Emaar Q3 profits to drop 33%, reckons Rasmala

The UAE property sector continues to undergo a price correction that began in late 2008, and there remains a downside risk to property prices in both Dubai and Abu Dhabi, according to Dubai-based regional investment bank Rasmala.

In a note outlining third-quarter results preview for the country’s real estate and construction firms, Rasmala said it expects property prices “in both Dubai and Abu Dhabi to fall about 20 per cent more to reach a sustainable trough.”

For market benchmark Emaar Properties, Rasmala analysts “expect a seasonally soft quarter, as we forecast revenue from both recurring income portfolio and property sales will decline 5-6 per cent quarter-on-quarter and pro forma earnings will decline 3.4 per cent quarter-on-quarter.” The bank is forecasting net profits of Dh408m for Emaar, a 33.4 per cent decline from comparable last year's actual results.

The investment bank added that while Q3 had already seen property prices decline in both the emirates, “with further significant upcoming supply over the next 12 months in both Dubai and Abu Dhabi, sales prices would remain under pressure.”

The bank said that the latest property prices and rentals data reaffirmed its view of declining house prices in the UAE. It had, in a report issued in March 2010, said that it reckoned UAE house prices were likely to decline by an additional 25-30 per cent within two years from then on what it termed was a ‘3D’ challenge – depopulation, deleveraging, and deliveries.

“The key headwinds we see for UAE property are depopulation risk, deleveraging and heavy pipeline-delivery schedules leading to demand/supply imbalances. While supply dynamics may be somewhat different for Dubai and Abu Dhabi in terms of volumes, their demand dynamics almost mirror each other – a low appetite for new housing as financing remains tight and negative equity concerns linger,” its March report stated.

The third-quarter results for UAE’s property and construction companies will remain a “mixed bag,” Rasmala reckons, “with contractors and Emaar likely to experience a seasonally soft quarter, Sorouh to report flattish results and Aldar to gain some momentum from commencement of deliveries at Al Zeina.”

The investment bank expects the country’s property sector to remain range-bound. “In light of the current uncertain global macroeconomic environment and lack of meaningful catalysts, we expect the UAE property sector to remain range-bound in the foreseeable future,” it said in today’s note.

“Despite our positive view on Emaar Properties and Drake & Scull International PJSC (DSI) due to their relatively stronger balance sheets, stable cash flow trends and above-par execution histories, we believe these stocks may continue to experience high volatility tied to downside in the near term, driven by increasing investor risk aversion.”

Rasmala expects Q3 to have been “a soft quarter for contractors (Arabtec Holding and DSI), with revenue and earnings declining 4-5 per cent given the potential impact from Ramadan and the holidays.”

The forecast for Abu Dhabi firms is only a little different. “We believe momentum in revenue and earnings for developers such as Aldar Properties and Sorouh Real Estate would largely be a function of their deliveries at various projects during the quarter. We expect flattish results for Sorouh during the quarter, as we forecast deliveries at Sun and Sky towers to be in line with deliveries during the previous quarter. For Aldar, we forecast commencement of deliveries at Al Zeina will raise revenue 10.7 per cent quarter-on-quarter and expect EPS growth of about 8.7 per cent quarter-on-quarter.”

Rasmala is forecasting Q3 net profits of Dh138m for Abu Dhabi's Aldar, a marked improvement over the Dh731m loss incurred by the property developer during the corresponding period of last year. For Sorouh, the forecast is a 84.3 per cent jump in Q3 net profits to Dh109m from Dh59m last year.

The investment bank also sees contractor Arabtec's net profits to surge 300 per cent, from Dh7m in Q3 last year to Dh28m this year while it expects DSI's net profits to go up from Dh30m to Dh49m during the same period.

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