Emaar reported a net profit of AED 1,769 mn in 3Q22 (our estimate of net profit of AED 2,252 mn) compared to net profit of AED 1,434 mn in 3Q21. The lower-than-expected bottom line is attributed to a decline in topline which fell by 21.3% YoY to AED 5,326 mn in 3Q22, and 21.7% below our estimate of AED 6,799 mn. Topline growth was impacted by a 19.5% YoY decline in UAE development revenues. Group property sales also declined by 0.9% YoY. Contribution from recurring businesses such as malls, hospitality and leasing increased from 23.6% in 9M21 to 33.4% in 9M22. The increase in contribution is attributed to decline in the UAE development segment as well as growth in recurring businesses. As of September 30, 2022, Emaar has a land bank of approximately 352 mn sqft and a revenue backlog of AED 37.2 bn. Gross margin stood at 51.3%, higher than our estimate of 48.9% due to a 38.3% YoY decline in COGS. The operating profit margin and net margin stood at 34.5% and 33.2%, in line with our estimates.
Valuation and risk: Although growth in revenue and profit will be muted in 4Q22, we revise our bottom-line estimate on Emaar upward by 76.2% for FY22. Furthermore, we also revise our bottom-line estimates upward for FY23 by 11.5% but downward for FY24 by 17.7% respectively to account for higher revenues from UAE development and recurring businesses as well as higher finance income and finance costs. Development revenues are expected to decline in FY23 and FY24, due to the global slowdown. However, other businesses are expected to continue their growth trajectory. We expect the share of recurring businesses to increase from 33.4% in 9M22 to 36.2% in FY26.