continue to remain slow in 2013, the real estate sector could be hit hard. Outlook The Saudi real estate seems to have recovered well over the last one year. Rental and sales prices have risen across the sectors with the residential segment leading the way. The improvement can also be seen in the earnings growth of the real estate companies that has outperformed the overall market as well. With further support from the government in the form of more favorable regulatory framework and improved market sentiments, we remain confident of the prospects of the sector going forward.


Dar Al-Arkan Real Estate (DAAR)

14

Earnings rose 65.0% QoQ but fell on a YoY basis

Company successfully raised new Sukuk to fund its projects

Company focusing on acquisitions & development of existing assets

Diversification of revenue mix to continue

Revise our TP to SAR11.47/share; upgraded to BUY

We are confident about the outlook of Dar Al-Arkan. Successful raising of new Sukuk has provided the company with ample liquidity which will be used carefully for developing existing projects and may also be used for acquiring strategic and attractive land / property assets. The company expects capital expenditure of SAR2bn in 2013 for the land purchases and spending on projects. As of 1Q13, Dar Al Arkan had a land bank worth SAR12.5bn spread across an area of 35mn sq.m, ensuring a continuous inflow of revenues. The company has been highly successful in monetizing its land developments at high margins and generating liquidity when required, especially over the past two years. The company has already embarked upon its strategic plan to focus on diversifying its income stream between recurring income assets and property developments and we expect this to materialize over the next five to seven year period. Thus, we revise our target price to SAR11.47/share and upgrade the stock with BUY rating. Earnings rose 65.0% QoQ but fell on a YoY basis

Dar Al-Arkan’s net income rose by 65.0% on a QoQ basis to SAR237.6mn

compared to SAR144.0mn in 4Q12. The increase in net income was mainly due

to higher gross margins achieved on property sales which can be attributed to

better geographical location and development status of the properties sold, as

well as lower financial charges for the period. However, on a YoY basis earnings

were lower because of a reduction in non-operating income and higher operating

expenses. These factors were only partially offset by the increase in gross

margin from the properties and lease revenues as well as higher rental income

from leases.

Revenue declined marginally on a YoY basis

Dar Al-Arkan’s revenue dropped marginally on a YoY basis to SAR835.8mn.

This was mainly owing to a fall in land sales, down to SAR810.9mn in 1Q13 from

SAR850.8mn in 1Q12 and SAR847.6mn in 4Q12. However, land sales

continued to be the biggest contributor (97.0%) to revenue. On the other hand,

leasing revenue grew 435.0%YoY to SAR24.9mn compared to SAR4.7mn in

1Q12. The significant rise indicates the company’s shift in focus towards

generating more revenue from leasing operations. Growth in leasing revenue

was also boosted by higher occupancy rates experienced in the areas of Riyadh

and Makkah during the quarter. With the opening of the Al-Qasr Mall, we expect

to see leasing revenues surge in the coming quarters. As for residential sales,

we expect a pick-up in activity boosted by Shams Arriyadh and Shams Al Arous

Phase I.

Market Data

Bloomberg Code: ALARKAN AB

Reuters Code: 4300.SE

CMP (18th

Jun 2013): 10.30

O/S (mn) 1,080

Market Cap (SAR mn): 11,124

Market Cap (USD mn): 2,966

P/E 2013e (x): 10.3

P/BV 2013e (x): 0.6

Price Performance 1-Yr

High (SAR): 10.90

Low (SAR): 7.50

Average Volume (‘000): 27,255

1m 3m 12m Absolute (%) 7.9 24.8 5.6 Relative (%) 3.1 6.4 10.4

Price Volume Performance

Source: Reuters

Hettish Karmani Manager [email protected] Tel.: (965) 22951281 Global Investment House www.globalinv.net

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Volume (mn)-LHS Dar Alarkan (SAR) - RHS

BUY

Target Price

SAR11.47


15

Revenue (SARmn) – 2012–2016e


Higher income on property sales boosted gross margins in 1Q13 Dar Al-Arkan margins rose in 1Q13 compared to those in 4Q12 and 1Q12. Gross margin rose to 44.9% in 1Q13 from 35.2% in 4Q12 and 42.3% in 1Q12. Meanwhile, operating margin improved to 38.1% in 1Q13 (the same level as in 1Q12) from 27.6% in 4Q12. The improvement in margins was driven by a notable rise in land sales margin, which increased to 44.4% in 1Q13 from 34.4% in 4Q12. On the other hand, property leasing margins declined marginally to 63.8% in 1Q13 from 65.3% in 4Q12, but remained considerably higher than the level recorded in 1Q12 (53.4%). Going forward, we expect gross margin to improve in 2013 due to a low base effect from 2012.

