NBK Capital has initiated coverage on Mazaya Holding, with a Buy recommendation and a fair value of KWD 0.165 per share.
The research firm has applied a SOTP methodology, using two different set of DCFs (one for development properties and one for investment properties).
NBK Capital sees value in Mazaya owing to high visibility on its future cash flow generation and a relatively cleaned up and strong balance sheet and undemanding valuations compared to its Kuwaiti peers.
In addition, on a price to book value basis, Mazaya currently trades significantly below its peak valuation of the last two years.
A geographically diverse and well-placed portfolio of income-generating assets (with a high level of occupancy for its office space in Kuwait unlike the rest of the Kuwait commercial real estate market and sustained demand for its residential investment properties in Dubai) provides great visibility regarding Mazaya’s future cash generation, in NBK Capital’s opinion, according to the report.
Furthermore, the company’s ongoing development project in Dubai is in its last phase and nearing completion. Due to the dynamic nature of information on future projects, NBK Capital is not including in its estimates any project that the company has not yet launched, NBK Capital said.
Mazaya currently has lower leverage than its peers in Kuwait (25% vs. peer average of 58%, as of June 2014).
The KSE-listed firm has also reduced its exposure to non-core investments (AFS), which now account for 12% of equity (as of June 2014) after around 34% cumulative impairments on original investments in the last four years.
Management currently does not foresee any material risks to its investment book. However, NBK Capital still views this as a source of potential risk; on the conservative side, the report issuer has opted to assign a 20% discount to these investments in the SOTP valuation to account for any downside to its realizable value.
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