China property

Evergrande shares rise to record as Hong Kong’s Chinese Estates keeps up its buying

Optimism over Evergrande’s future prospects as it vows to cut debt may be one of the reasons behind the purchases

PUBLISHED : Wednesday, 30 August, 2017, 2:37pm
UPDATED : Wednesday, 30 August, 2017, 3:58pm

Shares of China Evergrande Group rose to a fresh all-time high on Wednesday as Chinese Estates Holdings, controlled by Hong Kong tycoon Joseph Lau Luen-hung’s wife Kimbie Chan Hoi-wan, continued to build a stake in the property giant.

An announcement by Chinese Estates on Monday night showed it had bought another 111 million shares in Evergrande between July 19 and August 29, making its total interest 5.83 per cent. It also said Chan personally held 35 million shares or 0.27 per cent of Evergrande, effectively making her Evergrande’s second-largest shareholder with a 6.1 per cent stake.

The share price of Evergrande, China’s largest home builder, has tripled since April when Chinese Estates started snapping up shares in the company. It has hit record highs for three consecutive days and picked up 4 per cent to HK$26.55 on Wednesday morning, in the wake of a 12 per cent surge on Tuesday.

Analysts said Chinese Estates may have been buying Evergrande shares because of Evergrande’s recent vow to reduce its heavy debt levels, which could boost its profitability, and because of Joseph Lau’s close personal ties with Evergrande chairman Hui Ka-yan. Chinese Estates’ buying has helped buoy Evergrande’s share price after it came under attack from short-sellers.

“For Chinese Estates, it is a good buy from the investment perspective,” said Kenny Wen, wealth management strategist at Sun Hung Kai Financial.

“The company also has a long partnership with Evergrande, so we cannot rule out future cooperation opportunities after it bought Evergrande shares,” he said.

In its statement on Monday night, Chinese Estates said it was optimistic about Evergrande’s prospects.

Earlier this week Evergrande posted an 832 per cent rise in its first-half profit to 18.8 billion yuan, helped by strong sales growth and lower debt levels. It also overtook China Overseas Land and Investment to become the biggest mainland property stock by market value in Hong Kong recently, with a market cap of HK$340 billion.

What’s really driving Evergrande’s ever-surging share price?

Evergrande’s chief executive Xia Haijun had said during the company’s earnings news conference on Monday that he believed the company’s share price was seriously undervalued.

“The price hasn’t reflected our value and is lagging behind others,” Xia said, our price-to-earnings ratio is only five times if the calculation is based on 2018 earnings forecasts, compared to a market average of eight to 10 times. Evergrande’s current trailing 12-month P/E ratio is about 13 times.

Xia added that he did not think Chinese Estates would sell its stake in Evergrande.

Chinese Estates has previously said it had earnings of HK$1.2 billion on its books from its Evergrande investment, as of the end of June. It was a cornerstone investor in Evergrande’s Hong Kong initial public offering in 2009, and in 2015, Evergrande acquired the Mass Mutual Tower in Hong Kong’s Wan Chai district from Chinese Estates for HK$12.5 billion, setting a record for a Hong Kong office building.

More recently, a consortium of Lau family members and investment partners, led by Lau’s wife Chan Hoi-wan, were reported to have subscribed to US$1 billion worth of high-yielding bonds issued by Evergrande.