ARA S.A.B. DE C.V. Results came in line with our estimates.

We are upgrading our recommendation to BUY

October 25, 2012

We are upgrading our recommendation to BUY from HOLD and introducing our 2013 target price of MP 5.20 after having updated our model, following the 3Q12 results. Our new estimates consider a revenue and operating income growth of 7% and 15% in 2013, respectively, and 9% in both cases in 2014. We expect ARA to generate positive free cash flow generation of MP 150 million in 2013 and MP 100 million in 2014. In our view ARA is the most defensive play on the sector. Our BUY recommendation, is supported mainly by the following: i) The negative effects by higher sustainability requirements to obtain a mortgage (by the INFONAVIT or subsidies) are practically surpassed; ii) we anticipate continuity in the public housing policy with the new government in 2013; iii) we believe that ARAs results are close to the inflexion point; iv) solid financial profile with a low leverage (total debt represents only 27% of inventories); v) attractive valuation with a 2013E P/E of 6.9x, EV/EBITDA of 5.1x and P/BV of only 0.5x in addition, we believe that some of ARAs assets, like its commercial centers are undervalued in the companys balance sheet; and vi) the potential return to our new target price of MP 5.20 is 25.3%. Our new 2013E target price is based on a DCF model which assumes a 8.9% WACC (cost of equity of 9.7%, 18% total debt to capitalization and beta of 0.9), and a perpetual 3.0% growth in nominal terms. The main downside risks to our recommendation are lower mortgage availability by INFONAVIT and FOVISSSTE, slower-than-expected recovery in ARAs results, and working capital pressure as a result of the Crystal Lagoons project. 3Q12 ARAs total revenues were up 0.6% as a result of a 5% contraction in the number of units titled, which was partially offset by an 6% increased in the average housing selling price. Total revenues from the affordable entry level and middle income segment were lower 3% and 0.6%, respectively vs 3Q11, partially offset by the increase of 15% in the residential segment. EBITDA showed positive performance. The operating profit was higher 3% vs 3Q11 as a result of a reduction of 1.3% in the general expenses due to ARAs costs reduction initiatives. The operating margin was 10.4% with an expansion of 20 pbs. Net income was up 15% as a result of the strong operating performance. ARAs cash reserves closed at MP 1.6 billion, translating into a net debt to EBITDA ratio of 1.4x, the same level than in 2Q12. INCOME STATEMENT 3Q12 3Q11 Chg. 9M12 9M11 Chg.
Sales (Figures in Millions Pesos) Operating Profit Operating Margin EBITDA EBITDA Margin Net Profit EPS
Source: Company, Actinver

BUY
Local Tick e r Price Targe t Las t Price Expe cte d Re turn 2013E Div. Yie ld Total Expe cte d Re turn
Mkt. Cap (Million) 5,317 Ent. Value (Million) 6,852 LTM Price Range 4.64) MP (3.46 MP

ARA * M P 5.20 M P 4.15 25.3% 0.0% 25.3%

Stock performance
140 130 120 110 100 90 80 70 Nov-11 Dec-11 Jan-12 Jun-12 Jul-12 May-12 Aug-12 Feb-12 Mar-12 Apr-12 Sep-12 Oct-12 60

ARA
So urce: Blo omberg

IPC

Ramon Ortiz
Concessions, Construction & Real Estate rortiz@actinver.com.mx +52 (55) 1103 6600 x5034

of

1,564 163 10.4% 260 16.6% 126 $ 0.10 $

1,555 158 10.2% 240 15.5% 110 0.08

1% 3% 8% 15% 15% $

4,884 616 12.6% 910 18.6% 462 0.35 $

5,159 743 14.4% 986 19.1% 535 0.40

(5%) (17%) (8%) (14%) (12%)

Actinver Corporate H eadquarters 1200 Guillermo Gonzlez Camarena Floor 5, Santa F

Mxico, D.F. 01210

CONSORCIO ARA, S.A.B. DE C.V.

