Infonavit Announces its Financial Plan

Transcription

1 Latin American Equity Research Mexico City, November 28, 2007 Sector Report Mexico Cement & Construction HOUSING REVIEW NOVEMBER 2007 Infonavit Announces its Financial Plan Gonzalo Fernández* Vivian Salomón* Mexico: Banco Santander S.A. Mexico: Banco Santander S.A. (5255) (5255) (News/Analysis): At its annual board meeting held on November 28, 2007, Infonavit announced its financial plan for the period, which targets financing between 2. million and 3.57 million mortgage loans during this five-year or a CAGR of 9% and 13%, respectively, for the two sets of projections: the base-case and the potential scenarios, in terms of the amount of financing; below our current estimate for a 16% five-year CAGR. The program announced on November 28 is less aggressive in terms of the number of mortgages compared with the program announced in late 2006 considering a CAGR of between 5% and 10% in the number of mortgages compared with 17% - 20% in the previous scenario. On the positive side, the new program increases the average amount of the mortgages by 33% in We estimate that Infonavit will provide close to 500,000 mortgages in 2007, in line with Infonavit s base-case scenario, but below the more optimistic potential scenario of 540,000 mortgages. We do not believe that during 2007, Infonavit failed to reach its best-case scenario because of lack of demand for mortgages or because of problems in the issuance of mortgage-backed securities, which, in fact, reached expectations, despite more difficult conditions in the financial markets. In our opinion, production levels of houses from homebuilders did not keep pace with the growth in mortgages particularly due to difficult weather conditions (as was the case with Geo), difficulty in getting permits (Ara) and because of the need to adapt production to lower-priced homes, where mortgage availability is higher. We would highlight that neither Sare nor Homex faced difficulties reaching their yearly guidance. Net/Net: In our opinion,n a more conservative program for Infonavit, the largest mortgage institution in Mexico is negative news for the sector because of the less aggressive growth targets compared with the program announced in late This could imply that some companies will issue more conservative growth guidance. We do not believe that this will necessarily result in an overall slowdown in the sector because total units sold 2007E of public homebuilders under coverage represents only 23% of Infonavit mortgages and they rely on other sources of financing. Thus, in our opinion, there is plenty of room to gain market share. The companies with most exposure to Infonavit are Homex with 77% of units sold Jan Sep 2007 and Geo with 55%. While the company with the lowest exposure is Ara with 41% followed by Sare (46%).In our opinion Sare, and Homex could continue growing above the average of the sector, while there is the risk that Geo and Ara could grow at a rate closer to Infonavit s new targets. The increase in the average amount of the loans is a positive, in our opinion because homebuilders were having problems supplying product in the lowest-priced segments of Inofnavit. Universe of Coverage (U.S. Dollars in Millions*) Price Target Upside/ Net Earnings P/E FV/EBITDA Mkt. Company Ticker Rec. 27-Nov Price Down 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E Cap Ara* ARA* Hold % ,324 Geo GEOB Hold % ,699 Homex HXM Buy % ,820 Sare SARE Buy % Urbi URBI* Res Res. Res. Res. Res. Res. Res. Res. Res. Res. Res. Res. 2,941 a Except per share/adr amounts. *. All target prices are for YE2008. Sources: Company reports and Santander Investment estimates. Important disclosures/certifications are in the Important Disclosures section of this report. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212) * Employed by a non-us affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under NASD rules.

2 Infonavit Announces its Financial Plan The scenario released on November 28 provides a more conservative growth outlook in the number of mortgages. The base-case scenario includes 500,000 homes in 2008, flat with 2007, and 540,000 on the potential scenario, with a modest 8% growth. Furthermore, the five-year scenario targets reaching between 600,000 and 740,000 mortgages in 2010, down from 800,000 and one million loans, respectively. This implies an average CAGR of 10% compared to 20% in the previous plan. The new program plans to reach between 625,000 and 815,000 mortgages in 2011 and a similar number in The difference between the base and potential scenarios is a more aggressive issuance of mortgage-backed securities for Infonavit and more investment from commercial banks in co-financing products. Infonavit targets increasing the percentage of mortgages for homeowners earning less than four minimum salaries from 62% in 2008 to 71.5% in the base-case scenario and 76.1% in the potential scenario, maintaining its focus on the lowest-priced segments of the population. The potential scenario provides for issuing M$20 billion in mortgage-backed securities in 2008 and plans to reach M$58 billion in On the positive side, despite more modest growth in the number of mortgages, Infonavit plans to increase the average amount of the loans from M$239,000 in 2007 to M$319,000 in 2008 or a 33% increase. Total resources in the credit program would increase at a CAGR of 9% and 13%, respectively over Over this five-year period, Infonavit plans to invest between M$982 million and M$1.13 billion including resources from commercial banks in cofinancing programs. The growth in financial resources is also lower than our expectations for a 16% CAGR over the same period and the base for our estimated growth for Mexican homebuilders. Figure 1. Infonavit Financial Plan (Billion Mexican Pesos) 2008E 2009E 2010E 2011E 2012E CAGR 07-12E Base Scenario % Growth 12% 12% 7% 4% % of loans below 4 MW 62.0% 69.6% 70.5% 71.5% 71.5% Potential Scenario % Growth 21% 12% 15% 4% % of loans below 4 MW 64.0% 73.2% 76.1% 76.1% 76.1% Average % Growth 17% 12% 11% 4% MW = minimum wage. Sources: Infonavit and Santander Investment estimates. Figure 2. Infonavit Financial Plan (Thousands of mortgages) E 2008E 2009E 2010E 2011E 2012E CAGR 06-10E Base Scenario % Growth 19% 0% 10% 9% 4% 0% Potential Scenario % Growth 19% 8% 22% 12% 10% 0% Average % Growth 19% 4% 16% 11% 7% 0% Change vs. Previous Scenario * -4% -17% -19% -26% NA NA * Average vs. Average. Sources: Infonavit and Santander Investment estimates for NA Not Available. Figure 3. Mexican Homebuilders Exposure to Infonavit (Units Sold Jan-Sep 2007) Ara Geo Homex Urbi Sare Total Sales 16,6 30,541 35,279 Res 8,956 Infonavit 6,911 16,798 27,304 14,176 4, Infonavit/Total 40.9% 55.0% 77.4% 56.0% 46.0% Sources: Company reports and Santander Investment estimates. 2 Important disclosures/certifications are in the Important Disclosures section of this report. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212)

