FAB «Al Awal» Daily Cumulative Return Fund for Liquidity is re-opened now for subscription till the allowed limit is reached. To invest in the fund, please visit the nearest branch, hotline: 19977

HC: Heliopolis Housing, Accelerated monetization underway

Heliopolis Housing

Accelerated monetization underway

  • Lucrative Heliopark sale valuation generates sizeable proceeds and sets a land valuation benchmark for HELI’s remaining land bank

  • HELI’s focus shifts to more revenue-sharing deals as the suboptimal execution pace weighs on its profitability

HC Brokerage issued their update about Egypt’s real estate sector shedding the light on Heliopolis Housing’s performance and foresee Solid profitability over the short-medium term.

Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “ Heliopark sale kick starts land monetization efforts: Following years of sitting on an idle land bank, Heliopolis Housing’s (HELI) management has approved the sale of the 7.12m sqm of Heliopark land plot (representing c31% of its land bank then) to the National Organization for Social Insurance (NOSI) in October 2023 for a total value of EGP15bn (net proceeds of EGP13bn), implying a price of EGP2,107/sqm and the lump-sum transaction was executed in 4Q23. We believe the Heliopark deal valuation reflects positively on the valuation of HELI’s remaining land bank in New Heliopolis City. In November 2023, the company signed the final contract for a revenue-sharing project with Mg Developments to develop 77.19 feddans (0.32m sqm) in districts 10 and 11 of its New Heliopolis City land plot and its share of the project’s revenue is EGP3.39bn, representing 32.1% of the project’s total revenue. In January 2024, it signed a bigger deal with Middle East for Investment and Touristic Development to develop around 865 feddans (3.63m sqm) in New Heliopolis City, where HELI’s share of revenue is c28% of the semi-finished units, and c3% of the finishing value, with expected proceeds of EGP39.7bn and a minimum guarantee of EGP23bn and the size of the deal is subject to increase to 1,070 feddans. Also, in March 2024, HELI received from Mountain View an offer to develop a 517-feddan plot (2.17m sqm) in New Heliopolis City, and another offer from Madinet Nasr Housing (MASR EY) to develop three land plots in New Heliopolis City with a total area of 580 feddans under revenue-sharing terms.  The sale of Heliopark in addition to the revenue-sharing deals, leaves the company with 12.4m sqm of undeveloped land in New Heliopolis City, down from a total land bank of 22.2m sqm previously. The monetization update comes after years of efforts by the Ministry of Public Business Sector (MPBS) to extract value from the company’s assets. Going forward, we expect HELI to focus on more revenue-sharing deals to create a steady income, and the development of New Heliopolis City, after securing funding for infrastructure spending from the Heliopark sales proceeds with a cost of around EGP4bn, based on our understanding.”

“ Solid profitability over the short-medium term: Our revenue estimates for the company mainly come from its revenue-share agreement with SODIC (OCDI EY), followed by the EGP1.30bn worth of its finished units’ inventory. HELI has been consistently holding on to inventory over the past nine quarters, which hampered its profitability. The company recently announced its plan to sell 460 residential units in New Heliopolis City worth EGP1.30bn, which should reflect positively on its FY24 revenue and net income. Revenue from SODIC East will have the largest contribution to total recurring revenue, with a total contribution of c56% over FY24—26e followed by a c44% contribution from unit sales. We estimate revenue of EGP1.65bn from SODIC East, over FY24—26e. HELI has already booked EGP1.26bn from the project, c25% of the EGP5.01bn minimum guarantee. It is worth noting that SODIC East revenue is recorded at virtually no cost, allowing the company to report high margins. We estimate revenue of EGP1.30bn from 460 units to be offered in 2024, at an average margin of c40%. We will include future revenue from the revenue-sharing deals in our forecast when launched. Our blended gross profit margin estimate for 4Q23—FY26e is c79% as our total costs estimate is EGP3.40bn over the same period. The company’s existing receivables stand at EGP1.27bn, which we account for in our collection schedule over 4Q23—FY33e, in addition to the EGP1.30bn of future unit sales. We expect the company to reduce its debt over the coming period as it utilizes the Heliopark proceeds. We expect the net debt position of EGP1.45bn to reverse into a net cash position of EGP3.28bn in 4Q23, and we gradually lower the debt balance to EGP543m in FY25 from EGP1.74bn as of 3Q23. The proceeds strengthen HELI’s balance sheet significantly, despite our estimate of a sizeable FY23 DPS of EGP2.30, implying a net-of-tax yield of c18%, based on the March 10 closing price of EGP12.6/share.” Mariam Elsaadany concluded.

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

HC: SIDPEC, Solid performance persisting


Solid performance persisting  

  • Uncertain global factors at play shape export polyethylene prices

  • SIDPEC is benefiting from its comparative cost advantage. Strategic new projects and the acquisition of ETHYDCO potentially add value

HC Brokerage had recently issued an update note about Egypt’s industrial sector, through shedding the light on SIDPEC (SKPC EY). They focused on the company’s strategic new projects and their effect.

