On November 26, the Research Report issued by Central Wealth Securities indicates that Kaisa Group (1638.HK) is a leading housing enterprise in the Greater Bay Area featured by business of urban renewal, it has unique business model and endowment advantages, full improvement in operation, and is hopeful to maintain continuous and steady growth in business performance, so Central Wealth Securities granted Kaisa with “Buy” rating in first coverage, and raised its target price to HKD4.27, up to 31% rise in comparison with current price.
From the view of Central Wealth Securities, Kaisa Group, as one of the earliest housing enterprises with business layout in urban renewal, has obvious first-mover advantage and the ability for ensuring corporate’s overall profitability. During 2008 and 2018 (Except 2009), Kaisa has converted about an average of 0.94 million square meters of renovation projects into land reserves per year. As for talents and organization, Kaisa has over 600 employees mastering professional skills for investment estimation, planning & design, policy studies and business negotiations etc., with experiences of working in respective fields for more than 5 years on average. By the middle of 2019, Kaisa has renovation projects of about 32.176 million square meters not included in land reserves, all of which are located in the Greater Bay Area.
As for its orientation of land purchases, Kaisa has maintained demand-oriented principle over the years, with national strategic layout of focusing on Tiers 1 and 2 cities supplemented by Tiers 3 and 4 cities, with high proportion of land reserves in core cities. By the middle of 2019, Kaisa has made 76% of its land reserves in Tier 1 cities and key Tier 2 cities. Central Wealth Securities points out that, with high quality of overall land reserves, it is able to support Kaisa to steadily grow its sales performance. Moreover, due to its early establishment of “dual-track driving” development strategy of quickly seizing rigid demand market and participating in urban renewal for improving profit, it is able to maintain profitability while scaling up and balancing overall cash flow.
It's the opinion of Central Wealth Securities that with rapid growth in sales performance, Kaisa will make continuous improvement in liquidity of assets, and good sales will drive high-speed growth of its revenues and profits. By the middle of 2019, Kaisa has achieved quick ratio of about 1.34 times, net debt ratio was reduced about 45% than by the end of 2018, cash and deposits were increased to RMB29.98 billion, equivalent to 30.8% increase than by the end of last year, total debt level was stable, and financial condition was more sound; since this year, Kaisa has successfully issued a number of middle- and long-term bonds and Asset Backed Securitizations (ABS) etc., to continuously optimize its debt structure, leading to obviously improved liquidity state.
