Heliopolis Housing & Development...Mahmoud Ibrahim Senior Equity Analyst Mubasher International [email protected] mn • Sizeable, prime-located land bank is the primary

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Heliopolis Housing & Development Egypt

Equities | Real Estate | Initiation of Coverage

Sunday, 24 July 2016

Source: Company reports, MubasherTrade Research estimates

Buy

High Risk

PT: EGP86.2

ETR: +73%

Mahmoud Ibrahim Senior Equity Analyst Mubasher International

[email protected]

mn

• Sizeable, prime-located land bank is the primary valuation driver in our view.

• Old concerns (inefficient business model, slow land monetization) starting to abate …

• … but key concerns remain: the government control and unclear strategy.

• Presales and revenues to grow by 7-year CAGRs of 65% and 26%, respectively.

• We estimate HELI’s NAV at EGP62.2/share, implying a P/NAV of 0.80x.

• We initiate coverage on HELI with Buy/High Risk and PT of EGP86.2/share (ETR: +73%), 85% of which comes from “unlaunched” land.

Business model has long been inefficient mainly due to slow land monetization: Heliopolis Housing & Development (HELI.EGX) has long had an inefficient business model, thus missing significant opportunities to exploit the booming real estate sector in Egypt over the last few years. Today, we think HELI’s strategy is still inefficient given that:

• Land sale is the main source of revenues and its maintaining a high dividend payout ratio, which would negatively affect its cash cycle. This strategy had forced the company to depend on short-term borrowing to finance the construction of its small development properties.

• It would take HELI some 138 years to totally develop its 25.2mn sqm, assuming its historical rate of land monetization remains the same.

… thus, some steps were taken, suggesting a turnaround story could be in the making: HELI started to shift its strategy towards a more efficient business model, which could shape its turnaround story over the coming years. This shift is evident in:

• Agreeing with SODIC (OCDI.EGX) to co-develop 655 feddans in New Heliopolis City. Also, attracting new co-developers for its other land plots will positively affect HELI’s valuation.

• Adopting an “off-plan sale” model and planning to double its paid-in capital.

• Paying EGP135mn to execute part of the external infrastructure works in Helio Park.

Initiate with Buy/High Risk; PT EGP86.2/share (+73%): We set a price target (PT) for HELI at EGP86.2/share (+73% upside), using a DCF-based sum-of-the-parts (SOTP) valuation model with a WACC of 20.1%. Our base case scenario assumes that HELI will develop or co-develop its remaining unlaunched land bank. To account for any possible change in HELI’s strategy over the coming years, we examined worst and best case scenarios, resulting in a valuation range between EGP63.7/share and 111.8/share, respectively. We also estimated HELI’s NAV at EGP62.2/share, implying a P/NAV of 0.80x based on the current stock price, and 1.42x based on our PT. Thus, we initiate coverage on HELI with a Buy/High Risk rating. We see room for further PT upgrades if the company takes serious steps to complete its turnaround story by monetizing its land bank at a faster rate.

Major investment rationales: (1) Sizeable, free-disputed land bank without mandatory development schedule, (2) shifting to a more efficient business model (off-plan sale and co-development agreements), and (3) benefiting from strong demand for middle-income housing units.

Key risks: (1) Slow land monetization with unclear strategy for most of the remaining raw unlaunched land bank, (2) high exposure to change in land prices, and (3) concentration risk.

A conditional turnaround story in the making —

Initiate with Buy/High Risk

EGP mn 2013a 2014a 2015a 2016e 2017e 2018e

Pre-sales 480 474 426 547 1,090 1,950

Revenues 338 420 481 683 540 811

Net Income 136 184 205 344 154 334

Revenues Growth (%) 36.3% 24.2% 14.5% 42.2% (21.1%) 50.4%

Net Income Growth (%) 25.0% 35.7% 11.4% 68.1% (55.3%) 117.0%

Gross Profit Margin (%) 59.9% 60.5% 62.7% 69.8% 70.0% 85.2%

Net Margin (%) 40.1% 43.8% 42.6% 50.4% 28.5% 41.2%

Net Debt (Cash) 174 202 225 136 367 121

EPS (EGP) 1.22 1.65 1.84 3.09 1.38 3.00

BVPS (EGP) 3.46 4.11 4.59 6.44 6.27 8.59

PER (x) 16.4x 23.4x 30.4x 14.6x 36.0x 16.6x

PBV (x) 5.8x 9.4x 12.2x 7.0x 7.9x 5.8x* Fiscal year ends in June

HELI (EGP) vs. EGX30 Rebased

Sto ck D etails

Last price (EGP) 49.84

52-W High (EGP) 56.30

52-W Low (EGP) 36.00

6M -ADVT (EGPmn) 5.57

% Chg: M oM 12.1

% Chg: YoY -1.01

% Chg: YTD -0.1

M ubasher Ticker HELI.EGX

Bloomberg Ticker HELI EY

C apital D etails

No. of Shares (mn) 111.3

M kt Cap (EGPmn) 5,545.1

M kt. Cap (USDmn) 624.3

Free Float (%) 27.1%

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http://www.MubasherTrade.com

mailto:[email protected]


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Heliopolis Housing & Development| Egypt | Initiation of Coverage


Corporate Profile 3

• Corporate Structure 3

• Land bank 4

Financial Summary 5

Projects’ Details 6

• New Heliopolis City 6

• Helio Park 7

• Land scattered in Heliopolis 8

• Nozha El-Obour 8

• Investment properties 9

• Project locations 10

Valuation 11

• 655 feddans land plot (co-development with SODIC) 14

• New Heliopolis City (NHC) after excluding 655 feddans land plot 15

• Helio Park 17

• land plots and developments in Heliopolis district 19

• Nozha El-Obour 19

• Investment properties 20

• Net Asset Value (NAV) 21

• Investment rationale and key risks 23

Business Model 24

Appendix | Legal Disputes 26

Table of Contents




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Heliopolis Housing & Development (HELI.EGX), a 72.3% subsidiary of government-owned the National Company for Construction & Development, was established as a real estate developer in 1906. HELI’s operations include land reclamation and subdivision, residential real estate development and management, and real estate properties purchase, sale and rental. Currently, HELI, one of Cairo’s oldest developers, is shifting its business model from a pure land seller to a developer with progressive land monetization and clear strategy. HELI’s shares have been listed on the Egyptian Exchange (EGX) since May 1995. At present, HELI has an authorized capital of EGP200mn and a paid-in capital of EGP111mn distributed over 111mn shares at a par value of EGP1/share.

We see HELI organized under two key segments: development properties and investment properties.

I. Development Properties: HELI has 25.2mn sqm of well-located and dispute-free land bank, located in East Cairo. The company has four key projects: (1) New Heliopolis City, (2) Helio Park, (3) legacy land plots scattered in Heliopolis, most of which are located in the eastern side of Almaza Airport, and (4) Nozha El-Obour.

II. Investment Properties: HELI generates rental income from (1) Merryland Park, (2) Tivoli Heliopolis, and (3) other properties subject to the old rental law.

Corporate structure

Source: Company reports

Corporate Profile

Heliopolis Housing & Development

Other Properties (Old Rental Law)

Tivoli

Merryland Park

Merryland Casino

Showland Casino

Child Park

Nozha El-Obour

New Heliopolis City (NHC)

655 feddans (co-developed

with SODIC)

Remaining land in NHC

Heliopolis

Square 1258

Fourth Neighborhood

Eastern side of Almaza Airport

Development Properties Investment Properties

Helio Park

Date Event

1906 The establishment of HELI.

1995 HELI obtained ownership of the New Heliopolis City land by virtue of Presidential Decree No. 193 for 1995.

May-95 HELI was floated on EGX.

Oct-03 The government allocated 1,695 feddans of land plot to HELI to construct the Helio Park project.

Aug-08 Magic Dreams stopped paying HELI due rent of the Merryland Casino.

Feb-13 Magic Dreams stopped paying HELI due rent of the Child Park.

Feb-14 HELI obtained a ministerial approval on Helio Park's first project plan.

Jun-14 HELI revealed its intention to double its paid-in capital.

Oct-14 Halting raw land sales.

Mar-15 HELI’s BOD approved to enter into co-development agreements.

May-15 HELI signed a preliminary settlement to end the dispute with Magic Dreams (the old tenant of Merryland Casino).

May-15 HELI launched an auction to co-develop 655-feddan land (via a revenue-sharing agreement).

Jul-15 Court verdict to hand over the National Democratic Party’s (NDP) building to HELI.

Sep-15 HELI secured approval of the Egyptian Environmental Affairs Agency to continue in the development works in Merryland Park.

Dec-15 SODIC was awarded HELI’s project for developing a 655-feddan land in New Heliopolis City.

Jan-16 HELI co-founded a real estate marketing company with a 5% stake.

Mar-16 HELI signed the contract to co-develop 655-feddan land with SODIC.

Jun-16 HELI evicts Magic Dreams from Merryland Casino.

Key milestones





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Land bank

HELI has an undeveloped land bank amounting to 25.2mn sqm of unutilized land (excluding the disputed land bank). This land bank is distributed as follow:

• 71% in New Heliopolis City,

• 28% in New Cairo “Helio Park”

• 1% in Heliopolis.

We highlight that 100% of HELI’s land is located east of Cairo where the demand is solid. HELI’s land bank is recorded on its balance sheet at minimal historical cost with no land development requirements. This enhanced the profitability margin of HELI versus its local peers as the company was focusing on land sales during the previous years.

The availability of sizeable prime-located land bank is the main value driver: HELI is one from the largest listed Egyptian developers in term of land bank as the company owns 25.2mn sqm land area in Heliopolis, New Cairo and New Heliopolis. If the company accelerated its land monetization rate, we believe that HELI’s land bank would suggest a potentially strong operating performance and growth over the coming years due to 1) sizeable prime located land bank without a mandatory development schedule, which give the company time to explore and exploit good opportunities more efficiently, 2) Debt-free land bank, thus lowering the financial burden on the company.

