Company Profile

By Imran Almaleh CFA LII Candidate

BSBA Finance & Banking

EMAAR Properties PJSC

• Public Joint Stock Company (PJSC) listed on DFM, Established in 1997 with a capital of AED 1 bn.

• Emaar Properties is currently the region's largest land and real estate developer.

• In 2007, the government of Dubai, through the Investment Corporation of Dubai, took a 32% equity stake in Emaar by exchanging land for 28 billion AED worth of stock.

• Activities: – property investment and development

– property management services

– education, healthcare, retail and hospitality sectors

– investing in financial service providers

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Real estate , 55.65%

Leasing and

related activities ,

30.36%

Hospitality

, 13.99%

Revenue Structure (as of 9 month ending Sep-2013)

Domestic, 89%

International, 11%

Total Revenue (‘000) AED 7,565,784

EMAAR Properties PJSC

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Financial Summery

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Key Financial Ratios 2013E Total Debt 11,059.7 Total Debt/Capital 24.24% Minority Interest 271.8 Total Debt/EBITDA 3.24 Equity 34,288.3 ROE 6.89%

Total Capitalization 45,619.8 Debt/Equity 32.25%

Standard P&L (AED mn) 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Sales 8,413.3 12,150.3 8,112.3 8,239.9 8,252.4 10,420.5 12,429.7 15,519.7

%Growth 44.42% -33.23% 1.57% 0.15% 26.27% 19.28% 24.86%

EBITDA 3,190.3 4,048.1 3,290.9 3,336.0 3,416.2 3,979.2 4,756.6 5,584.0

%Growth 26.89% -18.70% 1.37% 2.41% 16.48% 19.53% 17.40%

%Margin 37.92% 33.32% 40.57% 40.49% 41.40% 38.19% 38.27% 35.98%

Depreciation (635.7) (804.6) (762.5) (767.2) (755.0) (753.2) (749.7) (872.0)

Operating income (EBIT) 2,554.6 3,243.5 2,528.5 2,568.7 2,661.2 3,226.0 4,006.9 4,712.0

%Growth 26.97% -22.05% 1.59% 3.60% 21.22% 24.21% 17.60%

%Margin 30.36% 26.69% 31.17% 31.17% 32.25% 30.96% 32.24% 30.36%

Net interest income/(expense) 139.0 (90.0) (169.9) (361.0) (379.0) (200.1) 51.6 226.8

Pre-tax profit 2,159.2 2,723.0 2,127.3 2,111.2 2,356.5 3,187.7 4,158.7 5,142.4

Effective tax rate 80.4% 0.1% (2.6%) 0.2% 0.3% 0.3% 0.3% 0.3%

Provision for income taxes (1,736.9) (1.6) 54.7 (4.2) (6.7) (8.8) (11.8) (14.4)

Minorities 37.9 (28.8) (124.0) 12.2 13.6 18.4 24.0 29.7

Net income (post-exceptionals) 2,089.2 2,448.2 1,793.9 2,119.1 2,363.5 3,197.2 4,170.8 5,157.6

%Growth 17.18% -26.72% 18.13% 11.53% 35.28% 30.45% 23.66%

%Margin 24.83% 20.15% 22.11% 25.72% 28.64% 30.68% 33.56% 33.23%

EPS (AED) 0.08 0.44 0.34 0.35 0.39 0.52 0.68 0.85

Stock Price 24-2-2014 8.77

Premium/(Discount) to 52 Week High 9.13 (3.9%)

52 Week Low 5.04 74.0%

52 Week Average 7.09 23.8%

Number of Shares Outstanding (mn) 6,317

Total Equity Value (mn) AED 55,400

Plus: Total Debt AED 12,055

Less: Cash (AED 7,770)

Total Enterprise Value AED 59,685

Total Enterprise Value as a Multiple of: Amount (AED, mn) Multiple

Net Revenue 2013E 8252.44 7.2X

2014F 10420.50 5.7X

2015F 12429.71 4.8X

EBITDA 2013E 3416.23 17.5X

2014F 3979.24 15.0X

2015F 4756.58 12.5X

EBIT 2013E 2661.21 22.4X

2014F 3226.00 18.5X

2015F 4006.88 14.9X Current Share Price as a Multiple of:

