Hang Seng Index laggard Country Garden Services surges 18 per cent, regains US$640 million in value on buy-back plan

The property-management affiliate of Country Garden Holdings said it will buy back up to 337.3 million shares
The stock was until Wednesday the year’s worst performer on the Hang Seng Index

Hong Kong stock market

Zhang Shidongin Shanghai

Published: 11:47am, 2 Aug 2023

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Country Garden Services Holdings, the property-management affiliate of Chinese property developer Country Garden Holdings, surged by 18 per cent to regain US$640 million in market capitalisation after it revealed a plan to buy back up to 10 per cent of its shares.

The stock – the worst performer on the Hang Seng Index this year until Wednesday – closed 18 per cent higher at HK$9.91 in Hong Kong, after jumping by as much as 21 per cent in morning trading, while the benchmark Hang Seng Index fell by 2.5 per cent. About 190 million shares of Country Garden Services changed hands, almost four times its 30-day average, according to Bloomberg data.

Country Garden Services will buy back up to 337.3 million shares, depending on market conditions and the company’s needs, it said in an exchange statement on Tuesday night. The repurchase will cost the company HK$2.83 billion (US$363 million), based on the stock’s Tuesday closing price, according to a calculation by the Post.

“The board believes that the shares have been trading at a price level which does not fully reflect the intrinsic value,” Country Garden Services said in the statement. “The board also believes that the group is in a stable financial position and is able to maintain sufficient financial resources to meet the needs of its continuous business growth while carrying out the share repurchase.”

Country Garden Holdings chairwoman Yang Huiyan. Photo: Weibo

Before the announcement, shares of Country Garden Services had tumbled 57 per cent and were trading at a 20 per cent discount to book value this year as concerns about the financial health of its affiliate Country Garden weighed on its business outlook. The company is valued at seven times its projected earnings for this year, compared with an average of 29 times projected earnings over the past five years, according to Bloomberg data. The stock has a less than 0.5 per cent weighting on the Hang Seng Index.

China’s richest woman, Yang Huiyan, controls both Country Garden Holdings and Country Garden Services, holding a 53 per cent stake in the property developer and a 36 per cent interest in the property manager. Shares of Country Garden Holdings have plunged 45 per cent in Hong Kong this year, making it the second-biggest decliner on the Hang Seng Index behind its affiliate.

In a separate statement to the Hong Kong exchange on Tuesday night, Country Garden Services said it expects first-half net income to drop by as much as 10 per cent from a year earlier to 2.3 billion yuan (US$320 million) because of falling profit margins of some business segments such as the community value-added service.

Share buy-backs have gained traction in Hong Kong’s market this year with the constituents of the Hang Seng Index trading near record-low valuations, prompting corporate executives to take action to defend stock prices. The value of stock repurchases this year surpassed HK$50 billion through July 10, an increase of about 50 per cent from a year earlier, with tech and financial companies taking the lead, according to the data by the China Securities Journal.

On Tuesday, Country Garden Holdings urged “guidance and support from the government” as the debt-stricken company estimated it would report a loss for the first half of the year. The company also cancelled a HK$2.34 billion share placement, IFR reported, citing a message sent to investors.

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