PRIME INVESTMENT RESEARCH AUTOMOTIVE |EGYPT

GB AUTO – INITIATION OF COVERAGE JANUARY, 14TH

2016

PRIME INVESTMENT RESEARCH

HOUSING|EGYPT MADINET NASR – VALUATION UPDATE

APRIL,30TH 2017

We updated our valuation for MNHD, as the company`s dynamics have changed significantly. We currently value MNHD based on a SoTP-DCF methodology with only 20% of both residual land plots in Sarai and Taj City being valued on a NAV basis, as such land plots will be dedicated to the establishment of commercial properties, hence turning MNHD towards becoming a cities` developer, fully equipped with all modern amenities.

MNHD currently owns approximately 10mn Sqm of land area, obtained at negligible land costs and free from legal disputes and time restrictions for development, a major advantage over most peers, guaranteeing the continuity of high margins over the horizon. The main value additivity comes from Sarai`s 5.5mn Sqm and Taj City 3.5mn Sqm projects, both privileged by significantly strategic locations in East Cairo; strongly benefiting from East Cairo`s prices rerating.

The company is currently well positioned in the middle-high income brackets` developers, offering one of the most competitive payment plans, comprised of a zero down-payment and equal installments over 6-years, with the first installment unrecoverable in case of cancelation; however, the company`s management indicated that cancelation rates are minimal. Which is reasonable to date, as the company`s pricing over the past 3 years were still below current peers, but catching up.

The successful turnaround that resulted from some hierarchical and managerial reforms, led MNHD to unlock the company`s assets` values, following BPE acquired stake back in 2006. Apparent in recording EGP 3.8bn of net sales in 2016 including Capital Gardens, 4.3 folds higher than 2015 sales. The management expects EGP 5bn of new contracted sales in 2017, 13% higher than our estimate of EGP 4.44bn, from which EGP 1.75bn (c. 40% of our estimate) was already recorded from Sarai`s recent 787 units launch at an average of EGP 11.5-12K/Sqm.

MNHD indicated that it is planning 4 new launches in 2017, one for each quarter. The first launch has been successfully concluded in Sarai resulting in EGP 1.75bn of net sales. We expect a EGP 1.26bn new launch of 400 units in 2Q2017 from T-zone total launched area of 300K Sqm, with ticket prices average expected at EGP 3.15mn/unit, derived from a mix of standalone units and lower sized 120-160 Sqm BUA apartments.

Beyond 2Q2017, we believe MNHD will have 4.8mn Sqm of residual land area in Sarai and 2.8mn Sqm in Taj City; 20% of each will be dedicated towards commercial properties` development as per the company`s management indication. Resulting in a 3.87mn Sqm of land area for residential purpose in Sarai and 2.3mn Sqm in Taj City. We expect to see a new launch in Sarai and Taj City in 3Q2017 and 4Q2017, worth EGP 887mn and EGP 536mn respectively. We forecast a 9years development horizon for both land plots vs. management`s expectations of 7years; as we extend sales duration by 1-2 periods usually based on projects` sizes, to accommodate our base scenario dynamics of a slowdown in sales volume in 2H2017 and 1H2018. However, we need to note that although we assume relatively weaker performance in Cairo`s premium RE market, we highly value MNHD ability to maneuver such downside as the company`s pricing has been inclining from a relatively very low base over the past two years, in time the company is currently providing an equal footing offering with its competitors.

MADINET NASR … a limited downside floored by enjoying the lowest development costs

in the sector … and a promising upside derived from turning into a fully-fledged RE developer

“STRONG BUY” MARKET PRICE EGP 20.9 FAIR VALUE EGP 32.0 UPSIDE 52.6%

INVESTMENT GRADE “GROWTH”

Stock Data Outstanding Shares [in mn] 500.0 Mkt. Cap [in mn] 10,480 Bloomberg – Reuters MNHD EY / MNHD.CA 52-WEEKS LOW/HIGH EGP 11.15 – EGP 23.87 52-WEEKS DAILY TURNOVER EGP 26.69MN

