2018 results missed. Due to delayed delivery of some projects, delivered GFAslid from 0.71mn sq m in 2017 to 0.40mn sq m in 2018. So revenue tumbled by35.2% to RMB7.48bn in 2018. Gross margin narrowed from 34.8% in 2017 to32.8% in 2018. However, KWG recorded RMB1.2bn gain from office en-bloc sales,RMB684mn FX gain and RMB1.72bn revaluation gain. Therefore, net profit andcore profit grew by 11.5% to RMB4.04bn and 8.2% to RMB3.81bn in 2018,respectively, which were 10.4% and 11.2% less than our estimates. Full-yeardividend amounted to RMB0.56 per share in 2018, up 36.6%. As at Dec 2018,pre-sold but unbooked properties amounted to RMB48bn, of which half will berecognized in 2019.
2019 sales target of RMB85bn, up 30% YoY. KWG sets 2019 sales target ofRMB85bn, compared with actual contracted sales of RMB65.5bn in 2018. Totalsaleable resources amount to RMB150bn in 2019, of which 37% in Greater BayArea （GBA） and 35% in Yangtze River Delta （YRD）。 The Company successfullysold two en-bloc offices, which were in Shanghai Amazing Bay （GFA sold: 19k sqm & ASP: RMB30k/sq m） and Guangzhou The Star （GFA sold: 114k sq m & ASP: RMB26k/sq m）， in 2018. Currently, four projects （Shanghai IMP, Beijing KWGCenter, Guangzhou ICP and Chengdu Sky Ville） are available for en-bloc saleswith total saleable GFA of 188k sq m. Any success in en-bloc sales will acceleratethe sales pace and help the Company accomplish 2019 sales target.
17.5mn sq m attributable land bank as at Mar 2019. KWG acquired 38projects with 4.14mn sq m attributable GFA in 2018. Its land bank strategy is toexplore the markets in the first and second tier cities, especially those in GBA andYRD. Total attributable land bank was 17.5mn sq m as at Mar 2019. ExcludingHK projects, average land cost is RMB4,700/sq m. In addition, KWG is workingon a few urban redevelopment projects. It had signed cooperation agreementswith six villages in Guangzhou. First launch is expected in 2021. These urbanredevelopment projects in Guangzhou and Shenzhen are estimated to provide10mn sq m saleable GFA once they are completed.
Rental income surged 46% in 2018. Four shopping malls, two office buildingsand two hotels were completed and operated in 2018. Thus, rental incomegained by 46% to RMB535mn in 2018. In the future, nine more shopping mallsunder the brand names of U Fun or M Cube will open. These will furtheraccelerate the rental growth.
Raise TP to HK$11.82. Net gearing ratio was 64.8% as at end-18. We cut netprofit forecast by 13.3% to RMB4.73bn in 2019 and 11.2% to RBM5.24bn in2020. We raise end-19 NAV per share forecast from HK$18.87 to HK$19.70. Sotarget price is raised from HK$11.32 to HK$11.82, representing a 40% discountto NAV. Reiterate BUY.