Discounted Cash Flow Model (2014-2018E)
Millions of Pesos EBIT Effective Tax rate Tax Effect On EBIT NOPLAT Depreciation Working Capital Changes CAPEX FCFE Perpetuity Growth Rate Present Value of Explicit Period (2014-2018E) Perpetuity Value Present Value of Perpetuity Value Theoretical Firm Value Net Debt Minority Interest Theoretical Market Value Number of Shares (Mn) Theoretical Price / Share Current Market Price Potential Return Average Cost of Debt Long Term Tax Rate After-Tax Cost of Debt Cost of Capital Market Risk Premium Risk Free Rate + Country Risk Premium Beta % Total Debt % Capital WACC
Source: Actinver

2014E 1,141 29.0% (331) 810 278 (962) (42) 83

2015E 1,287 29.0% (373) 914 258 (872) (42) 257

2016E 1,390 29.0% (403) 987 271 (864) (45) 350

2017E 1,501 29.0% (435) 1,066 285 (855) (47) 449

2018E 1,636 29.0% (474) 1,162 299 (846) (49) 565

Perp. 1,733 28.0% (485) 1,248 314 (838) (52) 672 3.0% 1,253 11,443 6,871 8,124 1,236 63 6,825 1,313 $ $ 5.20 4.15 25.3% 7.2% 28.0% 5.2% 9.7% 5.5% 5.0% 0.9 18% 82% 8.9%

CONSORCIO ARA, S.A.B. DE C.V.

(Figures in Millions of Pesos)

INCOME STATEMENT Sales Operating Profit Operating Margin EBITDA EBITDA Margin Net Profit EPS
Source: Company, Actinver

3Q12 1,564 163 10.4% 260 16.6% 126 0.10 $

3Q11 1,555 158 10.2% 240 15.5% 110 0.08

Chg. 1% 3% 8% 15% 15% $

9M12 4,884 616 12.6% 910 18.6% 462 0.35 $

9M11 5,159 743 14.4% 986 19.1% 535 0.40

Chg. (5%) (17%) (8%) (14%) (12%)

BALANCE SHEET TOTAL ASSETS Current Assets and Temporary Investments Accounts Receivable Inventories Other Short Term Assets Long Term Assets Property, Plant & Equipment Intangible Assets Deferred Tax Assets Long Term Assets TOTAL LIABILITIES Current Liabilities Long Term Liabilities TOTAL CAPITAL Shareholder's Equity Minority Interest TOTAL DEBT NET DEBT CASH FLOW STATEMENT PRE-TAX PROFIT Pre-Tax Cash Flow Working Capital Changes Cash Flow from Operations Cash Flow from Investment Cash Flow from Financing Net Incr. (Decr.) in Cash and T.I. FX Gain (Loss) in Cash and T.I. Net Cash and T.I. Beginning of Period Net Cash and T.I. End of Period
Source: Company, Actinver

3Q12 3Q11 Chg. 9M12 9M11 Chg. 16,510 16,133 2% 16,510 16,133 2% 15,992 15,526 3% 15,992 15,526 3% Cash 1,661 1,214 37% 1,661 1,214 37% 587 838 (30%) 587 838 (30%) 12,459 12,158 2% 12,459 12,158 2% 1,219 1,252 (3%) 1,219 1,252 (3%) 518 607 (15%) 518 607 (15%) 440 545 (19%) 440 545 (19%) 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. Other 1 0 N.A. 1 0 N.A. 6,919 6,892 0% 6,919 6,892 0% 2,681 2,875 (7%) 2,681 2,875 (7%) 4,238 1,823 132% 4,238 1,823 132% 9,590 9,241 4% 9,590 9,241 4% 9,538 9,193 4% 9,538 9,193 4% 52 48 9% 52 48 9% 3,330 3,143 6% 3,330 3,143 6% 1,668 1,929 (13%) 1,668 1,929 (13%) 3Q12 3Q11 Chg. 9M12 9M11 Chg. 179 185 (3%) 664 779 (15%) 235 310 (24%) 834 1,140 (27%) (257) (98) 164% (408) (1,569) (74%) (23) 212 (111%) 425 (429) (199%) 51 54 (4%) 65 83 (21%) 385 (207) (286%) 84 530 (84%) 414 (4) N.A. 575 3 N.A. 0 0 N.A. 0 0 N.A. 1,247 1,218 2% 1,086 1,211 (10%) 1,661 1,214 37% 1,661 1,214 37%

CONSORCIO ARA, S.A.B. DE C.V.