Gross Margin (%) – 2012-2016e Operating Margin (%) – 2012-2016e


Company successfully raised new Sukuk to fund its projects Dar Al-Arkan recently announced that it sold the first tranche of a SAR2.8bn (USD750mn) international Islamic bond. The first tranche was for SAR1.69bn, at a profit rate of 5.75% annually. The remaining tranches of the Sukuk will be issued over the next 12 months. The Sukuk program aims to fund the company's projects and will also be used for acquiring further land / property assets and developing existing assets . In July 2012 the company repaid a SAR3.75bn Sukuk, which was issued as part of its Islamic structured debt program (Sukuk) initiated in 2007 to help finance its projects in the kingdom. In May 2013, international credit rating agency, Standard & Poor's ("S&P"), revised DAAR's Credit rating outlook to Positive from Stable and affirmed it at B+. The revision of DAAR’s outlook to Positive was a result of DAAR's operating performance, which is proving to be resilient and stable, thanks to favorable market conditions and an attractive property portfolio. The review highlighted that DAAR's strategic plan will focus on diversifying its income streams by increasing the proportion of revenue from recurring income assets and property developments. The quality of the company’s property portfolio has been demonstrated by DAAR's ability to monetize its land developments at high margins and generate liquidity when required over the past two years. DAAR was also successful with the timely repayment of its SAR3.75bn (USD1bn) Sukuk at maturity, which resulted in the reduction of its overall debt and strengthening of its balance sheet position. The company has to repay SAR750mn worth of Sukuk will became due in short term loan 2014 while and

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6,000

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37%

38%

39%

40%

41%

2012 2013E 2014E 2015E 2016E

31%

32%

33%

34%

35%

36%

2012 2013E 2014E 2015E 2016E


16

recently raised SAR1.69bn in 2Q13. Dar Al Arkan other repayment due are in 2015 and 2018 amounting to SAR1.6bn each. Cash & Total Debt – 2009–1Q13


Dar Al-Arkan remains focused on business diversification Dar Al-Arkan continues to emphasize on diversifying its revenue streams and, thereby reduce its dependence on land sales. The company indicated that it is aiming to bring down the contribution of land sales to close to 40% in the next five to seven years, while increasing the level of leasing and residential sales to almost 40% and 20% respectively. Dar Al-Arkan’s efforts are starting to pay off - in 2012 leasing revenue surged 252.0%YoY to SAR52.8mn, so the contribution of leasing revenue to overall revenue increased to 1.5% in 2012 from 0.5% in 2011. The trend continued in 1Q13, with land sales and leasing revenue accounting for 97.0% and 3.0% of overall revenue respectively. At the same time, leasing revenue continued to grow at a rapid pace. Target price revised to SAR11.47; we upgrade our rating to BUY To arrive at a fair target for DAAR, we utilized a SOTP valuation approach. Our current target price is 11.4% above the current market price of the stock; thus, we upgrade our rating to BUY on the stock.

Dar Al-Arkan – Equity Valuation


Retail Lease 1,553,954 1.44 Capitalization method 8.5%


Residential Lease 468,328 0.43 DCF

Development Sales 4,404,535 4.08 DCF


Total NPV 14,974,669 13.87




Less: Provision end-of-service indemnity

16,928 0.02 Book value 1Q13

Total Equity Value 12,390,611 11.47

CMP

10.30

Upside/(Downside)

11.4%


-

2,000

4,000

6,000

8,000

10,000

2009 2010 2011 2012 1Q13

Cash (SAR mn) Total Debt (SAR mn)


