Excerpt from UOBKH report

Analyst: Edison Chen

Chiway MansionChiway Mansion is CWG International's award winning real estate project in Suzhou, China. (Artist's Impression)

Backed by RMB 7.1 billion worth of secured presales revenue, CWG International (previously known as Chiwayland International) is likely to have swung from its 9M16 losses to a profit by end-16.

Share buybacks, key insider purchases and dividends mark the management's confidence in its 2016 performance and beyond.

While the risk of headwinds in the property market remains, CWG is trading at a 88.9% discount to its estimated RNAV of S$1.55/share with an estimated fair value range of 37c to 57c and dividend yield of at least 5.8%.

 

Stock price  17.2c
52-week range 4.4c-17.2c
Market cap S$114.7m
Debt/EBITDA 60.1
Price-Book 0.9
Source: SGX StockFacts

9M16 losses should reverse as soon as presales hits a record high of RMB 7.1 billion

While 9M16 reported losses of RMB 114.2 million, we believe the situation is about to reverse as the bulk of its revenue recognition will commence in 4Q16.

Presales have hit a record high of RMB 7.1 billion as buyers scrambled for new development properties prior to the implementation of the cooling measures.

As long as CWG completes its projects, the revenue is deemed secured and will be booked over the next few quarters starting in 4Q16, giving it clear earnings visibility.

 

Share buybacks have begun with key insider purchases

Since 29 Dec 16, CWG has consistently bought back shares every day. To date, it has brought back 2.93 million shares at an average of 16.6c. Furthermore, we also note that key insiders such as the CEO has purchased 738,000 shares since 16 Aug 16, signalling the mangement's belief that the stock is grossly undervalued.

 

♦ Clear Earnings Visibility

edisonchen1.16LQM 0094FFAs long as CWG completes its projects, the revenue is deemed secured and will be booked over the next few quarters starting in 4Q16, giving it clear earnings visibility.

-- Edison Chen (photo)

New dividend policy leads to attractive yield starting from 5.8%

Along with share buybacks, the company has also formally adopted a new dividend policy to reward shareholders with a base payout of 1c/share annually.

The mangement has shared that more dividends may be declared on top of the base payout, depending on the actual performance. Nevertheless, investors can expect at least 1c/share, translating into an attractive yield of 5.8%.

Risks

CWG's business model is largely based on the strategy of leverage and the rapid development of properties to capture profits. If property prices in China continue to move up, this is an extremely feasible strategy.

However, a major slowdown or turn in property prices could throw a huge spanner in the works. We note the cooling measures announced by the Chinese government to curb property prices recenty. Also, CWG may be a little overly optimistic regarding its pricing in Australia as BIS Shrapnel points to a flat market going forward.

Catalysts

  • More share buybacks by company and/or insider trades.
  • Turnaround reported for 2016's full-year performance and declaration of dividends

    Click on video (2 mins 45 seconds) of recent visit by analysts to CWG International. 

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