Jefferies Research initiated coverage on KWG Group Holdings (01813) with a "buy" rating and a price target of HK$13.17.
The research house said KWG is a deeply undervalued quality player on 3.5x 12-month forward P/E and a 66% NAV discount. Jefferies sees 3 key attractions in the company: (1) rich low-cost land bank and strong renewal pipeline in T1/2 cities sustaining 30+% sales growth on 30+% gross margin; (2) quality IP portfolio with RMB3.7bn attributable rental by FY2021 not yet priced in, which should support a re-rating; and (3) 10+% dividend yields.
It said that KWG has underperformed peers in sales growth in previous years due to the heavy capital usage of investment properties. With the completion of its investment on IPs (investment properties), KWG regained the growth momentum in 2017, and it can sustain its strong sales growth to reach RMB85.7bn this year (+31%), considering its rich saleable resources in T1/2 cities and the Greater Bay Area (GBA).
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