3 IMPORTANT DISCLOSURES Ara 12-Month Relative Performance (U.S. Dollars) ARA Ara Three-Year Stock Performance (U.S. Dollars) H $3.15 9/27/04 B $3.60 3/16/05 B $ /17/05 B $ /27/05 H $4.65 2/2/06 B $4. 3/16/06 B $ /20/06 B $7.55 2/01/07 B $1.85 9/17/ B $ /5/05 3,400 2,0 2,400 1,0 1, Ara (L Axis) Source: Santander Investment. Important disclosures/certifications are in the Important Disclosures section of this report. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212)

4 Infonavit Announces its Financial Plan IMPORTANT DISCLOSURES (CONTINUED) Geo 12-Month Relative Performance (U.S. Dollars) 150 GEO Geo Three-Year Stock Performance (U.S. Dollars) SB $ /7/04 SB $2.35 1/5/05 SB $2.70 2/23/05 SB $ /19/05 SB $3. 2/6/06 SB $ /27/05 H $ /25/06 H $4.30 8/3/06 B $6.00 2/1/07 B $7.00 9/17/ SB $3.00 B $5.80 7/29/05 9/27/ ,500 3,000 2,500 2,000 1,500 1, Geo (L Axis) 4 Important disclosures/certifications are in the Important Disclosures section of this report. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212)

5 Homex 12-Month Relative Performance (U.S. Dollars) HOMEX 80 Homex Three-Year Stock Performance (U.S. Dollars) *Initiation of Coverage H$ /2/07 3,500 3, H$ /21/06* H$ /23/07 2,500 2, B$ /4/06 H$ /17/07 1,500 1, HOMEX (L Axis) 500 Important disclosures/certifications are in the Important Disclosures section of this report. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212)

6 Infonavit Announces its Financial Plan Sare 12-Month Relative Performance (U.S. Dollars) SARE Sare Three-Year Stock Performance (U.S. Dollars) B $4.65 1/5/05 B $5.50 4/28/05 SB $ /27/05 B $1. 4/27/07 3,500 3,000 2,500 2,000 1, B $15.00 H $15.50 B $2.20 2/1/06 10/30/06 9/17/ *Initiation of Coverage 1, Sare (L Axis) Source: Santander Investment. 6 Important disclosures/certifications are in the Important Disclosures section of this report. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212)

7 Key to Investment Codes IMPORTANT DISCLOSURES Rating Definition % of Companies Covered with This Rating % of Companies Provided Investment Banking Services in the Past 12 Months Buy Expected to outperform the local market benchmark by more than 5.0% % 78.95% Hold Expected to perform within a range of 5.0% above or below the local market benchmark % 21.05% Underperform/Sell Expected to underperform the local market benchmark by more than 5.0%. 8.86% The numbers above reflect our Latin American universe as of Thursday, November 15, For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are 2007 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53 rd Street, 17 th Floor (Attn: Research Disclosures), New York, NY 22 USA. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk premium, unless otherwise specified. The benchmark plus or minus the 5.0% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) This report has been prepared by Santander Investment Securities Inc. ( SIS ) (a subsidiary of Santander Investment I S.A which is wholly owned by Banco Santander, S.A. ("Santander"), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Central Hispano Bolsa, Sociedad de Valores, S.A. (SCH Bolsa), and in the United Kingdom by Banco Santander, S.A., London Branch (Santander London), which is regulated by the Financial Services Authority in the conduct of investment business in the UK. This report is not being issued to private customers. SIS, Santander London, and SCH Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Gonzalo Fernandez. Grupo Santander receives non-investment banking revenue from the subject companies, with the exception of Homex, Sare, Geo. Within the past 12 months, Grupo Santander has managed or co-managed a public offering of securities of Ara, Sare. Within the past 12 months, Grupo Santander has received compensation for investment banking services from Sare. In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Ara, Geo. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States by Santander Investment Securities Inc. All Rights Reserved. 2007