Working Capital Management is King

Real Estate & Construction

Sector Review January 14, 2008

Working Capital Management is King
We took the time to review our valuation models in Brazil’s real estate
Table 1 – Target Prices
sector and start the year with an update on target prices as well as on the
Last TP USD
strategy to play the sector going forward. We believe 2008 will be deeper Rating
Price YE08 Upside
in terms of how the market analyses Brazilian homebuilders and would R$33.90 R$54.00 51.0% BUY
Company
R$23.93 R$29.00 14.9% NEUTRAL
Cyrela
like to present our views on how to look beyond growth guidance. R$30.10 R$37.00 16.5% NEUTRAL
Gafisa
R$12.39 R$33.50 156.3% BUY
Klabin Segall
R$34.50 R$55.00 51.1% BUY
MRV
Cash is king: deeper into Brazil’s real estate sector cash
• R$42.29 R$65.00 45.7% BUY
Rossi Res.
flows. Since we started to follow the real estate sector in Brazil, R$9.50 R$20.00 99.6% BUY
Tecnisa
our main concern has neither been demand nor believing that
companies could launch, and sell, planned projects. Our actual
Table 2 – Price-Earnings Ratios
concern has always been working capital management and its PER08E PER09E
older brother, cash flow. The main challenge for companies is not 9.9x 7.8x
Company
19.7x 10.7x
Cyrela
growing, but managing growth and the consequent capital needs. 17.3x 10.6x
Gafisa
11.1x 5.7x
Klabin Segall
15.7x 8.9x
MRV
Sky remains blue; now it is leveraging time. We are now
• 14.3x 10.3x
Rossi Res.
including construction financing for estimated launchings in order 9.4x 5.2x
Tecnisa
Average 15.6x 9.2x
to get a better feeling on which companies will need further
funding to accomplish growth plans.
Table 3 – Launchings and Sales – R$MM
Launchings 08E Sales 08E
Back to fundamentals: growth stories at value prices. On a
• 1,500 1,149
Company
different exercise, in order to try to find deep value in real estate 6,000 4,400
Cyrela*
3,000 2,627
Gafisa
companies, instead of looking into the future, we decided to look 1,812 1,706
Klabin Segall*
at what companies have accomplished so far and include in our 2,100 1,707
MRV
2,500 2,218
Rossi Res.
analysis a multiple which we consider almost a safety net when 1,778 1,387
Tecnisa*
choosing companies to invest on: Price-to-Adjusted Book Value. * Includes partners in developments

There is a clear liquidity premium out there. Although we
•
could argue this premium in unwarranted, as the concerns about
the global economy escalate, this aspect should be even more
relevant going forward. In that sense, we are increasing our cost
of equity for less liquid names by 100 bps.

We are placing Rossi and MRV as our top picks in the
•
sector. We are reiterating our BUY rating for both stocks and
placing them as our top picks based on: (i) both stories present
better-than-average cash flow outlooks, being MRV’s free cash
flow positive already from 2009 despite its aggressive growth
plan; (ii) clear “under-promise-to-over-deliver” strategy in place;
(iii) recent corrections on both stocks seem exaggerated,
therefore, creating a buying opportunity and; (iv) both are
among the most liquid names in the sector.

In addition, Klabin Segall and Tecnisa are our suggested
•
deep value plays. Based on high DCF-based upsides and both
forward PE ratio as well as price-to-adjusted book value analysis,
we see value in Klabin Segall and Tecnisa. Both stocks suffered
from fears of frustrating growth expectations which should
dissipate going forward.

Rafael C. de Pinho
55 11 3089-8748
rpinho@bulltick.com

See appendix B for Important Disclosures
This report has been prepared by Bulltick Brasil Consultoria e Assessoria Empresarial Ltda. which is not an FINRA member, it’s not registered under the
US Securities and exchange commission, and its not regulated by any US Securities or commodities exchange. Non-US research analysts who have
prepared this report are not registered/ qualified as research analysts with the FINRA or any other US securities exchange or regulatory body

Cash is king: deeper into Brazil’s real estate sector cash flows

Since we started to follow the real estate sector in Brazil, our main concern has neither
Our main concern regarding
been demand nor believing that companies could launch, and sell, planned projects. Our
the real estate sector has
always been working capital actual concern has always been working capital management and its older brother, cash
management. flow. The main challenge for companies is not growing, but managing growth and the
consequent capital needs.

As shown on Exhibit 1, typical working capital exposure to an average project should
hover between 20-30% of a project’s potential sales value (PSV). This is only possible
due to the use of construction financing, which allows companies to finance on average
70% of the cost of the building. So far, the return on newly developed projects has been
quite high on an IRR or NPV perspective. However, this return is only assured by the
project delivery, which is tied to managing correctly the cash flow.

Exhibit 1: Typical project cash exposure with SFH financing

Considering construction Potential Sales Value (PSV) 100,000
financing, typical cash flow Gross Margin 40%
exposure should hover Total Cost (60,000)
between 20-30% of a
project’s PSV. Land Cost (15% of PSV) (A) (15,000)

Building Costs (45,000)
SFH Financing = 70% of Building Costs 31,500
Building Cash Exposure (B) (13,500)

Total Cash Exposure (A) + (B) (28,500)
Source: Bulltick

Our cash flow exposure exercise depends on the companies being able to get financing to
reduce their own cash exposure to projects. A substantial stake of the capital Brazilian
banks are obliged to invest in real estate projects goes in the form of construction
financing. On Exhibit 2, we show the difference between a typical project cash flow
leveraged by construction financing and another one without the line.