(Figures in Millions of Pesos) INCOME STATEMENT Sales Cost of Sales Gross Profit Gross Margin General Expenses Profit Before Other Income and Expenses Margin Other Income and Expenses Operating Profit Operating Margin Depreciation and Amortization EBITDA EBITDA Margin Financial Gain Financial Cost Pre-Tax Profit Taxes and Profit Sharing Tax and Profit Sharing Rate Profit from Continuing Operations Discontinued Operations Net Profit Before Minorities Minority Interest Net Profit N of Shares EPS BALANCE SHEET TOTAL ASSETS Current Assets Cash and Temporary Investments Long Term Assets Property, Plant & Equipment Investment Properties LT Biological Assets Intangible Assets Other Long Term Assets TOTAL LIABILITIES Current Liabilities Long Term Liabilities TOTAL DEBT NET DEBT TOTAL CAPITAL Shareholder's Equity Minority Interest CASH FLOW STATEMENT PRE-TAX PROFIT Investment Activity Related Items Financing Activities Pre-Tax Cash Flow Working Capital Changes Cash Flow from Operations Cash Flow from Investment Cash Flow from Financing Net Incr. (Decr.) in Cash and T.I. Net Cash and T.I. Beginning of Period Net Cash and T.I. End of Period FINANCIAL RATIOS Leverage Net Debt / EBITDA (x) ST Debt / Total Debt (x) Interest Coverage EBITDA / Int. Paid (x) EBITDA - Capex / Int. Paid (x) Oper. Profit / Int. Paid (x) Investment CAPEX / Sales CAPEX / Depreciation
Source: Actinver

2011 6,837 (4,862) 1,975 28.9% (1,050) 925 13.5% (40) 885 12.9% (345) 1,230 18.0% 60 (50) 956 (321) 33.6% 635 0 635 (3) 632 1,313 MP 0.48 2011 16,055 15,453 1,086 602 521 0 0 0 0 6,699 2,721 1,932 3,071 1,984 9,356 9,307 50 2011 956 (3) 232 1,414 (1,793) (379) 70 413 (125) 1,211 1,086 2011 1.6x 37% 24.7x 23.8x 17.8x 1% 12%

2012E 6,671 (4,787) 1,885 28.3% (950) 934 14.0% (20) 915 13.7% (344) 1,259 18.9% 50 (63) 981 (294) 30.0% 687 0 687 (2) 684 1,313 MP 0.52 2012E 16,107 15,622 1,250 485 407 0 0 0 1 6,299 2,061 4,238 2,655 1,405 9,808 9,749 59 2012E 981 5 246 1,150 (395) 754 70 (660) 164 1,086 1,250 2012E 1.1x 13% 25.8x 24.9x 18.7x 1% 12%

2013E 7,126 (4,965) 2,161 30.3% (1,097) 1,064 14.9% (16) 1,048 14.7% (265) 1,313 18.4% 54 (63) 1,127 (338) 30.0% 789 0 789 (4) 785 1,313 MP 0.60 2013E 17,107 16,824 1,598 283 205 0 0 0 1 6,534 2,336 4,198 2,834 1,236 10,574 10,510 63 2013E 1,127 175 251 1,213 (799) 414 34 (100) 348 1,250 1,598 2013E 0.9x 20% 23.9x 23.2x 19.1x 1% 16%

