KWG’s Improved Credit Rating due to Q1 Gross Pre-Sales Value of RMB7,744 million - News

KWG’s Improved Credit Rating due to Q1 Gross Pre-Sales Value of RMB7,744 million

04/26 . 2017

As a typical real estate developer in Guangdong province, KWG is best known for its premier property and product development. Upon full preparation, KWG, which is always maintaining its robust development, further facilitates its development pace. In the first quarter of 2017, KWG recorded a gross pre-sales value of RMB7,744 million, representing a year-on-year increase of 23%.

Due to a high gross profit margin and the economies of scale, KWG’s credit rating was revised upwards by a number of institutions. According to a study published by South China Financial, KWG’s projects are mainly concentrated in tier-one and tier-two cities with high growth potential in 2017. It is strongly recommended that investments be made in office buildings that are not subject to real estate regulations, as it is expected robust sales growth with a high gross profit margin will continue in 2017.

Premier Land Bank and Strong Team Deliver Growth

As disclosed by KWG in its result announcement dated 20 April, the gross pre-sales value amounted to RMB3,753 million in March, representing a year-on-year increase of 26.1%, and the gross pre-sales GFA amounted to 225,000 square meters (KWG’s attributable pre-sales value and attributable pre-sales area amounted to RMB2,871 million and 190,000 square meters, respectively) .

As disclosed in previous announcements, KWG’s gross pre-sales values in January and February amounted to RMB2,181 million and RMB1,810 million, respectively. The total gross pre-sales value amounted to RMB7,744 million in the first quarter, representing an increase of 23% as compared to RMB 6,298 million in first quarter of 2016. Since 2015, KWG’s development has significantly quickened. To strive for and expedite the growth of scale, KWG intensified efforts to market products and increase land bank, and completed the adjustment and upgrade of its sales model, team structure and incentive scheme.

Due to its annual attributable pre-sales value (after) of RMB 22.3 billion, representing a year-on-year increase of 10.4%, KWG successfully completed it sales target for the year.

It is reported that KWG’s attributable salable value in 2017 amounted to RMB46 billion, representing an increase of 37.3%, beating all previous records.

Due to extremely fierce competition in real estate market at the silver age, three real estate developers currently boast RMB300 billion in terms of business scale, while 12 real estate developers boast RMB 100 billion. During the first quarter of 2017 alone, three real estate developers reported sales exceeding RMB100 billion. As a result, real estate concentration accelerated.

In view of the development trajectory of the industry, KWG Property further expanded its strategic positioning throughout the country to enhance its competitive strength in the future by reserving premier land resources and realizing fast growth in its business scale.

As disclosed in the annual report, KWG increased its gross attributable GFA of approximately 2,374,000 square meters by acquiring 12 parcels of land in Guangzhou, Foshan, Shanghai, Hangzhou, Nanning, Chengdu and Hefei in 2016. By the end of 2016, KWG owned a total of 67 projects with a gross attributable GFA of 11.3 million square meters. Such land bank will satisfy KWG’s development needs in the next four years to five year.

As disclosed in the annual report, KWG had cash and bank deposits of RMB26.9 billion at the end of 2016, which was sufficient.。

KWG acquired the land parcel located at Lee Nam Road, Ap Lei Chau of Hong Kong jointly with Logan Property, foraying into the Hong Kong market for the first time. According to a study published by Phillip Securities, Hong Kong has better developed property market regulation than Mainland China. Entering into the Hong Kong market will enable KWG to improve its brand image. Meanwhile, Hong Kong projects will enable KWG to hedge its foreign exchange risks.

Steady Performance Growth Results in Improved Credit Rating

Due to the paralleled development of commercial and residential properties, focus on core tier-one and tier-two cities, as well as easy access to both high sales price and spillover effects, KWG’s net profit margin and gross profit margin remained high in the industry.

KWG recorded gross profit of RMB3,070 million in 2016, representing a year-on-year increase of 2.0%. Its gross profit margin and core net profit margin were 34.6% and 16.7%, respectively, both beating the average level of the industry.

It is reported that KWG launches 57 projects in 2017, 15 of which are brand new projects concentrated in Beijing, Guangzhou, Shanghai and Hangzhou. KWG’s land bank is mainly concentrated in tier-one and tier-two cities with rapid population and economic growth, greater demand for properties and higher profit margin contribution.

Phillip Securities considers that the gross profit margin of KWG is expected to maintain at the current level, which is in line with the perspective given by South China Financial in its study. Aggressive sales targets and the strategic positioning of focusing on tier-one and tier-two cities will enable continued high gross profit margin and profitability. KWG’s credit rating was revised upward by a number of institutions due to its gross pre-sales value of RMB7,744 million in the first quarter.