However, concentration risk remains a concern: HELI has a sizable land bank concentrated in the eastern part of Cairo that can be developed over the coming 20 years. Furthermore, most of HELI’s revenues are primary related to the residential segment with minimal contribution from recurring revenues and without any exposure to the second-home segment of the market.

Land bank details

Source: Company reports, MubasherTrade Research estimates (for determining unutilized net and gross land area

Breakdown of HELI’s unutilized GLA HELI is the second largest listed

developers in term of land bank size

Source: company’s reports

Breakdown of HELI’s unutilized NLA

Source: company’s reports Source: company’s reports

Corporate Profile (Cont.’d)

Land Location

Total gross

land area

(sqm)

Total net

land area

NLA to

GLA

Utilized

gross land

area (sqm)

Utilized

Net land

area (sqm)

Roads,

gardens and

streets

(sqm)

Disputed

GLA (sqm)

Disputed

NLA (sqm)

Remaining

unutilized GLA

(sqm)

Remaining net

sellable land

area (sqm)

(1) (2) (3) (4) (5) (6) (7) =(1)-(3)-(6) =(2)-(4)-(7)

New Heliopolis City Al-Shorouk 24,729,600 14,837,760 60% 3,411,255 2,046,753 9,891,840 3,305,400 1,983,240 18,012,945 10,807,767

El-Obour City El-Obour 393,578 196,789 50% 509,094 254,547 196789 -- -- -- --

Helio Park New Cairo 7,119,050 5,337,864 75% -- -- 1,781,186 -- -- 7,119,050 5,337,864

Square 1258 Heliopolis 263,500 154,556 59% 259,645 152,295 108,944 -- -- 3,855 2,261

Fourth Neighborhood Heliopolis 1,703 1,703 100% -- -- -- -- -- 1,703 1,703

Eastern side of Almaza airport Heliopolis 138,000 79,644 58% 14,725 8,498 58,356 21,659 12,500 101,616 58,646

Total (sqm) 32,645,431 20,608,316 63% 4,194,719 2,462,093 12,037,115 3,327,059 1,995,740 25,239,169 16,208,240

New Heliopolis

City18.0mn

sqm71%

Helio Park7.1mn sqm28%

Heliopolis City

0.1mn sqm1%

Total GLA25.2mn sqm

New Heliopolis

City10.8mn

sqm67%

Helio Park5.3mn sqm33%

Heliopolis City

0.1mn sqm0% Total NLA

16.2mn sqm

29.7

25.2

12.9

8.96.5 5.7

0

5

10

15

20

25

30

35

TMG HELI PHD MNHD EMFD SODIC

(mn

sq

m)




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Financial Summary

Balance Sheet (EGP mn) Per-Share Data

FY End: June 2013a 2014a 2015a 2016e 2017e 2018e 2013a 2014a 2015a 2016e 2017e 2018e

Current Assets Price 19.95 38.74 55.90 45.14 49.84 49.84

Cash & Cash Equivalent 3 4 24 92 41 59 # Shares (WA,in mn) 111 111 111 111 111 111

Accounts & Notes Receivable 1,718 1,870 1,829 1,825 1,309 1,498 EPS 1.22 1.65 1.84 3.09 1.38 3.00

Other Current Assets 352 382 415 305 1,026 1,077 DPS 0.85 1.00 1.25 1.55 0.69 1.50

Total Current Assets 2,073 2,255 2,267 2,222 2,376 2,634 BVPS 3.46 4.11 4.59 6.44 6.27 8.59

Fixed Assets (net) & IP 15 15 15 51 84 78

Other Non-Current Assets 8 30 2 2 2 2 Valuation Indicators

Net Intangibles 0 - - - - - 2013a 2014a 2015a 2016e 2017e 2018e

Total Assets 2,096 2,300 2,284 2,274 2,462 2,714

PER (x) 16.4x 23.4x 30.4x 14.6x 36.0x 16.6x

Liabilities & Equity PBV (x) 5.8x 9.4x 12.2x 7.0x 7.9x 5.8x

Short-Term Debt 174 201 225 200 380 152 EV/Sales (x) 7.1x 10.8x 13.4x 7.5x 11.0x 7.0x

Current Portion of LT Debt - - - 0 0 1 EV/EBITDA 17.1x 23.9x 27.6x 12.6x 24.1x 12.4x

Accounts Payable 177 212 262 316 281 246 Dividend Payout Ratio 69.8% 60.5% 67.9% 50.0% 50.0% 50.0%

Other Current Liabilities 1,345 1,414 1,269 1,021 1,082 1,340 Dividend Yield 4.3% 2.6% 2.2% 3.4% 1.4% 3.0%

Total Current Liabilities 1,696 1,828 1,756 1,538 1,744 1,739

Long-Term Debt 2 2 2 6 6 5 Profitability & Growth Ratios

Other Non-Current Liabilities 12 14 14 14 14 14 2013a 2014a 2015a 2016e 2017e 2018e

Total Liabilities 1,710 1,844 1,773 1,558 1,764 1,759

Minority Interest - - - - - - Revenue Growth 36.3% 24.2% 14.5% 42.2% (21.1%) 50.4%

Total Equity 385 457 511 716 698 955 EBITDA Growth 32.8% 34.8% 23.6% 75.5% (40.1%) 85.8%

Total Liabilities & Equity 2,096 2,300 2,284 2,274 2,462 2,714 EPS Growth 25.0% 35.7% 11.4% 68.1% (55.3%) 117.0%

EBITDA Margin 41.5% 45.0% 48.6% 60.0% 45.5% 56.2%

Income Statement (EGP mn) Net Margin 40.1% 43.8% 42.6% 50.4% 28.5% 41.2%

2013a 2014a 2015a 2016e 2017e 2018e ROAE 37.0% 43.7% 42.3% 56.1% 21.8% 40.4%

Total Revenue 338 420 481 683 540 811 ROAA 6.9% 8.4% 8.9% 15.1% 6.5% 12.9%

COGS (135) (166) (179) (207) (162) (120)

GP 203 254 301 477 378 691 Liquidity & Solvency Multiples

Other operating (exp.)/ Inc. (62) (65) (68) (67) (132) (236) 2013a 2014a 2015a 2016e 2017e 2018e

EBITDA 140 189 234 410 245 456

D&A, Others (2) (2) (1) (1) (4) (7) Net Debt/(Cash) 174 202 225 136 367 121

Net finance exp., taxes (3) (3) (28) (64) (87) (115) Net Debt/Equity 45.3% 44.1% 44.0% 19.0% 52.6% 12.6%

NP Before XO & MI 136 184 205 344 154 334 Net debt to EBITDA 1.2x 1.1x 1.0x 0.3x 1.5x 0.3x

XO & Minority Interest - - - - - - Debt to Assets 0.1x 0.1x 0.1x 0.1x 0.2x 0.1x

Net Income 136 184 205 344 154 334 Current ratio 1.2x 1.2x 1.3x 1.4x 1.4x 1.5x

Cash Flow Statement (EGP mn) Consensus Estimates

2013a 2014a 2015a 2016e 2017e 2018e 2016e 2017e 2018e

Revenues 532 491 545

Cash from Operating 58 40 98 230 21 342 MubasherTrade Research vs. Consensus 28.5% 10.0% 49.0%

Cash from Investing (3) (24) 27 (37) (37) (1) Net Income 263 224 247

Cash from Financing (57) (16) (125) (124) (35) (323) MubasherTrade Research vs. Consensus 31.1% (31.3%) 35.3%

Net Change in excess Cash (3) 0 - 68 (51) 18 PER (x), Last Price 14.6x 36.0x 16.6x

PER (x), Price Target 27.9x 62.5x 28.8x

Capex (3) (2) (1) (37) (37) (1) DY (%), Last price 1.8% 0.8% 1.7%

Source: Company data, MubasherTrade Research estimates Fiscal year ends in June a = Actual; e = Estimate Share price at 21-Jul-16




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Projects’ Details

I. New Heliopolis City

Location New Heliopolis City (NHC) is located next to Al-Shorouk City, bordered by the Cairo-Suez Road from the south and the Cairo-Ismailia Road from the north and in front of Madinaty City constructed by Talaat Mostafa Group Holding (TMGH.EGX). NHC’s land was allocated to HELI by Presidential Decree No. 193 for 1995.

Land area NHC’s land extends over an area of 24.7mn sqm, and the company seeks to develop the city in a way that resembles the Heliopolis area in Cairo. NHC is expected to accommodate a population of 250,000 once it is completed.

Master plan HELI had previously pointed out that the land area of NHC will be developed based on the following plan: • 50% residential area. • 28% public roadways and parking garages. • 12% public parks. • 7% commercial, offices and services area. • 3% small environmental friendly industrial zones.

Development strategy

Over the last years, HELI had sold 1.9mn sqm land plots within NHC. Moreover, it had developed 0.21mn sqm, which in turn indicates that the project is still in its preliminary stage; HELI has only developed so far 8.5% of NHC’s total area. The company started to implement NHC’s first phase, covering 6.5mn sqm, only in January 1999. An area of 3.5mn sqm of the project’s first phase is allocated for residential purposes. HELI planned to finish the first phase within only five years (at a development rate of 1.3mn sqm p.a.), but was unsuccessful. HELI commenced planning of the project’s second phase in H2 2014 after it had finished its plans for the city’s ninth district, which is considered the first step in developing NHC’s second phase.

In October 2014, the Holding Company for Construction & Development (HCCD), which owns 72% of HELI, suspended land sales after adopting a new strategy aiming to develop the lands instead of selling them. This land development will be implemented through HELI itself and/or setting joint agreements with other real estate developers. In view of that, we believe that the development rate in NHC will accelerate in the future following the company’s new development-oriented strategy in addition to the launch of the new administrative capital city.

