Growing rental earnings stream
In 2023, K.Wah International achieved contracted sales of c.HK$5.9bn, almost equally split between Hong Kong and Mainland China. Main contributors included Grand Victoria and K.Summit in Hong Kong, and Sierra in Nanjing.
Grand Victoria continued to sell well. Meanwhile, over 75% of total 1437 units at this completed project have been sold. However, given high land costs, we expect this sizeable development to be marginally profitable.
K.Wah sold six units for HK$628m, including four garden houses in 2023. So far in 2024, two special units have been sold for HK$110m or HK$34,676psf. Since its initial launch in Dec-19, K.Wah has sold 1,004 units at K.Summit, generating proceeds >HK$12.6bn. Meanwhile, only two special units remain unsold.
Launched in Aug-23, Villa Garda III in Tseung Kwan O was c.27% pre-sold for c.HK$17,200psf on average. Since its initial launch in Jun-22, the pre-sale of all three phases at Villa Garda has generated c.HK$6.6bn. K.Wah has a 30% stake in Villa Garda.
Elsewhere, KT Marina Ph1 in Kai Tak was released onto the market in Nov-23 with 57 of a total of 1,017 units pre-sold for c.HK$560m or c.HK$21,000psf. K.Wah has a 40% stake in this development with the balance held by Wheelock and China Overseas Land. We expect this joint venture development to largely break-even.
In 2024, the company plans to launch Grand Mayfair III (680 units) and NKIL6554 (2,060 units) in Kai Tak. Besides, two single-block residential towers in Sai Ying Pun and Tin Hau could also be available for pre-sale. In Shanghai, the residential portion of 60%-owned Huajing Town mixed-use project in Xuhui will be up on sale in 1Q24. It will provide total GFA of 47,700sm when completed.
Occupancy of Shanghai K.Wah Centre stood firm at c.92% with slightly positive reversionary growth. With GFA of 13,700sm. WYSH in Shanghai is c.50% committed by F&B and office tenants. Soft opening was held in late 2023. COSMO Avenue in Guangzhou (23,000sm) is >20% pre-leased with target opening in mid-2024. The expanding investment portfolio should enhance the company’s rental income which is projected to rise 2% in FY23 and 5% in FY24.
In Jan-24, K.Wah signed a HK$4bn revolving credit and term loan facility with a total of 14 international and local banks. The facility is partially for refinancing the drawn portion of the existing HK$4bn club loan facility maturing in Mar-24, with the balance for general corporate funding requirements.
In mid-23, K.Wah acquired Butterfly on Victoria Boutique Hotel Causeway Bay in Tin Hau from a private investor for HK$468m and plans to redevelop this hotel into a residential project with 43,000sf GFA. This implies an accommodation value of HK$10,880psf. Taking into consideration the acquisition, we estimate the company’s gearing to be slightly higher at 18%. The company remains financially sound for further acquisitions if opportunities arise.
In the previous six months, shares of K.Wah fell 20%. Meanwhile, the stock is trading at 85% discount to our appraised current NAV, c.2SD below its 10-year average of 70%. Such a low valuation is unwarranted. Continued project sales should unlock its NAV, providing upside on stock. Based on wider target discount of 80% to our Dec-24 NAV estimate, we set our TP at HK$2.77. Reiterate BUY.