Exhibit 2: Typical project cash flows, SFH financing impact
45%
Cash Exposure as % of PSV

30%

15%

0%
1Q

2Q

3Q

4Q

5Q

6Q

7Q

8Q

9Q

10Q

11Q

12Q

-15%

-30%

-45%

-60%

With SFH leverage Without SFH leverage

Source: Bulltick

Until now, the outlook for the Brazilian macroeconomic scenario suggests that the growth
As we assume the growth
cycle for homebuilders is cycle for homebuilders is sustainable. This opinion seems to be shared by the companies
sustainable, we included in the sector: the average growth in launchings estimates by company managements is
construction financing in
around 30% per year for the 2009-07 period.
our models…

2

Given this scenario, we have decided to include in our models the construction financing
…allowing us to better
evaluate those companies in for projects within the SFH scope in order to better evaluate those companies in which
which extra funding should extra cash will be needed to meet guidance going forward. If the financing conditions for
be needed, given current
real estate projects are unchanged, some of these companies may attempt to raise cash
market conditions.
either through debt or equity issues. In the case of equity issues, the potential EPS
dilution for shareholders is a concern.

Exhibit 3: Free cash flow-to-equity, 2008-2012
Cash Position Free Cash Flows-to-Equity
Company
(R$ MM) 2008 2009 2010 2011 2012
Cyrela 800 (68) (1,225) (2,174) (2,678) 843
Tecnisa 156 (237) (419) (420) (237) 319
Klabin Segall* 238 37 (209) (222) 83 195
Rossi Residencial 377 (221) 74 (88) (161) 210
Company 128 (196) (379) (231) (234) 4
MRV 882 (164) 69 345 565 720
Gafisa 372 (447) (264) 309 327 410
Source: Bulltick
* Cash adjusted for recently issued debentures

Back to fundamentals: growth stories at value prices

On a different exercise, in order to try to find deep value in real estate companies,
We included Price-to-
instead of looking into the future, we decided to look at what companies have
Adjusted Book Value
accomplished so far and include in our analysis a multiple which we consider almost a
multiples to our analysis in
safety net when choosing companies to invest on: Price-to-Adjusted Book Value.
order to find deep value
plays.
As the accounting for homebuilders does not help much our analysis, distorting financial
statements, especially given the high growth experienced over the last 2 years, we have
decided to make a simple adjustment to reported book value for the companies: we
added the backlog profits. The recognition of such profits is dependable only on building
and delivery. At this point, we think it is fair to assume sold apartments will be delivered.

Below, we present a table including the price-to-adjusted book value multiples for
companies under our coverage.

Exhibit 4: Adjusted price-to-book values
R$ Millions, unless noted Company Cyrela Gafisa Klabin MRV Rossi Tecnisa Average/Sum
Market Cap 1,221 8,511 3,867 731 4,666 3,335 1,381 23,710
3Q07 Reported Book Value 328 1,994 1,493 400 1,339 1,177 735 7,466
Price / Book 3.73x 4.27x 2.59x 1.83x 3.49x 2.83x 1.88x 3.18x
Premium / Discount to Average 17.3% 34.4% -18.5% -42.5% 9.7% -10.8% -40.8%

Backlog
Revenues to recognize 337 2,099 1,209 386 327 853 150 5,361
Cost to recognize (206) (1,202) (744) (257) (145) (546) (92) (3,192)
Gross Profit to recognize 131 897 466 128 181 307 58 2,169
Net Profits to recognize 101 698 356 89 144 247 46 1,680

428 2,692 1,850 489 1,483 1,424 781 9,146
Adjusted Book Value - Backlog Profits

Price / Adj. Book Value 2.85x 3.16x 2.09x 1.50x 3.15x 2.34x 1.77x 2.59x
Source: Bulltick

As with PE ratios, Price-to-Book value analysis in real estate also shows some
inconsistency. First, we assume that the average project return between different
companies is similar. In addition, we remind investors that entry barriers in real estate
are relatively low, thus, exaggerated premiums are not sustainable in the long run, even
when a liquidity premium/discount is considered.

For investors looking to buy value in the sector, departing from price-to-adjusted book
Departing from this simple
value, companies like Klabin Segall and Tecnisa call our attention, especially when this
metric, Klabin Segall and
analysis is coupled with SFH financing analysis and with forward PE multiples.
Tecnisa call our attention.

3

Exhibit 5: Price-to-Earnings 2009E

12.0x
Even when considering a 10.7x
10.6x
liquidity premium/discount, 10.3x
if the average project return 10.0x
9.2x
is similar and entry barriers 8.9x
are inexistent, a 105% gap
between the extremes in 7.8x
8.0x
our PER09E multiples range
seem exaggerated to us.
5.7x
6.0x
5.2x

4.0x
Tecnisa Klabin Company MRV Average Rossi Gafisa Cyrela

Source: Bulltick

Exhibit 6: PE-to-growth multiples – 2009E

0.30x
0.26x
0.25x
0.25x
0.22x

0.20x

0.15x
0.14x
0.15x

0.10x
0.07x
0.06x
0.05x
0.05x

0.00x
Tecnisa Klabin MRV Gafisa Company Rossi Average Cyrela

Source: Bulltick

4

Company Outlooks

Rossi Residencial: TP-YE08 R$65.00, 45.7% upside potential in USD

As a consequence of one of the best cash flow outlooks going forward, we are placing
Rossi among our top picks in the sector, being the company our preferred name among
the most liquid stocks in the sector.

We are raising our TP to R$65.00 from R$59.00 on the back of higher launching
estimates, to which working capital needs are almost completely funded by construction
financing.

The stock’s recent 13% correction, which we perceive as linked to fears of an upcoming
follow-on offer by Rossi after Cyrela’s equity issue announcement, was unjustified.
However, should such a deal come up, investors should note the proceeds will probably
be invested in new projects, thus, with expectation to create value.

We currently see Rossi trading at a 10.3x PER09E vs. our average of 9.2x for the sector.
On top of being one of the most liquid names in the sector, and having a proven track
record as well as fair future cash flow outlook, we believe the stock deserves some
premium to both Cyrela and Gafisa.

