Company Update: Strong project launch pipeline
K.Wah International achieved contracted sales of >HK$7bn in Hong Kong which stemmed primarily from K.Summit in Kai Tak and Grand Victoria in Cheung Sha Wan.
Since its initial launch in Dec-19, the company has sold >980 units at K.Summit for HK$11.4bn or HK$24,800psf on average. This represented 98% of a total of 1,006 units. After obtaining the certificate of compliance, the company has been handing over the units to the buyers from Dec-21. Thus far, over 70% of sold units were handed over with the corresponding profit being recognised in FY21. We estimate that K.Summit, if fully sold, should generate total pre-tax earnings of c.HK$3bn and be the mainstay of the company’s near-term development profit.
Situated on the waterfront of Cheung Sha Wan, Grand Victoria is a joint venture with Sino Land, Wheelock and SEA Holdings. K.Wah has a 22.5% stake in this residential development which is being developed in three phases with a total of 1,437 units. The consortium has sold >680 units, 47% of total, for >HK$9bn, since its initial launch in Mar-21. ASP reached HK$28,000psf. The site was acquired for HK$17.3bn or HK$17,501psf (on GFA basis) through government tender in Nov-17. Given relatively high land cost, we estimate pre-tax development margins at <10%. The project is scheduled for completion in 2023.
In 2022, K.Wah plans to sell the newly completed Grampian Road project in Kowloon City. This development contains five houses with GFA of 21,528sf. Since the site was acquired at low cost more than 10 years ago, this luxury house development should command fat pre-tax margins of >50%.
K.Wah is applying for pre-sale consent of Ph 1A of Kam Sheung Road Package One project (715 units) which is expected to go on pre-sale in 1H22. Two joint venture projects in Kai Tak and one in Tseung Kwan O (Lohas Park Package 11) should also be available for pre-sale in 2H22. Overall, K.Wah has strong project pipeline for 2022.
In China, K.Wah attained contracted sales of c.HK$7bn in 2021. About 40% came from Azure in Shanghai which has been virtually sold out with project handover in 2H21. The balance came from inventory sales of Windermere in Shanghai, Bayview in Dongguan and projects in Jiangmen, and sales of Vetta in Suzhou. Launched in Jul-21, K.Wah has sold about one-third of units at Vetta for Rmb29,000psm on average.
K.Wah will focus on launching projects in Yangtze River Delta in 2021. The company intends to offer the residential portion of joint venture project in Shanghai Hongkou and its mixed-use development in Nanjing for sale in 1H22. Besides, the Weifang Village project in Shanghai and two other developments in Suzhou and Nanjing are anticipated to go on sale in 2H22.
Occupancy of its flagship rental property, Shanghai K.Wah Centre, is firm at c.95% with slightly positive reversionary growth. The fully-let EDGE in Shanghai, will provide its first full-year rental contribution in FY22. Construction of the Wuyi Road office/commercial project in Shanghai is expected to be completed in 2Q22 with pre-leasing activities underway. With a GFA of 13,700sm, this new project should further enhance the company’s recurrent income base.
The stock is trading 79% below our appraised current NAV. The valuation is very attractive from a historical viewpoint. The planned project launch, if greeted with satisfactory market response, should help to narrow its discount to NAV. We keep our BUY call with HK$3.92 TP. This is derived by applying 75% discount to our Dec-2022 NAV estimate.