KWG Group Holdings Limited’s (1813 HK; KWG) FY18 results came in under our expectations. Revenue fell 35.2% YoY to RMB 7.5b, though proportionate revenue would have grown 9.2% to RMB 22.6b.

In 2018, the group disposed 100% equity interest of a subsidiary, a project company of Star I, at a total consideration of ~RMB 3.0b. The group’s proportionate core gross profit margin fell 1.2% pts to 35.5%.

Core PATMI rose 8.2% to RMB 3.8b, or 81% / 87% of ours / street’s estimates. In terms of leverage, the group’s net gearing ratio improved from 77.3% as of 30 June 2018 to 64.8% as of 31 Dec 2018.

The group has declared a full-year DPS of RMB 56 cents/share, or ~8.0% dividend yield based on 25 Mar 19’s closing price. We maintain our BUY rating for now, but place our fair value estimate of HK$10.52 under review.

Source: OCBC Research - 26 Mar 2019