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Fitch affirms KWG's ratings at BB-

Fitch Ratings affirmed KWG Group Holdings Ltd.'s long-term issuer default and senior unsecured ratings at BB-, with a stable outlook.

The ratings reflect the group's quality land bank and brand recognition in China's higher-tier cities. KWG's profitability, liquidity and maturity profile were also considered.

Fitch noted that KWG has diverse coverage across China, with 17.8 million square meters of attributable land recorded in the first half of 2019. The group had an average cost of 5,000 yuan per square meter.

The rating agency expects the company's EBITDA to remain at 30% in the next two years. Fitch also believes that KWG's leverage will be under control, staying at around 35% to 40% based on its sales prospects and land-bank strategy.

KWG's contracted sales gross floor area is tipped to rise by more than 20% from 2019. Its average selling price is predicted to have an annual increase of 5% from 2019, while its EBITDA margin is believed to stay at around 30% for 2019-2020. Fitch said the group's land replenishment rate is at 1.3× contracted sales gross floor area until 2021.

The company's ratings are constrained by the small scale of its development-property business, as well as its weak sales efficiency. The group's 2018 total pre-sales saw a 72% year-over-year growth to 65.5 billion yuan.

As of Dec. 30, US$1 was equivalent to 6.99 Chinese yuan.