17

Financial Statements(SAR mn) 2010 2011 2012 2013e 2014e 2015e 2016e

Revenue 4,142 3,313 3,557 3,313 3,549 4,469 5,632

Revenue growth -24.2% -20.0% 7.4% -6.9% 7.1% 25.9% 26.0%

Cost of sales (2,378) (1,943) (2,163) (1,988) (2,147) (2,726) (3,463)

Gross Profit 1,764 1,369 1,394 1,325 1,402 1,743 2,168

SG&A (106) (91) (154) (148) (176) (244) (322)

D&A (40) (28) (55) (21) (21) (23) (25)

Operating profit 1,618 1,250 1,184 1,156 1,205 1,476 1,821

Other Income & Expenses (135) (113) (170) (48) (71) (43) (28)

Profit Before Taxation 1,483 1,137 1,014 1,108 1,134 1,433 1,793

Income tax (27) (49) (25) (29) (29) (37) (47)

Net Profit 1,456 1,088 989 1,079 1,104 1,395 1,747

Minority interest - - - - - - -

Net Profit Attributable to Shareholders' 1,456 1,088 989 1,079 1,104 1,395 1,747

Net profit growth -31% -25% -9% 9% 2% 26% 25%

Cash and marketable securities 1,189 2,506 536 1,948 1,740 2,178 2,368

Receivables and prepayments 1,667 1,228 1,493 1,656 1,775 1,952 2,050

Development WIP 1,013 2,678 1,524 1,635 1,660 1,660 1,660

Net fixed assets 2,005 2,836 2,815 2,810 3,075 3,367 4,030

Land and projects in progress 16,310 13,690 14,869 14,874 14,889 14,904 14,919

Other long term assets 1,164 1,164 744 745 745 745 745

Total Assets 23,349 24,101 21,980 23,669 23,884 24,806 25,772

Accounts payables 1,115 1,107 1,268 1,078 1,086 1,095 1,104

Short-term debt 1,000 4,634 1,095 205 143 100 70

Long-term debt 6,721 2,758 3,289 4,979 4,143 3,704 3,644

Other liabilities 13 14 17 17 17 17 17

Retained earnings 2,827 3,806 4,695 5,774 6,878 8,273 9,321

Other Adjustments 11,673 11,782 11,617 11,617 11,617 11,617 11,617

Total Equity & Liability 23,349 24,101 21,980 23,669 23,884 24,806 25,772

Cash flow from operating activities 2,410 2,015 685 630 976 1,235 1,668

Cash flow from investing activities (1,802) (351) 379 (17) (286) (315) (689)

Cash flow from financing activities (1,643) (348) (3,034) 800 (897) (482) (789)

Change in cash (1,035) 1,317 (1,970) 1,412 (208) 438 191

Net Cash at End 1,189 2,506 536 1,948 1,740 2,178 2,368

Gross margin 42.6% 41.3% 39.2% 40.0% 39.5% 39.0% 38.5%

Operating margin 39.1% 37.7% 33.3% 34.9% 33.9% 33.0% 32.3%

Net margin 35.1% 32.8% 27.8% 32.6% 31.1% 31.2% 31.0%

Return on assets 6.2% 4.5% 4.5% 4.6% 4.6% 5.6% 6.8%

Return on equity 10.0% 7.0% 6.1% 6.2% 6.0% 7.0% 8.3%

Current ratio (x) 1.83 1.12 1.50 4.09 4.21 4.84 5.18

Quick ratio (x) 1.35 0.65 0.86 2.81 2.86 3.45 3.76

Debt / Equity (x) 0.53 0.47 0.28 0.30 0.23 0.19 0.18

Times Interest Earned (x) 7.55 5.88 4.49 8.79 7.75 11.48 15.96

EV/Revenues (x) 4.02 4.19 4.26 4.33 3.85 2.85 2.21

EV/EBITDA (x) 10.04 10.85 12.24 12.20 11.15 10.83 10.17

EPS (SAR) 1.35 1.01 0.92 1.00 1.02 1.29 1.62

Book Value Per Share (SAR) 13.43 14.43 15.10 16.10 17.12 18.42 19.39

Market Price (SAR) * 9.00 7.25 8.25 10.30 10.30 10.30 10.30

Market Capitalization (SAR mn) 9,720 7,830 8,910 11,124 11,124 11,124 11,124

Dividend Yield 11.1% 0.0% 0.0% 0.0% 0.0% 0.0% 6.3%

P/E Ratio (x) 6.68 7.20 11.25 10.31 10.08 7.97 6.37

P/BV Ratio (x) 0.67 0.50 0.68 0.64 0.60 0.56 0.53

Source: Company Reports & Global Research

* Market price for 2013 and subsequent years as per closing prices on June 18, 2013

