HSBC Holdings cut its price estimates for Dubai developer Emaar Properties and peers including Damac Properties Dubai Co., predicting falling revenue and declining property prices in the United Arab Emirates.
Emaar’s price estimate was slashed 26 percent to 8.5 dirhams, while Damac’s is 8 percent lower at 3.4 dirhams, HSBC said in a note on Thursday. The bank also lowered its target for Aldar Properties to 3.5 dirhams from 3.9 dirhams.
“U.A.E. developers have performed poorly, reflecting concerns over the macro environment in the country,” analyst Patrick Gaffney said in the note. “Residential property is likely to remain weak this year. We assume a 20 percent decline in the overall value of sales at both Damac and Emaar.”
Emaar Malls Group PJSC, which owns stake in the world’s largest mall, was downgraded to hold from buy on weak earnings in the fourth quarter that reflected significantly lower sales growth than expected, HSBC said. The price target was lowered to 2.9 dirhams from 3.5 dirhams.
Even after the reduction, HSBC’s target for Emaar is well above the stock’s Wednesday closing price of 5.51 dirhams. Abu Dhabi’s Aldar closed 39 percent below the HSBC estimate.
“Current share prices unjustifiably imply significant value destruction from development businesses,” HSBC’s Gaffney wrote. “Even in a bear-case scenario where there are large cancellations of previous off-plan sales, the cash needed to complete construction is minimal” and affordable for both Emaar and Aldar, he wrote.