Emaar may seek refinancing options: Rasmala

UAE investment bank Rasmala on Wednesday cut the target price of Dubai-based real estate giant Emaar Properties on what it termed “weak international handovers outlook.” The bank, however, maintained a ‘Buy’ rating on the firm “as valuation looks attractive at current levels and Emaar currently trades near our recurring income portfolio valuation of Dh2.44”.

In addition, the bank said that it reckons Emaar will seek refinancing options to service Dh12.2 billion worth of debt repayments, planned capital expenditure and interest payments between now and the end of next year. “Emaar has debt repayments of about Dh6.7bn over 2H11-2012. We expect the company to incur capex of Dh2.6bn on its projects and operating expenses and interest cost of Dh2.9bn in the same period. Thus, the total cash requirement is Dh12.2bn in 2H11-2012,” analyst Saud Masud at Rasmala wrote in the report.

“We expect Emaar to generate Dh7.7bn cash from its operations, which along with existing cash and FDs would result in a total liquidity of Dh12.9bn. Considering a minimum dividend payout of 10 per cent (Dh0.6bn), we estimate a total near-term refinancing requirement of about Dh1bn, although Emaar has denied recent media reports that the company is looking at financing options,” the investment bank said.

Rasmala also noted that Emaar has “a refinancing option of about Dh2.6bn in 2012, but any attempt to refinance beyond this could signal deeper stresses, which may lead us to revisit our thesis.” The bank expects the property major to continue to experience execution headwinds in light of the uncertain global macroeconomic environment.”

Therefore, it reckons Emaar’s “international handovers to materialise considerably below management guidance.” Rasmala cut its 2011-13 international handovers revenue forecasts by an average 20 per cent per year, resulting in total revenue forecasts declining by an average 6 per cent per year.

“Our international units delivery forecasts are 25 per cent below management guidance in 2011-13. We also lower our gross margin forecasts from property sales by 400bp. Our lower revenue and gross margin forecasts result in an average EPS downgrade of 13.5 per cent in 2011-13. However, we maintain Buy as current valuation looks attractive and we expect Emaar’s strong recurring income portfolio to act as a potential floor, accounting for 81 per cent of the target price and 92 per cent of the current price. Despite strong recurring income, the stock may remain challenged on headline macro risk, in our view,” it added.

The investment bank’s bear-case (worst-case) scenario implies a 24 per cent downside to Emaar’s current share price of Dh2.44 (target price Dh2.00) while its bull-case (best-case) scenario implies an upside potential of 40 per cent (target price Dh3.70) from the current price.

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