Exhibit 7: Rossi’s Main Figures
Rossi Res. (R$ MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E

Launchings 882 1,981 2,500 3,000 3,360 3,696 3,844
- Real Estate Sales 584 1,284 2,218 2,571 3,096 3,466 3,704

Net Revenues 411 701 1,380 1,998 2,565 3,075 3,474
Adj. EBITDA 61 137 297 464 626 753 851
Adj. Net income 54 137 233 325 424 520 598

Gross Margin 31.2% 35.3% 35.5% 35.6% 34.8% 34.3% 34.0%
Adj. EBITDA Margin 12.4% 19.6% 21.5% 23.2% 24.4% 24.5% 24.5%
Adj. Net Margin 10.6% 19.6% 16.9% 16.3% 16.5% 16.9% 17.2%

PER 62.0x 24.3x 14.3x 10.3x 7.9x 6.4x 5.6x
FV/EBITDA 51.3x 25.5x 13.6x 10.2x 8.2x 7.2x 6.5x
Adjusted for IPO costs
Source: Rossi Residencial and Bulltick

MRV: TP-YE08 R$55.00, 51.1% upside potential in USD

We are also placing MRV among our top picks in the sector on the back of an interesting
growth-adjusted valuation and, in our view, an attractive entry point created recently by
the 20% drop in stock price since early December.

We disagree with the criticisms out on the street about the company’s aggressive growth
plans. As MRV benefits from the use of special credit lines targeted to low-income
developers by Caixa Economica, the company enjoys a comfortable cash flow position
going forward.

MRV shares currently trade at a 8.9x PER09E, a 7% discount over the first-tier group
composed by Rossi, Cyrela and Gafisa. On a growth-adjusted basis, MRV trades at PE09-
to-growth of 0.07x versus an average of 0.25x for Brazilian homebuilders.

We reiterate our positive view on the company and on the quality of its management,
which has potential to surprise the market going forward not only by over-delivering
results but also due to its search for innovative credit solutions to its clients. For example,

5

MRV recently led the pack in signing a MOU with Caixa Economica in order to gain scale in
low-income credit approval and grant financing for 12,000 units in 2008, a move quickly
followed by its competitors.

Main changes to our model were the inclusion of the revised launching estimates for 2008
and 2009 and modeling of the SFH financing. Besides, as this report was being written,
we had to stop the press in order to account for the fact that the company beat its 2007
estimates. Our DCF-model points to a Dec 08 TP of R$55.00/share, implying a 51.1%
potential upside in USD and therefore a BUY rating for the stock.

Exhibit 8: MRV’s main figures
MRV (R$ MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E

Launchings 337 1,200 2,100 2,520 2,898 3,130 3,318
- Real Estate Sales 206 717 1,707 2,298 2,705 3,001 3,220

Net Revenues 140 399 1,046 1,811 2,371 2,745 3,019
Adj. EBITDA 22 100 291 579 762 886 960
Adj. Net income 17 114 297 523 685 792 855

Gross Margin 35% 40% 43% 43% 42% 41% 40%
Adj. EBITDA Margin 16% 25% 28% 32% 32% 32% 32%
Adj. Net Margin 12% 29% 28% 29% 29% 29% 28%

PER 274.2x 87.7x 15.7x 8.9x 6.8x 5.9x 5.5x
Source: MRV and Bulltick

Cyrela: TP-YE08 R$30.00, 14.9% upside potential in USD

After incorporating the most recent launchings guidance and including the SFH leverage
into our model, we are increasing our YE08 TP to R$29.00/share from R$26.00/share and
downgrading Cyrela to NEUTRAL from BUY. At this point we prefer to take a more
cautious stance concerning Cyrela, based on our estimates for the company’s cash flow
for the coming years.

Despite having a substantial amount of receivables, which could offset its funding needs,
our analysis suggests that the company should direct most of the resources from recently
announced debt and equity issues to comply with the working capital needs for the
intended R$13.5 billion in launchings over 2008 and 2009.

Besides the working capital management factor, the overhang created by the new equity
issue announcement, the third since September 2005, reinforce our view.

We see Cyrela shares, currently trading at 10.7x PER09E, at premium to both Rossi and
Gafisa. However, at this point we believe Rossi deserves a premium over Cyrela as it is in
better shape to face its working capital needs going forward.

6

Exhibit 9: Cyrela’s Main Figures
Cyrela (R$MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E

Launchings 3,618 4,600 6,000 7,500 8,400 9,240 9,610
- Real Estate Sales 2,247 3,400 4,400 6,053 7,424 8,382 9,097

Net Revenues 1,064 1,561 2,040 3,727 5,430 6,905 8,146
Adj. EBITDA 196 403 539 1,075 1,582 1,998 2,351
Adj. Net Income 190 330 431 796 1,220 1,589 1,856

Gross Margin 39.4% 42.1% 42.8% 42.5% 41.8% 41.1% 40.8%
Adj. Net Margin 17.8% 21.1% 21.1% 21.4% 22.5% 23.0% 22.8%

PER 44.8x 19.3x 19.7x 10.7x 7.0x 5.4x 4.6x
Adjusted for non-recurring gains
Source: Cyrela and Bulltick

Gafisa: TP-YE08 R$37.00, 16.5% upside potential in USD

Our revised TP of R$37.00/share for Gafisa, up 12% from our previous TP of
R$33.00/share, is a result of increased launchings guidance and fine tuning to our model.
Nonetheless, we are downgrading Gafisa shares to NEUTRAL from BUY on the back of the
same conservative stance we applied to Cyrela. Our analysis indicates Gafisa should need
between R$350-R$450 million in additional funding, besides leveraging through SFH
construction financing, to provide for its working capital needs.

Additionally, we are still waiting to see concrete results arising from the company’s new
business lines Fit and Bairro Novo, added to Alphaville’s acquisition. We currently see
Gafisa stocks trading at a 10.6x PER09E, 15% above the average of the companies under
our coverage.

Exhibit 10: Gafisa’s Main Figures
Gafisa (R$MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E

Launchings 1,005 1,900 3,000 3,360 3,695 3,846 3,999

Net Revenues 664 1,124 1,565 2,201 2,912 3,346 3,651
Adj. EBITDA 98 175 279 493 678 780 834
Adj. Net Income 76 122 225 368 495 575 613

Gross Margin 29.8% 30.4% 31.5% 32.3% 32.1% 31.7% 31.1%
Adj. Net Margin 11.4% 10.9% 14.4% 16.7% 17.0% 17.2% 16.8%

PER 84.3x 42.2x 17.3x 10.6x 7.8x 6.7x 6.3x
Source: Gafisa and Bulltick

7

Tecnisa: TP-YE08 R$20.00, 96.5% upside potential in USD

Tecnisa stocks continue to be among the most discounted within our coverage universe.
Against the market, the company was able to deliver 2007 launchings. This piece of news
came out at the very end of the year and we believe it was overlooked by most of the
market. The fact was also overshadowed by the pessimistic sentiment that has recently
pushed market indices downward.