Ownership Big investment Group 19.51% National Co. for Construction & Development 15.10% BPE holding for Financial Investments 7.46% Banque Misr 6.08% Free Float 51.85%

Source: Bloomberg

Mohamed Marei Senior Analyst mmarei@egy.primegroup.org

Dir.: +202 – 33005725

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PRIME INVESTMENT RESEARCH MNHD – VALUATION UPDATE

APRIL, 2017

For both residual land plots in Sarai and Taj, we applied the launched projects` master plans concerning the foot print, sellable land area, and BUA to land area; hence, estimating 3.09mn Sqm of sellable land area for Sarai, with 0.9x BUA equivalent to 2.79mn Sqm. Such BUA to Sellable land area, is relatively the highest in the company`s peers` development plans. However, we need to note that the company`s proved efficiency in utilizing its developments, likewise the introduction of the S-villas strengthen our faith concerning a lower error term relative to the expected actual figures. While for Taj City, we applied the same dynamics with 1.8mn Sqm of sellable area and 1.6mn Sqm of BUA. Our estimation has led to a total forecasted proceeds from Sarai residual development of EGP 43bn and EGP 26bn from Taj.

The residual land plots massive development prospects entails new financing rounds, which strengthen MNHD`s management indication of raising a financing facility in the size of EGP 2bn. We included the new debt in our forecast, and assume a 4-year drawdown period, sufficient to cover 40-50% of annual work in process. We also expect the company`s short term facilities balance to increase over the horizon, from below 5% of WIP in 2016 to reach 20% by 2020. Such scenario is assumed to take place as the company`s management has proved to be efficient in their decision making process; hence, it makes sense to add more short term financing facilities and benefit from the lower debt service cost relative to the longer term debt plans. Concerning the LTD we assume a 1-year grace period and a repayment period for every tranche of 7 years. The first tranche drawdown is expected to take place in 3Q/4Q2017, with an estimated size of c. EGP 300mn as per our calculations. MNHD previously added that the facility will be priced at a floating rate comprised of the CBE lending rate plus a premium of 1.35%.

Hence, such assumed increasing debt contribution to capital, is expected to result in an average WACC of 21% in 2017, and 18.4% over the 9-year development horizon for Sarai & Taj residual land plots, as we assume several interest rate cuts in 2017 end and 2018.

Still, we do not exclude another LTD financing round for developing 20% of the residual land areas in Sarai and Taj, into remarkable commercial centers. However, we currently value both estimated commercial plots of 569K Sqm in Taj and 960K Sqm in Sarai on a NAV basis, assuming 10 years of equal size land sale, and assuming a starting land pricing of EGP 5K for Sarai and premium over such, of 25% for Taj to stand at EGP 6.25K/Sqm, such rates are assumed to grow reaching EGP 12K/Sqm and EGP 14.7K/Sqm by the end of the 10-year NAV valuation horizon. Resulting in EGP 5.7bn and EGP 7.7bn of land proceeds for both Taj and Sarai respectively, discounted at the company`s WACC. A counter argument concerning our conservative pricing, brings TMGH case into our minds, as the company was selling residual commercial land plots at c. EGP 15/Sqm in madinaty, however, we need to note that Madinaty is an already well-established and relatively mature city with high residency rate.

In Conclusion, we favor MNHD and believe in the company`s ability to rapidly reflect its intrinsic value, although we continue to apply our conservative pricing cycle over all RE players, of zero pricing growth in 2018 and 2-5% over the remaining horizon, with 5% being the long run perpetual rate in our view for the sector. The main reason behind our optimism concerning MNHD lies in the management`s ability to show positive surprises, in terms of successfully concluding larger than entailed by market dynamics launches in record times over the course of 2016 and 2017 YTD. Besides, the company`s favorable recognition standards, as MNHD recognizes approximately 30% on sale as land revenues, 30% in 2 years as skeleton is developed, and the residual at delivery in 2 years, an aspect, that is value additive to MNHD. Although such recognition system enlarge the accruals, the impact/risk is all channeled to the company`s receivables (Checking Cash Generated from Operations). However, we believe that MNHD receivables are of high quality; secured through equal monthly post-dated cheques, which makes such earnings of high quality.

