homexmay 03, 2016 · desarrolladora homex, s.a.b. de c.v. may 3, 2016 rodrigo ledesma ariel...

1

Consultora 414, S.A. de C.V. ● [email protected] ● www.414c.com

Homex

Desarrolladora Homex, S.A.B. de C.V.

May 3, 2016

Ariel Fischman

[email protected]

Rodrigo Ledesma

[email protected]

HOMEX: a promising return

We are initiating coverage of Desarrolladora Homex, S.A.B. de C.V.

(“HOMEX”) with a price target of MXN 5.75 for 2016, for the ordinary

shares trading on the Mexican Stock Exchange (“MSE”)

HOMEX is a vertically integrated homebuilding company. Its main

activities include the construction and sale of affordable entry

level and middle income homes in Mexico

On July 2015, HOMEX successfully completed its Concurso

Mercantil proceeding under article 339 and Chapter 14 of the new

Ley de Concursos Mercantiles. On October 2015, HOMEX initiated

its reactivation process, operating a leaner corporate structure

focused on profitability

The restructure involved the reactivation of two important

revolving credit facilities to complete current projects

To this writing, HOMEX trades at a 22.3x EV/EBITDA 2016E adjusted

multiple

The MSE reports 874,896,497 shares, which do not include the

equity dilution resulting from convertible bonds. For our valuation,

we account for 1,658,615,064 fully diluted shares, considering the

fact that the convertible bonds are always in-the-money

We believe uncertainty about the company’s future is keeping the

stock under pressure

Risks to our investment thesis include the company’s high financial

leverage, which will consume an important part of the operating

cash flow in the near term. Additionally, the reactivation process

could be slower than our base case, putting at risk the company’s

deleveraging goals. On the macro side, the rate hiking cycle of

Banxico could have a negative impact on mortgage demand

*Accounting for fully diluted shares. **2015 Net income adjusted for an extraordinary gain from the liquidation of liabilities with company

shares. 2016 Net income adjusted to exclude other income from liabilities restructuring and inventory revaluation. *** Calculated with EBITDA

adjusted for non-cash other income

This report must be read together with the Disclaimer contained in the final section of the document

Stock price 3.34

Target price 2016 5.75

Potential expected return 72.1%

Range since reactivation 3.24 - 22.50

Public market overview (mm)

Stock price 3.34

Fully diluted shares 1,659

Free float * 20.2%

Market cap * 5,540

Enterprise value * 12,406

3-month ADTV (000's) 558

Financial overview (MXN mm)

Price performance

Homex IPC

1 month -5.5% 0.8%

3 months -14.3% 7.4%

0%

25%

50%

75%

100%

10/15 11/15 12/15 1/16 2/16 3/16

HOMEX IPC


2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 346 3,847 10,295 11,695 14,776 17,690 18,905 20,182 21,066

Revenue growth % 0.0% 1011.4% 167.6% 13.6% 26.3% 19.7% 6.9% 6.8% 4.4%

Net income ** (5,369) (228) 749 907 1,380 1,828 2,010 2,411 2,582

Net income margin % nm -5.9% 7.3% 7.8% 9.3% 10.3% 10.6% 11.9% 12.3%

EPS ** (3.24) (0.14) 0.45 0.55 0.83 1.10 1.21 1.45 1.56

EV/EBITDA *** 22.3x 8.8x 6.3x 4.4x 3.5x 3.3x 3.0x 2.9x

P/E nm 7.4x 6.1x 4.0x 3.0x 2.8x 2.3x 2.1x

mailto:[email protected]

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HOMEX

Company Snapshot


Projected revenues (MXN mm)

* Accounting for fully diluted shares

Stock Price performance since reactivation

of operations in MSE

P

Note: Indexed to 100%

HOMEX

Stock price 3.34

Fully diluted shares (mm) 1,659

Market Cap (MXN mm) * 5,540

Date 5/3/2016

Total debt 6,907

Cash & equivalents 42

Minority interest -

Enterprise value (MXN mm) * 12,406

Implicit multiples

2015 2016E 2017E

P / E nm nm 7.4x

EV / EBITDA nm 22.3x 8.8x

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2015 2016E 2017E 2018E 2019E 2020E 2021E

Housing Infrastructure

0%

20%

40%

60%

80%

100%

120%

10

/23

/15

11

/22

/15

12

/22

/15

1/2

1/1

6

2/2

0/1

6

3/2

1/1

6

4/2

0/1

6

HOMEX IPC DJI

3


HOMEX

Investment Thesis Highlights and considerations

Investment highlights

Operations reactivation

On July 2015, HOMEX successfully completed its Concurso Mercantil legal

proceeding under article 339 and Chapter 14 of the new Mexican Ley de

Concursos Mercantiles, being the first Mexican public company to do so

On October 2015 the Company began its reactivation process, through a

leaner, more efficient structure

HOMEX selected the projects that will be reactivated based on their

profitability and cash generating capacity, and keeping conservative sales

growth goals

Restructured liabilities

Through the restructuring plan, which partly consisted in equitizing non-

secured common creditors, HOMEX reduced the balance due to recognized

common creditors from MXN 39,149 mm to MXN 10,279 mm

The restructure process involved the re-opening of two important credit lines

and other bridge loans to conclude existing projects

Issuance of a MXN 1,750 mm convertible bond that will cover the company’s

short term liquidity needs

Alignment to new

Housing Policy

92% of the company’s land reserves are within the urban perimeter defined

in Mexico’s new Housing Policy

HOMEX will remain focused on the affordable entry level segment, where it

has successfully launched vertical housing projects in the past

Housing deficit

The housing deficit in Mexico is currently estimated at around 9 mm

households and, as a result of population growth, 10.7 mm new homes will

be needed for the next 20 years

Profitability and liquidity

are top priorities

HOMEX will follow strict selection criteria to filter future projects, favoring

profitability and liquidity over growth

The company estimates two weeks for collections in its new projects. Also,

initially suppliers will be payed upon delivery, and the company will maintain

minimum levels of inventory during the construction process

Land acquisition will be programmed to match the rhythm of construction

and the required timing to obtain permits and licenses

Unique construction

process

HOMEX’ mold technology (aluminum molds) allows for an agile, flexible

construction process. Additionally, this technology accelerates the capital

cycle

IT platform that promotes efficiency throughout the company’s operations

4


HOMEX

Investment Thesis Highlights and considerations

Risks

Macroeconomic risks

The economic, political, social and financial environment in Mexico poses a

risk to the company’s financial situation

An adverse economic situation could translate into a weakening demand

for housing. Housing demand directly depends, among other things, on

factors such as mortgage supply, consumer sentiment, and interest rates

Banxico’s hiking rate

cycle

During December 2015, the Bank of Mexico (“Banxico”) began a rate hiking

cycle following the Federal Reserve’s decision to increase its own interest rate

to begin the normalization of its monetary policy

On February 2016 Banxico increased again its reference rate, in a surprise

movement that was part of a joint effort with the Secretaría de Hacienda y

Crédito Público (“SHCP”) to face the adverse environment in financial

markets and the weakening of the Mexican peso against the U.S. dollar at

the time

The increase in interest rates could result at some point in the future in a

decrease in mortgage demand, even though currently there is no evidence

of this being the case

High financial leverage

Despite the fact that the company’s liabilities were severely reduced as a

result of the completion of the Concurso Mercantil proceedings, HOMEX still

faces a heavy load of liabilities going forward

— Accounting for the company’s convertible bonds, we estimate that the

Debt to Assets ratio will be at 63.4% at the end of 2016

If the company’s reactivation process is slower than expected, or if sales grow

at a lower rate than projected on the company’s own business plan,

deleveraging could be compromised

Regulatory environment

On February 2013 the Mexican government announced drastic changes to

its Housing Policy

The new Housing Policy seeks to promote sustainable urban development

and to control the disordered growth in urban areas

Future changes to the Housing Policy could have a material impact in

HOMEX’s operations and financial situation

Competitive landscape The homebuilding industry in Mexico is highly fragmented, with more than 600

