CWG International is the first of 6 companies to report record earnings which we had highlighted in

CWG 5bagger 2.2017CWG International's milestones in FY2016 that boosted its share price include: steady project launches in Australia and China, foray into US, adoption of dividend policy and share buyback mandate, removal from SGX watchlist, and launch of fund management company. (Bloomberg chart)

CWG International has made good its promise of paying a 1-cent dividend that it made during its 3QFY2016 briefing.

It announced the dividend together with a stellar FY2016 net profit attributable to shareholders that increased threefold from RMB 37.7 million in FY2015 to RMB 114.8 million in FY2016.

The stock opened at 19.8 cents on Thursday (16 February), up 4.8% overnight after the announcement. At this price, the stock is a 4-bagger compared to its price of 5 cents a year ago on 15 February 2016.

At 19.8 cents, the stock's dividend yield is 5.0%. Payout ratio is 28%.

Other highlights of FY2016:

    1. Revenue was up 34% yoy at RMB 4.8 billion, lifted by delivery of two major property developments in Suzhou with higher average selling prices.
    2. Strong pre-sales of RMB 4.6 billion for its China and Australia projects.
    3. Target delivery of 6 projects with an estimated total saleable gross development value of RMB 5.5 billion in 2017.
    4. Asssets under management by Richmont Capital, the Group's private equity unit, has increased to over RMB 700 million.


For more information, refer to its FY2016 financial statements here.


At the FY2016 results briefing on Thursday (16 Feb), Executive Chairman Qian Jianrong and Executive Director / CFO Chua Hwee Song addressed, among other things, the question of its high debt ratio in the context of the Group's expansion strategy. Below is an excerpt of their discussion.

Mr Qian:  The average debt ratio for PRC companies is on the high side, especially for real estate developers. Having said that, PRC real estate developers are not as aggressive as US developers. The proportion of project financing arising from internal funds is only 5-10% for US real estate developers, compared to 20-30% for us.

 


QianJianrong 11.2016

“Our name change to CWG International expresses the vision for our real estate segment as well as the education segment which we will focus on this year.”

- Qian Jianrong
Executive Chairman
CWG International

(NextInsight file photo)

Drawdown restrictions on developers loan facility are less stringent in China than in Singapore. This means we need not wait till project completion to recoup capital investments.

Secondly, the relatively higher downpayment ratios required of home buyers in the PRC lifts our accounts receivables, and that contributes to our debt ratio.

A third contributor is our use of mezzanine financing for land purchases.

Our debt ratio was also significantly raised by our acquisition of a few land parcels last December.

My personal observation is that small to medium sized real estate developers in Hong Kong have debt ratios that range from 65% to 80%.

Debt ratios of developers vary by country because of their different business models. US developers are relatively highly levered because they use a fund management business model.

My personal opinion is that it is the norm for small to medium sized high growth PRC companies to have debt ratios of 60-70%.

 


ChuaHweeSong 7.11.2016


“Presales in 4QFY2016 was equivalent to our full year revenue. Rapid sales growth means our gearing ratio will come down quickly.”

 

Chua Hwee Song
Executive Director and CFO

(NextInsight file photo)

Mr Chua: Analysts in Singapore are used to integrated property companies with significant amounts of investment properties on their books, including hotels and retail properties.


These companies have a thick equity strip and very low leverage ratios. If you take the vertical of debt attributable to development projects, all companies should have a leverage ratio of at least 70%.

Otherwise, it is not worthwhile developing the project. The loan to valuation ratio extended by banks of 70% may be used as a benchmark to whether a company is overly levered. As we are a pure developer, our debt ratio is not entirely comparable with that of integrated property companies.



♦ Mr Qian on this year's growth strategy

LQM 993300We have an internal target of annual earnings growth of 30-50% over the next few years. This translates into real estate presales receipts of RMB 40 billion by 2021. We plan to raise capital to help us finance this growth target.

Stock price  19.3c
52-week range 4.8c - 20c
Market cap S$128.4 m
Gearing 4.16 x
PE ratio 5.5 x
Dividend yield 5.2%
Source: Bloomberg / Company

This year, we also intend to expand our education infrastructure business segment.

We will inject a few schools into an education infrastructure vehicle. We intend to channel 20% of the tuition income into our education infrastructure vehicle, which will manage the schools.

We are targeting six k12 schools for this vehicle this year, including schools already owned by the Group as well as schools which we are looking to restructure and acquire. We are targeting annual revenue of S$20 million for each school.

We expect this segment to generate healthy profit because these are good schools and there is huge education demand in China.


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