HC Brokerage issued their update about Egypt’s real estate sector through shedding the light on Palm Hills Development performance focusing on the company’s strategic decisions.
Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “Strategic business decisions justify a more positive view: PHDC’s expansions extended beyond the Egyptian real estate market with a new focus on the GCC, including the newly announced Abu Dhabi project, along with potential expansions in Saudi Arabia’s real estate, commercial, and educational sectors and Egypt’s educational and hospitality sectors. These new opportunities offer value and act as stock price catalysts, in our view, as the company joins other Egyptian real estate developers in capturing a share of a lucrative GCC market. Additionally, PHDC’s Egyptian real estate business grew significantly with its launch of Hacienda Heneish and Hacienda Waters on the North Coast in 2024, and a management agreement for Jirian on the Nile Delta extension in 2025. Of the company’s EGP151bn of FY24 sales, c63% were generated from the North Coast (EGP95.1bn), with some EGP82.4bn of inventory remaining in the two projects, on our numbers. The success builds on increased demand for the North Coast following the Ras El Hekma investment deal announced in February 2024 and strengthens PHDC’s position as a major North Coast developer. PHDC expanded its hospitality exposure in 2024 to 1,262 rooms by adding around 200 rooms through an agreement with Marriott International to launch the 150-room Ritz Carlton Residences Hotel in West Cairo and increasing its stake in Maccor Hotels to c70% and targets adding 4,000 new rooms over the coming five years. Also, PHDC increased its exposure to Egypt’s education sector with the acquisition of c33% of Taaleem Management Services (TALM EY), diversifying its revenue stream and increasing its recurring income businesses. The company’s announcement to develop a 1.87m sqm plot in Abu Dhabi with Wave Seven triggers a rerating in our view, due to the project’s location, expected selling price, exposure to a USD-pegged currency, and low tax rate. The project directly faces the iconic Saadiyat Island near Yas Island and Al Reem Island and will be executed through PHD North Jubail Property Development Company, a fully owned subsidiary of Palm Hills Developments. Additionally, PHDC’s announced partnership with Saudi Dallah Al-Baraka Holding Company (DBHC) includes establishing a company with a 60%/40% ownership structure to develop several integrated mixed-use urban projects in different regions of the Kingdom is a major step. PHDC also plans to invest around USD300m in Saudi education developments in 2025 with local partners, USD300m in residential and commercial projects, and is working with a local joint venture (JV) to open 15 schools in cities including Riyadh and Jeddah, its CEO said.
“Despite lower affordability in Egypt, we still expect a decent sector performance on North Coast sales, price increases, relaxed payment terms, and regional expansion: We believe developer sales in 2025e will be driven by North Coast sales, and relaxed payment terms, while ventures into the hospitality segment, along with GCC expansions, should bode well for Egyptian real estate players. We expect developers to start reaping the benefits of Ras El Hekma as early as this year with Modon Holding’s announcement of launching the first 12,000-feddan phase of the mega-project. We see little concern of construction cost overruns during the short-medium term, provided limited currency shocks, coupled with significant price increases. A declining interest rate environment should improve real demand and open new opportunities for developers, especially those with ambitious recurring income projects that are capital-intensive. Interest savings should also boost profitability to highly leveraged developers. We expect 2025e deliveries to be somewhat impacted by higher construction costs but remain at healthy levels.” Mariam El Saadany added.
The real estate analyst concluded: “We expect strong real estate cash collections of EGP588bn over our 2Q25–38e forecast horizon: We estimate EGP588bn in collections over 2Q25–38e, including collections from existing receivables, new sales in the launched projects in the North Coast, Alexandria, and Eastern and Western Cairo, capturing sales from Badya, P/X, Hacienda Heneish, Hacienda Waters, Hacienda Blue, PHNC, Bamboo III, among other projects. We forecast total sales of EGP679bn over 2Q25–2032e, including EGP506bn from West Cairo, EGP131bn from the North Coast and Alexandria sales, and EGP41.9bn from East Cairo. We estimate EGP552bn of real-estate revenue recognition over 2Q25–2032e, accounting for the outstanding backlog of EGP68.9bn and new sales from launched projects’ phases, and all of Badya. We assume a total real estate cost recognition of EGP310bn over 2Q25–2032e, implying an average future gross profit margin of c44% for the launched projects. We expect interest rate easing to reflect positively on PHDC’s profitability throughout 2025e, as we forecast interest expense to drop to EGP2.09bn in 2025e from EGP2.31bn in 2024e. Management’s guidance is EGP160m in interest savings for every 100 bps rate cut. Given the declining cost of debt, management could seize the opportunity to increase its leverage; however, given the high sales levels we expect going forward, we expect the high collections to be sufficient to finance construction costs. Accordingly, we expect net debt-to-equity to drop to 0.55x in 2025e from 0.75x in 2024. Given the company’s expansion plans, we expect it to withhold dividends going forward. We expect revenue to grow at a 2025-28e CAGR of c7%, EBITDA at c13%, and net income at c23%.
