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

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.

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

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