participants nationwide. Most participants in the industry have a local or

regional scale

Low volume of

operations for HOMEX

shares

HOMEX shares have a low trading volume compared to other securities in the

MSE. This behavior could stop an investor from unwinding its position on the

company’s shares on a fast and orderly manner

5


HOMEX

Company Overview Introduction

HOMEX is a vertically integrated homebuilding company. Its main activities include the construction

and sale of affordable entry level and middle income homes in Mexico

The company was founded in 1989 in Culiacán, Sinaloa. HOMEX was initially dedicated to the

construction of commercial areas. During 1991 Homex expanded into the affordable entry level

housing segment

On April 2014 the company filed for a pre-packaged Concurso Mercantil proceeding, after a series

of headwinds including changes to the National Housing Policy in 2013, resulted in a crisis for the

homebuilding industry in Mexico, and particularly for the three largest homebuilders: HOMEX, Geo,

and Urbi

On July 2015 the First District Court of Culiacán approved the company’s reorganization plans

(“Convenios Concursales”), which were previously supported by the requisite majorities of

recognized creditors

On October 2015 HOMEX initiated its reactivation and restructuring process

Geographic presence

Mexico City

Pachuca

Culiacán

Tijuana

Guadalajara

Monterrey

Nayarit

La Paz

Los Cabos

Mexicali Hermosillo

Córdoba

Acapulco

León

Morelia

Geographic

presence

Cancún

Puebla Cuernavaca

Veracruz

Querétaro

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HOMEX

Company Overview Concurso mercantil proceeding

On April 30, 2014, HOMEX filed a request for a pre-packaged Concurso Mercantil proceeding

The company saw a significant decline in production while on the Concurso Mercantil proceeding;

units built went from over 50,000 annually to 366 units in 2015

On July 3rd, 2015, the First District Court of Culiacán, Sinaloa, issued its approval of the

reorganization plans (“Convenios Concursales”) presented by the company. The reorganizational

plans were supported by the required majorities of recognized creditors

This resolution marked the end to the Concurso Mercantil legal proceeding, which lasted for

around 18 months. As a result, HOMEX became the first Mexican public company to successfully

complete a Concurso Mercantil proceeding under article 339 and Chapter 14 of the new Ley de

Concursos Mercantiles

On October 23, 2015, HOMEX initiated its reactivation process, which contemplates a restructuring

of its operations. HOMEX plans to build around 18,000 units by the second year after restructuring

its operations

As part of this reactivation process, the company received a capitalization for MXN 1,750 mm

through the issuance of a convertible bond. With this capitalization, HOMEX gained access to two

revolving credit lines with Adamantine for up to MXN 1,850 mm; one credit line with INFONAVIT for

infrastructure for MXN 350 mm; as well as to other bridge loans with some of its banking creditors

Concurso Mercantil timeline

HOMEX files agreement to enterConcurso Mercantil

30 April

2014

3 July

201530 Sept.

2014

22 Dec.

2014

16 Jan.

2015

25 March.

2015

13 April

2015

1 May

2015

23 Oct.

2015

First 90-day extensionis granted by theJudge

The ReorganizationPlan enters into force

Concurso Process: Approvals, signing and filing

Filing of second 90-day extension

Judgment of acknowledgment, classification and

priority of claims ispublished

Definitive list of claimspresented to Court

Homex signsagreement withInfonavit recognizingclaim and providingrepayment schedule

Homex and Ad Hoc Committee sign

restructuring termsheet

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HOMEX

Company Overview Equity restructuring

The company’s equity restructuring involved several stages which are described below:

— Reverse split: at a ratio of 10 to 1; shares representing HOMEX common equity were reduced from

335,869,550 to 33,586,955. These shares are traded as Public Float at the Mexican Stock Exchange (“MSE”)

— Shares to common creditors: Under the terms of the Convenios Concursales, HOMEX issued 302,282,595

ordinary shares with the goal of delivering them to its recognized creditors as partial payment of the

capitalized balance of its common credits. These shares are considered on the Public Float at the

Mexican Stock Exchange (“MSE”)

— Option Plan for common creditors: Under the terms of the Convernios Concursales, HOMEX issued

124,396,130 ordinary shares with the objective of establishing an Option Plan for its common creditors.

The shares for conversion are held at a trust; thus they are not considered for the free float of the

company. Shares from these options are eligible to be vested through two equal packages, the first of

them when the company has a market capitalization of MXN 12,500 mm; the second when the company

hast a market capitalization of MXN 15,000 mm

— Management Incentive Plan (“MIP”): The MIP is a 5-year compensation plan subject to the achievement

of operational objectives established by the Business Plan approved by shareholders and common

creditors. For the implementation of this plan, HOMEX issued 414,653,767 ordinary shares which

represented a capital increase of MXN 414,654 mm. The Board is yet to define and approve certain

characteristics of the MIP which will be implemented during 2016. As long as these options are not

delivered and vested, they are not considered for the free float of the company

— Convertible Bond: On October 2015, HOMEX received a capitalization of MXN 1,750 mm by issuing a

convertible bond. This 7-year bond is eligible to be converted to 783,695,617 ordinary shares from

December 31, 2016; conversion is obligatory upon the bond’s maturity. These shares will be kept in

treasury until conversion

As of December 2015, HOMEX common equity was represented by 460,265,680 ordinary shares, of which

335,869,550 were outstanding shares, while 124,396,130 shares were kept in a trust fund established to comply

with the option plan for common creditors. The MSE considers 874,896,497 as the number of outstanding

shares, which includes the company’s Management Incentive Plan. Accounting for the convertible bonds,

fully-diluted shares amount to 1,658,615,064

Equity composition at the end of the Restructure process

Concept # of shares % of total

Reverse Stock Split 33,586,955 2%

Common Creditors 302,282,595 18%

Options for Common Creditors 124,396,130 8%

Management Incentive Plan 414,653,767 25%

Convertible bond 783,695,617 47%

Fully diluted shares 1,658,615,064 100%

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HOMEX

Company Overview Liability restructuring

As part of the Convenios Concursales, HOMEX agreed to a significant restructuring of the claims

held by recognized creditors

Through the restructuring plan, which partly consisted in equitizing non-secured common creditors,

HOMEX reduced the balance due to recognized common creditors from MXN 39,149 mm to MXN

10,279 mm

Among other things, the restructuring of liabilities involves the following:

— The reactivation of important bridge loans and revolving credit facilities to restart projects

