Shuaa UAE Vision 2010 market report

[sharewadi]

Press Release 18 January 2010:

SHUAA Capital releases UAE Vision 2010 SHUAA Capital (SHUAA), the leading financial services institution in the GCC, has today published its UAE Vision 2010. The vision provides an overview of the UAE's market outlook for 2010 with a special focus on the banking, real estate and telecom sectors as well as stock briefs for more than 25 UAE listed companies. In addition, the 80 page report also reviews UAE's markets throughout 2009. The report also revisited the UAE Vision 2009's expectation of a 21% gain across UAE markets in 2009, which came slightly below the SHUAA Capital UAE Index's 23% gain for the period. Looking at GDP growth, the report's author, Dr. Mahdi Mattar, Head of Research and Chief Economist, SHUAA Capital, said: "2009 has been a difficult year for the UAE. However, we expect the Emirates to emerge from the recession in 2010, and we are forecasting real GDP growth of 2.5% this year, up from - 3.5% in 2009. This growth will largely be driven by strong projected real GDP growth of 4.1% in Abu Dhabi. The Capital will benefit from a recovery in oil prices and output this year, as well as strong growth in the non-hydrocarbon sector, which will be supported by government investment and spending. Meanwhile, we anticipate Dubai's economy to contract 0.4% year on year in 2010, as the key construction and real estate sector continues to be a drag on growth in the emirate." "We expect the UAE markets to record gains of around 20 to 25% in 2010. The favourable valuation parameters of the market at current levels compared to the market's own history, as well as to regional and global peers, will prove to be core catalysts for the market in 2010. We also believe that our forecast will be supported by corporate earnings growth (expected to record a growth c .17% coming from a low base in 2009) , other positive corporate news flows, and improved investor sentiment post Dubai World's debt issue resolution," he added. On corporate earnings, Dr. Mattar commented, "We expect aggregate earnings to have shrunk by around 20% in 2009, pulled down mainly by weaker results in real estate companies. Slower balance sheet growth in the banking sector, as well as deterioration in the asset quality, resulted in higher provisioning and a decrease in earnings by about 15% in 2009. On the other hand, the telecommunications sector remained resilient with earnings slightly improving." "In 2010, and coming from a low base, we expect aggregate earnings to start recovering and record an aggregate growth of around 17%, driven mainly by higher results for the real estate companies. However, we note that these real estate companies, especially Emaar, have incurred large write-offs in 2009, contributing to the slump in aggregate earnings of 2009, and resulting in the high growth in 2010," he added. "The banking sector will continue to witness slower balance sheet growth as well as deterioration in asset quality. However, given the earnings contraction that this sector has witnessed in 2009, we expect meagre single digit earnings growth in 2010. We would like to point out the substantial difference between our forecasts for Abu Dhabi banks and Dubai banks. Abu Dhabi banks will witness double digit growth while Dubai banks will suffer either from a continued decrease in earnings or a relatively flattish forecast. The telecommunications sector will again remain resilient with earnings affected only slightly," Dr. Mattar said. On issuance Dr Mattar commented, "Once the Dubai World's debt restructuring negotiations are over, and assuming a relatively investor friendly outcome is reached, the appetite for primary issuance will be restored. After almost a year and half of absence of IPOs, we expect 2010 will see the resurrection of IPOs in the country. However, we believe the size of these offerings will be smaller than most issuances we saw in 2008 and significantly smaller than the record-size offerings we saw in 2007, the likes of DP World, Air Arabia and Deyaar. We also believe debt issuance, post the resolving of Dubai World's debt issues, will continue to play a key role and their presence will be noticeable." Sector Review Banking Following the past year's challenges, we expect 2010 to remain a difficult phase for UAE banks as the economic recovery that we are expecting does not mean the end of the regional liquidity shortage, nor the improvement of asset quality metrics. We expect aggregated customer deposits to grow by 8% in 2010, resulting in an Dhs84bn net liquidity addition for the year. In our view, this will be matched by a slower 6% growth in lending as we expect banks to remain selective in their lending policies. In the end, and while we estimate banks' net earnings to