In March 2016, Sixth of October for Development & Investment Company (SODIC) (OCDI.EGX) and HELI signed a contract to co-develop a 655-feddans (2.8mn sqm) land. The project is planned to be developed over ten years in four phases and will comprise over 8,600 residential units in addition to the retail and commercial area and a sporting club. The project is expected to generate revenues of EGP30.35bn. SODIC will be responsible for handling the whole development and marketing operations in return for a 70% share of revenues from the residential units and 69.8% share of the commercial/retail area. HELI will be entitled to the remaining 30.0% and 30.2% of the value of the residential units and the commercial/retail area, respectively, in return for the land contribution with a minimum revenue share estimated at EGP5.01bn over the project’s life span. HELI estimates that its revenue share will amount to EGP10bn as real estate prices will continue rising in the future. HELI’s chairman stated earlier that its venture with SODIC boosted the value of the lands surrounding the NHC project. HELI expects that the first phase to be launched in January 2017. The project’s first phase covers a space of 164 feddans (0.69mn sqm).

Since the start of development operations in NHC through June 2015, HELI has constructed 125 buildings, comprising 1,728 residential units out of which 1,688 units were sold for a total value of around EGP594mn. Moreover, the company sold 1,351 land plots covering a total area of 1.9mn sqm for a total value of EGP1.64bn, and constructed 162 villas, almost 70% of which was sold. As per the units under development, HELI is currently establishing a housing compound in the Ninth District comprising 28 residential buildings (558 residential units) at an investment cost of c.EGP159mn. Meanwhile, the company is currently constructing five buildings comprising 60 units in the city’s Fifth Neighborhood at an investment cost of EGP32mn. In April 2016, the company’s chairman unveiled a plan to offer 40,000 sqm services land at an estimated value of EGP100mn. Meanwhile, the company has a plan to develop an area of 500,000 sqm residential area over the upcoming years. The company is currently studying the possibility of utilizing the south side of the city at the project’s entrance from the Cairo-Suez Road by establishing an entertainment area.

In 2016, HELI signed a contract with the National Company for General Contracting & Supplies to carry out the installation of the electricity grids in NHC at a total cost of around EGP228mn. The company also plans to establish a wastewater treatment plant with a total cost of around EGP200mn, in addition to establishing a large water pipeline from the Tenth of Ramadan City Water Station for EGP160mn.




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Projects’ Details (Cont.’d)

II. Helio Park

Location Helio Park project is located in New Cairo City, alongside the Cairo-Suez Road and neighboring Talaat Moustafa Group Holding (TMG)’s (TMGH.EGX) flagship project, Madinaty, in East Cairo.

Land area Helio Park covers a gross land area of 7.12mn sqm with a net land area of 5.34mn sqm. This land was allocated to HELI in 2003 as a compensation by the government for HELI due to the reallocation of another land to Cairo Airport.

Master plan In 2008, HELI announced that Helio Park project will be developed in six stages, providing a land’s preliminary master plan, entailing a residential area (64.84%), a commercial area (4.42%), a services area (3.83%), an educational area (1.89%), a leisure area, gardens and other services (8.38%), main roads (10.33%) and easement of high-pressure electricity lines (6.31% ). This master plan may change over the subsequent years if the company succeeds to move the electricity towers which could save around 70 feddans. HELI announced that this project could accommodate around 100,000 residents once completed.

Development strategy

Throughout the last years, HELI set many plans to develop the Helio Park project, such as subdividing the land into 5,700 small plots to be offered for sale and developing the remaining area to include 24,000 units. Later, this plan was changed to include another option of a co-development agreement (a revenue-sharing scheme) with other mega local or regional developers. Along the sidelines of the Egypt Economic Development Conference (EEDC) held back in March 2015, HELI had announced that it sought to co-develop Helio Park as this project requires sizeable investment outlays for setting its external infrastructure and for the pre-launches process. However, HELI did not sign any agreement to co-develop this project yet. HELI attributed this notable delay in utilizing this project to the following:

• The huge cost requirement by the government for the project’s external infrastructure, water, and sanitation to the external borders of the project’s land: EGP821mn. • Moving the high-pressure electricity towers to be located outside the project’s borders has an estimated cost of EGP60mn. • Political unrest and security disruptions prevailing in Egypt from 2011 to 2013.

Nonetheless, HELI seeks to overcome these obstacles by the following:

• Negotiating with the government to reduce the cost of building infrastructure from EGP821mn to EGP270mn as the company will set its own desalination stations. HELI aims to schedule the payment of this cost over several years.

• Assigning the infrastructure works to one or more subsidiaries of the Holding Company for Construction & Development “HCCD” (HELI’s majority shareholder) that are specialized in setting infrastructure works. These subsidiaries could be entitled to land plots in Helio Park in exchange for setting the project’s infrastructure cost. Moreover, HELI could pay the cost of this infrastructure over several years.

In February 2014, HELI announced that it secured the government’s approval to develop the first phase of the Helio Park project which includes:

• Service area of 0.97mn sqm (represents 10.7% of project’s total area). • Public gardens, club and residential area of 1.1mn sqm (representing 15.9% of project’s total area). We note that the residential area stands at 0.55mn sqm in phase one.

In November 2015, HELI’s chairman announced that the company already paid EGP135mn for the execution part of the infrastructure works, indicating that the company targets to launch the first phase of this project in H2 2016.




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III. Land scattered in Heliopolis

Location and land area • HELI still owns available-for-sale lands plots with a net space of around 63,000 sqm .

• These lands are located behind Fairmont Heliopolis Hotel (Formerly: Sheraton Heliopolis) and east of Almaza Airport. Furthermore, the company owns a land plot that is extended over an area of 11,000 sqm in Ghernata City in front of the Merryland Park, but the company failed to secure the building’s construction permits due to the presence of historic buildings over the land.

Development strategy • By end of June 2015, HELI unveiled the development of seven properties that are allocated behind Fairmont Heliopolis Hotel (191 residential units) with an estimated cost of EGP34mn. The company also announced that it is currently establishing five properties (60 units) with an estimated cost of EGP32mn.


Location and land area • HELI bought 93.71 feddans (393,578 sqm) in El-Obour City, the Eighth District, from the New Urban Communities Authority (NUCA) for the purpose of establishing an integrated housing community (Nozha El-Obour).

• The project enjoys a location at a favorable altitude above the ground and close to the city’s main routes.

Master plan • The project is composed of four-story buildings with residential units with floor spaces ranging from 100-185 sqm each. Meanwhile, the company owns the services lands that are available for sale.

• The green space, routes and parking areas account for 40% of the project’s total space. HELI started land utilization of this project in 1999.

Development strategy • In October 2015, the company revealed that it intends to sell nine land plots in El-Obour City for EGP34mn (EGP3,579 per sqm).

• The land plots serve both commercial and offices purposes, whereas the prices of both the commercial and administrative spaces amount to EGP4,500/sqm and EGP2,500/sqm, respectively.

• By the end of June 2015, HELI announced that it had finished the development of 384 residential units at a total investment cost of EGP93mn.

IV. Nozha El-Obour




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V. Investment properties

Leasing portfolio HELI owns a wide range of recurring revenue-generating assets, namely: • Merryland Casino - Merryland Park • Showland Casino - Merryland Park • Child Park - Merryland Park • Tivoli - Almaza Square, Heliopolis • A group of units and buildings that are leasable based on the ‘old rental’ law (residential units, schools, hospitals, and clubs).

Historical performance of leasing portfolio

Although the investment properties are located in prime-rated locations in Heliopolis, HELI failed to reap decent profits from most of its recurring revenues-generating assets, especially from the Merryland Park that comprises a number of leasable assets (Merryland Casino, Showland Casino and Child Park) due to the legal disputes with Magic Dreams (the tenant of the Merryland Park’s assets). Meanwhile, the investment plan for developing the Merryland Park was disrupted by the Ministry of Environment and civil society organizations, which led to the suspension of the development works in the park as it comprises a number of historic landmarks. Thus, this had a significant negative impact on both the financial and operational performance of Merryland Park. Also, HELI suffered from operating losses on the back of incurring labor wages and water costs without generating any revenues from the park. Concurrently, Magic Dreams did not pay accrued rent to HELI for many years. Also, HELI has a number of units and buildings rented to governmental bodies as well as individuals, based on the old rental law, which generate minimal rental income.

Preliminary settlement to end the dispute with Magic Dreams has failed

The receivables due from Magic Dreams, for renting both Merryland Casino and Child Park, reached EGP125.3mn by the end of March 2016. Moreover, Magic Dreams did not pay its dues for renting Child Park since February 2013. In May 2015, HELI and Magic Dreams reached a preliminary settlement, stipulating the following:

• The late payment penalty on accrued rents and the gradual increase in rental value will be waived. • Rescheduling the remaining amount related to renting Merryland Casino, after waiving both late payment penalty and the gradual increase in rental value.

The accrued amount to HELI would reach EGP55.6mn for the period from 1 August 2008 through 31 December 2015. HELI bypassed the period of time spent by Magic Dreams for securing the required permits from August 2010 unti May 2012 (22 months). HELI also deducted an amount of EGP12mn in return for building a 120-vehicle parking garage next to the existing 110-vehicle garage.

• Extending the duration of Merryland Casino’s new contract to expire on 31 December 2028, with an annual increase of 10% and a monthly rent of EGP1,001,000.

• Magic Dreams will pay accrued amount to HELI of of EGP2.7mn for renting the Child Park, and will sign a new five-year contract at a monthly rent of EGP71,748 and annual increase of 10%.

According to that settlement, total dues to HELI from Magic Dreams amount to EGP58.3mn. This amount represents the total rental value of both Merryland Casino and Child Park that Magic Dreams should pay in monthly installments over four years at an annual interest rate of 7% starting from January 2016. So far, Magic Dreams did not commit to pay its obligations. Moreover, all the development operations stopped at the Merryland Park by mid-2015 upon a decision made by the Cairo governor following a complaint by civil society organizations which opposed the establishment of a parking garage within that area. In September 2015, HELI announced that it had secured the approval of the Egyptian Environmental Affairs Agency to continue the development works related to the Merryland Park, but the project did not get off the ground until March 2016 as Magic Dreams showed no seriousness in fulfilling its obligations. Therefore, HELI evicted Magic Dreams from Merryland Casino . In July 2016, HELI awarded an EGP30mn contract to El-Nasr Building & Construction Company (EGYCO) to develop the first phase (22 feddans) of Maryland Park by reclaiming the park’s green area and adding sales points over four months. Moreover, HELI announced that it will start developing the remaining second phase in Merryland Park (23 feddans) after final closure of its dispute with Magic Dreams.