As to the changes to our model, besides modeling of SFH construction financing, we
incorporated the latest launchings guidance provided by the company. We also raised our
discount rates to reflect the stock’s lower liquidity.

Despite the higher discount rate, we still see the shares trading at a 52% discount to our
Dec 08 target price of R$20.00/share. As described above, investing in Tecnisa is also
attractive if we think in terms of P/ Adjusted Book Value ratio, trading at 1.77x vs. an
average of 2.59x for the companies under our coverage. It is also important to mention
that the company has a substantial amount of receivables which could help to cover the
company’s capital needs. Therefore, we are maintaining our BUY rating for the stocks.

Exhibit 11: Tecnisa’s Main Figures
Tecnisa (R$ MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E

Launchings 369 1,364 1,778 2,235 2,504 2,601 2,705

Net Revenues 203 364 740 1,430 1,942 2,304 2,518
Adj. EBITDA 47 80 199 418 572 678 753
Adj. Net Income 36 88 146 265 380 491 546

Gross Margin 40.0% 38.6% 39.3% 39.0% 38.5% 38.2% 38.0%
Adj. Net Margin 17.6% 13.2% 19.8% 18.5% 19.6% 21.3% 21.7%

PER 38.6x 15.8x 9.4x 5.2x 3.6x 2.8x 2.5x
Source: Tecnisa and Bulltick

Klabin Segall: TP-YE08 R$33.50, 148% upside potential in USD

Among the less liquid names, Klabin Segall is the most discounted stock under our
coverage universe. The company had its ups and downs to manage and deliver expected
launchings growth during 2007 and we believe current prices more than reflect those
issues. Nevertheless, we expect a more smooth string of launchings going forward,
increasing results visibility, which we expect to translate in some share price recovery.

Currently trading at 5.7x PER09E, a 38% discount to the sector average, stocks are
attractive not only on a PER basis. Investors looking for deep value, the shares are also
trading at almost without any premium to adjusted book value multiple, and 43%
discounted to the sector average.

In addition, we expect to see some more of the innovative projects Klabin Segall became
known for executing successfully. For example, during 2008 and 2009 the company plans
to develop an integrated complex of commercial and middle income residential project in
Santo André, besides applying its revitalization experience to launch a 2nd home project in
Buzios, Rio de Janiero state coast. We also look forward to see the initial results on the
“Olá” low income initiative.

Model review focused on increased launchings after Setin’s acquisition, including the
construction financing and fine tunning. Besides, we are also raising our discount rates to
8

reflect lower liquidity for the shares.

All in all, we reach a Dec. 08 TP of R$33.50/share, implying a 156% in USD and
reiterating our BUY rating for the shares.

Exhibit 12: Klabin Segall’s Main Figures
Klabin Segall (R$ MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E

Launchings 773 1,775 1,812 2,084 2,334 2,567 2,670

Net Revenues 138 292 705 1,188 1,785 2,032 2,319
Adj. EBITDA 59 62 168 307 482 557 634
Adj. Net income 25 39 71 137 267 331 389

Gross Margin 41.9% 36.1% 36.5% 36.4% 36.2% 36.4% 36.1%
Adj. Net Margin 17.8% 13.5% 10.0% 11.6% 14.9% 16.3% 16.8%

PER 206.0x 19.9x 11.1x 5.7x 2.9x 2.4x 2.0x
Adjusted for IPO Costs
Source: Klabin Segall and Bulltick

Company: TP-YE08 R$54.00, 48.2% upside potential in USD

As part of our revision of Company’s valuation model, besides including higher launching
guidance for ’08 and ’09, we analyzed carefully its working capital management, not only
including SFH leverage but also the construction and sales speed curves.

Company trades at a 7.8x PER09E versus Tecnisa’s and Klabin Segall’s respective 5.2x
and 5.7x multiples and the average of 9.2x for homebuilders under our coverage. On a
Price-to-Adj Book Value basis, Company negotiates at 2.85x, slightly above the 2.59x
average for companies under our coverage.

Company shares are currently trading at premium to Tecnisa and Klabin Segall, where we
see more upside on a relative basis. Thus, despite a favorable valuation vis-à-vis the
more liquid names, at this point, we prefer to look for deep value and stick to Tecnisa and
Klabin Segall.

Our DCF TP for Company is R$55.00/share for YE08. After roughly 21% decline in share
prices since early December, we are upgrading Company to BUY from NEUTRAL.

Exhibit 13: Company’s Main Figures
Company (R$ MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E

Launchings 353 1,033 1,500 1,875 2,100 2,184 2,271

Net Revenues 289 451 742 997 1,442 1,806 2,064
Adj. EBITDA 69 90 166 233 327 398 439
Adj. Net income 56 64 123 157 230 281 311

Gross Margin 34.2% 30.7% 33.3% 34.4% 33.6% 33.0% 32.2%
Adj. Net Margin 15.8% 14.2% 16.6% 15.8% 15.9% 15.6% 15.1%

PER 21.9x 19.0x 9.9x 7.8x 5.3x 4.3x 3.9x
Source: Company and Bulltick

9

Detailed Financial Statements

Rossi Residencial

Income Statement (R$ MM) 2006 2007E 2008E 2009E 2010E 2011E 2012E
Launchings 882 1,981 2,500 3,000 3,360 3,696 3,844

Gross Revenues 425 720 1,432 2,074 2,662 3,191 3,605
Net Revenues 411 701 1,380 1,998 2,565 3,075 3,474
- COGS (283) (454) (890) (1,286) (1,671) (2,021) (2,294)
Gross Profit 128 247 490 712 894 1,054 1,180
- Sales Expeditures (46) (59) (117) (160) (180) (215) (243)
- G&A Expenditures (38) (59) (85) (107) (111) (115) (120)
- Other Operational 6 7 8 16 21 28 32
EBIT 50 136 296 462 624 751 848
Financial Results 47 24 (39) (104) (153) (173) (184)
Non-Operational Results (52) (3,447) - - - - -
EBT 46 157 256 357 471 577 664
Income Tax (2) (20) (23) (32) (47) (58) (66)
Minority Interest - - - - - - -
Net income 44 137 233 325 424 520 598