fall by 15% by 2009-end, we expect them to only recover by 8%-10% in 2010, representing a mild recovery from a low base. This figure will, in our view, widely vary amongst UAE banks with Abu Dhabi players being on the higher side of the bracket, with the exception of a more troubled ADCB. Real Estate Our forecast in January 2009 that property prices in Dubai would fall by as much as 60% from their peak came as an unbelievable surprise for many - today those expectations have more or less materialised. Dubai SHUAA Capital's economics team forecasts Dubai's population will shed some 3.6% in 2010, which when coupled with the additions we expect to witness in the residential market this year can only lead to one thing; increased vacancy rates. As the gap between supply and demand continues to widen, and liquidity remains both restrained and subjected to high interest rates, it is highly unlikely to witness a sustainable recovery in asset values, in 2010. In fact we expect housing rents and asset values to lose a further 10%, to converge on average rents between Dhs55-60 annually per sqft and an average selling price of Dhs800-850 per sqft. Just like International City and Discovery Gardens will rent and sell significantly below the average, Downtown Burj Khalifa will remain well above the average prices mentioned above. While falling asset values in the residential segment were at the centre of attention, office segment faced an even steeper decline over the past year. The growing supply coupled with our 2010 GDP forecasts, which still show a slowdown in 2010 for Dubai, implies that the Dubai office market is destined to see even higher vacancy rates in the days to come. Average office rents are expected to lose another 10-15% from the current levels of Dhs180-200 per sqft annually, as more office space approaches completion around the city. We expect over 26,650 apartments and villas to reach the market in 2010, taking the total number of housing units to approximately 384,350 in Dubai. We also expect 2010 will see the delivery of 6.8 mn sqft of office space. Abu Dhabi Abu Dhabi's residential property market is expected to continue witnessing a shortage of residential properties for the foreseeable future. The reasons are very simple; relatively strong economic growth, resulting in further growth in population and by extension demand for property, in a market where both existing vacancies and new supply are limited. Average rents for new leases lost an estimated 20% from the peak in mid-2008 till 2009 year-end, to reach an estimated average annual rate of Dhs100-120 per sqft - a level we expect will be maintained in the coming year. Supply of new office space in the capital remained limited during 2009 and occupancy rates stayed in the 95-98% range. Nevertheless both rental rates on new leases and asset values retreated 15-20% and 35-40% respectively, as the market made a relative adjustment to neighbouring Dubai. Going forward, we expect rents for high-grade office space to stabilize around the current levels of Dhs260-310 per sqft. Property values in the relatively small parts of the freehold zones approaching completion, are expected to witness moderate growth of around 5-10% to reach Dhs1,470-1,540 per sqft. Abu Dhabi contrary to Dubai, is expected to record strong growth in both GDP and population, leading local, regional and global companies to scramble for growth opportunities by shifting capacity to the capital. We expect the Abu Dhabi real estate market to see 23,000 residential units delivered over the next two years. We also estimate the delivery of 6.2 mn sqft of net leasable office space over the same period. Telecom The UAE telecom sector continued to deliver top line growth in 2009 albeit at a much slower pace compared to the high growth rates achieved in past years, but still ahead of expectations. Despite a challenging year marked by economic slowdown, job losses, population decline, and a tough business environment, the telecom sector's 9M 09 revenues grew 7% over the same period last year to reach Dhs23.4bn. This compares to 27% revenue increase in 2008, and a compound annual growth (CAGR) of 29% for the 2005-2008 period. We expect the UAE telecom sector to remain a two-player market for the foreseeable future. We don't expect a third mobile operator anytime soon. The UAE telecom sector will remain attractive for investors as one of the few remaining duopolies. We forecast the UAE telecom sector to deliver another year of mid-single digit revenue growth in 2010. Specifically, we forecast Etisalat's (ETISALAT) UAE operations to achieve low single digit revenue and EBITDA growth. On the other hand, we project Du (DU) to deliver 18% revenue growth and 38% EBITDA growth.

_________________
UAE IPO list | posting guidelines