CWG International Ltd - RHB Invest 2017-01-11: Confident Of a Turnaround

CWG INTERNATIONAL LTD. ACW.SI

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.

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.

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.

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.

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.

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.

NOT RATED
Target Price: N/A

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-11

RHB Invest SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998.000 Same 99998.000