KWG Property Holding (1813.HK) :Quality laggard with strong and visible growth

机构:中金公司评级:买入目标价:16.47 港元CommentsSales growth (50–60%) to pick up further in 2018. We expect sales ofRmb60bn (+58% YoY v

机构:中金公司

评级:买入

目标价:16.47 港元

Comments

Sales growth (50–60%) to pick up further in 2018. We expect sales ofRmb60bn (+58% YoY vs. +33% in 2017) to be achievable in 2018 fromthe company’s Rmb100bn saleable resources (+54% YoY), of which85% are located in tier-1/-2 cities with a high sell-through rate. Weestimate sales growth at ~60% in January thanks to abundantsupplies, and expect the coming en-bloc sales of Guangzhou The Star(Rmb3–4bn) will further boost the sales performance in 1Q18.

Sector-leading margin to be firmly sustained. The mix of 2018esaleable resources, where offices will take a share of 12–13%, bodeswell for another year of ~35% sales GPM following a highly profitable2016/17. Therefore, booked GPM in FY17–19e is estimated to be35.3%/34.7%/34.6%, which should beef up earnings performance.

Financial risks controllable despite ambitious expansion. After afruitful 2017 in land acquisition – attributable cost of Rmb36bn for6mn sqm of land reserves (1.8mn sqm sold) – net gearing ratio waskept below 80% at end-FY17 by postponing payments. We believe theleverage can be effectively alleviated once KWG delivers strong salesand earnings from these land reserves. And its strong fundraisingcapabilities (average financing cost at ~6% in 2017 amid a tight creditenvironment) should support the company’s expansion.

Valuation and recommendation

We maintain FY17e/18e core NP of Rmb3.5bn/4.7bn (+21%/31% YoY)and introduce FY19e core NP of Rmb6.1bn (+31% YoY). Reaffirm BUYand rise TP by 12% to HK$16.47 (25% upside) or 8.8x FY18e P/E. Wefavor this quality laggard for its strong and visible growth, lucrativemargin and controllable financial risks. The firm now trades at7.1x/5.4x FY18e/19e P/E.

Risks

Tier-1/-2 cities’ property markets fall short of expectations.Clipboard Image.png

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