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Emaar The Economic City (EEC)

18

Net income dips 30.0%YoY in 1Q13

Revenues drops 89.8%YoY in 1Q13 Infrastructure remains the key to EEC’s long-term strategy Revise TP down to SAR9.12/share; HOLD maintained

Emaar The Economic City (EEC) continued to struggle in 1Q13. Despite the strong development of the Seaport and rising revenue from land sales, we remain concerned about the residential development projects. As a result, we revise down our EPS estimate for 2013 and our target price of the stock to SAR9.12 per share. Thus, maintain our HOLD rating on the stock.

Net income dips 30.0%YoY in 1Q13 EEC posted disappointing results, with net income dropping 30.0%YoY to SAR31.6mn in 1Q13 from SAR45.2mn in 1Q12. The fall is attributed to an 89.8%YoY decline in revenues during the quarter. However, a land transaction with the Port Development Company (PDC) restricted the fall in earnings. Revenues plunge 89.8%YoY; continue to deteriorate EEC’s revenues plunged 89.8%YoY and 69.4%YoY, posing a major challenge for the company. Despite posting a 33.7%YoY growth in revenues in 2012, the slowdown in revenue generation was visible since 4Q12. Over the last few quarters, EEC adopted a strategy to generate the majority of its revenues from land sales due to its short cash cycle nature. The company launched the second phase of its Al-Talah Gardens project, setting attractive price points around SAR700/sqm. Similarly, EEC progressed well with the sale of industrial land over the last one year, bagging contracts with Cigalah Group and Sheikh Khaled Al Jufali. However, high dependence on land sales backfired for EEC in the previous two quarters, with land sales declining notably. The decline indicates the market’s lack of appetite for EEC’s land offering. Thus, we have factored in the sale of around 1million sq m from the Industrial Valley.

In recent quarters, investment properties have become a key source of revenues for EEC, with most of the development projects nearing completion. In the Investment Properties segment, the development of Industrial Valley and Seaport remains EEC’s main focus. In the Industrial Valley, EEC plans to offer around 4.8mn sq m for lease and gradually increase this to 8.8mn sq m in two to three years. We expect rents to remain mostly unchanged from 2012.

Revenues (SAR mn) – 2012–16e


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1,000

2012 2013E 2014E 2015E 2016E

Market Data

Bloomberg Code: EMAAR AB


CMP (18th

Jun 2013): 9.95

O/S (mn) 850.0

Market Cap (SAR mn): 8,458.0

Market Cap (USD mn): 2,255.3

P/E 2013e (x): 48.1

P/BV 2013e (x): 1.1


High (SAR): 10.50

Low (SAR): 7.50

Average Volume (‘000): 10,022

1m 3m 12m Absolute (%) 3.1 4.7 2.6 Relative (%) 3.1 6.4 10.4


Source: Reuters


6.0

7.0

8.0

9.0

10.0

11.0

0

12

24

36

48

60

Jul-

12

Aug

-12

Sep

-12

Oct-

12

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Dec-1

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Feb-1

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Volume (mn)-LHS EEC (SAR) - RHS