Page 10



Source: Company reports, Google Maps

Project locations


Helio Park

New Heliopolis City

Nozha El-Obour

Square 1258

Tivoli

Merryland Park

Madinaty

5th settlement New Capital

City

Nasr City

Heliopolis

AUC

Cairo Airport

I City

Almaza Airport




Page 11



In valuing HELI, we used two main models, DCF and NAV. However, we set our PT based on our DCF valuation which – in our view – reflects the underlying cash flow generation capacity of the company as a going concern.

Base case scenario — PT of EGP86.2/share (+73% upside): Using a DCF-based SOTP valuation model, we reached a price target (PT) of EGP86.2/share, implying a 73% upside potential to the current share price, according to our base case scenario. Thus, we initiate coverage on HELI with a Buy/High Risk rating. Moreover, we ran two other scenarios, resulting in a valuation range of EGP111.8/share (+124% upside) for the best case scenario and EGP63.7/share (+28% upside) for the worst case scenario. We applied the following general assumptions for all scenarios:

• Cost of equity (COE) is 23.9%, calculated as follows: US 10-year Treasury yield of 1.55%, inflation differential (between Egypt and USA) of 8.72%, re-levered beta of local peers of 1.29, US equity risk premium (ERP) of 6.27%, Egypt’s country risk premium (CRP) of 5.52% as implied by its 5-year credit default spread (CDS) of 4.25%, levered up by 30% to account for inherent volatility in equity returns.

• WACC: 20.1%, Tax rate: 22.5%. • SG&A to presales: 5% for land sales and 8% for upcoming off-plan

sales development activities.

Residential segment constitutes 88% of our EV …: On a segmental basis, 87.6% of our valuation of HELI is driven by the residential segment (EGP8.6bn), while commercial, and other non-residential segment accounts for 10.9% and 1.5% of our valuation, respectively. Considering the company’s projects, NHC’s valuation came in at EGP5.3bn (54.1% of total valuation), while the valuation of Helio Park, Heliopolis, Nozha El-Obour, and leasing portfolio stood at EGP3.5bn (35.8%), EGP0.62bn (6.3%), EGP0.26bn (2.6%), and EGP0.12bn (1.2%), respectively.

… and unlaunched raw land constitutes 85%: As for development type, 85.4% of our valuation of HELI is attributed to unlaunched land bank (EGP8.4bn), while the valuation of ‘work in progress’ and investment properties reached EGP1.3bn (13.4%) and EGP.12bn (1.2%), respectively.

Settlement of HELI’s disputed land area could raise our base case PT by 9.5% to EGP94.5/share: We have singled out the disputed land area from our valuation scenarios. However, if the company were to regain its disputed land (3.3mn sqm in NHC, 2.26mn sqm on the northern/southern Cairo-Suez Road and 21,659 sqm on the eastern side of Almaza Airport), our base case PT would increase by 9.5% or EGP8.2/share to EGP94.5/share (+90% upside potential). Please refer to Appendix (pages 26-27) for more details about the disputed land area and our valuation.

Base case scenario valuation by project

Source: MubasherTrade Research estimates

Valuation

Project/segment EV (EGP mn) EV/share (EGP) % of EV

New Heliopolis City

655 acres - Residential 817 7.34 8.3%

655 acres - Commercial 234 2.10 2.4%

Total 655 acres 1,050 9.44 10.7%

Residential development 3,173 28.52 32.3%

Commercial development 315 2.83 3.2%

Services and educational land 82 0.74 0.8%

Industrial land 3 0.03 0.0%

Completed units 42 0.38 0.4%

Under construction units 643 5.78 6.5%

Total New Heliopolis City (excluding 655 acres) 4,258 38.27 43.4%

Total New Heliopolis City 5,308 47.71 54.1%

Helio Park

Residential 3,045 27.37 31.0%

Commercial 402 3.62 4.1%

Educational land 22 0.20 0.2%

Services land 45 0.40 0.5%

Total Helio Park 3,515 31.59 35.8%

Heliopolis City

Residential - upcoming launches 247 2.22 2.5%


Under Construction units 304 2.74 3.1%

Total Heliopolis Ctiy 620 5.57 6.3%

Nozha El Obour


Under construction units 190 1.70 1.9%

Total Nozha El Obour 259 2.33 2.6%

Investment properties

Tivoli 31 0.28 0.3%

Properties (old rental law) 7 0.07 0.1%

Showland Casino 22 0.19 0.2%

Merryland Casino 53 0.47 0.5%

Child Park 2 0.01 0.0%

Al Montazah Garden 3 0.03 0.0%

Total investment properties 118 1.06 1.2%

Total enterprise value (EV) - base case valuation 9,819 88.26 100.0%

Add: Excess Cash 2 0.02

Less: Total debt 227 2.04

Total equity value (EGP mn) 9,594 86.24




Page 12



Valuation (Cont.’d)

Major valuation assumptions

NHC has the largest contribution for our EV

* Including 655 feddans (co-development with SODIC) Source: MubasherTrade Research estimates

HELI trades below our worst case scenario PT


7,770

5,308 4,380

4,891

4,511

2,930

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Best casescenario

Base casescenario

Worst casescenario

EGP

mn Other

New HeliopolisCity *

0

20

40

60

80

100

120

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

EGP

/sh

are

Stock performance (EGP/share) Base case PT (EGP/share)

Best case PT (EGP/share) Worst case PT (EGP/share)

EGP111.8/shar | Best case PT

EGP86.2/share | Base case PT

EGP63.7/share | Worst case PT

Project Best Case Base Case Worst Case

New Heliopolis City

655 feddans

• Success of co-development agreement with SODIC.

• Land util ization period of 10 years.

• Annual price escalation rate of 10%.

• Success of co-development agreement with SODIC.



• Failure of co-development agreement with SODIC.

• Subdivision development over 20 years.

Remaining land in NHC

• Self-development of residential and commercial land.

• Selling other non-residential land.

• Adopting off-plan business model.

• Launching more modern development (Gated compounds).



• Self-development of residential and commercial land.


• Adopting off-plan business model.

• Launching more modern development (Gated compounds).




Helio Park

• Co-development of residential and commercial area.



• External infrastructure cost of EGP270mn.

• Self-development of residential and commercial area.



• External infrastructure cost of EGP821mn.


Heliopolis City • The upcoming launch will be sold out over 3 years.


• The upcoming launch will be sold out over 5 years.



Recurring business

• Success of old settlement with Magic Dreams.

• Collection of old receivables from Magic Dreams.

• Capex: EGP61mn.

• Terminal growth rate: 5%.

• Failure of old settlement with Magic Dreams.

• Failure to collect old receivables from Magic Dreams.

• Capex: EGP73mn.


• Failure of old settlement with Magic Dreams.

• Failure to collect old receivables from Magic Dreams.

• Dropping Merryland properties from our valuation.





Page 13




Valuation (EV) breakdown

* including the valuation of 655-feddan plot that will be c-developed with SODIC, Note: commercial valuation includes leasing portfolio; Source: MubasherTrade Research estimates.

Best case Base case Worst case

By p

roje

ct

By s

egm

ent

By d

evelo

pm

ent

type

NHC *EGP7,770mn

61.4%

Helio ParkEGP3,818mn

30.2%

Land scattered in Heliopolis

districtEGP667mn

5.3%

El-ObourEGP259mn

2.0%

Investment propertiesEGP148mn

1.2%

Residential EGP10,958mn

86.6%

CommercialEGP1,409mn

11.1%

Services, educational

and industrial

EGP293mn2.3%

Raw land developmentEGP11,196mn

88.4%

Development properties

EGP1,317mn10.4%


1.2%

NHC *EGP5,308mn

54.1%


35.8%


district EGP620mn

6.3%

El-ObourEGP259mn

2.6%


1.2%

Residential EGP8,598mn

87.6%

CommercialEGP1,069mn

10.9%

Services, educational

and industrial

EGP152mn1.5%


85.4%


EGP1,317mn13.4%


1.2%

NHC *EGP4,380mn

59.9%


27.9%


district EGP594mn

8.1%

El-ObourEGP259mn

3.5%


0.5%

Mixed use land

EGP5,735mn78.4%

ResidentialEGP1,538mn

21.0%

CommercialEGP38mn

0.5%


81.5%


EGP1,317mn18.0%


0.5%




Page 14



Valuation assumptions of 655 feddans land plot (co-development with SODIC)



Residential segment represents 78% of our valuation


* We assume that 90% of BUA will be allocated to residential development and 10% to commercial development; 85% of residential BUA will be allocated to apartments, while the remaining 15% will be allocated to standalone units.

** As for our best case scenario, we assume that the selling price will be 10% higher than that in our base case scenario with an annual escalation rate of 10%.

** As for our worst case scenario, the price of residential net land area is estimated at EGP2,000/sqm (matching Beit El-Watan land plots in Al-Shorouk City, which were offered for Egyptian expatriates at USD225/sqm). We assumed commercial and industrial land prices are 1.5x and 0.25x residential land prices, respectively.

Other major assumptions

• We assume that 72% of HELI’s revenue share will be recognized upon sale, while the remaining revenues will be recognized after four years (the same revenues recognition method adopted by MNHD for its Capital Gardens project in Sarai).

• Units will be delivered four years after sale.