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PRIME INVESTMENT RESEARCH MNHD – VALUATION UPDATE

APRIL, 2017

SOURCE: MNHD, PRIME

MNHD Valuation - in EGP Mn Estimated Value Per Share Contribution to EV

Ongoing Residential Projects Valuation - DCF

Tag Sultan Launched Development 417 0.8 2.6% T - Zone Launched Development 1,171 2.3 7.3%

Primera 136 0.3 0.9% Sarai Launched Development 797 1.6 5.0%

Co Dev With PHD 646 1.3 4.0% Total Value Residential 3,168 6.3 19.8%

Residual Residential Valuation - New expected launches: 2017/2025 - DCF

Sarai Residual Land - to be Developed 4,560 9.1 28.4% Taj Residual Land - to be Developed 2,761 5.5 17.2%

Total Land Value 7,320 14.6 45.6%

Commercial Raw Land Valuation - NAV

Taj City 2,340 4.7 14.6% Sarai 3,180 6.4 19.8%

Total Land Value 5,520 11.0 34.4%

Subsidiary valuation - Market Value

MV of Nasr Compant fo Civil Works (NCCW.CA) 59

Holding of MNHD 51%

MV of Nasr Compant fo Civil Works (NCCW.CA) 30

0.2% Total Enterprise value 16,039

Add: Cash 232

Less: Debt 283

Equity value 15,987

Number of shares 500

Fair value 31.98

Market Price 20.96

Upside/Downside 52.6%

Upside Risks

1) Faster than accounted for selling duration, as we extended Sarai & Taj City residual development estimates to 9years vs. 7years estimated by the management.

2) Higher than estimated pricing for Sarai and Taj, following Palm Hills expected launch in capital Gardens, which might directly lead to rerating expected offering in Sarai, and indirectly impacting Taj, which comes at a premium to Sarai.

3) Concluding new land acquisitions, in 2017/2018 as we forecast sufficient cash balance to cover new penetrations.

4) Successful launch for Sarai and Taj Cities planned commercial projects.

Downside Risks

1) Weaker net contracted sales than anticipated, on the back of higher than accounted for elasticity.

2) A full drawdown for the expected EGP 2bn LTD, would adversely impact MNHD equity value when conducted (increasing the deductible from firm value vs. our current estimate), unless the drawdown will be used for further land acquisition.

3) MNHD relatively lacks the experience in developing mega projects simultaneously.

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PRIME INVESTMENT RESEARCH MNHD – VALUATION UPDATE

APRIL, 2017

SOURCE: MNHD, PRIME

Financial Statements … Historical & Forecast Income Statement Brief Hist. Forecast

In EGP Mn 2016 2017F 2018F 2019F

Net Revenues 1,755.3 2,199.3 2,957.4 4,304.2 Change 236.82% 25.30% 34.47% 45.54%

COGS 413.3 516.1 759.0 1,174.1 Change 195.35% 24.86% 47.06% 54.70%

Gross Profit 1,341.9 1,683.2 2,198.4 3,130.1 SG&A 193.2 245.2 291.4 312.4

EBITDA 1,006.9 1,358.4 1,819.3 2,702.9 Net Income After MI 738.8 953.8 1,256.9 1,890.1

Balance Sheet Brief Hist. Forecast In EGP Mn 2016 2017F 2018F 2019F

Cash 73.91 595.63 1,142.47 1,731.01 Short Term Receivables 1,021.13 1,936.48 2,631.26 3,457.45

Work in Process 933.62 1,114.82 1,303.69 1,491.96 Other Current Assets 911.62 1,076.14 1,296.98 1,581.54

Total Current Assets 2,940.27 4,723.06 6,374.40 8,261.96

Net PPE 30.65 35.18 40.38 46.35 Long Term Notes Receivables 2,864.74 4,889.46 6,643.73 8,729.82

