Revenue – AED1,214mn, +7.6% Y-o-Y, +7.6% Q-o-Q, -1.9% vs. EFGe
EBITDA – AED754mn, +3.1% Y-o-Y, +6.0% Q-o-Q, -3.4% vs EFGe
Net income – AED591mn, +1.9% Y-o-Y, +10.1% Q-o-Q, -2.9% vs EFGe

Emaar Malls Group (EMG) has reported its 4Q18 headline financial and operating figures. Overall, numbers came roughly in line with our estimates, with slight misses on the top line and margins. Revenue was up 7.6% Y-o-Y and  Q-o-Q, coming in at AED1,214 – roughly in line with our estimate at AED1,237mn. Namshi reported revenue of AED242mn, its highest recorded sales number since its acquisition and coming roughly in line with our estimates (-2.4% vs EFGe), while rental revenue missed our estimate by 1.7% coming in at AED972mn . EBITDA margin was down 100bps, missing our estimate by 1.0pps. Earnings were up 10% Y-o-Y and in roughly line with our estimate at AED591mn (-2.9% vs EFGe). In 2018, revenue came in at AED4,446mn (+22.5% Y-o-Y), EBITDA at AED2,890mn (+8.2% Y-o-Y), an EBITDA margin of 65.0% and net income of AED2,230mn (+6.9% Y-o-Y). We await the release of the full financial statements and presentation for more details. 
   
Results Highlights
 
-       Occupancy level across EMG’s assets averaged 93% in 2018 
 
-       Total number of visitors came in at 136mn in 2018 (130mn 2017), with The Dubai Mall alone recording 83mn visits (+4% Y-o-Y) 
                                                                                                                                                                   
-       Revenue grew by 7.6% Y-o-Y to AED1,214mn (+7.6% Q-o-Q, -1.9% vs EFGe), primarily due to the contribution from the Fashion Avenue expansion phase. We continue to think that rent rates are under pressure across the company’s assets and that lease rates renewals, even in the flagship project (TDM) will remain stable, on average, in our view 
 
-       EBITDA margin were down 100bps sequentially to 62.1% in 4Q18 (4Q17: 64.8%, EFGe: 63.1%)
 
-       Net income came roughly in line with our estimate at AED591mn (+1.9% Y-o-Y, +10.1% Q-o-Q, -2.9% vs EFGe) 
 
We maintain our Buy rating on the stock with our TP of AED2.60 offering 73% upside. The stock has underperformed the general market index YTD dropping 17.6% (vs -1.1% for DFMGI); we attribute such stock underperformance to investors’ increasing concerns regarding the potential capex with the acquisition of Dubai Hills malls and other retail assets especially given the lack of disclosure as to the size of capex and its financing. We expect EMG will acquire ONLY Emaar’s share in the Dubai Hills mall; this would be at fair valuation that would be concluded by independent valuers at the time of the announcement, according to management. We expect the deal to be announced later this year with more details regarding the costs and the related financing. 
 
Thus, we estimate 2018 DPS to be maintained at AED0.10 (vs AED0.10 in 2017), which offers a 6.7% dividend yield – we note that the company’s dividend policy targets to distribute c70% of excess annual cash flow with excess annual cash flow considered post accounting for the coming year capex and debt service. The stock is trading at 2019e P/E of 8.2x and 8.4x in 2020, while offering a dividend yield of 7.3% in 2019-20. 
 
Emaar Malls Group (DU): AED1.50 as of 13 Feb. 2019, Rating: Buy, TP: AED2.60/share, MCap: USD5,316mn, EMAARMLS UH/EMAA.DU