— Common debt creditors are to be equitized, except for the following: INFONAVIT, IMSS, and FISO

accounts payable. INFONAVIT debt is being paid monthly since May 2015

— Accounts payable to suppliers are to be equitized except for MXN 300 mm, which will be paid

monthly over 2 years starting in January 2018

— HOMEX designed a payment plan to fully liquidate IMSS claims, involving monthly payments over

5 years starting in July 2018

— The company is currently in discussions with Mexican tax authorities regarding the recognition of

tax claims from prior fiscal years as well as their treatment in the future

Liabilites restructuring as a result of Convenios Concursales

*Tax claims as of 2015 consider the reconciliation of the tax balance estimated by the company, for more specific detail please refer to note

23 e) of the company’s 2015 audited financial statements

Concept2014 Balance

(MXN mm)

2015 Balance

(MXN mm)Comments

Short term bank loans and current

portion of LT Debt7,912.9 6,299.7 Partially equitized, remainder repaid in full

Capitalized leases 222.9 47.0 Partially equitized, remainder repaid in full

INFONAVIT 515.4 446.9 100% recovery

Financial derivative instruments 1,294.3 - Fully equitized

Suppliers 2,828.7 354.2 Partially equitized, remainder repaid in full

Revolving credit lines 5,423.7 1,941.0 Partially equitized, remainder repaid in full

Bonds 17,944.0 - Fully equitized

Employees 0.3 0.3 100% recovery

Taxes * 3,006.7 1,189.9 Tax payment estimated at MXN 460 mm

Recognized Common Creditors 39,148.9 10,278.9

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HOMEX

Company Overview Deleveraging plan

Recognized common creditors

Composition of restructured liabilities as a result

of Convenios Concursales as of Dec 2015

As of December 2015, total recognized

common creditors amounted to MXN

10,279 mm*

After the restructuring of liabilities,

Homex maintains a balance of MXN

6,300 mm in short term debt, as well as

of MXN 1,941 mm in revolving credit

lines liabilities

The company is currently discussing

with its creditors regarding the renewal

of credit lines and loan contracts to

reclassify most of its debt as long term

Liabilities repayment

The Business Plan presented by the company contemplates the reduction of up to 49% of liabilities

on an 8-year horizon, with the goal of deleveraging the balance sheet

Total debt is forecasted to decrease to MXN 705 mm by 2023, a decline of 91% from current levels

In order to achieve this, the company and its creditors agreed to a waterfall distribution of cash

generated through operations. The waterfall distribution prioritizes payment of recognized claims

over operating costs and expenses

― Collections on the company’s projects are estimated to take around 2 weeks, on average, after

the building process is finished

― 70%-85% of collections will be used to pay for bridge loans and outstanding revolving facilities

― The remaining cash flow will be used to pay for secured debt

― Should it be the case, the company could finance any missing amount needed to complete

operating cash outflows through the outstanding credit lines

― Any surplus of cash will be used to pay for building costs, direct and indirect, sales fees, other

administrative expenses, and land acquisitions, if needed

― The remaining cash flow will be sent to the holding company

*Tax claims as of 2015 consider the reconciliation of the tax balance estimated by the company, for more specific detail please refer to note

23 e) of the company’s 2015 audited financial statements

61%19%

12%

8%

Short term bank

loans

Revolving credit lines

Taxes

Other Claims

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HOMEX

Company Overview Convertible bond

On October 23 2015, HOMEX received a capitalization for MXN 1,750 mm through the issuance of

a convertible bond. This bond is convertible into 70% of the company’s equity beginning on

December 31, 2016. The main characteristics for this bond are described below:

— Maturity: 7 years

— Interest: Payment of interest is divided in two stages. From 2015 to 2020, payments will be

semiannual at a rate of 3.5% in cash or 4.5% in kind, at management’s discretion. Thereafter,

interest will be charged at a 4.0% rate in cash

— Conversion: The bond is convertible into 783,695,617 ordinary shares. Equity received by

conversion will be subject to dilution from MIP and the Option Plan for unsecured creditors.

Conversion will be mandatory if more than 50% of the bond has been converted; in the event

of a secondary offering at a market cap of MXN 15,000 mm; or at maturity

Estimated debt trajectory (MXN mm)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revolving Credit ST Debt LT Debt Convertible bond

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HOMEX

Company Overview Management incentive plan (MIP)

The MIP seeks to align management’s interests with those of shareholders, considering that the majority

of new shareholders were creditors previous to the Concurso Mercantil proceeding

As of this writing, the Board of Directors is yet to define certain characteristics of the MIP

The plan establishes an upfront delivery of 5% fully diluted shares to key employees, who will not be able

to sell their positions until December 31, 2017

In addition, the MIP will award up to 20% of fully diluted equity subject to the achievement of sales and

EBITDA annual targets tied to the company’s Business Plan

— If performance of the company against the Business Plan is below 80%, no additional shares will be

granted

— If performance is at 80% of the Business Plan, an additional 10% of fully diluted shares will be granted,

2% per year until 2020, for a total of 15%

— If performance is at 100% of the Business Plan, an additional 15% of fully diluted shares will be

granted, 3% per year until 2020, for a total of 20%

— If performance is at 120% of the Business Plan, an additional 20% of fully diluted shares will be

granted, 4% per year until 2020, for a total of 25%

— If performance is significantly above the Business Plan (150% or more), management would be

eligible to accelerate equity awards starting in 2016

The restructuring plan also established that, in the event of a secondary equity offering, management

would be eligible to receive all unearned and/or unpaid shares available under the MIP

Management incentive plan

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Otorgadas 2016 2017 2018 2019 2020

Menor al 80% 80% 100% 120% 150%

12


HOMEX

Company Overview Business strategy

Alignment to National Housing Policy

The majority of land reserve is aligned to the new Housing Policy

70% of HOMEX projects will be within the vertical housing segment by 2016

The company remains focused on the affordable entry level housing segment, where it has successfully

developed vertical housing projects in the past

HOMEX’s project density increased from 50 units per hectare to 70 units per hectare, on average

Land reserve alignment to National Housing Policy

Focus on key markets

The company will take advantage of certain key markets where it is already established and where it has a

competitive edge

HOMEX plans to expand its presence in large and mid-sized cities in Mexico, where there is significant housing

demand

― Mexico City, Guadalajara, Monterrey, Culiacán, Querétaro, Cancún, Cuernavaca, Puebla, Pachuca,

Tijuana y Veracruz

Key markets for the company

91.7%

7.8% 0.5%

Currently within

urban perimeters

To Be Included

within Urban

Perimeters

Outside Perimeters

Mexico City

Cuernavaca

Pachuca

Querétaro

Culiacán

Tijuana

Guadalajara

Monterrey

Veracruz

Puebla

Cancún

Key Markets

13


HOMEX

Company Overview Business strategy (Cont.)

