Short-Term Rec.: Buy
Long-Term Rec. Buy
Current Price*: AED 2.88
LT Fair Value : AED 14.80
· Overall Weak: Sorouh reported FY2008 results with revenues of AED3,723 million (up 60.4% Y-o-Y) and net income of AED1,858 million (up 47.8% Y-o-Y), both short of our FY2008e expectations of AED4,257 million and AED2,283 million. Also, while Sorouh depicted decent balance sheet growth in terms of its cash position and properties under construction, these were also below our FY2008 expectations, reflecting an overall weaker than anticipated performance.
· Top-Line Growth Disappoints: Sorouh reported revenue of AED3,723 million, with the sale of land plots being the main contributor, but this was lower than our expectation of AED4,257 million, with the difference mostly attributed to volume/timing variances. At the same time, weaker than expected top-line growth meant that despite the impact of a slightly higher gross margin (61.7% vs. our 60.3% estimate), somewhat higher SG&A resulted in weaker than expected operating income of AED1,645 million.
· Weaker Net Income: Net income missed our estimates, stemming from a mix of: i) weaker than expected top-line growth, ii) a smaller than expected positive contribution from net interest income, iii) and less positive contribution from investment and other income.
· Undeniable 4Q Weakness: After a solid set of 9M2008 results, Sorouh showed marked weakness in the final quarter with 4Q2008 revenue of AED532.1 million vs. our expectation of AED1,066 million. This much weaker than anticipated top-line growth coupled with higher direct costs, higher SG&A and a very minor positive contribution from interest and other income, meant that net income for the quarter of AED45.2 million was significantly below our estimate of AED470.1 million.
· Balance Sheet Grows: With income statements of property developers tending to be inherently lumpy, we discuss balance sheet trends to get a better understanding of overall health. On this basis, Sorouh’s cash balance reached AED6,842 million, reflecting the proceeds from land and unit sales. However, this was short of our FY2008 estimate of AED8,062 million. Moreover, properties under construction reached cAED3.0 billion, short of our expectation of AED4.9 billion, suggesting that while steady construction progress is being made, this is happening at a less rapid pace than what we had anticipated.
· Taking a Closer Look: While these results reflect the way in which Sorouh’s business model is taking shape, both 4Q and FY08 top- and bottom-line numbers and the balance sheet growth are disappointing. Moreover, the ongoing weaker real estate environment does not provide a fertile environment for new sales phases/ projects, and while a focus on execution in 2009 will facilitate Sorouh’s track record of deliverability, we will be revisiting our forecasts once full disclosure is available. We will incorporate FY2008 results, account for the impact of this challenging real estate environment, our expectations for the successful execution on ongoing projects and the potential success of future ones.
I get press releases and reports in the email. I try and post the ones I think will be most useful for forum readers ... _________________ UAE IPO list | posting guidelines
SW, you get them in email direct from EFG? I tried doing the same but couldn't find a way unless I was a client. If you are not a client and have registered for this service could you please point me to the appropriate URL to do the same?
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