China Evergrande shares slump as virus, discounts slash Profit

[SHANGHAI] China Evergrande Group shares plunged the most in five months after the nation's second-largest listed developer said the coronavirus pandemic and subsequent discounting to kickstart apartment sales slashed earnings.

The stock slumped as much as 13 per cent in early Hong Kong trading, the biggest intraday decline since March 23.

Net income fell 46 per cent to about 14.7 billion yuan (S$2.88 billion) in the six months ended June 30, according to preliminary results released late Sunday. Increased marketing expenses, foreign exchange losses and the firm's venture into electric cars also contributed to the decline in earnings, the developer said.

"Evergrande's narrowing gross margin -- which may fall to 24 per cent in 2020 from 28 per cent last year, based on our scenario analysis -- could be a persistent drag on profit as cash flow pressure sustains price cuts," said Kristy Hung, an analyst at Bloomberg Intelligence.

The profit warning came after the developer pledged to remake itself as a leaner company back in April. It unveiled an aggressive target to reduce its total debt load by half, or about 400 billion yuan, in three years. However, the plan has been met with skepticism, especially after another round of share buybacks since May.

Last week, China Evergrande raised HK$23.5 billion (S$4.11billion) by selling a stake in its property management arm to investors including Tencent Holdings Ltd, companies linked to Citic Capital Holdings and the wife of billionaire mogul Joseph Lau.

BLOOMBERG