Focus on profitability and liquidity

The company maintains a set of strict selection criteria for its projects

― Among other things, the company will require project operating margins above 20%

On average, major components of forecasted costs will be related to building actual units, as well

as building infrastructure/ urbanization of the projects

HOMEX launched a land acquisition policy that is aligned to the National Housing Policy

― Land acquisitions will match construction speed and filing for permits

Also, the company will pay suppliers upon delivery at the beginning of the reactivation process, this

will mean no additional accounts payable for homebuilding activities

HOMEX assumes that accounts receivable will be collected in two weeks for reactivated projects

Working Capital policies will seek to maintain the cash conversion cycle at the minimum

Optimal capital structure

The company’s strategy involves an important deleveraging over time, as well as access to

diversified capital sources

― Deleveraging the balance sheet through the capitalization of non-secured common creditors

― MXN 1,750 mm were received in the form of convertible bonds

― The company negotiated the opening of new 10-year revolving loans

― HOMEX will capitalize on low-cost financing opportunities from government programs

14


HOMEX

Company Overview Corporate structure and management

In 2013, HOMEX had a little over 1,000 administrative employees, compared to the 225 corporate

employees to date, post-Concurso Mercantil

The new Board of Directors consists of 8 members, 2 of them from the founding family, the de Nicolás

family. The role of Chairman of the Board and CEO (if applicable) is reserved for a de Nicolás family

member

As of this writing, 75% of the Board members qualified as independent directors. It is worth noting,

the size of the Board may grow in the future to comply with regulations

Organizational Structure

Board of Directors members

Alberto Menchaca(Treasurer)

Julián de Nicolás(Director of the Infrastructure

Division)

Gerardo de Nicolás(Chief Executive Officer)

Rubén Izabal / Jorge Hach(Co-directors of Construction)

Elsa Ramos(Director of Sales and Branches)

Carlos Moctezuma(Chief Financial Officer)

Alejandro Alvarado(Human Resources and Social

Responsibility Director)

Roberto Vez(General Counsel)

Víctor López(Director of Information

Technology and Innovation)

Rodolfo Leyva(Controller)

Name Participates in the following comittees

Eustaquio de Nicolás Gutierrez Chairman of the Board of Directors

Gerardo de Nicolás Gutierrez Not a member of any comittee

José Manuel Canal Audit Committee (Chair)

Antonio Manuel Dávila Uribe Compensation and Corporate Governance Committee (Chair)

Samuel Suchowiecky Compensation and Corporate Governance Committee

Ernesto Valenzuela Audit Committee

William J. Crombie Audit Committee

Jorge Fernandez Not a member of any comittee

15


HOMEX

Industry Homebuilding industry in Mexico

The homebuilding industry in Mexico changed drastically during 2013, following a shift in government

housing policies

Changes to the Housing Policy had the purpose of promoting sustainable urban development and

controlling the disordered growth in urban areas

The new National Housing Policy had a strong structural impact for the biggest players in the industry

in Mexico (HOMEX, Geo, and Urbi). These companies had accumulated an important amount of

land reserves in order to keep an accelerated growth that was in line with the previous Housing Policy

The situation for these home developers worsened because they had leveraged their balance sheets

in order to finance their land reserve acquisitions

The shift to the National Housing Policy had an impact on other home developers as well: the number

of registered developers decreased considerably beginning in 2013

On the demand side, by some accounts, there is a deficit of approximately 9 mm housing units in

Mexico, and due to population growth another 10.7 mm new homes will be required for the next 20

years

Industry drivers

Demand in the homebuilding industry will benefit from the following trends:

― Labor force growth and formalization of the economy

― New household origination

― An increase in urban density

― Rising home density

― Housing deficit

― Increased mortgage options

― Housing subsidies from CONAVI

16


HOMEX

Industry Housing Policy in Mexico

In February 2013, the Mexican government introduced a series of changes to the National Housing

Policy. Among them, the creation of the Secretaría de Desarrollo Agrario, Territorial, y Urbano

(“SEDATU”), a new entity focused in coordinating other government agencies related to the housing

sector (INFONAVIT, FOVISSSTE, SHF, CONAVI)

The new Housing Policy defined as its goal to improve the location of housing developments and to

guarantee a better quality of life for Mexican households. The National Housing Policy is based on

four principles:

― Improve coordination among governmental agencies to promote sustainable growth

― Focus on sustainable urban development, halting the disordered growth of the urban footprint

― Reduce the housing deficit, through an improved offering of adequate housing units for state and

municipal employees, as well as for law enforcement employees, at the state and municipal level

― Supply Mexicans with worthy housing options

As part of the shift in the Housing Policy, SEDATU asked home developers to confidentially register their

land reserves at RENARET, in order to know the location of every land destined for home development

in the country

On July 1st, 2013, the government put forth its new rules for mortgage subsidies

Rules for mortgage subsidies establish the subsidy that a housing unit may receive based on a grading

system with scale from 0 to 1,000 points. The grade is determined by the following criteria:

New rules for mortgage subsidies assign more weight to the criteria of location and competence

(sustainability) in determining the grade of each project

In addition, the minimum required grade to receive a mortgage subsidy increased from 200 to 350

points

On the other hand, new rules increased the maximum amount per subsidy, from 33 to 37 TMW, and

approved an additional subsidy equivalent to 3 TMW to affiliates with income below the 1.5 TMW

threshold

Variables ParametersMaximum

New Score2013 Score

Location Developments near high growth cities 400 300

ServicesOffers hospitals, school, community centers, playgrounds, trasnportation, and

parks270 404

Construction density Three story building, more than 80 unit per hectare and more cosntruction space 230 230

Competence Eco-friendly technology 100 66

Total Score 1000 1000

17


HOMEX

Industry Housing supply and competitive landscape

The homebuilding industry in Mexico is highly fragmented, with more than 600 participants nationwide.

Most participants in the industry have a local or regional scale

― According to INFONAVIT, most registered home developers built less than 1,000 units annually, and

only 3 built more than 10,000 units during 2015

― The following home developers are publicly traded: Consorcio Ara (ARA), Corpovael (CADU),

Corporación Geo (GEO), Consorcio Hogar (HOGAR), Desarrolladora Homex (HOMEX), Servicios

Corporativos Javer (JAVER), Sare Holding (SARE), and Urbi Desarrollos Urbanos (URBI). As of this

writing, Urbi was suspended from the trading floor because it is following its own Concurso

Mercantil proceeding

The new Housing Policy was a structural change for the homebuilding industry in Mexico, which

resulted in a significant decrease in registered home developers with INFONAVIT, from 2,292 in 2012

to 655 in 2015

Most home developers are small-scale and are not focused on vertical housing projects

― By January 2016 there were 551,130 housing units in the market, either in construction or finished,

of which only 23% belonged to the vertical category, according to CONAVI

Homebuilders registered in the RUV 1

1 Source: RUV as of February 2015

1,762

1,364

1,159

1,417 1,304

2,292

831 750

673

-

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012 2013 2014 2015

18


HOMEX

Industry Housing demand

INFONAVIT potential demand (mm credits) INFONAVIT market share by income segment

(TMW)

Potential demand

— According to the National Housing Survey published by INEGI in 2013, Mexicans buy their houses between

ages 31 to 36, on average

— CONAPO estimates that, in 2015 (most recent data is for 2012), the age segment of 25-50 years was

integrated by 43.7 mm individuals, o 36.4% of the total population. According to the same source, by 2020

this age segment will represent 36.7% of the total population, and, going forward, it will grow in relation to

the total population

— CONAPO estimates that the number of household units in Mexico could rise from 32.3 mm in 2015 to 40.9

mm in 2030

— The number of household units is projected to grow faster than total population mainly because of the

negative trend in house occupancy. The house occupancy rate declined from 5 individuals per home in

1990 to 3.7 individuals per home in 2012 (most recently available data), according to CONAPO statistics