Depreciation 0.9 1.3 1.5 1.8 2.1 2.6 3.2
EBITDA 51 137 297 464 626 753 851
Adjustments 10 - - - - - -
Adjusted EBITDA 61 137 297 464 626 753 851

Gross Margin 31.2% 35.3% 35.5% 35.6% 34.8% 34.3% 34.0%
Adjusted EBITDA Margin 14.9% 19.6% 21.5% 23.2% 24.4% 24.5% 24.5%
Adjusted Net Margin 13.1% 19.6% 16.9% 16.3% 16.5% 16.9% 17.2%
Free Cash Flow 2006 2007E 2008E 2009E 2010E 2011E 2012E

EBITDA 51 137 297 464 626 753 851
Taxes on EBIT (2) (18) (27) (42) (62) (75) (85)
Change in Net Working Assets (408) (234) (917) (876) (870) (929) (489)
CAPEX (2) (1) (2) (2) (3) (3) (4)
FCFF (361) (115) (648) (456) (309) (254) 274
Change in Debt (14) 422 463 625 359 249 102
Emission 755 - - - - - -
Tax difference 0 (2) 4 9 15 17 18
FCFE 428 329 (221) 74 (88) (161) 210

Balance Sheet 2006 2007E 2008E 2009E 2010E 2011E 2012E

Assets
Cash and Equivalents 327 377 311 246 164 164 164
Accounts Receivable 392 353 1,107 1,550 2,001 2,601 2,855
Inventories 552 901 1,006 1,400 1,787 2,087 2,296
Other 220 537 468 644 632 433 560
Total Assets 1,490 2,168 2,892 3,840 4,583 5,285 5,875
Liabilities
Short Term Debt 89 135 135 135 135 135 135
Clients Advance Payments 2 - - - - - -
Long Term Debt 37 414 877 1,502 1,861 2,110 2,212
Other 283 445 531 610 677 739 779
Equity 1,080 1,174 1,349 1,593 1,911 2,301 2,749
Total Liabilities 1,490 2,168 2,892 3,840 4,583 5,285 5,875
Source: Rossi Residencial and Bulltick

10

MRV

Launchings 337 1,200 2,100 2,520 2,898 3,130 3,318

Gross Revenues 160 430 1,085 1,879 2,460 2,849 3,134
Net Revenues 140 399 1,046 1,811 2,371 2,745 3,019
- COGS (91) (240) (595) (1,036) (1,386) (1,619) (1,805)
Gross Profit 50 159 450 775 984 1,126 1,214
- G&A Expenditures (24) (108) (62) (66) (69) (71) (72)
- Other Operational 9 26 32 42 52 58 60
EBIT 24 48 322 619 812 941 1,017
Financial Results (3) 32 28 (3) (6) (9) (11)
Non-Operational Results 0 0 - - - - -
EBT 20 81 350 616 805 932 1,005
Income Tax (3) (28) (52) (92) (121) (140) (151)
Minority Interest - (0) - - - - -
Net income 17 53 297 523 685 792 855

Depreciation 0.2 0.8 1.4 2.0 2.3 2.6 2.9
EBITDA 22 39 291 579 762 886 960
Adjustments - 61 - - - - -
Adjusted EBITDA 22 100 291 579 762 886 960

Gross Margin 35.3% 39.9% 43.1% 42.8% 41.5% 41.0% 40.2%
EBITDA 22 39 291 579 762 886 960
Taxes on EBIT (4) (29) (48) (93) (122) (141) (153)
CAPEX (2) (5) (7) (4) (4) (5) (5)
FCFF (52) (535) (337) 47 311 542 704
Change in Debt 63 (14) 149 25 39 30 25
Emission - 1,231 - - - - -
Financial Results (12) (18) (12) (61) (79) (85) (94)
Tax difference 1 1 (4) 0 1 1 2
FCFE (1) 666 (204) 11 272 489 637


Assets
Inventories 235 644 957 1,314 1,539 1,700 1,820
Other 7 107 580 656 948 1,418 2,015
Total Assets 380 1,945 2,672 3,299 4,032 4,758 5,509
Liabilities
Short Term Debt 48 16 16 16 16 16 16
Clients Advance Payments 28 35 27 10 12 - -
Long Term Debt 17 36 185 209 248 278 304
Other 197 479 842 1,069 1,246 1,361 1,446
Equity 91 1,380 1,603 1,996 2,509 3,103 3,744
Total Liabilities 380 1,945 2,672 3,299 4,032 4,758 5,509
Source: MRV and Bulltick

11

Cyrela

Launchings 3,618 4,600 6,000 7,500 8,400 9,240 9,610
- Real Estate Sales 2,247 3,400 4,400 6,053 7,424 8,382 9,097

Gross Revenues 1,104 1,625 2,117 3,868 5,635 7,167 8,455
Net Revenues 1,064 1,561 2,040 3,727 5,430 6,905 8,146
- C OGS (645) (904) (1,166) (2,142) (3,162) (4,069) (4,826)
Gross Profit 419 657 873 1,584 2,268 2,836 3,320
- G&A Expenditures (73) (103) (125) (131) (136) (142) (147)
- Management Fees (2) (2) (2) (2) (3) (3) (3)
- Other Operational (18) 6 - - - - -
EBIT 196 388 542 1,078 1,585 2,001 2,355
Financial Results 49 46 39 (51) (15) 44 33
- Financial Expenses (84) (102) (138) (186) (187) (194) (211)
- Financial Revenues 133 149 177 135 172 237 244
Non-Operational Results - 0.1 - - - - -
Equity Pick-Up - 110 - - - - -
EBT 244 545 582 1,027 1,571 2,045 2,387
Income Tax (58) (57) (87) (123) (188) (245) (286)
Employee Interest (5) (9) (5) (5) (5) (6) (6)
Minority Interest (24) (39) (58) (103) (157) (204) (239)
Net income 190 440 431 796 1,220 1,589 1,856

