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Joaquín Sánchez

Joaquin Sanchez, CFA

Signum Perspectives

Corpovael, S.A.B. de C.V.

We recently paid a visit to the housing projects of Corpovael Inmobiliaria (ticker symbol: CADU) currently being developed in Cancun. We were able to see the progress the company is making as well as the sale of the main assets in its portfolio first hand.

CADU is one of the main housing suppliers in Quintana Roo, mainly Cancun and Playa del Carmen, with a market share of approximately 40%, which is significant, in our view, despite the reduction in government housing subsidies and the presence of new competitors.

As Playa de Carmen and Cancun are cities where demand for housing is highest, the company plans to maintain a constant presence there. According to company data, around 80,000 eligible workers have the minimum number of points required to qualify for an Infonavit loan while only around 16,000 homes are offered for sale in this state. The company has a department that specializes in offering loans from a number of institutions, giving potential clients a wide range of financing options.

We visited the “Cielo Nuevo” housing complex where around 17,400 homes with an average area of 50 m2 have been built and around 12,300 have title deeds. These homes were built under the certified construction scheme in order to gain preference when assigning subsidies. In this complex, the average price of a home is P$360,000 and the term of an Infonavit loan is between 20 and 25 years.

One of CADU’s competitive advantages is the final product, as the company uses construction materials like blocks for a two-fold purpose: to reduce the thermal effect inside the homes and provide greater structural stability. Therefore, although prices are slightly higher than the competition, the company continues to hold on to a large share of the entry-level housing market. This is in line with its strategy of not depending on the number of home sales to maintain income levels and the quality of the housing developments.

We also paid a visit to a residential development in Cancun where the company is building middle-income homes. The development consists of two large projects, “Astoria” and “Long Island”. “Astoria” has already been built and homes are sold out.

“Long Island” is a housing complex that offers four types of single and multi-family homes to adjust to client needs and profiles. The company finances the construction of the complex with a bridge loan it pays with 65% of the revenues received from each home sale. The homes measure 100 m2 on average and the price range varies according to the location of the home within the complex as well as the format.

Due to demand for homes in the area and the development of new communication routes to downtown Cancun, home prices have undergone a considerable increase. In the case of Astoria in Cancun, surplus value is above 40% based 2017 initial sale prices.

Regarding the residential sector, we visited Allure, which consists of a building of 104 luxury apart-ments priced at around P$15 million each. The building is only 28 meters high due to building regulations. Title deeds to 40% of the apartments will be ready by Q418, which should underpin the average price.

CADU’s 2017 revenues amounted to P$4.503 bn, with EBITDA of P$1.035 bn, which represented double-digit growth rates of +12.0 and +14.4% YoY. The sales mix was 78.6% entry-level homes and 21.4% middle-income / residential homes.

Based on sales so far this year, we expect the 2018 sales mix to be 70% entry-level and 30% residential; furthermore, by 2020, the sales mix should be 60% entry-level and 40% residential.

Based on the political and economic outlook, management expects no changes regarding the granting of loans by institutions like Infonavit, as it is something candidates have thrown their weight behind during the campaigns. However, in terms of the risks, interest rates could increase, which would make mortgages more expensive and ultimately impact demand for them.

We expect the company to meet, or even surpass, 2018 guidance in terms of sales (10-12% YoY) and operating profit (12.5-15.0% YoY). In the current environment of political and business uncertainty, CADU could be an attractive investment option.

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