— On July 2015, INFONAVIT estimated potential demand for housing to be at 5.15 mm units. This estimate

considers the number of affiliates that can apply for a mortgage with INFONAVIT. However, not every

affiliate is expected to file for mortgage benefits immediately, due to factors such as the labor cycle. At

the end of 2013 (most recently available data), affiliates that had applied for mortgage benefits were

13.7% of the total

— According to data published by INEGI, 9.8 mm housing units were uninhabitable in Mexico as of 2012 (most

recently available data). This housing deficit is composed of 1.8 mm households belonging to the formal

sector of the economy (affiliated to INFONAVIT or FOVISSSTE), and 8.0 mm households belonging to the

informal sector (non-affiliates)

— There are currently no substantial mortgage products to attack non affiliates, which is why home

developers are focused on the affiliated segment

— According to the “Housing Demand” report published by Sociedad Hipotecaria Federal (SHF), demand is

estimated at 1.17 mm mortgages for 2016

— The same report estimates that 49.3% of mortgages demanded, equivalent to 575.4 K mortgages, will be

for housing acquisitions; 40.7% of mortgages demanded will be for home improvements; while only 10% of

mortgages demanded will be for self-production

4.7

4.4

4.74.7

4.4

4.9

5.15.1

4.0

4.2

4.4

4.6

4.8

5.0

5.2

2008 2009 2010 2011 2012 2013 2014 2015

35.0%

12.7%18.9%

17.2%

8.4%

7.8%

Less than 2.00

2.00-2.60

2.61-3.99

4.00-6.99

7.00-10.99

More than 11.00

19


HOMEX

Industry Mortgage and subsidy programs

Home developers depend largely on the availability and accessibility of mortgage products in the

market

The main mortgage originators in Mexico are:

― Mortgage suppliers that are funded by private employers, affiliated employees, and the

government (INFONAVIT, FOVISSSTE and SHF)

― Private sector institutions (retail banks and Sofomes)

― Other suppliers of mortgages and subsidies (FONHAPO, SEDESOL, CONAVI, ISSFAM, PEMEX, and

others)

According to the “Housing Demand” report published by SHF in 2016, 68.6% of mortgages demanded

for home acquisitions will be provided by INFONAVIT (394.7 K mortgages); 18.2% of mortgages

demanded will be provided by private sector institutions (105.0 K mortgages); 10.4% will be provided

by FOVISSSTE (59.8 K mortgages); and only 2.7% will be provided by other entitites (15.8 K mortgages)

The same report estimates that mortgage requirements will grow 0.6% in 2016

― Mortgages demanded for acquisitions will decrease 6.5% YoY, due to increased options to apply

for home-improvement and self-production mortgages

― Mortgages demanded for home improvements will grow 7.2% YoY; while mortgages for self-

production will increase 15.2% YoY

Mortgage sources in Mexico

Suppliers of mortgage financingWith public resources

Other suppliers of mortgages and subsidies

Including FONHAPO, SEDESOL and Conavi

Main mortgage originators in Mexico

Private sector institutions: retailbanks and Sofomes

With own resources

Infonavit Fovissste SHF

Founded in1972, grants

mortgage credits to affiliated employees

Founded in 1972, grants

mortgage credits to government employees

Founded in 2002, grants

mortgage credits through financial intermediaries

20


HOMEX

Industry Mortgage products

INFONAVIT provides the following financing products:

― Crédito INFONAVIT: A loan that is extended based on age and income; it can be used for new or

existing home acquisitions, or for home improvements

― Crédito Seguro INFONAVIT: This program encourages savings among affiliates by extending a loan

promise against monthly payments

― INFONAVIT Total: Under this program the mortgage loan is shared with a retail bank. To apply for

this program, affiliates must earn more than 4.5 TMW, or 11.0 TMW in the case of married couples

― Apoyo INFONAVIT: This program is focused on the higher income segment of affiliates, who can

use their monthly contributions to INFONAVIT to cover part of the monthly payments of mortgage

loans provided by private sector institutions

― Cofinavit: This program is the same concept as Apoyo INFONAVIT, for retail banks or Sofoms

― Segundo Crédito: A loan designed for affiliates who have already finished paying their first

mortgage loan under one of INFONAVIT’s programs, no matter their income bracket

― Mejoravit: Loan program that can be used by affiliates for home improvements under two

categories: enlargements and remodeling

― Arrendavit: This program enables affiliates to lease their homes at participating developments

under a twelve-month contract

Mortgage products INFONAVIT

INFONAVIT Products

Crédito INFONAVIT

Crédito Seguro INFONAVIT

INFONAVIT Total

Apoyo INFONAVIT

Cofinavit

Segundo Crédito

Mejoravit

Arrendavit

21


HOMEX


FOVISSSTE is focused in granting mortgage loans for the affordable entry level housing segment and

the low bracket of the middle income housing segment. Much as INFONAVIT, FOVISSSTE has a variety

of products for the different needs of affiliated government employees:

― The traditional mortgage loan is granted through a stochastic process. All affiliated government

employees are eligible to receive mortgage financing through this product

― The subsidized mortgage loan is thought for affiliates earning income of less than 5 TMW, which is

why it is mixed with a CONAVI subsidy

― Créditos Pensiona2: This program is available for ISSSTE retired employees, no older than 74 years

and 11 months, and who did not receive a mortgage product during their years of active service

― Créditos conyugales: A mortgage loan for affiliates whose spouse is affiliated to INFONAVIT

― Créditos Alia2 Plus: This product enables affiliates whose compensation is above their benchmark

wage compensation to benefit from the balance at their SAR housing subaccount and increase

their credit capacity

― Créditos Respalda2 y Respalda2M: FOVISSTE transfers the affiliates’ balance at the SAR housing

subaccount to a financial institution who will extend the mortgage loan depending on their credit

capacity. Loans extended under these programs are not limited by amount

― FOVISSSTE en pesos: A secured mortgage loan that is granted out of the stochastic selection

process of the traditional FOVISSSTE loan

― FOVISSSTE e INFONAVIT: This product enables government employees affiliated to both institutions

to aggregate their mortgage loans to acquire a home at a larger value

Mortgage products FOVISSSTE

FOVISSSTE Products

Tradit ional MortgageLoan

Subsidized MortgageLoan

Créditos Pensiona2

Créditos conyugales

Créditos Alia2 Plus

Créditos Respalda2 y 2M

FOVISSSTE e INFONAVIT

Créditos FOVISSSTE en pesos

22


HOMEX


Sociedad Hipotecaria Federal (“SHF”) has become an important financing source for home

developers through the following programs:

― Loans for home builders granted through a retail bank

― Crediferente consists of securing first-level losses in mortgages granted by retail banks under this

program

― Syndicated bridge loans consist in loans granted to middle-sized home developers that are

eligible for a loan by a private sector institution

― CEBURES program consists of RMBS guaranteed at 30% by SHF

Private sector institutions

― Retail banks have been focused on originating mortgage loans for the middle-income and

residential housing segments

― On the other hand, Sofomes have been focused on the affordable entry level segment, and on

the middle income segment with support from SHF

23


HOMEX

Industry CONAVI subsidies

Through CONAVI, SEDATU provides subsidies that are complementary to affiliates’ savings and the

mortgages they obtain for new or existing home acquisitions, or for home improvements. Subsidies

from CONAVI are available for the following individuals:

― INFONAVIT affiliates with income of up to 2.6 TMW

― Non-affiliates, affiliated government employees, and law enforcement agents at the federal,

state, or municipal level with income of up to 5 TMW

Each year, the government’s budget includes a specific amount for mortgages subsidies.