Depreciation 3.6 1.6 1.7 1.9 2.0 2.2 2.4
Amortization 1.5 - - - - - -
Employee Interest (5) (9) (5) (5) (5) (6) (6)
EBITDA 196 403 539 1,075 1,582 1,998 2,351
Adjustments 20.8 - - - - - -
Adjusted EBITDA 217 403 539 1,075 1,582 1,998 2,351

Gross Margin 39.4% 42.1% 42.8% 42.5% 41.8% 41.1% 40.8%
Ajudsted EBITDA Margin 20.4% 25.8% 26.4% 28.8% 29.1% 28.9% 28.9%


EBITDA 196 403 539 1,075 1,582 1,998 2,351
Minority Adjustment (62) (118) (176) (339) (400) (391) (232)
Taxes on EBIT (47) (40) (81) (129) (190) (240) (283)
C hange in Net Working Assets (735) (1,223) (1,191) (2,388) (3,251) (4,298) (1,198)
C APEX (39) (269) (3) (3) (3) (3) (4)
FCFF (686) (1,247) (912) (1,784) (2,263) (2,936) 635
C hange in Debt (79) 509 810 604 101 219 179
Emission - - - - - - -
Financial Results 49 46 39 (51) (15) 44 33
Tax difference (11) (17) (6) 6 2 (5) (4)
FCFE (727) (709) (68) (1,225) (2,174) (2,678) 843


Assets
C ash and Equivalents 561 671 785 399 363 363 363
Accounts Receivable 865 1,104 1,586 2,668 3,856 6,157 7,040
C lient Financing - 522 689 1,061 2,303 3,644 3,492
Inventories 976 1,696 2,306 3,447 4,432 5,262 5,830
Other 640 142 213 (96) (1,880) (4,321) (3,611)
Total Assets 3,042 4,134 5,578 7,478 9,073 11,105 13,115
Liabilities
Short Term Debt 57 86 86 86 86 86 86
Real Estate Acquisition Payables 351 758 891 1,067 1,195 1,314 1,367
C lients Advance Payments 84 35 7 - - - -
Long Term Debt 67 548 1,358 1,962 2,064 2,283 2,462
Other 535 713 919 1,450 1,901 2,401 2,787
Equity 1,949 1,993 2,317 2,914 3,829 5,021 6,413
Source: Cyrela and Bulltick

12

Gafisa

Launchings 1,005 1,900 3,000 3,360 3,695 3,846 3,999

Gross Revenues 744 1,192 1,665 2,342 3,098 3,560 3,884
Net Revenues 664 1,124 1,565 2,201 2,912 3,346 3,651
- C OGS (466) (782) (1,071) (1,491) (1,978) (2,286) (2,517)
Gross Profit 198 342 494 710 934 1,061 1,134
- G&A Expenditures (52) (103) (117) (122) (127) (132) (137)
- Other Operational (30) (38) - - - - -
EBIT 64 130 267 479 661 762 815
Non-Operational Results - - - - - - -
EBT 52 112 255 418 582 677 721
Income Tax (6) (14) (31) (50) (87) (102) (108)
Minority Interest - (6) - - - - -
Net income 46 92 225 368 495 575 613

Depreciation 4.3 14.7 12.0 14.6 16.9 18.1 18.8
EBITDA 68 145 279 493 678 780 834
Adjustments 30 30.2 - - - - -
Adjusted EBITDA 98 175 279 493 678 780 834

Gross Margin 29.8% 30.4% 31.5% 32.3% 32.1% 31.7% 31.1%


EBITDA 68 145 279 493 678 780 834
Taxes on EBIT (8) (9) (33) (59) (102) (117) (125)
C hange in Net Working Assets (397) (759) (880) (1,106) (341) (376) (301)
C APEX (6) (36) (18) (22) (20) (20) (21)
FCFF (343) (659) (652) (694) 216 267 387
C hange in Debt (21) 89 214 482 158 129 100
Emission - 623 - - - - -
Tax difference 2 (5) 3 9 14 15 17
FCFE (374) 30 (447) (264) 309 327 410


Assets
C ash and Equivalents 266 310 130 130 130 130 130
Inventories 441 921 1,375 1,803 1,805 2,008 2,129
Other 227 337 158 (56) 240 494 797
Total Assets 1,494 2,492 3,153 4,099 4,795 5,523 6,067
Liabilities
Short Term Debt 28 34 34 34 34 34 34
Real Estate Acquisition Payables 22 25 58 94 126 146 155
C lients Advance Payments 76 17 - - 9 83 -
Long Term Debt 267 351 564 1,046 1,204 1,333 1,433
Other 286 553 816 969 1,095 1,168 1,226
Equity 814 1,512 1,680 1,956 2,327 2,759 3,219
Source: Gafisa and Bulltick

13

Tecnisa

Total Launchings 369 1,364 1,778 2,235 2,504 2,601 2,705
Launchings - Tecnisa Stake 285 1,000 1,600 1,900 2,128 2,341 2,434
Total Real Estate Sales 333 706 1,387 1,877 2,270 2,476 2,618

Gross Revenues 211 379 768 1,484 2,016 2,391 2,613
Net Revenues 203 364 740 1,430 1,942 2,304 2,518
- COGS (122) (224) (449) (872) (1,194) (1,425) (1,560)
Gross Profit 81 141 291 558 748 879 958
- G&A Expenditures (21) (38) (43) (45) (47) (49) (51)
- Management Fees (2) (4) (12) (17) (22) (26) (29)
EBIT 47 41 199 418 571 677 752
Non-Operational Results 1 729 - - - - -
EBT 49 59 187 370 516 620 688
Income Tax (9) (9) (22) (44) (52) (62) (69)
Employee Interest - - - - - - -
Minority Interest (2) (19) (61) (85) (66) (73)
Net income 36 48 146 265 380 491 546

