Emlak Konut Report - 15 Ağustos 2012

2Q 2012 earnings review: Earnings expectations surpassed

Emlak Konut REIT reported a TRY 63.5mn net profit for 2Q12, significantly higher than our TRY 45.4mn expectation and the consensus estimate of TRY 46.4mn. The deviation between our estimate and the announced net profit mainly stemmed from higher than expected revenues (TRY 309mn, vs. our expectation of TRY 268mn) and higher than expected financial income (net financial income of TRY 20mn, vs. our expectation of TRY 6mn), despite a TRY 9.7mn expense from other operations. Meanwhile, EBITDA surpassed our expectation (TRY 51mn, vs. our expectation of TRY 39mn), thanks to lower than expected administrative expenses as well as better revenues.

Revenues this quarter mainly came from the Atakent-3 revenue sharing project, in addition to some contribution from sales of residential and commercial units and plots of land in the portfolio. The company recorded TRY 309.4mn net revenues, vs. our expectation of TRY 268mn (consensus: TRY 257.4mn) in its 2Q12 IFRS financials, thanks to higher than expected delivery from its Atakent-3 revenue sharing project this quarter. Revenues from the RSM projects were TRY 272mn in 2Q11, significantly higher than the TRY 93mn of 2Q11. Additionally, Emlak Konut REIT reported TRY 36.8mn revenue from the delivery of residential and commercial units in 2Q12, vs. TRY 98mn in 2Q11.

We were forecasting a combined 20% gross margin for the quarter, due to low profitability of the Atakent-3 project. In line with our expectation, the gross margin increased 2.3pp y/y to 19.8% in 2Q12, mainly due to higher margins in residential and commercial unit sales from public procurement model (PPM) projects (contrary to our expectation), with a slight decline in margins on delivery from RSM projects. The company recorded EBITDA of TRY 51mn for this quarter (our expectation: TRY 39mn, consensus: TRY 44mn). Thus, the EBITDA margin improved 5.5pp y/y to 16.5% thanks to an increased gross margin and higher revenues as well as improvement on the OPEX side.

We believe that the IFRS income statement does not reflect the company's current performance, as it is unable to record revenues from sales of units on the P&L until units are delivered. Thus, apart from IFRS financials, the company sold a total of 1,703 residential units (worth TRY 602mn) in 2Q12. The company has sold a total of 3,776 residential units (worth TRY 1,169mn) in 1H12. It aims to generate at least TRY 3bn revenue from 10k pre-sold units in 2012.

Other than revenues and net profit, OPEX and financial income & expenses in 2Q12 are also better than we expected. The share price outperformed the ISE100 by 1% yesterday and 6% over the past month. We will revise upwards our expectations based on the announced results, and thus we maintain our "Buy" call.