Accordingly, mortgage subsidies saw a significant increase from 2013 to 2014

― During 2014 CONAVI provided mortgage subsidies in the amount of MXN 11,494 mm, an increase

of 47% YoY. 69% of mortgage subsidies in the year, or MXN 7,931 mm, were destined to new home

acquisitions

― During 2015 CONAVI provided mortgage subsidies in the amount of MXN 10,996 mm. 78% of

mortgage subsidies in that year, or MXN 7,931 mm, were destined to new home acquisitions

― The budget for mortgage subsidies in 2016 declined 15% YoY, to MXN 9,431 mm. In spite of this,

the budget for new home acquisitions subsidies remained unchanged

Homebuilding subsidies (MXN mm) 1

1 Fuente: CONAVI

3,746

4,895 4,873

5,795 5,170

7,374 7,812

11,949

10,996

9,431

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E

24


HOMEX

Valuation Discounted cash flow (DCF)

We are initiating coverage of Desarrolladora Homex, S.A.B. de C.V. with a 2016 TP of MXN 5.75

We calculate our Target Price for HOMEX through the Discounted Cash Flow (DCF) methodolgy, using 8-year

projections until 2023 and discounting them at the Weighted Average Cost of Capital (WACC) of 17.05%.

HOMEX trades at a 22.3x EV/EBITDA 2016E adjusted multiple

For terminal value, we use a perpetuity growth rate of 3.00%, resulting in a valuation at a 2.9 EV/EBITDA multiple

for 2023

HOMEX successfully completed its Concurso Mercantil proceeding recently, a process which lasted around

18 months and which resulted in an equity dilution of 90% to pre-Concurso shareholders. We consider that the

outlook for the company (a leaner structure, new working capital policies, cash flow generation potential,

and brand positioning) are not fully reflected at current market prices. In our opinion, uncertainty about the

company’s future has kept the share’s price depressed

* EBITDA adjusted for non-cash other income

Discounted cash flows (DCF) 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Adjusted EBITDA * (848) 556 1,413 1,972 2,793 3,499 3,729 4,172 4,348

Cash Taxes (4,374) (277) (74) (370) (564) (746) (821) (985) (1,055)

Changes in net working capital (5,322) 2,172 (325) (9) (615) (533) (244) (115) (110)

Capex - (100) (150) (150) (125) (100) (100) (100) (100)

Free cash flow (10,545) 2,351 864 1,443 1,490 2,120 2,564 2,973 3,084

Terminal value 22,614

Disscounted cash flows 2,259 709 1,012 893 1,086 1,122 1,111 8,206

Enterprise value 16,398

Total debt 6,907

Cash 42

Minority Interest -

Target market cap 9,533

Fully-diluted shares outstanding (mm) 1,659

Target price 5.75

25


HOMEX

Valuation Key assumptions

Operating assumptions

Projected revenues are based on the company’s Business Plan presented as part of the Convenios

Concursales

― From 2018 onwards, housing revenues projections include a margin of safety of 15% from the

company’s own projections

― On our base case scenario, the company will increase housing units sold from 8,005 units during the

first year of the reactivation process, to 32,971 units by 2023

Cost of Goods Sold as a percentage of total revenues is projected to decrease from 76% in 2016 to 72%

by 2023. Adjusted EBITDA margin is estimated to increase from 14.5% to 20.6% during the projected period

For operating working capital, the following assumptions are made:

― Land inventory will be acquired with the time required to obtain licenses and permits. Days of

inventory are projected to decrease considerably, from 532 days in 2016 to 159 days in 2023

― Days sales outstanding are assumed to stay at 15 along the entire projected period

― Days payables outstanding are estimated to increase gradually, from 7 to 20 along the eight

projected years

CAPEX is estimated based on the expectations presented in the company’s Business Plan

2016E Free Cash Flow is favored by our assumption of inventory deliveries to common creditors as

payment in kind, as well as by the release of resources from the convertible bonds which are accounted

under the “other financial assets-net” item on the balance sheet

Capital Structure

Our base case scenario assumes the company will succeed in its goal of deleveraging its balance sheet

― Accounting for the convertible bonds, Homex debt will decrease from MXN 8,045 mm in 2015, to

MXN 705 mm in 2023

― Cost of financing is calculated in two parts: interest expenses generated by the debt that the

company assumed as part of its reactivation process; and interest expenses generated by bridge

loans that are used along the year to finance the construction of new housing units

― Only 35% of the debt by the end of 2016 is projected to generate interest expenses, as the rest will

be liquidated according to the payment plan presented in the Convenios Concursales. From our

perspective, the value of debt as presented on the balance sheet is inflated; its market value is

probably lower because of the restructuring process the company is going through. This effect

generates a distortion in the enterprise value and in the EV/EBITDA multiple, showing them at a higher

value than would probably be in a company with a stabilized capital structure

We assume full conversion of the convertible bonds by the middle of 2022

Our target price is calculated accounting for 1,658,615,064 fully diluted shares; we are considering full

conversion of the convertible bond and of options granted as part of the equity restructuring

26


HOMEX

Peer Companies

Note: Excludes outliers. Research based on Consultora 414 and Wall Street estimates. Data as of 05/03/2016

Mkt. Cap. Ent. Value

Company Name (mm) (mm) LTM 2016E 2017E LTM 2016E 2017E

Consorcio Ara SAB de CV 6.93 95.3% 9,096.4 9,978.5 11.7x 8.9 8.4 15.40 14.14 13.33

Cadu Inmobiliaria SA de CV 14.80 81.3% 5,121.3 4,105.8 6.1 3.5 2.9 5.36 8.71 7.05

Servicios Corporativos Javer SAB De CV 18.36 94.1% 5,114.0 7,203.5 7.7 nm nm nm nm nm

Sare Holding SAB de CV 0.21 57.0% 1,171.5 1,920.1 129.6 nm nm nm nm nm

Consorcio Hogar SAB de CV 2.75 68.8% 1,367.0 1,749.0 nm nm nm nm nm nm

Percentile 25 7.3x 4.9x 4.3x 7.9x 10.1x 8.6x

Percentile 75 41.2x 7.5x 7.0x 12.9x 12.8x 11.8x

Median 9.7x 6.2x 5.6x 10.4x 11.4x 10.2x

Average 38.8x 6.2x 5.6x 10.4x 11.4x 10.2x

Stock Price

(MXN)% of 52-w high

EV/EBITDA <

27


HOMEX

Financials Summary Income statement and financial ratios (MXN mm)

Income Statement (MXN mm) 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Housing revenues 306 3,847 9,295 10,661 13,704 16,579 17,751 18,988 19,830