Our base case EV for 655 feddans (co-development

with SODIC) amounted to EGP1,050mn


1,221

817

432

383

234

1,604

1,050

432

Best Case Base Case Worst Case

Residential (EGP mn) Non-Residential (EGP mn)

Total Valuation (EGP mn)

ResidentialEGP817mn

78%

Non-ResidentialEGP234mn

22%


Success of co-development agreement P P

Valuation method DCF DCF NAV - NLA

Utilization period 10 years 10 years 20 years

Residential July-17 July-17 July-17

Non-Residential July-20 July-20 July-20

Residential

Non-Residential

Floor to area ratio* 100% 100% Zero

Residential - Apartment EGP6,600/sqm - BUA EGP6,000/sqm - BUA

Residential - Vil las EGP7,700/sqm - BUA EGP7,000/sqm - BUA

Commercial EGP22,000/sqm - BUA EGP20,000/sqm - BUA EGP3,000/sqm - NLA

Residential 25% 25% 35%

Non-Residential 25% 25% 35%

Residential

Commercial

Price 10% 5% 5%

Construction & Infrastructure cost 10% 5% 5%

Starting date of utilization

Co-development Co-development

6 years 6 years

Selling prices **

Annual escalation rate

Installment period 5 years

Down payment

EGP2,000/sqm - NLA

Development plan Subdivision development




Page 15



Valuation assumptions of New Heliopolis City (NHC) after excluding 655 feddans land plot



Best Case Base Case Worst Case Comment



Residential

Commercial

Education & Services

Industrial

Residential 16.2mn sqm - BUA 16.2mn sqm - BUA 9.0mn sqm - NLA

Commercial 0.6mn sqm - BUA 0.6mn sqm - BUA 0.6mn sqm - NLA

Education & Services 0.6mn sqm - BUA 0.6mn sqm - BUA 0.6mn sqm - NLA

Industrial 0.5mn sqm - BUA 0.5mn sqm - BUA 0.5mn sqm - NLA


Residential - Villas EGP5,000/sqm - BUA EGP5,000/sqm - BUA


Education & Services land plots EGP1,500/sqm - NLA EGP1,500/sqm - NLA EGP1,500/sqm - NLA

Industrial EGP500/sqm - NLA EGP500/sqm - NLA EGP500/sqm - NLA



Commercial EGP7,500/sqm - BUA EGP7,500/sqm - BUA


Industrial

Residential 250 250

Commercial 250 250

Education & Services EGP250/sqm - NLA EGP250/sqm - NLA

Industrial EGP250/sqm - NLA EGP250/sqm - NLA

Residential

Commercial

Education & Services 35% 35%

Industrial 35% 35%

Residential

Commercial


Industrial

Price 10% 5% 5%

Construction & infrastructure cost 10% 5% 5%

Subdivision Development Subdivision Development

EGP2,000/sqm - NLA

5 years 5 years

EGP250/sqm - NLAInternal infrastructure cost

Installment period

6 years 6 years

Zero

Zero

- As for our worst case scenario, the price of residential NLA is estimated at

EGP2,000/sqm (matching Beit El-Watan land plots in Al-Shorouk, which were

offered for Egyptian expatriates at USD225/sqm). We assumed commercial,

educational and industrial land prices are 1.5x, 0.75x and 0.25x residential land

prices, respectively.

Area


Construction cost

- As for our base case and best case, we used the samy payment facility

adopted currently by HELI.

- As for our worst case scenario, we use the payment plan that related to Beit

El-Watan land plots.

- As per the latest awards from HELI to contractors

- Consultants and supervision fees represent 4.5% of total construction cost.

5 years

Development plan

Self-development Self-development

Selling prices

Zero

Down payment

25% 25%

35%

Subdivision development




Page 16




Residential segment (including current developments) represents 91% of our base case

valuation for NHC (excluding 655 feddans that will be co-developed with SODIC)


Our base case EV for NHC (excluding 655 feddans) amounted EGP4,258mn


Residential segment (including current developments) represents 88% of our base case

valuation for NHC (including 655 feddans that will be co-developed with SODIC)


Our base case EV for NHC (including 655 feddans) amounted to EGP5,308mn


5,5523,857 3,948

614

400

6,166

4,2583,948


Residential (EGP mn) Non-Residential (EGP mn) Total Valuation (EGP mn)

EGP7,770mn

EGP5,308mnEGP4,380mn


Residential developmentEGP3,173mn

74.5%

Under construction & completed

units EGP684mn

16.1%

Commercial development

EGP315mn7.4%

Services & educational

landEGP82mn

1.9%

Industrial landEGP3mn

0.1%

Residential developmentEGP3,989mn

75.2%

Under construction & completed

units EGP684mn

12.9%

Commercial development

EGP549mn10.3%

Services & educational

landEGP82mn

1.5%

Industrial landEGP3mn

0.1%




Page 17



Valuation assumptions of Helio Park


* We assume that 85% of residential BUA will be allocated to apartments, while the remaining 15% will be allocated to villas.

Other general assumptions • In our base case scenario (self-development), we applied the “full completed method” for revenues recognition. • In our best case scenario (co-development agreement), we assumed that 72% of HELI’s revenue share will be recognized upon sale, while the remaining revenues will be recognized after four years (the same revenues recognition

method adopted by MNHD for its Capital Gardens project in Sarai). • We expect that the external infrastructure and moving electricity towers will cost EGP821mn and EGP60mn, respectively, to be expensed by the end of June 2017.


Best Case Base Case Worst Case Comment



Residential July-17 July-17 July-17

Non-Residential Jul-21 July-21 July-21

Residential

Commercial

Education

Services

Residential 6.3mn sqm - BUA 6.3mn sqm - BUA 4.6mn sqm - NLA

Commercial 0.3mn sqm - BUA 0.3mn sqm - BUA 0.3mn sqm - NLA

Education 0.1mn sqm - BUA 0.1mn sqm - BUA 0.1mn sqm - NLA

Services 0.3mn sqm - BUA 0.3mn sqm - BUA 0.3mn sqm - NLA




Education & services land plots EGP3,000/sqm - NLA EGP3,000/sqm - NLA EGP3,000/sqm - NLA

Residential EGP3,050/sqm - BUA

Commercial EGP11,295/sqm - BUA

Education

Services

Residential Zero EGP628/sqm - BUA

Commercial Zero EGP628/sqm - BUA

Education

Services

External infrastructure cost EGP270mn EGP821mn EGP821mn

Moving electriciy towers EGP60mn EGP60mn EGP60mn

Residential

Commercial

Education

Services

Residential

Commercial

Education

Services

Price 5% 5% 5%


- We assume a floor-to-area ratio (FAR) of 100% (considering the master plan

of Madinaty, Sarai and Taj City). As per BUA breakdown, we assume that 89% of

BUA will be allocated for residential, 5% for commercial (average of Madinaty

and Sarai) and 6% for other purposes.

- Development prices were determined according to selling prices in

Madinaty, Sarai and Taj City projects.

- Residential land price were assumed lower than Beit El-Watan project in New

Cairo.

- According to the cost related to Madinaty and Capital Gardens projects

- Consultants and supervision fees: 4.5% of total construction cost.

- As for our worst case scenario, the installement period were determined

according to the payment plan of Beit El-Watan.

- Units to be delivered after four years after sale.

Start Date of utilization

Installment period

EGP4,000/sqm - NLA

Subdivision Development

Co- Development

Subdivision Development Subdivision Development

Self - Development

Development plan


Down payment

- We assume that HELI will be entitled to 36% of revenues in exchange for the

land and external infrastructure cost. We set this assumption according to the

agreement terms between NUCA, Mountain View Egypt and Sisban Holding

signed in May 2015 to co-develop "iCity" project.

Area*

Selling prices

Construction cost

Internal Infrastructure cost

Zero Zero

Zero

EGP837/sqm - NLA

EGP837/sqm - NLA EGP837/sqm - NLA

5 years 5 years

6 years6 years

35%

15%

35% 35%

15%

5 years




Page 18



ResidentialEGP3,045mn

86.64%

CommercialEGP402mn

11.45%

OtherEGP67mn

1.91%


Expected cash flow evolution of Helio Park project




Valuation of Helio Park based on different scenarios Residential segment represents 87% of Helio Park valuation

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

EGP

mn

Cash inflow Cash outflow Net cash flow

3,818 3,515

2,039

EGP34.3/shareEGP31.6/share

EGP18.3/share

0

10

20

30

40

50

60

0

1,000

2,000

3,000

4,000

5,000

6,000


EGP/

shar

e

Val

uat

ion

-EG

P m

n




Page 19




73% of Nozha El-Obour valuation comes from under-constructed units Our EV for Nozha El-Obour came in at EGP259mn across our three scenarios


Valuation of land plots and developments in Heliopolis district based on different scenarios

Valuation method DCF

Utilization period 3 years

Residential

Commercial

Services Subdivision development

Residential - Apartment EGP3,500/sqm - BUA


Services land plots EGP3,579/sqm - NLA

Residential - Apartment EGP1,617/sqm - BUA


Services land plots Zero

Residential - Apartment EGP200/sqm - BUA

Commercial EGP200/sqm - BUA

Services land plots EGP200/sqm - NLA

Residential - Apartment 30%

Commercial 40%

Services land plots 40%

Residential - Apartment 3 years

Commercial 6 years

Services land plots 6 years

Development planSelf development

Selling prices

Construction cost


Down payment

Installment period

, * The competed units in Heliopolis will be sold over two years with payment plan over 3 years. As for land plot located in the eastern side of Almaza Airport, we assumed land price of EGP8,000/sqm due to limited heights


Completed units

EGP69mn27%

Work in progress

EGP190mn73%



Utilization period * 3 years 5 years 5 years

Residential - Apartment Self development Self development N/A

Residential - land N/A N/A Subdivision Development

Residential - Apartment EGP8,000/sqm - BUA EGP8,000/sqm - BUA N/A

Residential - land N/A N/A EGP15,000/sqm - NLA

Construction cost Residential - Apartment EGP3,000/sqm - BUA EGP3,000/sqm - BUA Zero

Residential - Apartment EGP50/sqm - BUA EGP50/sqm - BUA N/A

Residential - land N/A N/A EGP50/sqm - NLA

Residential - Apartment

Residential - land

Residential - Apartment

Residential - land

Price 10% 5% 5%


Total EV (EGP mn) 667 620 594

Total EV (EGP/share) 6.0 5.6 5.3

Development plan

Selling prices

Installment period 6 years 6 years 3 years



Down payment 40% 40% 40%




Page 20




Valuation assumptions for investment properties

Details of HELI’s investment properties

Source: Company’s reports, MubasherTrade Research estimates. • We assume rents of Tivoli according to the agreement signed with its tenants in July 2017. • HELI had offered Showland Casino fore lease in June 2008 at monthly rents of EGP525,000, adjusted by assigning an annual

escalation rate of 10%. • Child Park rent concluded according to settlement with Magic Dreams.