EPS 2013E 0.39 22.6X

2014F 0.52 16.7X

2015F 0.68 12.8X

Current Trading Statistics

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Trade 937

Value 150,869,564

YTD Change % 14.79%

Price 8.77

Previous 8.85

Change % -0.90%

Volume 17,347,972

EMAAR Stock Performance

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1 Year Relative Historical Performance

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5 Years Relative Historical Performance

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Analysis of Shares Traded (1 Year)

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0.48%

55.82%

19.09% 14.84%

9.78%

<= 5.07 5.08 - 6.04 6.05 - 7.01 7.02 - 7.98 7.99 - 8.95

% T

rad

ed

Vo

lum

e

Price Range

Forward PE ratio

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8.0X 8.7X 9.2X

22.6X

16.7X

12.8X

10.4X 12.7X

2010 2011 2012 2013E 2014E 2015E 2016E 2017E

PE EMAAR PE

Dubai Financial Market* PE ratio

Current P/E Ratio 89.63

Estimated P/E (12/2014) 52.29

* We used the DFM stock as an approximation for the market index

VALUATION CONSIDERATIONS

Summery of EMAAR Valuation

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4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 22.00 24.00 26.00 28.00

Analyst Estimate

DCF - EBITDA Multiple

DCF - Perpetual Growth

Revineu Multiple

EBITDA Multiple

EBIT Multiple

PE Multiple

52 weeks High - Low

Methodology

Current Stock Price

11.8 14.8

11.6 13.7

7.7 17.7

15.6 22.8

15.2 26.7

11.4 15.7

9.2

9.2

5

16 12

Analysis of Selected Comparable firms

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Enterprise Value as a Multiple of Stock Price as a

Multiple of

Equity Enterprise Revenue EBITDA EBIT Earnings per Share

Company Value Value 2012A 2013E 2014P 2012A 2013E 2014P 2012A 2013E 2014P 2012A 2013E 2014P

Arabtec 15,132 20,346 3.6X 2.9X 2.1X 52.6X 32.6X 23.7X 188.4X 58.1X 38.0X 68.9X 43.8X 32.1X

Deyaar 7,685 9,741 17.6X 13.5X 12.8X 97.4X 34.1X 62.4X 103.7X 34.4X 64.1X N/A 44.3X 66.5X

Drake & Skull Industries 3,953 7,334 2.2X 1.5X 1.3X 37.0X 39.0X 18.9X 62.2X 39.0X 24.3X 43.3X 24.7X 19.2X

Union Properties 7,003 13,306 8.1X 3.0X 5.9X 113.7X 81.1X 71.5X 135.4X 88.7X 44.5X 41.6X 4.4X 52.0X

