Evergrande Profit Warning Drives Shares Down Another 7%

Hong Kong-listed China Evergrande’s share price fell 7.2 percent Thursday after the cash-strapped developer issued a warning Wednesday night that the group’s first-half net profit would plunge somewhere between 29 and 39 percent from a year earlier.

In a filing with the Hong Kong stock exchange, Evergrande said it expects a net profit between RMB 9 billion and RMB 10.5 billion ($1.39 billion and $1.62 billion in current terms) for the first six months of 2021.

The group’s calculations are based on a RMB 4 billion loss from its property business and a RMB 4.8 billion loss from the Evergrande NEV electric car unit. That red ink is offset by RMB 18.5 billion stemming from the gain on sale of part of Evergrande’s holding of internet unit Hengten Networks and from its holding of the remaining shares of the unit.

“The decline in profit in the first half of 2021 was mainly due to the decrease in the selling price of properties and the increase in expenses in the first half of the year,” chairman Xu Jiayin said in the filing.

Incredible Shrinking Shares

The dispiriting news comes amid a continued rout of Evergrande’s listed shares and those of subsidiaries like Evergrande NEV, which saw its stock tumble as much as 22 percent in Thursday trading before closing down 18.7 percent from the previous day. The parent group holds a 65 percent stake in the EV unit, which has yet to sell a single car.

In its latest bid to raise some needed cash, Evergrande is reportedly looking to sell some of its most prized real estate assets in Hong Kong.

News reports by Singtao, which were later seconded by Bloomberg, revealed Wednesday that the group was seeking to sell a residential project in the Yuen Long area of the New Territories for HK$8 billion ($1 billion), according to people familiar with the matter. Earlier in the week, sources told Mingtiandi that Evergrande was in talks to sell its Wanchai headquarters to a branch of the local government in Guangzhou for $2 billion.

The reported discussions are the most recent accounts of attempted asset sales by Evergrande, with Reuters having reported last week that the group was in talks with smartphone maker Xiaomi and Shenzhen state-backed investment firms on the potential sale of part of its 65 percent stake in Evergrande NEV. The unnamed sources cited by the agency said the talks were in an early stage and subject to change. Later reports have indicated that the discussions with Xiaomi have already ended without a deal.

Evergrande revealed earlier this month that it was in talks to sell stakes in Evergrande NEV and in its Evergrande Property Services unit.

Rivals Rebounding

Evergrande last week drew a rare rebuke from some of the mainland’s chief regulators, who demanded that the developer sort out its financial woes and avoid disrupting China’s real estate market.

Amid rampant speculation that some form of state-led restructuring was in the works, Evergrande released a statement last Friday saying it would “fully implement the requirements” laid out at the meeting by officials from the People’s Bank of China and the China Banking and Insurance Regulatory Commission.

Drawing a stark contrast with the embattled developer, two of Evergrande’s nearest rivals released first-half results this week, with China Overseas Land & Investment and Country Garden Holdings both reporting upticks in earnings.

COLI said net profit rose 1.2 percent year-on-year to RMB 20.78 billion for the January-June period as the mainland’s economic growth accelerated. Country Garden, meanwhile, said net profit climbed 2.3 percent year-on-year to RMB 22.42 billion, with indicators pointing to stable performance of the real estate sector and robust growth in property sales.