CWG International Ltd - Confident Of a Turnaround
- CWG International Ltd has development properties in the US, Australia and China, and would be moving into building international schools.
- With over CNY3.3bn worth of presales estimated to have been booked in 4Q16, a turnaround in 2016 is highly probable.
- Its dividend policy, with a minimum payout of SGD0.01 pa, suggests a dividend yield of 6% at current share price levels. Management appears very confident about the turnaround.
- Share price performance should also be supported by strong share buybacks, key insider purchases, as well as the company’s minimum dividend payouts.
Key share buybacks and insider purchases.
- Since Dec 2016, key insiders such as the company’s chief financial officer (CFO) and major shareholders have been actively buying CWG International’s (CWG) shares in the open market.
- In addition, CWG has started its share buyback exercise and has to date, purchased a total of 3.1m shares since 29 Dec 2016.
- Coupled with the implementation of its dividend policy, we believe that management is showing a strong statement of intent, and is indeed confident of a turnaround at CWG.
Strong presales in 4Q16 and FY17.
- As it stands, the group has strong presales revenue – estimated presale values assume a 70-90% pre-sold rate.
- We expect 4Q16’s estimated and actual presales figures to be strong, with the temporary occupation permit (TOP) date for three projects – Suzhou Industrial Park Royal Mansion (Phase 1), Suzhou Royale Palace (Phase 3) and Xuancheng Chiway Top Town (Phase 2 District D) – to be completed. The actual percentages sold for these three projects are well above 80%, with two projects 90% sold.
Minimum dividend policy translates to 6% yield.
- With management confident of the company’s turnaround largely due to strong presales estimated to have been recognised in 4Q16, a dividend policy with a minimum annual payout of SGD0.01 has been implemented. This suggests a 2016 dividend yield of 6% based on current share price levels.
- The move also reflects the new board of directors and management’s aim to return value to shareholders.
Stronger gross margins due to higher land prices.
- CWG has been investing in landbank in Suzhou and Wuxi for many years. Land prices in these areas have surged strongly by 50-400% over the last few years. As a result, CWG is likely to make hefty gains whenever their properties are sold. We therefore expect higher gross margins for their projects going forward.
Trading at a significant 80% discount to RNAV.
- Based on information provided by the management, our RNAV valuation for CWG comes up to SGD0.83/share. This suggests that CWG is trading at a significant 80% discount to its RNAV, based on current share price levels.
- Key risks include China’s property tightening measures and falling land prices.
Target Price: N/A