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Salhiah Real Estate -Equity Report -22-05-2013

Source: Global Investment House

Salhia continued to recover in 1Q13 owing to the improvement in Kuwait’s real estate market. However, the company’s revenue story continues to remain notably weak as a result of its stagnant portfolio. Even though the company has some new projects in pipeline, there is low visibility of these projects generating revenues in the medium term. Thus, we have a cautious view on the stock and revise down the target price to KWD0.319, with a HOLD rating



Earnings jumped 15.1%QoQ in 1Q13 and 10.0%YoY
Salhia remained on its recovery part with the net profit jumping 15.1%QoQ and 10.0%YoY to KWD2.5mn in 1Q13. This comes after posting poor results in the previous quarters. Although the company is yet to come out with its detailed financials, we feel that net profit rose due to reduction in financial charges as Salhia paid off a considerable amount of its debt in 2012.

Valuation revised downwards with a HOLD rating – Target price of KWD0.319
We have used the SOTP approach to value Salhia and applied the two-stage discounted cash flows (DCF) methodology for each of its projects. We applied a Weighted Average Cost of Capital (WACC) of 12.1% after specific adjustments. Currently, revenues from the existing projects are likely to grow moderately and we are yet to witness any major projects coming on-stream in the near term. Thus, we remain cautious on the stock. Our target price is 7.6% below the current market price of the stock and thus, we downgrade the stock with a HOLD rating.

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