HOLD

Target Price

SAR9.12


19

At the same time, we foresee higher occupancy rates in the Industrial Valley this year. However, we expect activity to pick up in the second half of the year. On the other hand, the Seaport development is on track, with the first phase expected to be launched by the end of 2013. EEC plans to expand capacity at Seaport to 20mn TEUs from 4mn in Phase 1. Although utilization rates are expected to be low initially, revenue per TEU is likely to be in line with that at neighboring Jeddah Islamic Port. Recent trends indicate that some global shipping companies are likely to shift operations to the Seaport soon due to existing bottlenecks at Jeddah Islamic Port. The Seaport is expected to contribute to overall revenue mostly from 2014.We revise down our expectations for revenue growth. However, we continue to expect a considerable jump in 2013 revenues. Thereafter, we expect a dip in 2014, as we expect most of the residential development projects to sell out in 2013. EEC’s revenues are expected to trend upward from 2014. Margins to ease with rising supply and competition EEC’s margins were boosted significantly in 2012, as the company raised its share of revenues from the high-margin segment of land sales. Gross margin rose to 87.8% in 2012 from 76.4% in 2011, while operating margin increased to 40.2% from 30.6% over the same period. The company’s margins were impacted substantially in 1Q13; however, as revenue activity picks up in the later quarters of 2013, we expect annual margins to recover. Gross Margin (%) – 2011–16e Operating Margin (%) – 2011–16e


We expect margins to trend downward in the long term due to rising supply of new stock in the market. At the same time, competition is expected to rise considerably, not only locally but also within the GCC region. UAE and Qatar’s real estate markets have been witnessing upbeat activity in recent quarters. Meanwhile, Kuwait’s real estate market is also on a rebound.

Infrastructure development remains the key to EEC’s long-term strategy

EEC remains committed to its strategy of investing in infrastructure development and attracting investment from businesses to the King Abdullah Economic City (KAEC). The company continues to develop projects ranging from power & gas to railway network and seaport. This is expected to translate into employment growth in the city, which targets to generate 12,000 jobs by 2015 (from 2013). Consequently, the city is expected witness a surge in inflow of growing population from the Jeddah region, thereby resulting in higher demand for EEC’s real estate products. This restores our confidence in the company’s future prospects.

Target price revised down to SAR9.12; we maintain a HOLD rating on the stock We used the SOTP approach to value EEC. We applied a one-stage DCF to development sales based on the life of each project and scheduled deliveries. For investment properties, including residential rentals, the Industrial Valley, the Seaport, and hospitality assets, we applied a two-stage DCF methodology. Our current target price is 8.4% below the stock’s current market price. Thus, we maintain a HOLD rating on the stock.

70%

74%

78%

82%

86%

90%

2011 2012 2013E 2014E 2015E 2016E

25%

29%

33%

37%

41%

45%

2011 2012 2013E 2014E 2015E 2016E


20

Emaar The Economic City – Equity Valuation


Development Sales 297,534 0.35 DCF

Investment Properties 3,527,429 4.15 DCF


Total NPV 9,038,372 10.63


Add: Cash 3,913,020 4.60 Book value 1Q13


Less: Minority Interest 81 0.00 Book value 1Q13

Total Equity Value 7,749758 9.12

CMP

9.95

Upside/(Downside)

-8.4%



21


Revenue 91 408 545 621 634 684 702 Revenue growth -65.1% 348.4% 33.7% 13.9% 2.0% 7.9% 2.7%Cost of sales (155) (96) (67) (81) (86) (96) (102) Gross Profit (64) 312 478 540 548 588 600 SG&A (185) (142) (213) (261) (273) (301) (312) D&A (58) (45) (47) (65) (68) (70) (77) Other operating income (283) - - - - - -

Operating profit (590) 125 219 214 208 217 211 Other Income & Expense 12 (36) (25) (34) 2 19 46 Profit Before Taxation (578) 89 194 180 210 236 257 Income tax (6) (6) (5) (5) (5) (6) (7) Net Profit (584) 83 189 176 205 230 250 Minority interest - - - - - - - Net Profit Attributable to Shareholders' (584) 83 189 176 205 230 250 Net profit growth -89% n/m 129% -7% 17% 12% 9%

Cash and bank balance 339 1,710 3,242 3,310 3,448 2,714 1,917 Receivables and prepayments 115 68 111 106 107 116 120 Development properties 1,103 1,046 603 681 623 564 525 Other current assets 14 3,176 861 861 861 861 861

Assets classified as held for disposal 204 210 504 504 504 504 504 Other long term assets 225 381 409 470 541 622 715 Net fixed assets 6,884 7,156 8,154 8,386 8,628 8,881 9,140 Total Assets 8,885 13,746 13,884 14,317 14,711 14,262 13,782 Accounts payables 1,442 1,121 864 1,018 1,102 1,246 1,339 Short-term debt - - - - - - - Long-term debt - 5,062 5,168 5,271 5,377 4,553 3,729 Other liabilities 145 184 283 283 283 283 283

