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Financial Giants Seeing Kaisa | Southwest Securities : The Growth Rate of Kaisa Group's Performance Exceeded Expectations and Net Debt Ratio Fell Significantly
Release Time:2019-09-06 | Source:Kaisa Group

On August 28th, according to the research report published by Southwest Securities, the interim results of Kaisa Group (1638.HK) went beyond the expectation of the industry, and the net debt ratio also fell significantly. The Southwest Securities estimates that the EPS for 2019 to 2021 should be 0.56 yuan, 0.65 yuan and 0.72 yuan, respectively. In consideration of the abundant goods value of its land reservation in the Greater Bay Area of Kaisa Group, and its net debt ratio has improved substantially, the report maintains the "buy" rating with target price unchanged at HK $4.20.


The Growth Rate of Performance Exceeded Expectations, and the Storage of Land in the Greater Bay Area is still Increasing

According to the report, the interim results of Kaisa Group has exceeded the expectations of the market, and the growth rate of its performance is much higher than the revenue. The results mainly benefited from the following aspects: first, the company's gross profit margin increased from 31.5% in the same period of last year to 33.4%; second, the cost was well controlled, and the growth rate of various operating expenses was significantly lower than that of the income; third, the exchange gain and loss and asset impairment were significantly reduced from 810 million in the same period last year to 200 million; fourth, the change in fair value during the reporting period was increased by 200% to 390 million on a year-on-year basis, and minority shareholders' profit and loss decreased by 590 million.

The research report points out that the company has realized 34.7 billion yuan of equity sales, a year-on-year increase of 37%. In terms of the contribution structure of the sales, 33% of the projects should be transformed; in terms of the contribution region, 58% of the sales are from the Greater Bay Area and 30% are from Shenzhen. In the second half of the year, the company is going to launch the on-sale projects worth 120 billion yuan (in equity), including 61% in the Greater Bay Area, 14% in Yangtze River Delta and 13% in West China. It is not difficult to achieve the annual equity sales target of 87.5 billion yuan according to the conservative estimation of 45% of the destocking rate.


Abundant Urban Renewal Projects in Hands, Keep Optimizing the Debt Structure

Southwest Securities points out that Kaisa Group, as the representative in urban renewal field, has competitive advantages in old cities reconstruction. By the end of June 2019, the company had included 7.04 million square meters of urban renewal projects from the Greater Bay Area into its land reservation, which are worth 189 billion yuan of goods value, with a low cost of only 269,2 yuan per square meter; in Shanghai, the urban renewal projects included in the land reservation covers 210,000 square meters, which are worth 8.5 billion yuan of goods value, with a low cost of only 13,067 yuan per square meter, which shows a high potential on gross profit margin. The projects that are not yet included in the land reservation, cover an area of 32 million square meters, with goods value of about 2 trillion yuan. The projects located in Guangzhou and Shenzhen are about 60% of the total.

According to the data from semi-annual report, the net debt ratio of the company is 191%, reduced by 45% compared to that of the end of 2018. The company has 30 billion cash in hands, increased by 31% compared to that of the end of last year. The company has taken initiative to optimize its liabilities, and so far has repurchased US $560 million of senior notes to reduce the principal of notes due at the end of 2019 to US $140 million. The company's average cost of capital was 8.6%, increased by 0.2% from the end of last year. 

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