Base case valuation – Investment properties

Source: MubasherTrade Research estimates.

Best case valuation – Investment properties


Worst case valuation – Investment properties



Property Loca tion Area (sqm)2016 Annua l rents (EGP mn)

MTRe

Merryland Casino Merryland Park 25,800 36.00

Showland Casino Merryland Park 5,664 11.16

Child Park Merryland Park 4,760 0.95

Tivoli Almaza Square - Heliopolis 4,600 7.44

Other properties (old rental law) (824 units) Scattered in Heliopolis N/A 2.18

Merryland Casino

EGP53mn45%

TivoliEGP31mn

26%

Showland Casino

EGP22mn19%

Properties (old-law rent)

EGP7mn6%

Al Montazah garden

EGP3mn3%

Child ParkEGP2mn

1%

Merryland Casino

EGP53mn36%

Showland Casino

EGP36mn24%

TivoliEGP32mn

22%

Properties (old-law rent)

EGP8mn5%

Al Montazah garden

EGP13mn9%

Child ParkEGP5mn

4%

TivoliEGP31mn

81%

Other properties (old rents)EGP7mn

19%

Property Best Case Base Case Worst Case

Settlement with old tenants P

Col lecting old receivables P

Start of operations Jul -16 Jun-18

Cost of development plan EGP61mn EGP73mn

Rents annual esca lation rate 10% 10%

Terminal growth rate 5% 3%

Enterprise Value EGP108mn EGP79mn Zero

Rents annual esca lation rate 7% 7% 7%

Terminal growth rate % 5% 3% 2%

Enterprise Value 32.2 31.0 30.5

Rents annual esca lation rate Zero Zero Zero

Terminal growth rate % 5% 3% 2%

Enterprise Value 7.7 7.4 7.3

Enterprise Value EGP148mn EGP118mn EGP38mn

EV/share EGP1.33/share EGP1.06/share EGP0.34/share

Other general assumptions:

Gross profi t margin 73.0%

Average G&A to revenues 9.7%

WACC 22.5%

Merryland Properties

- Merryland Casino

- Showland Casino

- Child Park

Tivoli

Other Properties

(Old Rental Law)

Total valuation




Page 21



Net Asset Value (NAV)

HELI’s discounted NAV stands at EGP6.9bn (EGP62.2/share), which implies a P/NAV of 0.80x and an upside potential of 25%. Our DCF-based price target, implies a P/NAV of 1.63x.

Land valuation: EGP5.6bn (EGP50/share) We estimated HELI’s raw land based on recent prices of land transactions. Our land valuation model resulted in a value of EGP26.5bn before discount (EGP1,050/sqm) and EGP5.6bn after a calculated 79% discount (EGP220/sqm for the entire unutilized land bank ‘GLA’ after discount). This reflects our conservative valuation for HELI’s land. We highlight that all HELI's unutilized land bank (25.2mn sqm) is concentrated in the East Cairo, which is witnessing solid demand.

We applied different discount factors to each project according to its size and utilization period:

• SODIC’s co-development of 655 feddans (70%, 10 years). • NHC, excluding SODIC’s co-development area (79%, 20 years). • Helio Park (83%, 15 years). • Land plots in Heliopolis (42%, 5 years).

We used a WACC of 19.4% and assumed a 5% annual increase in land prices. We applied our calculated discount mentioned above to land bank NAV valuation due to:

• Sizeable land bank. HELI is the second largest listed real estate developers in term of land bank size (25.2mn sqm).

• Slower land monetization over the last years. • Slower development relative to its local peers. • Inefficient business model of selling land and the distribution of

most of cash inflows as dividends during the market boom over the last years.

• The lack of a clear strategy to monetize HELI’s raw land bank.

However, the new land auction and faster-than-expected land monetization can still lower our assigned discount factor on land valuation.

Key assumptions To estimate HELI’s NAV, we estimated the current market value of its assets, including land owned at the end of June 2015, then we adjusted for debt and other liabilities to derive at NAV per share. Accordingly, we adjust HELI’s equity value as follows:

• Excluding the book value of the company's undeveloped land and completed units.

• Adding our valuation of HELI’s land bank.

• As for the 655 feddans (co-developed with SODIC): We used a price of EGP1,821/sqm (based on its expected revenue share per sqm) with an annual increase of 5%, considering HELI’s share of revenues and the expected launch price. We assumed a utilization period of 10 years, resulting in a 69% discount rate.

• As for NHC (excluding the 655 feddans): We used a price of EGP1,000/sqm (based on recent land transactions in Al-Shorouk City and NHC) with an annual increase of 5%. We assumed a utilization period of 20 years with an annual escalation rate of 5%, resulting in a 78% discount rate.

• As for Helio Park: We set the starting land price at EGP2,250/sqm, according to the latest transaction in Future City in addition to land auctioned by NUCA in New Cairo. We assumed a utilization period of 15 years with land prices increasing at a rate of 5% p.a. Thus, the assigned discount rate amounted to 85%. Moreover, we considered the cost of external infrastructure amounting to EGP821mn.

• As for land plots scattered in Heliopolis distric: We used EGP15,000/sqm for the "available for purchase" net land area for the plot located in “Square 1258” and “Fourth Neighborhood (square 1169-1182 )”. We determined this land price according to latest auctions held by HELI to sell land plots in Heliopolis. As for land plot located in the eastern side of Almaza Airport, we assumed land price of EGP8,000/sqm due to limited heights (based on our call with property brokers in Heliopolis district. We assumed a utilization period of six years with a land price annual escalation rate of 5%, resulting in a 41% discount factor.

• We considered the market value of completed units owned by HELI at the end of June 2015.

• We added back the value of deferred profit on installment sales as they are non-cash liabilities.

• We did not consider the value of all disputed land, as we do not expect to see these conflicts resolved anytime soon.


HELI's Net Assets Value (NAV) stands at EGP250/share

before discount, while DNAV amounted to EGP62/share


EGP mn NAV DNAV

Equity (30 June 2015) 511 511

Le ss:

BV of land 2 2

BV of completed units 127 127

Add:

MTR valuation of land 26,504 5,564

Market value of completed units 180 180

Deferred profit on installement sales 794 794

NAV 2 7 ,8 6 0 6 ,9 2 0

No. of outstanding shares (mn shares) 111 111

NAV pe r sha re (EGP/sha re ) 2 5 0 .4 6 2 .2

Market price (EGP/share) 49.84 49.84

Upside (downside) potential 402.4% 24.8%

P/NAV (X) 0.2 0.8




Page 22




Total land valuation reached EGP5.6bn, implying EGP50/share after discount

Source: Company reports, MubasherTrade Research estimates, As for co-development agreements, we assume Floor to area ratio of 100%

* Excluding the disputed land area. ** Equal gross land area multiplied by its price or net land area multiplied by its price, adjusted after deducting SG&A, taxes and infrastructure cost. *** Deducting the external infrastructure cost. Source: MubasherTrade Research estimates

Recent land transaction prices and implied land price for co-development agreements

Down payment Installement period

Land transactions

NUCA Marina Way Lagoon 630,000 GLA Aug-15 2,073 3,290 na na

NUCA Al Hayat Development 357,000 GLA Aug-15 1,139 3,191 na na

NUCA Masr El Mahrousa 147,000 GLA Aug-15 533 3,625 na na

El Mostakbal Urban Development Wadi Degla 2,350,000 GLA Feb-15 3,779 1,608 10% 7

El Mostakbal Urban Development Al-Ahly for Real Estate Development 453,600 GLA Feb-15 645 1,421 na na




NUCA SODIC 1,264,200 GLA May-14 2,424 1,917 10% 4

NUCA - Beit El-Watan Egyptian expatriates na NLA Mar-16 na 4,884 35% 5

Co-development agreements

NUCA Mountain View Egypt and Sisban 2,100,000 GLA Mar-15 3,400

MNHD PHD 433,643 GLA Mar-15 2,520

Average price for GLA (EGP/sqm) 2,243

Average price for NLA (EGP/sqm) 4,884

Average price for co-developed GLA (EGP/sqm) 2,960

Seller Land Area

(sqm)Buyer

Transaction/auction

date

Transaction value

(EGPmn)

Transaction price

(EGP/sqm)

Payment termArea

Type

EGP1,635/sqm

EGP1,050/sqm

EGP343/sqm

EGP220/sqm

NLA

GLA

16.2mn sqm

25.2mn sqm

Area

Before Discount After Discount

26,504 5,564

Net Value of Land (EGP mn)

GLA NLA GLA NLA

New Heliopolis City (NHC)

655 feddans in NHC (co-developed with SODIC) 2,751,000 -- 1,821 -- 5,010 3,689 33.15 10 70% 1,105 9.93

NHC (remaining land) 15,261,945 -- 1,000 -- 15,262 11,237 101.00 20 79% 2,389 21.47

Helio Park - New Cairo*** 7,119,050 -- 2,250 -- 16,018 11,199 100.66 15 83% 1,848 16.61

Heliopolis

Square 1258 -- 2,261 -- 15,000 34 25 0.22 5 42% 14 0.13

Fourth Neighborhood -- 1,703 -- 15,000 26 19 0.17 5 42% 11 0.10

Eastern s ide of Almaza a irport -- 58,646 -- 8,000 469 336 3.02 5 42% 196 1.76

Total 36,818 26,504 238.22 79% 5,564 50.01

Discount

factor

Discounted

net va lue

(EGP mn)

Discounted

net va lue

(EGP/share)

Uti l i zation

period

(year)

Unuti l i zed land area (sqm)* Price (EGP/sqm) Total va lue of

land (EGP mn)

Adjusted

value of land

(EGP mn)**

Land

Adjusted

value of

land

(EGP/share)




Page 23




Investment Rationale

• Massive, prime-located land bank (GLA of 25.2mn sqm) in East Cairo with a location proximate to Egypt’s new capital city.