Share capital 8,500 8,500 8,500 8,500 8,500 8,500 8,500 Retained earnings (1,202) (1,120) (930) (755) (550) (320) (69) Total Equity & Liability 8,885 13,746 13,884 14,317 14,711 14,262 13,782

Cash flow from operating activities (350) (64) (330) 322 413 494 456 Cash flow from investing activities (198) (3,565) 1,862 (358) (380) (404) (430) Cash flow from financing activities - 5,000 (0) 103 105 (824) (824) Change in cash (548) 1,371 1,532 67 138 (733) (798) Net Cash at End 258 1,711 3,242 3,310 3,448 2,714 1,917

Gross margin n/m 76.4% 87.8% 87.0% 86.5% 86.0% 85.5%Operating profit margin n/m 30.6% 40.2% 34.5% 32.8% 31.8% 30.0%Net Profit margin n/m 20.2% 34.7% 28.3% 32.3% 33.6% 35.7%Return on assets -6.6% 0.6% 1.4% 1.2% 1.4% 1.6% 1.8%Return on equity -8.0% 1.1% 2.5% 2.3% 2.6% 2.8% 3.0%Current ratio (x) 1.09 5.35 5.58 4.87 4.57 3.41 2.56

Quick ratio (x) 0.31 4.41 4.88 4.20 4.01 2.96 2.16 Debt / Equity (x) - 0.69 0.68 0.68 0.68 0.56 0.44 EBITDA coverage ratio - 2.05 2.47 1.72 1.64 1.68 1.85 EV/Revenues (x) 62.64 23.54 19.04 16.77 16.39 15.05 14.63 EV/EBITDA (x) 56.43 56.43 39.05 37.28 37.68 35.84 35.67 EPS (SAR) (0.69) 0.10 0.22 0.21 0.24 0.27 0.29 Book Value Per Share (SAR) 8.59 8.68 8.91 9.11 9.35 9.62 9.92 Market Price (SAR) * 7.10 7.35 8.30 9.95 9.95 9.95 9.95 Market Capitalization (SAR mn) 6,035 6,248 7,055 8,458 8,458 8,458 8,458 P/E Ratio (x) na 75.62 44.70 48.12 41.29 36.76 33.77 P/BV Ratio (x) 0.80 0.85 1.12 1.09 1.06 1.03 1.00



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Saudi Real Estate Company (Akaria)

22

Net income rises 10.4%YoY but drops 25.7%QoQ

Revenue grows 4.3%YoY; rental portfolio provides strong support Commercial segment remains a concern due to declining rentals

Strong balance sheet among peers Revise TP down to SAR31.18/share; HOLD maintained

Saudi Real Estate Co. (Akaria) remains a strong growth story due to its robust rental portfolio. We foresee the company’s earnings growing rapidly, aided by its residential projects. But the office rental segment remains weak due to the current oversupply in the market. We feel the overall growth prospects have already been factored into the stock price. Our target price currently stands at SAR31.18 per share and we maintain a HOLD rating on the stock.

Net income rises 10.4%YoY in 1Q13 Akaria’s net income rose 10.4%YoY to SAR42.2mn in 1Q13. The increase was led by a rise in rental income, coupled with a reduction in SG&A expenses. However, net income was 25.7% lower than that recorded in 4Q12. The decline seems more pronounced due to a one-off gain made from the sale of mutual fund units in 4Q12.

Revenues grow 4.3%YoY; rental portfolio to benefit from uptrend in Riyadh Akaria’s revenues grew 4.3%YoY to SAR63.2mn in 1Q13, but rose marginally (0.5%QoQ) compared to 4Q12. The rise in revenues has been led by a buoyant residential segment, with occupancy rates touching 90% while rental rates have grown in the range of 4-5%. The retail segment has also supported well witnessing a rise (up to 3%) in rental rates while occupancy rates remained within a healthy range of 70-80%. On the other hand, the commercial (office) segment rental rates remain under pressure due to the current oversupply situation in Riyadh’s market. Riyadh’s commercial (office) market is expected to see an addition of around 1.44mn sqm by 2015, exerting further pressure on the rental rates. Revenue (SAR mn) – 2012–2016e


Going forward, we expect Akaria’s revenues to increase. At the same time, the company’s strong rental portfolio, especially the residential segment is expected to provide further support.