Infrastructure revenues 17 - 1,000 1,034 1,071 1,111 1,154 1,195 1,236

Other revenues 23 - - - - - - - -

Total revenues 346 3,847 10,295 11,695 14,776 17,690 18,905 20,182 21,066

Cost of sales 563 2,935 7,752 8,549 10,624 12,719 13,593 14,511 15,147

Gross Profit (Sales) (217) 912 2,543 3,146 4,152 4,971 5,312 5,671 5,920

Operating expenses 863 462 1,235 1,286 1,478 1,592 1,701 1,615 1,685

Other operating expenses (income), net (2,655) (3,028) (200) (200) (200) (200) (200) (200) (200)

Operating Income (Loss) 1,576 3,478 1,507 2,059 2,874 3,579 3,811 4,257 4,434

Comprehensive Financial Cost 2,571 402 684 783 931 1,005 980 862 798

Net income (loss) before tax (995) 3,076 823 1,277 1,943 2,574 2,831 3,395 3,636

Income tax expense 4,374 277 74 370 564 746 821 985 1,055

Profit from liquidation of liabilities with company shares (21,279) - - - - - - - -

Consolidated net income (loss) 15,909 2,799 749 907 1,380 1,828 2,010 2,411 2,582

Indicators and financial ratios 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Profitability indicators

Gross margin nm 23.7% 24.7% 26.9% 28.1% 28.1% 28.1% 28.1% 28.1%

Adjusted EBITDA margin nm 14.5% 13.7% 16.9% 18.9% 19.8% 19.7% 20.7% 20.6%

Net margin nm 72.8% 7.3% 7.8% 9.3% 10.3% 10.6% 11.9% 12.3%

Solvency and leverage

Total debt 8,045 6,916 6,406 5,748 5,089 4,431 3,772 1,363 705

Debt / Total assets 67.2% 63.4% 56.3% 49.6% 40.9% 33.1% 26.2% 8.5% 4.0%

Net debt / EBITDA nm 9.3x 3.5x 2.2x 1.4x 0.9x 0.4x -0.5x -1.0x

EBITDA / Financial expenses nm 8.9x 2.4x 2.8x 3.2x 3.7x 4.0x 5.1x 5.7x

Liquidity

Current assets - Current liabilities (15,385) (7,185) (6,262) (5,884) (5,321) (4,142) (2,785) (996) 980

Current ratio 0.2x 0.3x 0.4x 0.4x 0.5x 0.6x 0.7x 0.9x 1.1x

Inventory days 531 194 187 185 170 166 162 159

Asset turnover 0.0x 0.4x 0.9x 1.0x 1.2x 1.3x 1.3x 1.3x 1.2x

28


HOMEX

Financials Summary Balance sheet (MXN mm)

Balance sheet (MXN mm) 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Cash and cash equivalents 42 1,736 1,433 1,339 1,080 1,377 2,143 3,462 5,019

Accounts receivable, net 56 158 1,023 1,060 1,164 1,260 1,285 1,307 1,360

Inventories 1,887 778 1,290 1,661 2,474 2,983 3,192 3,413 3,564

Payments in advance 57 57 57 57 57 57 57 57 57

Other financial assets- net 1,518 535 535 535 535 535 535 535 535

Total Current Assets 3,559 3,264 4,338 4,652 5,311 6,213 7,212 8,775 10,536

Land and construction for future developments 4,257 3,490 2,839 2,709 2,898 2,947 2,997 3,014 3,014

Property and equipment, net 240 234 279 316 322 302 284 269 255

Other assets, net 44 44 44 44 44 44 44 44 44

Deferred income taxes 3,878 3,878 3,878 3,878 3,878 3,878 3,878 3,878 3,878

Total Non-current Assets 8,420 7,646 7,040 6,947 7,142 7,170 7,203 7,205 7,191

Total assets 11,979 10,911 11,378 11,599 12,453 13,384 14,416 15,979 17,728

Revolving credit - - - - - - - - -

Short term credits 6,300 590 563 528 492 457 421 386 350

Accounts payable 3,678 2,801 3,134 2,779 2,541 2,402 2,298 2,337 2,384

Land suppliers - - - 472 1,058 1,259 1,341 1,406 1,454

Advances from customers 173 465 533 685 829 888 949 991 991

Other payable assets 3,688 1,688 1,688 1,623 1,493 1,363 1,233 1,103 1,038

Deferred income taxes 1,375 1,375 1,375 1,375 1,375 1,375 1,375 1,375 1,375

Provision for uncertain tax positions 3,565 3,365 3,165 2,965 2,765 2,565 2,365 2,165 1,965

Capitalized leases 47 47 47 39 31 23 16 8 -

Other accounts payable 119 119 95 71 48 24 - - -

Total current liabilities 18,944 10,450 10,600 10,536 10,631 10,355 9,998 9,771 9,557

Long-term debt 608 4,575 4,093 3,470 2,847 2,224 1,601 978 355

Other long term liabilities 3 3 3 3 3 3 3 3 3

Total long term liabilities 611 4,579 4,096 3,473 2,850 2,227 1,604 981 358

Total liabilities 19,555 15,028 14,696 14,010 13,482 12,582 11,602 10,752 9,915

Common stock 1,283 1,283 1,283 1,283 1,283 1,283 1,283 3,033 3,033

Convertible obligations 1,137 1,750 1,750 1,750 1,750 1,750 1,750 - -

Additional paid-in-capital 2,833 2,833 2,833 2,833 2,833 2,833 2,833 2,833 2,833

Treasury stock, at cost (12) (12) (12) (12) (12) (12) (12) (12) (12)

(Losses) retained earnings (12,735) (9,936) (9,187) (8,280) (6,901) (5,073) (3,063) (653) 1,929

Financial derivative instruments, net of degerred taxes -

Other stockholders' equity accounts 18 18 18 18 18 18 18 18 18

Capital (deficit) controlling interest (7,475) (4,063) (3,314) (2,407) (1,027) 800 2,810 5,220 7,802

Non controlling deficit interest in consolidating subsidiaries (101) (55) (4) (3) (1) 1 4 7 11

Total (deficit) stockholders equity (7,576) (4,118) (3,318) (2,410) (1,029) 801 2,814 5,228 7,813

Total liabilities and stockholders equity 11,979 10,911 11,378 11,599 12,453 13,384 14,416 15,979 17,728

29


HOMEX

Financials Summary Cash flow statement (MXN mm)

Cash-Flow (MXN mm) 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

(Loss) income before income taxes (995) 3,076 823 1,277 1,943 2,574 2,831 3,395 3,636

Depreciation and amortization 231 106 106 113 119 120 118 115 114

Loss in sales of property and equipment (1) - - - - - - - -

Interest income (1) - - - - - - - -

Accrued interests 1,875 402 684 783 931 1,005 980 862 798

Valuation effect for derivative instruments 696 - - - - - - - -

Allowance for uncollectible accounts (24) - - - - - - - -

Foreign exchange (gain) loss (95) - - - - - - - -

Gains in decrease of provision for uncertain tax positions - (200) (200) (200) (200) (200) (200) (200) (200)

Impariment deferred income tax - - - - - - - - -

Items with no impact on cash 2,681 307 590 695 850 925 898 777 712

Taxes - (277) (74) (370) (564) (746) (821) (985) (1,055)

Change in working capital 2,836 2,172 (325) (9) (615) (533) (244) (115) (110)

Cash flow from operating activities, net 4,522 5,279 1,014 1,593 1,615 2,220 2,664 3,073 3,184

PP&E investments - (100) (150) (150) (125) (100) (100) (100) (100)

