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） andYangtze River Delta （YRD） due to ample opportunities there. In the future, KWGis 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 andamount surged by 28.6% to 4.47mn sq m and 29.0% to RMB76.9bn in11M19, respectively, representing 91% of full year sales target of RMB85bn.
Chairman Kong expects China property market will resume normal level in1Q20. Backed by its portfolio in GBA and YRD as well as two luxury projectsin HK, KWG is confident to achieve an average 30% annual growth incontracted sales next few years. In other words, the Company will join theleague of RMB100bn contracted sales next year.
Acquired 2.3mn sq m attributable land bank in 10M19. In 10M19, KWGacquired 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 Companyhad newly entered Xi’an and Kunming. Furthermore, the Company isactively participating in urban redevelopment plan. It has already signed 12urban redevelopment contracts with total GFA of 11.0mn sq m. Its majorurban redevelopment projects are located in Guangzhou Huangpu districtand Foshan city. For the Huangpu project, it might be launched for salesnext year. KWG estimated about 0.3-0.6mn sq m of land bank can beconverted from urban redevelopment plan every year.
Sustainable recurrent income growth. Chairman also revealed that about40% 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 propertymanagement business increased by 43.6% to RMB363mn in 1H19. GFAunder management were about 10mn sq m, of which 30-35% werecommercial properties. The Company strikes to explore third party projectswith one M&A deal completed and two under discussion. KWG plans to spinoff its property management business in HKEx next year.