• Land auctions in neighboring land areas could lead to higher land price.

• HELI is set to benefit from strong demand for middle-income housing.

• Although HELI’s old leased properties have minimal contribution to its total revenues, any change in ‘old rent’ regulations should boost these leased properties’ value and enhance HELI’s valuation.

• Sizeable fast growing population (88.4mn people) with attractive demographics (61% of population is below 30 years of age).

• High number of annual marriages (953,000 in 2014, +4.8% YoY).

• Absence of other low-risk investment alternatives competing for the average citizen’s savings.

• A high-inflation environment, local currency devaluation, and unattractive real interest rates push investors towards real estate investment, which act as an inflation hedge.

• Egyptians prefer property ownership over renting, further supporting continuous demand for real estate.

• Households of the middle- and the high-income segments often change their residences to new cities on the outskirts of Cairo, with better infrastructure and traffic conditions, such as New Cairo and Sixth of October City. Moreover, many companies, schools, and even sporting clubs have relocated their premises to new cities.

• National mega projects, such as the New Suez Canal Development Axis and the New Cairo Capital, could significantly impact demand for properties in the medium and long terms if it leads to higher employment.

• The government’s initiatives to lower mortgage rates could stimulate demand further.

• Legal conditions for investment improved notably as evident in the resolution of many legal disputes over the last few years.

• Huge investments in infrastructure should boost the property market.

• Lower prices as opposed to regional peers could attract more FDIs into the sector, especially in the case of an Egyptian pound devaluation vis-à-vis the US dollar.

Key Risks

• Slow land monetization with unclear strategy for utilizing most of the company’s land bank.

• Development of current projects and setting infrastructure require additional funds.

• High exposure to any fluctuation in land prices.

• Concentration risk as HELI’s land bank is entirely situated in East Cairo and mainly catering to the residential market.

• Given that HELI does not provide a clear plan of how it will utilize its raw land over the long run, its stock could be driven more by market sentiment than fundamental factors.

• Selling commercial shops and services land in a low-traffic city like New Heliopolis might deprive HELI of the opportunity to recognize sizeable recurring revenues in the future. This would be further exacerbated if the sale of such units is executed at a large discount as opposed to selling them after HELI’s projects become more occupied.

• Mortgage finance is inactive due to currently-high mortgage rates.

• Although the supply/demand gap would continue, most of the demand is concentrated in the low-income housing segment, while mega developers focus on the upper-middle income housing segment.

• The application of property taxes and higher interest rates could reduce investors' appetite towards the sector.

• The strong growth in prices over the last few years resulted in a lack of affordability across the upper-middle income and high-end segments.

• Remittances from Egyptian expats, which had supported the sector’s performance over the last years, started to decline in view of the drop in oil prices (remittances declined c.12% YoY in H1 FY2015/16) in addition to the layoff of Egyptians working in GCC countries.

• Higher deposit rates and speculation on the US dollar could negatively affect real estate investment, drawing attention to a different asset class.

• Intensifying competition among Egyptian developers, particularly after the government’s intervention by offering land plots (land sales or co-development agreements) and units.




Page 24



Business model has long been inefficient, mainly due to slow land monetization: HELI had historically adopted an inefficient business model, thus missing a significant positive opportunity to exploit the booming real estate sector during the last few years. This inefficiency was evident in the following:

• Generating revenues from land sales instead of developing these lands.

• Sustaining a high dividend payout ratio that negatively affected HELI’s cash cycle, forcing it to partially rely on short-term borrowing to finance the construction of its small development properties.

• Ironically, the low historical rate of HELI’s land monetization indicates that it needs 138 years to finalize the development of its remaining land bank (25.2mn sqm).

• Adopting a “built-for-sale” business model had depressed the company’s presales due to its low execution rate.

• HELI could not benefit from most of its recurring revenue-generating assets as a result of its inability to settle its legal disputes.

• Excess number of employees.

HELI lags behind peers despite its sizeable land bank: Although HELI is the second largest listed developers in terms of land bank, the company has shown a notable weak performance due to its inefficient business model. This was evident in its low annual presales of EGP0.43bn compared to a peers’ average presales of EGP5.3bn in 2015. This underlines the company’s inability to capitalize on its prime-located land bank. Although the company had secured Helio Park land in 2003, the land is still raw, having missed the booming properties market in New Cairo during the last few years.

… thus, some steps were recently taken, subject to a turnaround story of HELI’s business: HELI started to shift its strategy towards a more efficient business model, which could shape its turnaround story over the coming years. This shift is evident in:

• Halting residential land sales and targeting more contribution from properties developments’ revenues.

• Signing an agreement with SODIC to co-develop 655 feddans (2.8mn sqm) in NHC. We believe that attracting more new partners to co-develop other land plots will positively affect the company’s valuation.

• Securitization of receivables to finance the infrastructure cost of mega developments.

• Paying the first installment (EGP135mn) of the Helio Park external infrastructure cost.

• Shortening the installment period from 10 years to around six years, while increasing the down payment amounts from 10-20% to 35-40% in the last few years.

• Adopting an “off-plan sale” model which is widely followed by other Egyptian developers.

• Designing a plan to double its capital through a rights issue.

• Launching modern development (gated compounds) to exploit the solid demand.

• Securing loans with longer maturities and grace periods instead of relying on overdrafts.

• Co-establishing a property marketing company through a 5% stake of its eGP30mn target capital. Moreover, HELI Establishing a maintenance and services company.

• Evicting Merryland old tenants (Magic Dreams) and awarding EGP30mn contract for EGYCO to (EGYCO)to develop the first phase (22 feddans) of Maryland park.

Expected robust revenues growth in the financial year ending June 2016 on the back of collecting receivables; flourishing future if the turnaround materializes: We expect that HELI would post revenues of EGP683mn in 2016 (42% YoY) with a 7-year CAGR (2015-2022) of 26%, assuming that the company delivers a turnaround story. Although adopting an off-plan sale model could hinder revenues growth in 2017 (because of revenue recognition upon handover), we expect HELI to recognize impressive revenues starting 2018 as it recognizes its land revenue share (most of which is recognized upon sales) related to its co-development agreement with SODIC to develop 655 feddans in NHC. Moreover, we expect the current receivables factoring contract will accelerate revenue recognition even further. We believe that BUA handover will dominate revenues over the coming years after halting residential land sales, thus depressing profitability margins to hover around 50% over the long term. Gross profit margin had reached impressive levels during the last years as the company had been recording its land bank value at historical cost, while it was relying mainly on land sales rather than development. However, profitability margins should decline over the coming years due to more contribution from handover revenues. On the projects’ front, NHC is expected to contribute the most to revenues over the coming years.

Land sales-dominated presales, yet we expect more contribution from development sales: Historically, HELI’s land sales dominated its revenues structure, representing 56% and 67% of total pre-sales and revenues, respectively during the period between 2009 and 2015. However, we believe that this revenue mix will change over the coming years as land sales will represent 1% and 7% of total pre-sales and revenues, respectively during the period between 2016 and 2022, as per our estimates. We anticipate that presales growth (2015-2022 CAGR of 65%) will be fueled by adopting an off-plan sale plan with a lucrative

payment structure. Meanwhile, we expect major contribution from development sales.

Cash position was negatively affected by high dividend payout ratio: Owing to the government’s controlling stake in HELI, the latter has been implementing an aggressive dividend policy over the last few years by distributing most of its earning as dividends. For the previous seven years, HELI recorded an average dividend payout ratio of 82%. Concurrently, the company’s new projects require additional funds, particularly for its mega development in NHC and Helio Park. This inefficient strategy has negatively affected the company’s cash cycle and deprived it from the utilization of its land bank during the booming property market. HELI had to secure its needed funds from overdrafts during the last years, which depressed its profitability. Going forward, we believe HELI will secure its needed funds through long-term loans or partnership with other developers.

HELI’s stock price implies an unjustified land price because of a weak market sentiment on the back of its inefficient business model: Currently, HELI’s stock price implies an EV/sqm (unutilized land) of EGP229/sqm, which is still cheaper than its local peers’ average EV/sqm (unutilized land) of EGP639/sqm. As per our valuation, HELI’s EV/sqm (unutilized land) stands at EGP389/sqm, which is still lower than the local peers’ average, underscoring our conservative valuation.

Business Model




Page 25



0.11 0.070.16 0.13

0.18 0.17

0.07

0.01 0.05

0.02 0.05

0.06 0.07

0.08

-60%

-40%

-20%

0%

20%

40%

60%

0.00

0.10

0.20

0.30

Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15

mn

sq

m

Developed land area

Sold land area

Total sold and developed area change %

Revenues and earnings are set to grow notably

Source: Company reports, MubasherTrade Research estimates.

