K. Wah International Holdings Ltd (0173.HK) is a leading developer and investor of premium projects and luxury homes in Hong Kong, the Pearl River Delta, and the Yangtze River Delta regions. The company is controlled by the 87-year-old self-made billionaires Lui Chee-woo, who is reported to be Asia’s second-richest person after Li Ka-Shing.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] K. Wah International also hold a 3.8% stake in the Galaxy Entertainment Group, one of Macau’s largest gaming companies.
K. Wah International is the listed property arm of the K. Wah Group, which was founded 1955. The Hong Kong-based company is listed on Hong Kong’s Stock Exchange since 1987 and is today part of the Hang Seng Composite MidCap Index and the MSCI China Small Cap Index. Mr. Chee-woo and his family own around 62% of the company. The balance is held by the public.
Despite restrictive measures taken by the Hong Kong and China government to control the sharp increase in home price, K. Wah International remains optimistic about a stable development of the property market over the long run. Hong Kong’s sound fundamentals, its constant availability of funds and a high demand for residential property in both markets will support property prices in Hong Kong and first and second tier cities in Mainland China where the company operates.
With a workforce of 936 employees, K. Wah International reported revenues of 9.6bn HKD (1.2bn USD) and a profit before tax of 5.1bn HKD (651m USD) for 2016. This is an increase of 104% and 80% respectively compared to the year ago. In 2015, revenues and profits were up 97% and 5% respectively compared to the year before. The operating margin of 44% is above the industry average. K. Wah International’s is well-capitalized with cash reserves of 6.6bn HKD (849m USD) at the end of 2016. The company shows a solid balance sheet with an equity ratio of 50% and a gearing, defined here as total liabilities to total equity, of 99%.
K. Wah International’s shares are in an uptrend since February 2016 and gained almost 90% in value since, 45% alone this year. The company is currently priced at only five times earnings, compared to 30 times among its sector peers. The shares trade below book value and at five times cash flow. The last dividend payment yielded 3.5%.
We like the company’s sound financials which will support a stable development of the business. The low valuation gives the shares room to reach at least old highs at 6 HKD, provided the general economic conditions remain stable, and the US interest rates will increase moderately.
AIS Rating: ★★★★☆
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
|---|---|---|---|---|---|---|
| EPS (HKD) | 0.48 | 1.62 | 0.61 | 0.65 | 0.48 | 1.07 |
| Change | 500% | 238% | -62% | 7% | -26% | 123% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | Debt/ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 5 | 30 | 0.6 | 5 | 50% | 14% | 99% | 3.5% |
* Equity / Total Assets, ** Total Liabilities / Equity
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