KWG Group Holdings Limited’s (KWG) 1H18 results were broadly in-line with our expectations. Proportionate revenue (including contribution from jointly-controlled entities and the disposal of a subsidiary which in substance was the sale of commercial properties) increased 8.5% YoY to RMB 10.1b.

The group saw proportionate gross profit margin soften slightly by 0.6ppts to 33.8% in 1H18. All-in, the group’s core profit saw a marked increase of 36.2% YoY to RMB 2.0b, which comprises 41.7% of our full-year forecast (1H17: 39.8%).

From what we gather, the group’s method of selling commercial properties through a subsidiary has attracted less LAT (vs. outright sale of properties last year). Therefore, it has been able to improve core profit margins by 3.9ppts to 19.3%.

The group has declared an interim dividend of RMB 25 cents per share (1H17: 10 cents per share), which represents a payout ratio of 40.2%, above management’s previous guidance of 35%.

We maintain our BUY rating, but place our fair value of HK$15.10 under review.

Source: OCBC Research - 28 Aug 2018