China Evergrande Warns of 50% Shortfall in Projected 2019 Earnings

China Evergrande Group has slashed earnings projections for 2019 to RMB 33.5 billion ($7.5 billion), a drop of nearly half from the previous year as sales plummeted amid China’s weakening economy and tighter housing policies.

China’s largest property developer by contracted sales attributed to shareholders said in an exchange filling on Sunday that the net profit of its core business was expected to drop by 48 percent to RMB 40.8 billion for the year that ended December 31, with net profit projected to fall by 50 percent to RMB 33.5 billion.

The Shenzhen-based company attributed the slump to sales of lower-priced properties last year, which it indicates drove down unit prices on homes delivered in 2019.

The developer’s share price plunged 16.4 percent to HK$10.10 ($1.30) on Monday’s opening after it cut the earnings forecast. By market close on Tuesday, it had regained ground to close at HK$10.28 per share.

In 2018, Evergrande saw its core profit increase 93.3 percent from a year earlier, reaching a record high on robust housing sales and cost cutting measures. Net profit increased 53.5 percent to RMB 37.4 billion in that same year, and revenue rose 49.9 percent to RMB 466.2 billion.

Evergrande Group has said that it expects to announce final 2019 results for its real estate business at a board meeting on 31 March.

Debt Load Concerns

According to data from Dealogic, Evergrande owed more than $100 billion as of February, after issuing new bonds worth $7.2 billion during 2019.

At the same time that the developer bossed by mainland billionaire Xu Jiayin has been adding to its financial liabilities, a lackluster mainland property market has increased expectations of developer defaults, which could bring Evergrande’s bonds under pressure.

As of last month, China’s real estate industry owed a total of $647 billion in bonds denominated in local and foreign currencies, with many analysts predicting defaults as the coronavirus adds to the pressure that had plagued the industry in 2019.

Evergrande, which has been discussing plans for a mainland listing since 2016, said in January that it would extend the deadline for an IPO in its home country to 31 January 2021.

Electric Cars Still in Park

The warning from Evergrande’s real estate business came on the same day that the group’s unit responsible for scaling up electric car sales announced a net loss of RMB 4.9 billion in 2019.

In a statement issued on Sunday, Evergrande Health announced its latest results after having incurred a net loss of RMB 1.4 billion in 2018. The subsidiary, which Evergrande assembled through purchasing $1.1 billion worth of electric vehicle firms globally,  attributed the loss to it still being in the initial investment stage as well as to increasing costs in the electric vehicle business.

Evergrande had last year announced plans to be the biggest EV manufacturer in the world within the next three to five years. The group officially launched its “Hengchi” car brand in August, and predicted at the time that it would sell its first “Hengchi 1” model during the first half of this year.

Despite a net profit of RMB 300 million in the health management sector, Evergrande Health, including the company’s electric vehicle businesses, reported a net loss of RMB 5.2 billion in 2019.