RAK Properties fails to build up core strength
Just because the price is low doesn't mean the stock is cheap.
RAK Properties, which trades at a significant discount to its peers, has weak earnings prospects, analysts say.
The developer, based in Ras Al Khaimah, has a book value of 0.22 times, compared with 0.6 times for the sector average.
RAK Properties was part of a building boom story in 2002, after Dubai passed a law allowing foreigners to buy homes. But the company was hit hard as demand evaporated in 2008 after the financial crisis dried up mortgage lending, triggering a plunge in home prices of more than 50 per cent in some places. The company has been unable to diversify or expand into neighbouring markets that have benefited from infrastructure spending such as Saudi Arabia or Qatar.
The developer yesterday posted a 72 per cent decline in profit for last year amid higher provisions for impairments on properties.
Net income slumped to Dh108.4 million, compared with Dh187.3m last year, according to financial statements posted on the Abu Dhabi Securities Exchange website. Provisions increased to Dh87.5m, from Dh44.1m last year.
The stock lost 2.6 per cent to 37 fils yesterday. RAK has lost 76 per cent of its value since its high in August 2008.
"Gone are the days when a stock trades under a Dh1, and you think to yourself, 'wow it's balash', an Arabic word used for super-cheap," said an analyst. "That statement is only valid as long as a company has not destroyed its cash."
Bank balances and cash decreased to Dh307.3m, compared with Dh437.4m last year. Net debt increased to Dh150m, from Dh79.5m last year.
The company's net debt to equity ratio has increased to 0.04, from 0.02 in 2010.
The flagship project for RAK Properties is Mina Al Arab, a US$3.27 billion beachfront resort including several islands.
"The company has nearly secured funds for developing a hotel project in the Mina Al Arab," RAK Properties said.
"However, the actual development of the hotel project depends on the market conditions."