EMAAR 57,594 63,397 7.7X 6.1X 6.3X 20.7X 18.6X 17.7X 27.6X 23.4X 22.3X 26.0X 21.7X 22.2X

HIGH 17.6X 13.5X 12.8X 113.7X 81.1X 71.5X 188.4X 88.7X 64.1X 68.9X 44.3X 66.5X

AVERAGE 7.9X 5.2X 5.5X 75.2X 46.7X 44.1X 122.4X 55.1X 42.7X 51.2X 29.3X 42.5X

MEDIAN 5.8X 2.9X 4.0X 75.0X 36.5X 43.1X 119.6X 48.6X 41.2X 43.3X 34.3X 42.1X

LOW 2.2X 1.5X 1.3X 37.0X 32.6X 18.9X 62.2X 34.4X 24.3X 41.6X 4.4X 19.2X

Analysis of Selected Comparable firms

Shares Outstanding 6,317 Net Debt 5,803

Implied Enterprise Implied Equity Implied Price

Statistic Multiple Range Value Value Per Share

Revenue

LTM 8,240 7.0X 15.0X 57,679 123,599 51,876 117,796 8.21 18.65

2013 10,328 5.0X 12.5X 51,640 129,100 45,837 123,297 7.26 19.52

2014P 9,992 5.5X 10.0X 54,956 99,920 49,153 94,117 7.78 14.90

Range 7.75 17.69

EBITDA

LTM 3,061 40.0X 50.0X 122,440 153,050 116,637 147,247 18.46 23.31

2013 3,406 35.0X 45.0X 119,210 153,270 113,407 147,467 17.95 23.34

2014P 3,588 20.0X 40.0X 71,760 143,520 65,957 137,717 10.44 21.80

Range 15.62 22.82

EBIT

LTM 2,294 62.2X 119.6X 142,586 274,248 136,783 268,445 21.65 42.50

2013 2,709 34.4X 48.6X 93,249 131,584 87,446 125,780 13.84 19.91

2014P 2,841 24.3X 41.2X 69,036 117,049 63,233 111,246 10.01 17.61

Range 15.17 26.67

Earnings per

Share

LTM 0.35 40.0X 43.3X 5,803 94,241 88,438 95,734 14.00 15.16

2013 0.42 29.3X 34.3X 5,803 83,540 77,737 91,003 12.31 14.41

2014P 0.41 19.5X 42.5X 5,803 56,308 50,504 110,074 8.00 17.43

Range 11.43 15.66

2/24/2014 EMAAR Profile - By Imran Almaleh

Discounted Cash-flow Analysis (AED '000,000, except per share data)

2013 2014 2015 2016 2017

EBITDA 3,406 5,467 7,745 11,355 17,210

EBIT 2,651 4,484 6,451 9,591 14,720

Less: Cash Taxes @ 1.02% (27) (46) (66) (98) (150)

Tax-effected EBIT

(NOPAT) 2,624 4,438 6,385 9,493 14,570

Plus: Depreciation 755 983 1,294 1,764 2,490

Less: Capital

expenditures (717) (678) (678) (698) (690)

Less: Change in net

working capital 2,676 (136) 1,151 (4,447) (2,535)

Unlevered free cash flow

5,338 4,607 8,153 6,113 13,834

WACC @ 16.0%

NPV of Unlevered free cash flow @ 16.0% 23,189

EBITDA MULTIPLE METHOD

Terminal Value Undiscounted Discounted

Implied

Perpetual

Growth Rate

EBITDA Multiple Low 6.0x 103,259 56,962 1.69% Hi 8.0x 137,679 75,949 4.93%

DCF Range (Implied Enterprise Value) 80,151 99,138

Equity Value 74,348 93,335

Implied Price per Share 11.77 14.78

PERPETUITY GROWTH METHOD

Terminal Value Undiscounted Discounted

Implied

EBITDA

Multiple

Perpetuity Growth

Rate 1.5% 101,746 56,127 5.9x

4.0% 125,909 69,456 7.3x

DCF Range (Implied Enterprise Value) 79,316 92,646

Equity Value 73,513 86,842

Implied Price per Share 11.64 13.75

2/24/2014 EMAAR Profile - By Imran Almaleh

WACC Calculations

Actual Estimated

2010 2011 2012 2013

Net Debt to Equity Ratio 19.57% 26.13% 14.72% 16.79% Capital Structure

Average 19.31% Debt 16.18%

Equity 83.82%

(AED

'000,000)

Actual Estimated

2010 2011 2012 2013

Interest Expence (355) (562) (705) (746)

Net Debt Outstanding 6,127 8,256 4,832 5,803

Cost of Debt 5.79% 6.81% 14.59% 12.85% Average 10.01%

Tax rate 1.02% After-Tax Cost of Debt 9.91%

Beta 1.26 Risk free rate 2.50% Equity Risk Premium 11.68%

Cost of Equity 17.22%

WACC 16.03%

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References

• 4-traders.com

• Aljazira Capital EMAAR initiation report 2012

• Asma.info

• Bloomberg.com

• Dfm.ae

• EMAAR Annual, Semi-annual financial Reports

• Goldmen-Sachs Quantum: EMAAR (Dec-19-2013)

• Gulfbase.com

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