2014E 7,737 (5,396) 2,341 30.3% (1,183) 1,158 15.0% (17) 1,141 14.7% (278) 1,418 18.3% 64 (64) 1,229 (356) 29.0% 873 0 873 (8) 865 1,313 MP 0.66 2014E 18,547 18,479 1,783 67 (10) 0 0 0 1 7,128 2,980 4,148 2,921 1,138 11,419 11,350 69 2014E 1,229 184 251 1,306 (962) 343 34 (192) 185 1,598 1,783 2014E 0.8x 24% 25.4x 24.6x 20.4x 1% 15%

2015E 8,440 (5,843) 2,597 30.8% (1,290) 1,306 15.5% (19) 1,287 15.2% (258) 1,545 18.3% 59 (62) 1,373 (398) 29.0% 975 0 975 (4) 971 1,313 MP 0.74 2015E 19,394 19,522 1,826 (128) (206) 0 0 0 1 7,024 2,726 4,298 2,689 863 12,370 12,296 74 2015E 1,373 172 251 1,392 (872) 520 34 (511) 43 1,783 1,826 2015E 0.6x 12% 28.9x 28.1x 24.1x 1% 16%

2011 (7%) (9%) (3%) 17% (19%) (26%) (19%) 205% 2% 8% (26%) (14%) (12%) (15%) (15%) (15%) (15%) 0% (15%) 2011 1% 2% (10%) (12%) (12%)

2012E (2%) (2%) (5%) (9%) 1% (51%) 3% (0%) 2% (17%) 26% 3% (8%) 8% 8% (8%) 8% 0% 8% 2012E 0% 1% 15% (19%) (22%)

2013E 7% 4% 15% 15% 14% (20%) 15% (23%) 4% 7% 1% 15% 15% 15% 15% 72% 15% 0% 15% 2013E 6% 8% 28% (42%) (50%)

2014E 9% 9% 8% 8% 9% 9% 9% 5% 8% 19% 2% 9% 5% 11% 11% 100% 10% 0% 10% 2014E 8% 10% 12% (76%) (105%)

2015E 9% 8% 11% 9% 13% 13% 13% (7%) 9% (7%) (4%) 12% 12% 12% 12% (50%) 12% 0% 12% 2015E 5% 6% 2% (290%) 1,875%

4% (9%) 40% 32% 78% (1%) (1%) 10% 2011 (16%) (114%) 6% (13%) 32% (248%) (316%) (254%) (56%) (19%) (10%)

(6%) (24%) 119% (14%) (29%) 5% 5% 19% 2012E 3% (252%) 6% (19%) (78%) (299%) (0%) (260%) (231%) (10%) 15%

4% 13% (1%) 7% (12%) 8% 8% 8% 2013E 15% 3,433% 2% 5% 102% (45%) (51%) (85%) 113% 15% 28%

9% 28% (1%) 3% (8%) 8% 8% 8% 2014E 9% 5% 0% 8% 20% (17%) 0% 92% (47%) 28% 12%

(1%) (9%) 4% (8%) (24%) 8% 8% 8% 2015E 12% (7%) 0% 7% (9%) 52% 0% 166% (77%) 12% 2%

Disclaimer
Analyst Certification for the following Analysts:
Pablo Adolfo Sanchez Jaime Ascencio Federico Robinson Gustavo Tern Martin Lara Michel Glvez Ramn Ortiz Roberto Galvn Riveroll

The analyst(s) responsible for this report, certifies(y) that the opinion(s) on any of the securities or issuers mentioned in this document, as well as any views or forecasts expressed herein accurately reflect their personal view(s). No part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this document. Any of the business units of Grupo Actinver or its affiliates may seek to do business with any company discussed in this research document. Any past or potential future compensation received by Grupo Actinver or any of its affiliates from any issuer mentioned in this report has not had and will not have any effect our analysts compensation. However, as for any other employee of Grupo Actinver and its affiliates, our analysts compensation is affected by the overall profitability of Grupo Actinver and its affiliates.