300

320

340

360

380

400

2012 2013E 2014E 2015E 2016E

Market Data

Bloomberg Code: SRECO AB


CMP (18th

Jun 2013): 29.70

O/S (mn) 120.0

Market Cap (SAR mn): 3,564.0

Market Cap (USD mn): 950.2

P/E 2013e (x): 18.1

P/BV 2013e (x): 1.1


High (SAR): 38.00

Low (SAR): 23.45

Average Volume (‘000): 406

1m 3m 12m Absolute (%) -2.3 -14.4 17.8 Relative (%) 3.1 6.4 10.4


Source: Reuters


20.0

24.0

28.0

32.0

36.0

40.0

0

600

1,200

1,800

2,400

3,000

Jul-

12

Aug

-12

Sep

-12

Oct-

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Dec-1

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Jan

-13

Feb-1

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13

Ap

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May-1

3

Jun

-13

Volume (000)-LHS Akaria (SAR) - RHS

HOLD

Target Price

SAR31.18


23

Margins to recover in 2013 Akaria’s margins contracted in 2012 with a downturn mainly in retail and commercial segments. But the retail segment bottomed out by mid-2012 while the residential segment was already under recovery. Thus, we expect margins to move up in 2013 to almost the levels witnessed in 2011. However, we expect margins to soften in the next four to five years, with increasing supply of stock in Riyadh. Gross Margin (%) – 2011–2016e Operating Margin (%) – 2011–2016e


Strong balance sheet among peers, but constrained cash position in the medium term Akaria continues to maintain a strong balance sheet, positioning it strongly among its peers in the Kingdom. At a time when peers such as Dar Alarkan are struggling with high debt balances, Akaria has not carried any debt on its balance sheet over the past few years. At the same time, Akaria has been generating healthy cash flows from operations. Cash Balance (SAR mn) and Cash from Operations (SAR mn) – 2010–2016e


Target price revised down to SAR31.18; maintain a HOLD rating on the stock We value Akaria’s retail properties utilizing a capitalization rate of 8.5%. For other properties, we utilize a two-stage DCF methodology. The stock price has risen 14.2% in the past one year; thus, we feel Akaria’s growth prospects have already been factored into the stock’s price. As a result, our target price of SAR31.18 per share is 5.0% above the current market price of the stock. Thus, we maintain a HOLD rating on the stock.

50%

54%

58%

62%

66%

70%

2011 2012 2013E 2014E 2015E 2016E

45%

49%

53%

57%

61%

65%

2011 2012 2013E 2014E 2015E 2016E

0

60

120

180

240

300

2010 2011 2012 2013E 2014E 2015E 2016E

Cash Balance (SAR mn) Cash from Operations (SAR mn)


24

Akaria - Equity valuation

Value (SAR mn) /share Methodology

Retail Lease 501,852 4.18 Capitalization method 8.5%


Residential Lease 1,161,803 9.68 DCF

Land Sales 11,939 0.10 Book value 1Q13

Total NPV 2,467,233 20.56

Add: Investments 1,263,374 10.53


Less: Debt - - Book value 1Q13

Less: Minority Interest - - Book value 1Q13

Total equity value 3,741,017 31.18

CMP

29.70

Upside potential

5.0%



25


Revenue 432 265 325 333 361 368 374

Revenue growth 152.4% -38.8% 22.9% 2.5% 8.3% 1.8% 1.8%

Cost of sales (168) (85) (147) (113) (123) (126) (129)

Gross Profit 264 180 178 221 238 242 245

SG&A (28) (19) (16) (20) (22) (24) (24)

D&A (24) (27) (27) (25) (25) (26) (27)

Other operating income (15) - - - - - -

Operating profit 222 160 162 201 216 218 221

Other Income & Expenses (8) 5 30 31 32 34 36

Profit Before Taxation 213 165 191 232 248 252 257

Income tax (30) (15) (12) (28) (30) (30) (31)