Depreciation 0.4 (1.2) 0.4 0.4 0.4 0.4 0.5
Amortization - - - - - - -
EBITDA 47 40 199 418 572 678 753
Adjustments - 40 - - - - -
Adjusted EBITDA 47 80 199 418 572 678 753

Gross Margin 40.0% 38.6% 39.3% 39.0% 38.5% 38.2% 38.0%


EBITDA 47 40 199 418 572 678 753
Taxes on EBIT (8) (3) (24) (50) (57) (68) (75)
Change in Net Working Assets (88) (567) (678) (1,035) (885) (835) (310)
CAPEX (2) (1) (1) (1) (1) (1) (1)
FCFF (62) (552) (525) (738) (465) (299) 285
Change in Debt 92 (18) 298 360 95 114 92
Emission - 591 - - - - -
Tax difference (0) (6) 1 6 6 6 6
FCFE 31 32 (237) (419) (420) (237) 319


Assets
Accounts Receivable 174 299 597 1,267 1,820 2,327 2,547
Client Financing - 11 15 26 121 269 260
Inventories 232 659 1,116 1,550 1,841 2,063 2,184
Other 83 94 (52) (430) (858) (1,140) (910)
Total Assets 509 1,184 1,777 2,512 3,024 3,619 4,180
Liabilities
Short Term Debt 118 41 41 41 41 41 41
Clients Advance Payments 28 8 2 - - - -
Long Term Debt 41 100 398 759 854 968 1,060
Other 61 107 216 349 446 526 572
Equity 145 772 882 1,080 1,365 1,734 2,143
Source: Tecnisa and Bulltick

14

Klabin Segall

Launchings 773 1,775 1,812 2,084 2,334 2,567 2,670

Gross Revenues 144 306 738 1,244 1,869 2,127 2,428
Net Revenues 138 292 705 1,188 1,785 2,032 2,319
- COGS (80) (187) (448) (755) (1,138) (1,292) (1,481)
Gross Profit 58 106 258 433 646 740 838
- G&A Expenditures (12) (24) (49) (51) (53) (55) (57)
EBIT 34 58 163 305 479 554 631
Non-Operational Results (20) 67 - - - - -
EBT 19 67 128 229 390 477 557
Income Tax (8) (13) (26) (46) (78) (95) (111)
Minority Interest (7) (15) (32) (46) (45) (50) (56)
Net income 4 39 71 137 267 331 389

Depreciation 3.4 4.8 4.7 1.9 2.3 2.8 3.4
Amortization - - - - - - -
EBITDA 38 62 168 307 482 557 634
Adjusted EBITDA 59 62 168 307 482 557 634

Gross Margin 41.9% 36.1% 36.5% 36.4% 36.2% 36.4% 36.1%


EBITDA 38 62 168 307 482 557 634
Taxes on EBIT (7) (12) (34) (61) (96) (111) (127)
CAPEX (4) (6) (5) (3) (3) (4) (5)
FCFF (73) (442) (243) (482) (157) 142 228
Change in Debt 9 294 308 334 6 2 26
Emission 361 - - - - - -
Tax difference (0) (1) 8 16 18 16 15
FCFE 302 (140) 38 (208) (222) 84 196


Assets
Accounts Receivable 104 209 465 808 1,052 1,161 1,289
Client Financing - - - - - - -
Inventories 190 645 753 1,169 1,479 1,659 1,773
Other 38 (18) 230 63 (138) (71) 90
Total Assets 613 1,079 1,496 2,089 2,442 2,797 3,200
Liabilities
Short Term Debt 16 12 12 12 12 12 12
Long Term Debt 12 309 617 952 958 960 986
Other 64 160 213 340 459 539 613
Equity 419 408 461 564 764 1,013 1,305
Source: Klabin Segall and Bulltick

15

Company

Launchings 353 1,033 1,500 1,875 2,100 2,184 2,271

Gross Revenues 300 484 770 1,035 1,497 1,874 2,142
Net Revenues 289 451 742 997 1,442 1,806 2,064
- COGS (190) (313) (495) (654) (957) (1,210) (1,398)
Gross Profit 99 138 247 343 485 596 665
- SG&A expenditures (26) (43) (82) (110) (159) (199) (227)
EBIT 61 89 165 233 327 398 438
Non-Operational Results (0) 767 - - - - -
EBT 55 74 145 185 270 331 366
Income Tax (7) (9) (22) (28) (41) (50) (55)
Employee Interest (2) - - - - - -
Minority Interest (0) - - - - - -
Net income 45 64 123 157 230 281 311

Depreciation 0.4 0.4 0.4 0.4 0.4 0.4 0.4
EBITDA 59 90 166 233 327 398 439
Adjusted EBITDA 69 90 166 233 327 398 439

Gross Margin 34.2% 30.7% 33.3% 34.4% 33.6% 33.0% 32.2%


EBITDA 59 90 166 233 327 398 439
Taxes on EBIT (8) (11) (25) (35) (49) (60) (66)
CAPEX (1) (0) (0) (0) (0) (0) (0)
FCFF (125) (147) (400) (643) (257) (281) 6
Change in Debt 73 155 222 304 74 103 60
Emission - - - - - - -
Tax difference 1 2 3 7 8 10 11
FCFE (54) (6) (196) (379) (231) (234) 4


Assets
Accounts Receivable 297 371 819 1,379 1,687 2,111 2,351
Inventories 133 306 457 799 1,070 1,290 1,436
Other 59 89 (100) (489) (742) (1,022) (1,080)
Total Assets 607 875 1,285 1,798 2,124 2,489 2,816
Liabilities
Short Term Debt 50 61 61 61 61 61 61
Suppliers 12 15 22 27 30 32 33
Long Term Debt 80 225 447 751 825 929 988
Other 137 188 252 318 384 428 457
Equity 291 335 428 546 718 929 1,162
Total Liabilities 607 875 1,285 1,798 2,124 2,489 2,816
Source: Company and Bulltick

16

APPENDIX B
IMPORTANT DISCLOSURES

Bulltick Brasil Consultoria e Assessoria Empresarial Ltda. is an affiliate of Bulltick LLC (The Firm). Bulltick LLC may do
business with the companies covered in this report, as a result, investors should be aware that the Firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report only as a single
factor in making their investment decision.