Nesrine Mamdouh, Industrials Analyst at HC commented that: “ Global supply/demand imbalances and uncertainty on geopolitical tensions and feedstock prices fluctuate global PE margins: The International Monetary Fund (IMF) estimates global GDP growth at 3.1% in 2024, which we anticipate to weigh down on petrochemical demand, picking up gradually starting 2025, as global GDP growth recovers. Additionally, the increase in PE global capacities, particularly in China and the USA, could pressure prices if global demand does not recover tandemly, leading producers to reduce their utilization rates. However, the geopolitical tensions in Gaza, Ukraine, and the Panama Canal restrictions disrupted supply chains and increased freight and insurance costs, posing upward pressure on global PE export prices. Regarding the feedstock prices of naphtha and ethane crackers, although oil and naphtha futures contracts are in backwardation, suggesting lower future feedstock prices, the uncertainty surrounding the geopolitical tensions makes futures prices prone to upward revisions. In the USA, one of the lowest-cost PE producers and exporters, future natural gas and ethane contracts suggest higher prices over the coming years, implying a decrease in the oil-to-gas ratio and a conversion in the comparative cost advantage of ethane over naphtha crackers, leading to more price conversion of exports from these regions to Europe. Accordingly, factoring in these developments, we expect global polyethylene (PE) prices to reverse the trend and increase in 2024 after normalizing in 2023 from their 2022 peaks. Despite these higher costs being passed through, to a large extent, to the final prices so far, we believe if geopolitical tensions persist, the current supply/demand imbalances will eventually curb the responsiveness of prices to increased costs, pressuring PE’s global margins.

“ SIDPEC’s strong industry position and comparative cost advantage support its operations and profitability: The company is well positioned due to its decent local market share, allowing it to charge a local price premium over export prices, particularly when FX bottlenecks hampered Egypt’s PE imports. Furthermore, SIDPEC capitalized on its net positive FX exposure and its predominant EGP-denominated cost structure by importing grades of polymers (polypropylene, LDPE, and PVC, PE100) and selling them at a premium in the local market through its commercial unit.  Moreover, implementing the feedstock formula in 4Q22, which tied it to an indexed PE price, helped SIDPEC hedge its margins against adverse convergent movements in feedstock and final prices, leading to consistent earnings. In our forecast, we assumed a gradual narrowing in the local price premium parallel to the gradual resolution of Egypt’s FX shortage and the resumption of PE imports.  We anticipate the feedstock pricing formula to remain in place. We expect SIDPEC’s revenue to grow at a c7.6% CAGR over our FY24–28e forecast period, mainly driven by higher prices in EGP terms due to the EGP devaluation, despite normalized blended PE prices in USD. We expect COGS to grow at a CAGR of c7.9%, factoring in higher production costs, translating into an average EBITDA margin of c24% over our forecast period. We forecast net profit to grow at a CAGR of c10.7% over our forecast period. ” Mamdouh added.

“ Synergies from new projects and the acquisition of ETHYDO, represent an upside risk to our numbers: In our view, SIDPEC’s full acquisition of its 20%-owned subsidiary ETHYDCO through a share swap entails operational and cost synergies. In July 2023, the independent financial advisor (IFA) valued ETHYDCO at USD1.09bn or USD78.3/share (divided over 13.9m shares), using an FX rate of EGP30.9/USD, which yielded a value of EGP33.5bn. The IFA valued SIDPEC at EGP23.1bn or EGP30.6/share (divided over 756m shares), suggesting a swap ratio of 1.45:1, according to which SIDPEC would issue 877m shares in favor of ETHYDCO shareholders as part of a capital increase in return for acquiring the remaining 80% of ETHYDCO. The IFA valuation was based on the two companies’ FY22 financial statements. However, the deal was pending the acquisition of a 30% stake in ETHYDCO by Alpha Onyx Limited, affiliated with ADQ Holding, which delayed the transaction, without clear visibility on its implementation time, especially considering the FX uncertainty. However, we believe the resumption of talks will require a revaluation of the swap ratio to factor in recent developments and the two companies’ FY23 financial positions. Meanwhile, SIDPEC is contemplating the implementation of various projects. It has allocated an investment budget of USD57m in 2024, including contributing a 7.5% stake in the Egyptian Bioethanol Company (EBIOL), and USD5m in Egyptian Gas Cylinder (INCO) to export bioethanol and gas cylinders. Moreover, the company is currently bidding to establish a power station for EBIOL, which would enhance its FX proceeds. In addition, it secured technology to establish a combined heat and power unit to generate electricity, leading to partial electricity savings. Furthermore, SIDPEC signed a memorandum of understanding (MoU) to establish a methane production unit, using its available resources of CO2, Hydrogen, and land. The production of methane internally would serve as a fuel for boilers and reduce the cost of sourcing it externally. Also, it plans to establish a permanent facility to import ethane from the US by 2026, in partnership with ETHYDCO, GASCO, and a specialized private company for a total of 600,000 tons/year of ethane, where its share will be around 144,000 tons/year. The ample feedstock will allow SIDEPC to expand its production, estimated to cost an additional USD100-USD150/ton of ethane, equivalent to an extra USD2.3–3.4/MMBtu, according to our calculations.” Nesrine Mamdouh concluded.


About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311