Net Profit 183 150 180 204 218 222 226

Minority interest - - - - - - -

Net Profit Attributable to Shareholders' 183 150 180 204 218 222 226

Net profit growth 63% -18% 20% 14% 7% 2% 2%

Cash and marketable securities 159 54 3 58 49 49 30

Receivables and prepayments 89 69 75 78 81 83 87

Development WIP and land 18 12 12 12 12 - -

Net fixed assets 2,062 2,111 2,019 2,014 2,090 2,171 2,257

Other long term assets 1,152 1,151 1,338 1,362 1,375 1,388 1,403

Total Assets 3,480 3,397 3,445 3,523 3,607 3,691 3,776

Accounts payables 16 14 14 23 25 27 27

Short-term debt - - - - - - -

Long-term debt - - - - - - -

Other liabilities 262 209 186 186 195 203 212

Retained earnings 172 95 135 183 235 287 341

Other Adjustments 3,031 3,078 3,110 3,130 3,152 3,174 3,197

Total Equity & Liability 3,480 3,397 3,445 3,523 3,607 3,691 3,776

Cash flow from operating activities 206 121 149 234 251 266 257

Cash flow from investing activities (605) (15) (79) (44) (115) (121) (127)

Cash flow from financing activities (86) (211) (121) (135) (144) (146) (149)

Change in cash (485) (105) (51) 55 (8) (1) (18)

Net Cash at End 159 54 3 58 49 49 30

Gross margin 61.0% 67.9% 54.7% 66.2% 66.0% 65.8% 65.5%

Operating margin 51.3% 60.6% 49.7% 60.2% 59.8% 59.4% 59.0%

Net margin 42.4% 56.6% 55.2% 61.2% 60.5% 60.4% 60.3%

Return on assets 5.3% 4.4% 5.2% 5.8% 6.1% 6.0% 6.0%

Return on equity 5.7% 4.7% 5.5% 6.2% 6.4% 6.4% 6.4%

Current ratio (x) 1.00 0.63 0.75 1.02 0.94 0.85 0.76

Quick ratio (x) 0.92 0.57 0.67 0.95 0.87 0.85 0.75

Debt / Equity (x) 0.00 0.00 0.00 0.00 0.00 0.00 0.00

EV/Revenues (x) 8.38 11.49 10.84 10.89 10.20 9.87 9.71

EV/EBITDA (x) 13.90 16.25 18.69 16.07 15.27 14.83 14.66

EPS (SAR) 1.53 1.25 1.50 1.70 1.82 1.85 1.88

Book Value Per Share (SAR) 26.69 26.45 27.04 27.61 28.22 28.84 29.48

Market Price (SAR) * 26.20 26.20 32.60 29.70 29.70 29.70 29.70

Market Capitalization (SAR mn) 3,144 3,144 3,912 3,564 3,564 3,564 3,564

Dividend Yield 3.3% 4.1% 3.2% 3.7% 3.9% 4.0% 4.1%

P/E Ratio (x) 17.40 24.61 20.52 18.07 16.87 16.60 16.32

P/BV Ratio (x) 1.00 1.16 1.14 1.11 1.09 1.06 1.04

Source: Company Reports & Global Research


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26

Disclosure

The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research have been mentioned in the table below under the heading of disclosure.

Disclosure Checklist

Recommendation Bloomberg

Ticker Reuters

Ticker Price

Disclosure Company

Dar Al-Arkan BUY ALARKAN AB 4300.SE SAR10.30 1,10

EEC HOLD EMAAR AB 4220.SE SAR9.95 1,10

Akaria HOLD SRECO AB 4020.SE SAR29.70 1,10

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Global Research: Equity Ratings Definitions

Global Rating Definition

STRONG BUY Fair value of the stock is >20% from the current market price

BUY Fair value of the stock is between +10% and +20% from the current market price

HOLD Fair value of the stock is between +10% and -10% from the current market price

SELL Fair value of the stock is < -10% from the current market price

Global Research - Kuwait Real Estate

27

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June 20, 2013 Saudi Arabia Real Estate - GulfBase.com...PHDC EY Equity Palm Hills Developments SAE NA 0.5 5.3 NA MNHD EY Equity Medinet Nasr Housing 27.1 5.7 5.2 20.0 OCDI EY Equity