On the presales front, HELI lags behind its peers despite

its sizeable land bank…


High dividend payout negatively affected HELI’s cash

cycle…


Going forward, Land sales contribution is set to decline


No. of employees are not commensurate with the

company’s operating performance


HELI has relied more on overdraft and suffered from

tight liquidity


HELI’s revenues will be dominated by NHC


Halting residential land sales depressed land utilization, but

going forward this will positively affect HELI’s operations


Current stock price implies unjustified land prices for

HELI’s land

Source: Company reports, MubasherTrade Research estimates, * Based on stock current market price

TMG Holding

Heliopolis Housing

PHD *

Emaar Misr

MNHD

SODIC

0

2

4

6

8

10

0 10 20 30 40

20

15

pre

-sal

es (

EGP

bn

)

Raw land bank (mn sqm)

Business Model (Cont.’d)

1,309

724 613 609

351229

389

0200400600800

1,0001,2001,400

EMFD MNHD PHD SODIC TMG HELI -MP*

HELI -MTRe

PTEG

P/sq

m

EV/Un-utilized land bank (EGP/sqm)

Average EGP639/sqm

TMG Holding

Heliopolis Housing

PHD

Emaar Misr

MNHD

SODIC

0

2

4

6

8

10

0 1,000 2,000 3,000 4,000 5,000

20

15

pre

-sal

es (

EGP

bn

)

No. of employees

326 232 111 40 41 43154 242 315 507

1,049

1,907480 474 426 547

1,090

1,950

0%

20%

40%

60%

80%

100%

0

500

1,000

1,500

2,000

2,500

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

EGP

mn

Land sales Development pre-sales

Total pre-sales Land sales contribution (RHS)

33

8

42

0

48

1 68

3

54

0 81

1

20

3

25

4

30

1 47

7

37

8 69

1

13

6

18

4

20

5

34

4

15

4 33

4

60% 60% 63%70% 70%

85%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1,000

1,500

2,000

2,500


EGP

mn

Revenues Gross profit Net income GPM

0

500

1,000

1,500

2,000

2,500

Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

EGP

mn

NHC Heliopolis El-Obour Investment properties

0.8

9

1.3

6

1.1

3

0.9

7

1.2

2

1.6

5

1.8

4 3.0

9

1.3

8

3.0

0

1 1.5

0.9

0.7

5

0.8

5

1 1.2

5

1.5

5

0.6

9 1.5

0

0%

20%

40%

60%

80%

100%

120%

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50 EPS DPS DPO

176204 227 207

386

158

3 4 24

9241 59

0%

20%

40%

60%

80%

100%

0

100

200

300

400

500


EGP

mn

IBD Cash Balance Net Debt to Equity (RHS)




Page 26




Disputed land/property Location Area (sqm) Case Description

New Heliopolis land plot

Al-Shorouk 3,305,400

HELI faced a number of land encroachments in respect in its NHC before the issuance of Presidential Decree No. 193 for 1995 that stipulated the ownership transfer of the New Heliopolis City land to HELI. The land encroachment included the disputed plot between HELI and Egyptian businessman Mr. Abo El-Enein spanning over 280 feddans in addition to other plots of around 507 feddans. Thus, the total area of the lands encroached on in NHC amounts to 787 feddans (3.3mn sqm). Several verdicts were issued to uphold HELI’s right to the disputed lands, but so far the company was not able to repossess these land plots.

Raw land on the left side of Cairo-Suez Road

Heliopolis 2,262,357

HELI owns raw land plots on the left side of Cairo-Suez Road spreading across 2.3mn sqm. A large portion of these land plots is located within the easement territory of Cairo Airport, where it is prohibited to perform any construction activity, even if for only one-meter high above the ground. Meanwhile, another portion of these land plots (225,000 sqm) was encroached on by the Egyptian Central Security Forces (CSF). HELI has filed a lawsuit to restore these land plots and mandated a legal counselor in an attempt to obtain a reasonable compensation in the form of an alternative land plot.

Ghernata Land Heliopolis 11,400

Ghernata City is located at the heart of the Heliopolis area in front of the Merryland Park, where it spreads across 11,400 sqm. HELI has started a promising development plan to utilize Ghernata City’s land through initiating a real estate project with investments close to EGP500mn, but the project’s buildings have been classified as historic landmarks, Class A. Therefore, HELI formed a committee to negotiate with the National Organization for Urban Harmony to change the classification of the historic buildings to become Class C which would allow construction of a 3-story high building as opposed to Class A which bans construction around the historic buildings. HELI strives to restore such historic buildings and keep them as part of the project’s master plan. Gross floor area of these historic buildings amount to 900 sqm.

Merryland Casino Heliopolis 25,800 Since August 2008, Magic Dreams (the tenant of Merryland Casino) has not paid any rental for the casino that is located inside Merryland Park over 25,800 sqm.

Showland Casino Heliopolis 5,664 HELI carried out a number of attempts to exploit Showland Casino located inside the Merryland Park extending over an area of around 5,664 sqm. However, those attempts have been in vain due to a current legal dispute between both HELI and Magic Dreams. In April 2014, HELI held an auction where it offered Showland Casino for lease, but the auction was halted following a court verdict.

Child Park Heliopolis 4,760 HELI is still unable to utilize Child Park that extends over an area of 4,760 sqm inside the Merryland Park, as the tenant (Magic Dreams) did not follow through with paying the rental value since February 2013 .

The NDP Building Heliopolis 1,500

HELI owns a two-story building with an area of 1,500 sqm. The building is located in front of the Merryland Park and was leased to the National Democratic Party (NDP) before being dissolved in 2011. Following the Egyptian Revolution of January 2011, the Prime Minister confiscated the building and allocated it later on to the Specialized National Councils. HELI filed a lawsuit before the Administrative Court to cancel this decision and retrieve the building. In July 2015, the Administrative Court issued a verdict upholding the company’s right to the building.

Other disputes

There are some other legal disputes, such as that over the ownership of the residential apartments which have been leased to the metro workers, while HELI should regain ownership of those units after the dismantling of Heliopolis Metro. There are also many rental units that have been violated by tenants who also did not pay their rents. There is also a 21,659 sqm parcel of land that has been encroached on by Almaza Air Base, leading to disputes between the company and the Armed Forces. Currently, HELI is taking legal actions to regain this land.

Legal disputes

Appendix | Legal Disputes




Page 27



New Heliopolis City

EGP3,305mn58%

The left side of Cairo-Suez Road

EGP2,262mn39%

The eastern side of Almaza

AirportEGP173mn

3%

Valuation of disputed land area


Valuation of disputed land area after discount amounted to EGP0.9bn


Valuation of disputed land area before discount came in at EGP5.7bn


Appendix | Legal Disputes (Cont.’d)

New Heliopolis City

EGP517mn56%

The left side of Cairo-Suez Road

EGP354mn39%

The eastern side of Almaza

AirportEGP44mn

5%

Discount

factor

Discounted

net value

(EGP mn)

Discounted

net value

(EGP/share)

GLA NLA GLA NLA

New Heliopolis City 3,305,400 -- 1,000 -- 3,305 2,434 21.87 20 79% 517 4.65

The left side of Cairo-Suez Road 2,262,357 -- 1,000 -- 2,262 1,666 14.97 20 79% 354 3.18

The eastern side of Almaza Airport -- 21,659 -- 8,000 173 128 1.15 10 65% 44 0.40

Total 5,741 4,227 37.99 0 78% 916 8.23

Disputed land

Uti l i zation

period

(year)

Land area (sqm)* Price (EGP/sqm) Total va lue of

land (EGP mn)

Adjusted

value of land

(EGP mn)*

Adjusted

value of

land

(EGP/share)



Important Disclosures METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer’s intrinsic value on a per-share basis. In doing so, we follow both top-down and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation.

COUNTRY MACRO RATINGS: We analyze the four main sectors of a country’s macroeconomics, then we assign , , and star for low risk, moderate risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (30% weight), (b) Monetary Sector (10% weight), (c) Fiscal Sector (25% weight), (d) External Sector (15% weight), and (e) Credit Rating and Outlook (20%).

STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the “Neutral” borderline (below which is “Underweight”) as 20% of RRR for Country Macro Rating, 40% of RRR for Country Macro Rating, and 60% of RRR for Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year.

SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating – Overweight, Neutral, or Underweight – for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country.

Low

(1)

Moderate

(2)

High

(3)

Buy

(B)Higher than RRR Higher than RRR Higher than RRR

Hold

(H)

Between RRR

and 20% of RRR

Between RRR

and 40% of RRR

Between RRR

and 60% of RRR

Sell

(S)

Lower than 20%

of RRR

Lower than 40%

of RRR

Lower than 60%

of RRR

Not Rated

(NR)

Not Covered

(NC)

We do not currently cover this stock or we are

restricted from coverage for regulatory reasons.

Inv

es

tme

nt

Ra

tin

g

Risk Rating

We have decided not to publish a rating on the

stock due to certain circumstances related to the

company (i.e. special situations).

If

Total Return

is …

Disclosure Appendix

SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows “DCF” valuation model(s), (2) relative valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to scan the market for other analysts’ value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security’s expected total return (including both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return “RRR” as calculated using the Capital Asset Pricing Model “CAPM” and adjusted for the Risk Rating we attach to each security. Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow “DCF”), asset-based valuation models (e.g. Net Asset Value “NAV”), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), or a combination of them. In case we do not have our own valuation model, we use a weighted average of market consensus price targets and ratings. We review the investment ratings periodically or as the situation necessitates.

SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings (High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security’s average annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates.

Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities.

Analyst Certification I (we), Mahmoud Ibrahim, Senior Equity Analyst, employed with Mubasher International, a company under the National Technology Group of Saudi Arabia being a shareholder of Mubasher Financial Services BSC (c) and author(s) to this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also, I (we) certify that neither myself (ourselves) nor any of my (our) close relatives hold or trade into the subject securities.

Head of Research Certification I, Amr Hussein Elalfy, Global Head of Research of Mubasher Financial Services BSC (c) confirm that I have vetted the information, and all the views expressed by the Analyst in this research report about the subject issuer(s) or security(ies). I also certify that the author(s) of this report, has (have) not received any compensation directly related to the contents of the Report.

Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mubasher Financial Services BSC (c) (‘MFS’) has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; MFS makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the document are based upon publicly available information at the time of publication and are subject to change without notice. This document is not intended for all recipients and may not be suitable for all investors. Securities described in this document are not available for sale in all jurisdictions or to certain category of investors. The document is not substitution for independent judgment by any recipient who should evaluate investment risks. Additionally, investors must regard this document as providing stand-alone analysis and should not expect continuing analysis or additional documents relating to the issuers and/or securities mentioned herein. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognized market, it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. References to ratings/recommendations are for informational purposes only and do not imply that MFS adopts, supports or confirms in any way the ratings/recommendations, opinions or conclusions of the analysts. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MFS or its affiliates to any registration or licensing requirements within such jurisdiction. MFS accepts no liability for any direct, indirect, or consequential damages or losses incurred by third parties including its clients from any use of this document or its contents.

Copyright Copyright © 2016, Mubasher Financial Services BSC (MFS), ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of MFS. MubasherTrade is a trademark of Mubasher Financial Services BSC. Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain.

Issuer of Report Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Website: www.MubasherTrade.com E-mail: [email protected]









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