Other LT-Assets 66.24 66.24 66.24 66.24

Total Long Term Assets 2,961.63 4,990.87 6,750.35 8,842.40

Total Assets 5,901.89 9,713.94 13,124.75 17,104.36

Liabilities STD - incl CPLTD 23.63 52.25 278.11 455.94

Advances From Customers 2,942.74 5,663.88 7,653.98 9,792.64 Other Current Liabilities 1,089.67 1,011.24 977.19 964.79

Total Current Liabilities 4,056.04 6,727.38 8,909.29 11,213.37

LTD 259.28 610.06 959.24 1,311.86

Total Liabilities 4,315.32 7,337.43 9,868.52 12,525.24

Equity Reserves 86.38 181.76 307.44 496.45

RE 336.06 740.94 1,191.90 1,692.62 Net Profit of the Year 738.77 953.81 1,256.88 1,890.06

Total Equity 1,586.57 2,376.50 3,256.23 4,579.12

Margins & Ratios

2016 2017F 2018F 2019F

GPM 76.45% 76.53% 74.34% 72.72% EBITDA Margin 57.37% 61.77% 61.52% 62.80%

NPM 42.09% 43.37% 42.50% 43.91% EPS 1.48 1.91 2.51 3.78 P/E 14.19 10.99 8.34 5.54 DPS 0.30 0.48 0.75 1.13 DY 1.43% 2.28% 3.60% 5.41%

ROA 16.35% 12.22% 11.01% 12.50% ROE 58.14% 48.13% 44.63% 48.24%

Debt/Equity 17.83% 27.87% 38.00% 38.61%

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PRIME INVESTMENT RESEARCH MNHD – VALUATION UPDATE

APRIL, 2017

Stock Recommendation Guidelines

Recommendation Target-to-Market Price (x)

Buy x > 15%

Accumulate 5%< x <15%

Hold -5% < x < 5%

Reduce -15% < x < -5%

Sell x < -15%

Strong Buy x > 40%

Investment Grade Explanation

Growth 3 Yr. Earnings CAGR > 20%

Value Equity Positioned Within Maturity Stage of Cycle

Speculative Quality Earnings Reflect Above Normal Risk Factor

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PRIME INVESTMENT RESEARCH MNHD – VALUATION UPDATE

APRIL, 2017

PRIME SECURITIES

Hassan Samir Managing Director +202 3300 5611 Hsamir@egy.primegroup.org

RESEARCH TEAM

Aboubakr Emam, CFA Head of Research +202 3300 5724 Aemam@egy.primegroup.org

Eman Negm, MSc Senior Economist +202 3300 5716 Enegm@egy.primegroup.org

Mohamed Marei Senior Equity Analyst +202 3300 5725 Mmarei@egy.primegroup.org

Ali Afifi Equity Analyst +202 3300 5723 Aafifi@egy.primegroup.org

Omneya El Hammamy Equity Analyst +202 3300 5718 OelHammamy@egy.primegroup.org

Taher Seif Equity Analyst +202 3300 5719 Tseif@egy.primegroup.org

Mohamed Magdi Equity Analyst +202 3300 5720 Mmagdi@egy.primegroup.org

Mai Abdelaziz Junior Analyst +202 3300 5727 MAbdelaziz@egy.primegroup.org

SALES TEAM

Mohamed Ezzat Head of Sales & Branches +202 3300 5784 mezzat@egy.primegroup.org

ShawkatRaslan Heliopolis Branch Manager +202 3300 5110 sraslan@egy.primegroup.org

Amr Alaa, CFTe Team Head – Institutions Desk +202 3300 5659 asaber@egy.primegroup.org

Amr Saber Manager +202 3300 5609 aalaa@egy.primegroup.org

Mohamed Elmetwaly Manager +202 3300 5610 melmetwaly@egy.primegroup.org

Emad Elsafoury Manager +202 3300 5624 eelsafoury@egy.primegroup.org

HEAD OFFICE

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