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National Real Estate

Source: Taib Bank

Quarterly Update

NRE reported a 47.9% decline in revenues to KWD 4.81 million during 1Q10 compared to KWD 9.22 million in the same period last year.

Net income was up 4.2% to KWD 5.98 million compared to KWD 5.74 million during 1Q09, led by gain on sale of subsidiary.

We have revised our FY2010E revenue downwards by 16.4% mainly accounting for the 1Q10 performance of Agility. However, we anticipate lower finance costs, consequently, we have revised our net profit estimate downwards only by 4.0%.

NRE’s stock price has declined 18.4% since our last update report. Accordingly, we are revising our earlier UNDERWEIGHT recommendation to NEUTRAL with a revised DCF target price of KWD 0.141 implying an upside of 5.1%.

Operating profit plunged 74.5% to KWD 1.65 million, due to declines in total revenues coupled with higher operating expenses. Accordingly, operating profit margin decreased substantially to 34.3% from 70.3% in 1Q09. Other income dropped 42.5% to KWD 0.43 million from KWD 0.75 million. Moreover, provision for interest income and doubtful debts scaled up by 10.5% to KWD 0.76 million from KWD 0.69 million. However, on a positive note, net investment income was KWD 0.10 million as opposed to a net investment loss of KWD 0.03 million in 1Q09. In addition, NRE reported a KWD 4.31 million gain on sale of subsidiaries in 1Q10. Moreover, foreign exchange loss reduced to KWD 0.02 million as compared to a loss of KWD 0.87 million in 1Q09. As a result, net profit rose 4.2% to KWD 5.98 million from KWD 5.74 million. Adjusted annualised EPS was up marginally to KWD 0.031 from KWD 0.030.

We had updated NRE on April 25, 2010 with an UNDERWEIGHT recommendation (target price of KWD 0.173 indicating a downside of 13.7%). Currently, the company’s stock is trading at a P/E multiple of 3.38x and 5.19x on 2010E and 2011E earnings, and at a P/BV multiple of 0.37x and 0.37x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has slipped 32.3% since the beginning of this year, as compared to 8.2% decrease registered by the Kuwait Stock Exchange Index. Considering the above factors, we have arrived at a price target of KWD 0.141, which indicates a upside of 5.1% over its closing price of KWD 0.134 (as on July 08, 2010). Accordingly, we are revising our earlier UNDERWEIGHT recommendation on National Real Estate to NEUTRAL.

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