Kaisa Group (non-rated by credit rating agencies) reported a decent set of1H17 results, with total revenue up 72% YoY to RMB8.6bn. Our calculatedEBITDA was up from 1H16’s RMB67mn to RMB1,916mn in 1H17, partlythanks to higher than expected margins and disposal of some stake inredevelopment project. The developer registered a stronger-than-expectedGPM of 33.3% in 1H17, up sharply from 1H16’s 17.6%. Management said atits results briefing yesterday that the high margin in 1H17 was helped bydisposal of partial stake in some urban redevelopment asset in Shenzhen(constituting RMB2.08bn out of Kaisa’s total revenue of RMb8.59bn). Webelieve this set of results reminds us there is good potential in Kaisa’s urbanredevelopment projects (often with higher margins than other projects).    Excluding that sale of stake in redevelopment asset, the Chinese developer’sGPM in 1H17 would have been around 25%. Unbooked contract sales werehigh at around RMB40bn, with GPM of around 25% according to the company.    If the company decides to find partner(s) in some of its redevelopment projects,it could potentially book higher GPM than 25% in 2H, in our view. We alsonote that there was some revenue booked from water-way passenger andcargo transportation in 1H17, while there was none in 1H16.    We believe Kaisa will exceed RMB40bn of contract sales this year. In 1H17,the developer posted RMB22.5bn of contract sales, up 63% YoY. Its contractsales ASP for 1H was RMB16,165/sq m, up 35% YoY. There are 6 brand newlaunches from Sept onwards. While we expect the company’s August contractsales to be lackluster, its property sales figures in Sept and October should besolid. In 2H17, Kaisa will add RMB28.6bn of new sellable resources, higherthan 1H17’s newly added sellable resources of RMB16.6bn. The company hasplanned for around RMB73.7bn of total saleable resources for full year 2017.    Our calculated EBITDA margin for Kaisa was 22.3% in 1H17 and its totaldebt/LTM EBITDA as of end-June, 2017 was 60.8x. Total debt as of end-Junewas RMB102.2bn, up 17% HoH. Its net debt/total equity ratio was still veryhigh at 310% at end-June, flattish HoH. No interim dividend was declared andmanagement indicated hopes to resume dividend when conditions areappropriate. The company will also consider onshore ABS. In 1H17, Kaisapurchased 12 projects for RMB5.5bn and it entered into Zhengzhou. Regardingthe company’s purchase of stake in Nam Tai Property (listed on the NYSE),Kaisa said that there are three land parcels of multi-use aggregating to about150k sq m held by Nam Tai.

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