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黃恩賜先生 (John Wong)
分析師

畢業於倫敦大學,擁有碩士和學士學位,求學期間主修金融和經濟學,主要負責房地產行業和酒店行業的研究,擅於挖掘上市公司內在價值。

Graduated from Master and Bachelor Degrees in various universities in London and specialized in Finance and Economics throughout his academic study. Currently focus on property and gaming industry in both PRC and Hong Kong.


Phone: 22776527  
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K. Wah International (173.HK) - Even & Sustainable Project Pipeline

Friday, September 22, 2017 Views217
K. Wah International(173)
Recommendation on  22 September 2017
Recommendation Buy
Price on Recommendation Date $4.850
Target Price $5.900

Investment Summary

- Several major properties, such as The Spectra, are expected to be completed in 2H2017 and these projects will bring sizable revenue and cash flow to the group

- Expected improvement in profit margins for the Kai Tak projects, caused by the high price of the land obtained by other developers

- Increasing recurring income brought by the increase in the GFA of investment properties

Business Overview

Slight decline in sales and core profit in 1H2017: Revenue declined 11% from HK$5,536Mn in 1H2016 to HK$4,918Mn in 1H2017, primarily due to the reduction in property development revenue. Contracted sales surged 54% from HK$6.7Bn in 1H2016 to HK$10.3Bn in 1H2017, with the majority of the sales contributed by The Spectra and K City in Hong Kong and The Peak in Nanjing. Despite the drop in recognised revenue, net profit attributable to shareholders increased 14% from HK$1,897Mn in 1H2016 to HK$2,162Mn in 1H2017, due to the revaluation gain from the recently completed investment properties in the Phase2 of The Palace in Shanghai and the improvement in the gross profit margin from 45.6% in 1H2016 to 64.7% in 1H2017. Excluding one-off items and the revaluation gain of investment properties, the core profit of the group dropped 29% from HK$1,813Mn in 1H2016 to HK$1,293Mn in 1H2017. In 1H2017, basic earnings per share increased 9% to HK$0.7306 and the group declared an interim dividend of HK$0.05 per share, the same as the interim dividend paid in 1H2016.

FY2017 profit will be fueled by The Spectra, Azure, J Metrepolis Phase IV and Silve Cove Phase III: In August 2017, The Spectra, a property which the group (60% Interest) developed along with Sino Land (40% Interest), was completed and the application of occupation permit was successful, implying that the profit and cash flow from the sales of the properties can be recognised in 2H2017. The Spectra has a GFA of 49,000 square metres and the sales has been strong, with over 95% of the units sold as at 30/6/2017. Besides, the sales of the other properties such as Azure (GFA: 16,000sqm), J Metropolis Phase IV (GFA: 34,000sqm) and Silver Cove Phase III (GFA: 34,000sqm) will be launched in 2H2017. These properties are located in prime cities in China, namely Shanghai, Guangzhou and Dongguan. These projects will be launched and are expected to be completed in FY2017 and the revenue and cash flow associated with these properties are expected to be recognised in the same year.

Successful landbanking strategies: K. Wah International successfully obtained two key projects in FY2017, namely Royal Creek in Nanjing (33.3% Interest) and Kam Sheung Road Station project in Hong Kong (33.3% Interest). The group cooperated with other property developers to obtain these lands. In particular, the group obtained the Kam Sheung Road Station project with Sino Land and China Overseas. The cooperation with other property developers to obtain land allows the group to continue to replenish its land bank despite operating in a market which obtaining land in the public market, both in Hong Kong and in China, usually requires high consideration.

Sustainable development pipeline for the next few years: The group currently has an even booking schedule for the next few years and some lands are currently under planning phases with no set completion date yet. In fact, the group has about 100,000 square metres of GFA being completed in almost every year. Further supported by the disciplined landbanking strategies, the even booking schedule of revenue allows the group to have a sustainable level of revenue and core profit. The project completion schedule is as follow:

New credit and term loan facility lowers borrowing cost further: The group obtained a HK$8Bn revolving credit and term loan facility in January 2017, of which HK$4Bn was used to refinance a HK$4Bn outstanding loan. The new facility allows the company to lower its average interest rate to 2.1% in 1H2017, 0.6% lower in comparison with 1H2016. The net gearing ratio rose slightly to 16%, which is a manageable level and is considerably low in comparison with its property development peers.

Investment Thesis, Valuation and Risk

Our valuation model suggests a target price of HK$5.90: K. Wah International has a sustainable project pipeline and the Tai Po, K City and the new Kai Tak projects are expected to bring large revenue to the group. Furthermore, the group actively replenishes its land bank and cooperated with large property developers such as Sino Land and China Overseas to obtain the Kam Sheung Road Station project. Therefore, a target price of HK$5.90, corresponding to a P/E and P/B of 4.53x and 0.55x, has been assigned, with a `Buy` rating assigned. (Closing price as at 18 Sep 2017)

Financials

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