Aldar Nomura report

[sharewadi]

After release of Aldar 2009Q1 results, some useful comments from Nomura ...

Nomura 27 April 2009:

Aldar Q109 Results: Operating on empty? ALDAR (NEUTRAL, Price target AED 3.16) Revenues AED 529m (Q408 AED 570m) Net Profits AED 888m (Q408 AED 140m) NAV +3.3% Conference call: Tuesday 28 April, 5pm UAE time (2pm GMT) Headline numbers for Aldar have hit the tapes after the market close (Monday 27 April). Management consider these solid results. We think the underlying results prove the challenging nature of the real estate sector. If Abu Dhabi is underpinned by better fundamentals than Dubai, then these results do not bode well for Aldar's peers. Join the club The stock sold off 8% today vs the ADX selling off 3% so a clear under-performer. All real estate stocks were weak after Deyaar's results yesterday afternoon but the Abu Dhabi real estate companies who performed the best on the upswing of the relief rally, look likely to suffer the most on the downswing. We think this announcement is particularly weak with the company being guarded with the press release and the level of detail. We will reveiw our numbers on full results and we suspect there will be a series of market downgrades on the back of these numbers. Warehousing: A financial burden to bear The comparison of quarterly numbers is more relevant given the current cycle of the market with revenues falling 9%. This marks two quarters in a row of particularly poor sales. Aldar has (to date) refused to lower the selling price of its developments citing that 'it would be unfair to our investors', but we think you can probably buy an Aldar property in the secondary market at 70c in the dollar with a lower execution risk attached - the only thing you might miss is the financing plan. This being the case, the group's balance sheet is going to be burdened with unsold inventory when (or if) the market recovers, but this may take some time. Investment revenues will start to grow, as there is rental demand and the properties should generate high yields but there is a long payback period to be financed in the interim. This was probably absent in the original development costings. Operating near zero Of more concern to us are the operating profits. Stripping out revaluation gains (taken through the revenue statement as developments work their way through the planning and consent stages) and the unwinding of receivables discounts, which are both non-cash adjustments the operating profit of AED 14m is comparable to AED 2.2bn recorded in 2008. There is limited clarity or additional detail in the press release, but full results are due shortly, which we will review on release. The company reported a 3.3% rise in equity, which was largely attributable to the revaluation increase. The development portfolio increased by and additional AED 5bn (to 27bn), but funded from custoner advances and cash Although the planning gains are one-off, there is enough in the pipeline to keep this year's equity in positive territory, but it is a false economy in some respects and once held in the investment portfolio this should become subject to market forces. Market wide not company specific We are not surprised with the marked deterioration in sales; it is a sector wide phenomonen, but sales revenue is lumpy and related to the handover of units and total land sales both of which are on different revenue recognition regimes. We think the critical juncture is yet to come and Q209 may see a further deterioration. Aldar has refused (so far) to meet the market and reduce prices - and will inject the unsold stock into the investment portfolio and wait for a market recovery in demand. Warehousing is sensible as long as you can finance it, but in the short term it places an undue financing risk on the balance sheet and there will likely be a resulting cash drag. Pending issues for all market participants The market will get to absorb the full set of results overnight and the conference call will likely focus on the sales efforts, market forces (where we think the company will likely decline to comment), default rates and exposure to counterparty risk and the deterioration (or otherwise) of the receivables due. These are common threads impacting the sector, but as the largest listed developer in Abu Dhabi, we would like to see some market commentary on the conference call.

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[rmhumr]

1Q results were weak, so the company is going under?

i disagree. everyone expected 1Q to be weak, many expected huge losses. I think Al dar is doing ok trying to float the crisis. It doesn't really need to do anything; demand will return in Abu Dhabi.