Guide to our Rating Methodology

Total Expected Return on any security under coverage includes dividends and/or other forms of wealth distribution expected to be implemented by the issuers, in addition to the expected stock price appreciation or depreciation over the next twelve months based on our analysts price targets. Analysts uses a wide variety of methods to calculate price targets that, among others, include Discounted Cash Flow models, models based on expected risk-adjusted multiples, Sum-of-Parts valuation techniques, break-up scenarios and relative valuation models. Changes in our price targets and/or our recommendations. Companies under coverage are under constant surveillance and as a result of such surveillance our analysts update their models resulting in potential changes to their price targets. Changes in general business conditions potentially affecting either the cost of capital and/or growth prospects of all companies under coverage, or a given industry, or a group of industries are typical triggers for revisions to our price targets and/or recommendations. Other micro- and macroeconomic events could materially affect the overall prospects of an individual company under coverage and, as a result, such event-driven factors could lead to changes in our price targets and/or recommendation of the company affected. Even if our overall expectations for a given company under coverage have not materially changed, our recommendations are subject to revision if the stock price has changed significantly, as it will affect total expected return. Terms such as "price targets, our price targets, total expected return, analyst's price targets or any other similar phrase are used in this document as complementary to our recommendation or as a condition that could change in our point of view and, according to article 188 of Securities Market Act, do not imply in any way that Actinver, its agents, or its related companies are in any form providing assurance or guarantee, nor assuming any responsibility for the risks associated with any investment in the discussed securities. Recommendations for companies, both in the ndice de Precios y Cotizaciones (IPyC) Index and also not belonging to the index. For stocks, we have three possible recommendations: a) BUY, b) HOLD or c) SELL. A stock classified as BUY is expected to yield returns at least 5% above than that of the IPyC Index. Stocks rated as HOLD are expected to yield returns similar to the IPyC Index, within a range of +5/-5%. Many of the companies within this range are often times solid companies which have reached their potential in a short amount of time and should still be considered as a good investment. Stocks rated as SELL are expected to yield returns below 5% of the IPyC Index.

Rating Distribution as of June 8, 2012 All Companies in the BMV

BUY: 71% HOLD: 23% SELL: 6%

Research
Pablo Adolfo Riveroll Snchez Managing Director of Research and Risk (52) 55 1103-6600 x5800 priveroll@actinver.com.mx

Jaime Ascencio

Economy & Markets

(52) 55 1103-6600 x5032 (52) 55 1103-6600 x4127 (52) 55 1103-6600 x1193 (52) 55 1103-6600 x5033 (52) 55 1103-6600 x5034 (52) 55 1103 -6641 (52) 55 1103 -6600 x5039

jascencio@actinver.com.mx frobinson@actinver.com.mx gteran@actinver.com.mx mlara@actinver.com.mx rortiz@actinver.com.mx

Federico Robinson

Conglomerates, Industrial & Mining

Gustavo Tern

Food, Beverages & Retail

Martn Lara

Telecoms, Media & Financials

Ramn Ortiz

Concessions, Construction & Real Estate

Michel Glvez

Fixed Income Analysis

mgalvez@actinver.com.mx rgalvan@actinver.com.mx

Roberto Galvn

Technical Analysis

Investment Strategy
Ernesto OFarrill Head, Investment Strategy (52) 55 1103-6645 eofarril@actinver.com.mx

Sales & Trading

Gerardo Romn Julie Roberts Mara Antonia Gutirrez Tulio Chvez Jos Mara Celorio Romina Amador Luis Javier Basurto Head of Trading US Institutional Sales US Institutional Sales Institutional Sales Institutional Sales US Institutional Sales Institutional Sales (52) 55 1103-6690 (210) 298 - 5371 (52) 55 1103-6796 (52) 55 1103-6762 (52) 55 1103-6606 (52) 55 1103-6710 (52) 55 1103-6742 groman@actinver.com.mx jroberts@actinversecurities.com agutierrez@actinver.com.mx mchavez@actinver.com.mx jcelorio@actinver.com.mx ramador@actinver.com.mx lbasurto@actinver.com.mx