20220429-招银国际-合景泰富集团-01813.HK-How_to_repay_US_900mn_debt_due_in_Sep__7页_916kb

KWG (1813 HK) Company Update Summary

Core Content

KWG, a property developer listed on the Hong Kong Stock Exchange, is currently facing significant financial challenges. The company is trading at 0.2x PB (Price-to-Book), indicating a distressed valuation due to its heavy debt load. Key concerns include a 39% YoY decline in 2021 core earnings, a 10% YoY decrease in 2022E sales target, and a substantial drop in cash reserves. The company has a debt repayment deadline in September 2022 for a USD900mn offshore bond, which is a critical focus for management.

Main Points

• Debt Situation:

  • KWG has a net gearing ratio of 79.2% and liability-to-asset ratio (excluding presales) of 74.3%.
  • The company has RMB20.3bn in debts due in 2022, with USD900mn due in September.
  • As of April 2022, RMB6.2bn has already been repaid.

• Financing Strategy:

  • The company is seeking HKD3-4.5bn in financing from its Ap Lei Chau project, which has 295 units with an estimated value of HK$30bn.
  • If successful, the financing could be split 50/50 with partner Logan.
  • However, this may not fully cover the USD900mn bond, and additional onshore financing (e.g., disposal of office buildings) may be necessary.

• Sales and Earnings Performance:

  • KWG achieved RMB104bn in pre-sales for 2021, missing its target by 16%.
  • Core profit in 2021 was RMB4bn, significantly below expectations.
  • Gross profit margin (GPM) dropped to 21.2% in 2021 from 31.5% in 2020, primarily due to a RMB800mn impairment and the sale of low-GPM parking spaces.
  • GPM guidance for 2022 is 25-30%, but the outlook remains challenging.

• Market and Operational Challenges:

  • The Yangtze River Delta region, where 15% of KWG's sellable resources are located, is heavily impacted by the pandemic.
  • The company has reduced land acquisitions in 2021, purchasing only 6 plots with RMB5.6bn, a 76% YoY decline.
  • As of April 2022, no land acquisitions have been made.

• Valuation and Investment Outlook:

  • The company is currently trading at HK$2.59, with a target price (TP) of HK$3.22, implying a +24.3% upside.
  • The previous TP was HK$17.87, indicating a significant downward revision.
  • The analyst maintains a BUY rating, citing potential for financing and debt repayment.

Key Information

• Shareholding Structure:

  • Kong Jian Min: 62.74%
  • Free float: 37.26%

• Stock Performance:

  • 1-month: -20.6%
  • 3-month: -42.2%
  • 6-month: -62.8%
  • 12-month: -79.3%

• Financial Highlights (YE 31 Dec):

  • Revenue: RMB23,942mn (FY19A), RMB29,742mn (FY20A), RMB23,845mn (FY21A), RMB41,102mn (FY22E), RMB43,733mn (FY23E)
  • Core Income: RMB9,806mn (FY19A), RMB6,677mn (FY20A), RMB3,979mn (FY21A), RMB5,541mn (FY22E), RMB5,528mn (FY23E)
  • Net Profit: RMB9,621mn (FY19A), RMB6,440mn (FY20A), RMB2,421mn (FY21A), RMB5,541mn (FY22E), RMB5,528mn (FY23E)
  • EPS: RMB3.09 (FY19A), RMB2.10 (FY20A), RMB0.76 (FY21A), RMB1.74 (FY22E), RMB1.74 (FY23E)
  • P/B: 0.2x (2021), 0.1x (2022E)
  • Yield: 31% (2021), 29% (2022E)
  • ROE: 15.3% (FY20A), 5.5% (FY21A), 11.2% (FY22E)
  • Net Gearing: 79.2% (FY21A), 60.4% (FY22E)

• Dividend Policy:

  • Interim dividend for 2021: RMB0.37/share (48.7% payout ratio)
  • Final dividend for 2021: Not declared
  • DPS (Dividend per share): RMB0.37 (2021), RMB1.20 (2022E)

• Valuation Table (2021):

Company	Ticker	Last Price (HK$)	Mkt Cap (HK$ mn)	TP (HK$)	P/E (20A)	P/E (21A)	P/E (22E)	P/B (21A)	Dividend Yield (21A)	Dividend Yield (22E)
Vanke - H	2202 HK	17.76	246,116	33.92	4.5	4.0	3.8	0.7	7%	7%
COLI	688 HK	24.15	264,317	30.49	6.0	5.8	5.1	0.6	5%	6%
Country Garden	2007 HK	5.19	120,140	13.36	3.2	2.4	2.1	0.5	10%	8%
CR Land	1109 HK	34.20	243,878	44.79	8.2	7.7	7.0	1.1	5%	5%
Longfor	960 HK	38.10	231,485	52.59	11.2	7.6	7.3	1.8	5%	6%
Shimao	813 HK	4.42	16,786	44.94	1.2	1.0	0.9	0.1	26%	29%
Agile	3383 HK	3.53	13,827	13.89	1.4	1.4	1.3	0.2	21%	19%
KWG	1813 HK	2.59	8,245	17.87	1.0	2.8	1.2	0.2	31%	29%
Times China	1233 HK	2.59	5,444	16.20	1.0	0.7	0.6	0.1	33%	24%
China SCE	1966 HK	1.33	5,615	5.60	1.5	1.3	1.0	0.2	23%	23%
Redsun	1996 HK	2.58	8,981	3.52	5.2	4.1	3.5	0.5	6%	8%
Vanke - A	000002 CH	18.23	205,459	31.36	4.7	4.1	3.9	1.0	7%	6%

Analysts

• Jeffrey Zeng: (852) 3916 3727, jeffreyzeng@cmbi.com.hk
• Xiao Xiao: (852) 3761 8952, xiaoxiao@cmbi.com.hk
• Zhang Miao: (852) 3761 8910, zhangmiao@cmbi.com.hk

Ratings

• BUY: Potential return of over 15% over next 12 months
• HOLD: Potential return of +15% to -10%
• SELL: Potential loss of over 10%
• NOT RATED: Not rated by CMBIGM

Industry Outlook

• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

CMB International Securities Limited

• Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong
• Tel: (852) 3900 0888
• Fax: (852) 3900 0800
• Parent Company: CMB International Capital Corporation Limited (a subsidiary of China Merchants Bank)

Important Disclosures

• The report is not investment advice and should not be relied upon for making investment decisions.
• CMBIGM may have investment banking relationships with the issuers covered in this report.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.