Income for sale of property and equipment 2 - - - - - - - -

Cash flow from investing activities, net 2 (100) (150) (150) (125) (100) (100) (100) (100)

Banking facilities x 1,125 350 - - - - - - -

Payment of banking facilities and other financings x (5,798) (4,092) (533) (755) (820) (820) (820) (796) (731)

Net change in loans and other financing (3,742) (533) (755) (820) (820) (820) (796) (731)

Capital Injection at reasonable value IFRIC 19 - - - - - - - -

Capitalization of convertible loan x 1,137 613 - - - - - - -

Non controlling participation - 46 50 1 2 2 3 3 3

Paid interests x (1,071) (402) (684) (783) (931) (1,005) (980) (862) (798)

Cash flow from financing activities, net (4,607) (3,485) (1,167) (1,537) (1,750) (1,822) (1,798) (1,655) (1,526)

Cash increase (decrease), net (82) 1,694 (303) (94) (260) 298 766 1,318 1,558

Adjustments by changes in cash value 18

Initial cash balance 105 42 1,736 1,433 1,339 1,080 1,377 2,143 3,462

Ending cash balance 42 1,736 1,433 1,339 1,080 1,377 2,143 3,462 5,019

30


HOMEX

Disclaimer

The analysts responsible for the production of this report certify that the views expressed herein exclusively reflect their personal

views and opinions about any and all of the subject issuers or securities, and were prepared independently and autonomously,

including from 414 Capital Inc. and Consultora 414 S.A. de C.V. (together or separately, “414”) and other associated companies.

The analysts responsible for the production of this report are not registered and/or qualified as research analysts with the NYSE or

FINRA and are not associated with any broker/dealer entity in the United States or elsewhere and, therefore, may not be subject

to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading

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is, or will be, directly or indirectly, related to the specific recommendations or views expressed by them in this research report.

The information contained on this document is provided by 414 in good faith. The information is believed to be accurate and

current as at the date indicated, when applicable. 414 is not responsible for any errors or omissions, or for the results obtained

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use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and 414 accepts no

liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own

investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. To the extent permitted by

applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices whatsoever

arising from the use of this publication or its contents.

The fact that 414 has made this document or any other materials available to you constitutes neither a recommendation that

you enter into or maintain a particular transaction or position nor a representation that any transaction is suitable or appropriate

for you. Transactions may involve significant risk and you should not enter into any transaction unless you fully understand all such

risks and have independently determined that such transaction is appropriate for you. 414 does not provide accounting, tax or

legal advice; such matters should be discussed with your advisors and or counsel.

This presentation does not constitute a commitment to underwrite, subscribe for or place any securities or to extend or arrange

credit or to provide any other services.

414 has been approved by BMV to act as Independent Analyst and is subject to the Internal Rules of BMV. Such approval does

not imply that 414 has been authorized or supervised by the Comisión Nacional Bancaria y de Valores.

These materials were prepared for use only within Mexican territory, and by Mexican legal or natural persons. They may not be

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1


*Accounting for fully diluted shares

This report must be read together with the Disclaimer contained in the final section of the document

HOMEX

Desarrolladora Homex, S.A.B. de C.V.

May 3, 2016

Ariel Fischman

[email protected]

Rodrigo Ledesma

[email protected]

1Q16 Results: Reactivation still in process

HOMEX sold 241 housing units during 1Q16, 71% of which were from

the affordable entry level segment and 29% were from the middle

income housing segment. Revenues increased more than 80% YoY,

to MXN 148 mm, due to the reactivation of projects

HOMEX registered an operating loss of MXN 93 mm for the quarter,

compared to the operating loss of MXN 79 mm in 1Q15. Negative

operating results were provoked by the company’s low level of

operations. Additionally, the company recorded extraordinary

expenses of MXN 28 mm related to operation and maintenance at

housing developments where infrastructure remains unfinished. To

complete the pending infrastructure, the company plans to use an

INFONAVIT credit line of MXN 350 mm, which will help to reduce this

expense item during the year

Results include other expenses of MXN 115 mm resulting from a

provision against fines and an update in fiscal balances, none of

which represented a cash outflow for the company

As of 1Q16, HOMEX reported total debt of MXN 7,103 mm fully

denominated in MXN. Most of the company’s debt is classified as

short term, even though HOMEX is currently in discussions with its

creditors regarding the renewal of credit lines and loan contracts to

reclassify most of its debt as long term. We expect a positive

outcome from such discussions

The company’s exit from the Concurso Mercantil proceeding is still

recent and the level of operations remains low. In spite of this, we think

the company’s experience and business model will allow it to reach

a considerably higher building pace by year end. HOMEX is currently

trading at a 22.3x EV/EBTIDA 2016E adjusted multiple

Stock price 3.34

Target price 2016 5.75

Potential expected return 72.1%

Range since reactivation 3.24 - 22.50


Stock price 3.34

Fully diluted shares 1,659

Free float * 20.2%

Market cap * 5,540

Enterprise value * 12,406

3-month ADTV (000's) 558


Price performance

Homex IPC

1 month -5.5% 0.8%

3 months -14.3% 7.4%

0%

25%

50%

75%

100%

10/15 11/15 12/15 1/16 2/16 3/16

HOMEX IPC

1Q16 Results (MXN mm)

1Q16 1Q15 Δ YoY%

Revenues 148 81 81.3%

COGS 120 70 71.2%

Gross margin % 19.0% 14.3% 475 bp

SG&A 121 91 32.6%

EBIT (93) (79) 16.7%

% EBIT margin nm nm nm

Net income (333) (218) 52.6%

Net income margin % nm nm nm

2


Disclaimer

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views and opinions about any and all of the subject issuers or securities, and were prepared independently and autonomously,

including from 414 Capital Inc. and Consultora 414 S.A. de C.V. (together or separately, “414”) and other associated companies.

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subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances,

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opinions and estimates constitute the analyst’s judgment as of this date and are subject to change without notice.

The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment

decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the

use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and 414 accepts

no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their

own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. To the extent permitted

by applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices

whatsoever arising from the use of this publication or its contents.

The fact that 414 has made this document or any other materials available to you constitutes neither a recommendation that

you enter into or maintain a particular transaction or position nor a representation that any transaction is suitable or appropriate

for you. Transactions may involve significant risk and you should not enter into any transaction unless you fully understand all

such risks and have independently determined that such transaction is appropriate for you. 414 does not provide accounting,

tax or legal advice; such matters should be discussed with your advisors and or counsel.

This presentation does not constitute a commitment to underwrite, subscribe for or place any securities or to extend or arrange

credit or to provide any other services.

414 has been approved by BMV to act as Independent Analyst and is subject to the Internal Rules of BMV. Such approval does

not imply that 414 has been authorized or supervised by the Comisión Nacional Bancaria y de Valores.

These materials were prepared for use only within Mexican territory, and by Mexican legal or natural persons. They may not be

reproduced, distributed to any third party or otherwise published without the prior written consent of 414 Inc. Laws and

regulations of other countries may restrict the distribution of this report. Persons in possession of this document should inform

themselves about possible legal restrictions and observe them accordingly.

homexmay 03, 2016 · desarrolladora homex, s.a.b. de c.v. may 3, 2016 rodrigo ledesma ariel...

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