We had a meeting with Chairman Kong Jian Min and other management recently. The Company will focus on project development in Greater Bay Area (GBA) and Yangtze River Delta (YRD) due to ample opportunities there. In the future, KWG is looking for a 30% p.a. sustainable growth. We maintain our TP as HK$11.4, which is based on 40% discount to our estimated end-20 NAV of HK$19.0. Reiterate BUY.
- Contracted sales grew by 29% in 11M19. Contracted sales area and amount surged by 28.6% to 4.47mn sq m and 29.0% to RMB76.9bn in 11M19, respectively, representing 91% of full year sales target of RMB85bn. Chairman Kong expects China property market will resume normal level in 1Q20. Backed by its portfolio in GBA and YRD as well as two luxury projects in HK, KWG is confident to achieve an average 30% annual growth in contracted sales next few years. In other words, the Company will join the league of RMB100bn contracted sales next year.
- Acquired 2.3mn sq m attributable land bank in 10M19. In 10M19, KWG acquired 2.3mn sq m attributable land bank with considerations of RMB18bn. 16 out of 25 land bank acquisitions were carried out by M&A. The Company had newly entered Xi’an and Kunming. Furthermore, the Company is actively participating in urban redevelopment plan. It has already signed 12 urban redevelopment contracts with total GFA of 11.0mn sq m. Its major urban redevelopment projects are located in Guangzhou Huangpu district and Foshan city. For the Huangpu project, it might be launched for sales next year. KWG estimated about 0.3-0.6mn sq m of land bank can be converted from urban redevelopment plan every year.
- Sustainable recurrent income growth. Chairman also revealed that about 40% growth in recurrent income is expected in 2019. Currently, eight offices, eight shopping malls and 13 hotels are operating in the tier 1 and 2 cities. Another nine new shopping malls and six new offices will open in the future. KWG will also study asset-light business model for hotel management.
- Property management spinoff on track. Revenue from property management business increased by 43.6% to RMB363mn in 1H19. GFA under management were about 10mn sq m, of which 30-35% were commercial properties. The Company strikes to explore third party projects with one M&A deal completed and two under discussion. KWG plans to spin off its property management business in HKEx next year.