A. CONFLICTS OF INTEREST

From the companies covered in this report, Bulltick Brasil Consultoria e Assessoria Empresarial Ltda, or its affiliates,
currently has, or has had within the past 12 months, Tecnisa and MRV as client and/or received compensation for products
and services provided to this company.

From the companies covered in this report, Bulltick Brasil Consultoria e Assessoria Empresarial Ltda, or its affiliates,
managed or co-managed a public offering of securities for Tecnisa and MRV in the past 12 months, received
compensation for investment banking services from Tecnisa and MRV in the past 12 months.

Neither Bulltick Brasil Consultoria e Assessoria Empresarial Ltda nor any of its affiliates own equity securities of any of the
subject companies.

Analyst compensation is determined by Bulltick Brasil Consultoria e Assessoria Empresarial Ltda management and is not
linked to specific transactions or recommendations.

B. ANALYST CERTIFICATION

I, Rafael Pinho, author of this report, hereby certify that all of the views expressed in this report accurately reflect my
personal views about any and all of the subject issuer(s) or securities, no part of my compensation was, is , or will be
directly or indirectly related to the specific recommendation(s) or view(s) in this report. I have not received any
compensation from any of the subject companies in the past 12 months. I also certify that neither I nor any member of
my household serves as a director, officer, or advisory board member of any of the subject companies in this report.

C. INVESTMENT RATING

Investment ratings are determined by the ranges described below:
BUY: Total return of securities expected to be above 18% (in dollar terms) in the following 12 months
NEUTRAL: Total return of securities expected to be below 18% (in dollar terms) and above 8% (in dollar terms) in the
following 12 months.
SELL: Total return of securities expected to be below 8% (in dollar terms) in the following 12 months.

Price Target: The valuation method used to determine the price targets in this report were based on the discounted
cash flow methodology.

D. RISK RATINGS

Risks for the achievement of the target prices defined in this report include major change in our base case macro-
economic scenario, increase in interest rates and in the Brazil risk, reduction in the expectations for demand for real
estate in Brazil and impact on already listed stocks of new IPOs in Brazil´s real estate sector.

Based on last 6 months volatility of subject companies, and comparing them to the volatility of the Bovespa Index
(Ibovespa) in the same period, we define each subject company´s relative volatility in the following way: Company
High, Cyrela High, Gafisa High, Klabin Segall High, Rossi Residencial High and Tecnisa High

17

OTHER DISCLOSURES

Bulltick Brasil Consultoria e Assessoria Empresarial Ltda and its subsidiaries, affiliates, shareholders, directors, officers,
employees, and licensors (“The Bulltick Parties”) will not be liable (individually, jointly, or severally) to you or any other
person as a result of your access, reception or use of the information contained in this document for indirect,
consequential, special, incidental, punitive, or exemplary damages, including, without limitation, lost profits, lost savings
and lost revenues (collectively, the “Excluded Damages”), whether or not characterized in negligence, tort, contract, or
other theory of liability.

The information contained in this document has been obtained from sources believed to be reliable, although its
accuracy and completeness cannot be guaranteed. All opinions, projections, and estimates constitute the judgment of
the author as of the date of the report and these, plus any other information contained in the report, are subject to
change without notice. Prices and availability of financial instruments also are subject to change without notice.

Bulltick Brasil Consultoria e Assessoria Empresarial Ltda and its affiliated companies have not taken any steps to insure
that the securities referred to in this report are suitable for any particular investor. The Report is for informational
purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Securities mentioned
in the report are subject to investment risks, including the possible loss of the principal amount invested. Any decision
to purchase securities mentioned in the Report must take into account existing public information on such a security or
any registered prospectus.

The financial instruments mentioned in this document may not be eligible for sale in some countries. The Report is not
to be construed as providing investment services in any jurisdiction where the provision of such services would be
illegal.

Bulltick Brasil Consultoria e Assessoria Empresarial Ltda, its affiliated companies, and/or its officers, directors, or
shareholders, may from time to time have long or short positions in the financial instruments of the companies
mentioned in this document, engage in securities transactions in a manner inconsistent with this report, buy or sell from
customers on a principal basis, or serve in an advisory capacity.

Investing in non-US securities, including ADRs, may entail certain risks. The securities of non-US issuers may not be
registered with, and may not be subject to the reporting requirements of the US Securities and Exchange Commission.
There may be limited information available on foreign securities. Foreign companies are generally not subject to
uniform audit and reporting standards, practices and requirements comparable to those in the US Securities of some
foreign companies may be less liquid and their prices more volatile than securities of comparable US companies. In
addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its
corresponding dividend payment for US investors.

The information contained in the report is privileged and confidential and intended solely for the recipients who have
been specifically authorized to receive it and it may not be further distributed. Bulltick Brasil Consultoria e Assessoria
Empresarial Ltda and its affiliates accept no liability whatsoever for the actions of third parties. Should you receive this
message by mistake you are hereby notified that any disclosure reproduction, distribution, or use of this message is
strictly prohibited.

The Report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Report
refers to the website material of the Bulltick Brasil Consultoria e Assessoria Empresarial Ltda or any of its affiliates, the
Firm has not reviewed the linked site. Equally, except to the extent to which the Report refers to website material of
Bulltick Brasil Consultoria e Assessoria Empresarial Ltda or any of its affiliates, the Firm takes no responsibility for, and
makes no representation or warranties whatsoever as to, the data and information contained therein. Such address or
hyperlink (including addresses or hyperlinks to website material of Bulltick Brasil Consultoria e Assessoria Empresarial
Ltda or any of its affiliates) is provided solely for your convenience and information and the content of the linked site
does not in any way form part of this document. Accessing such website or following such link through the Report or
the website of Bulltick Brasil Consultoria e Assessoria Empresarial Ltda or any of its affiliates shall be at your own risk
and Bulltick Brasil Consultoria e Assessoria Empresarial Ltda or any of its affiliates shall have no liability arising out of,
or in connection with, and such referenced website.

18

Working Capital Management is King

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