Investor euphoria in China Evergrande spills over to mainland property firms listed in Hong Kong

Overall insider activity was mixed last week as buying fell while selling rose

PUBLISHED : Sunday, 12 August, 2018, 6:57pm
UPDATED : Sunday, 12 August, 2018, 10:41pm

Heavy buy-back activity in the shares of mainland-based property companies and moves to lower mortgage rates in Shanghai provided a boost to the sector last week.

China Evergrande Group was the top buyer in terms of value on the Hong Kong exchange in July with a whopping 160.5 million shares worth HK$3.36 billion. The shares that were cancelled represented 1.22 per cent of its issued capital. The buy-backs were made from July 3 to 27 at HK$19.26 to HK$22.05 or an average of HK$20.94 each.

The group recorded buys on 15 out of the 19 trading days during that period. The buy-backs also accounted for 25 per cent of the stock’s trading volume.

The company bought back heavily in anticipation of bumper first-half earnings, which the group duly announced on August 6. The stock surged following that positive profit alert by as much as 27 per cent from the company’s buy-back prices to an intraday high of HK$26.45 before closing at HK$25.20 on Tuesday.

Shareholders of China Evergrande Group can rejoice as the stock is sharply up following the heavy buy-backs by the company in the past month. Not only that, the shares that were cancelled will translate into a higher payout from the special dividend the group plans to distribute to shareholders at its upcoming board meeting on August 20.

Mainland property stocks got a further boost last week when two state-owned banks in Shanghai lowered their first-home mortgage rates to help prop up the property market.

The shares of China Evergrande rose further following the news to HK$28.35 on Friday, an increase of 35.4 per cent from the company’s average buy-back price. The buy-backs by China Evergrande Group last month were significant as those were the company’s first repurchases since April 2017.

Not only that, the group resumed buying back at higher than its previous acquisition prices based on the 723 million shares that the company acquired from March to April 2017 at HK$6.21 to HK$9.31 each or an average of HK$8.70 each, 2.05 billion shares from July 2015 to January 2016 at HK$3.31 to HK$6.81 each or an average of HK$5.42 each and 1.76 billion shares from January to July 2014 at HK$2.80 to HK$3.46 each or an average of HK$3.32 each. Before the buy-backs since 2014, the company acquired 110.63 million shares in July 2011 at HK$5.93 each.

The investor euphoria in China Evergrande Group and lowering of mortgage rates spilled over to other mainland property stocks with the share price of Shimao Property Holdings, another heavy buyer of its own shares in July, closing 7.6 per cent higher from the group’s average buy-back price to HK$22.70 on Friday.

Shimao Property was as active as China Evergrande Group in July with the company picking up 56.76 million shares from July 5 to 27 at HK$19.14 to HK$23.20 each or an average of HK$21.09 each.

The group recorded buys on 16 out of the 17 trading days during that period. The buy-backs, which accounted for 38 per cent of the stock’s trading volume, were made after the stock plunged by as much as 26 per cent from HK$26.00 on June 15.

The company also resumed buying back at sharply higher than its previous acquisition prices based on the 85.5 million shares that the group acquired from July to December 2016 at an average of HK$10.20 each, 84.1 million shares from September to October 2011 at HK$7.24 to HK$5.39 each or an average of HK$6.12 each and 56.2 million shares from October to November 2008 at HK$3.05 to HK$4.74 each or an average of HK$3.76 each.

Other mainland property plays that recorded buy-backs or insider purchases this year also experienced sharp gains in their share prices last week. These include Sunac China Holdings, Agile Group, Logan Property Holdings, China Jinmao Holdings, Greenland Hong Kong Holdings, Country Garden Holdings and Ronshine China Holdings. The bulk of these stocks, however, are still trading below the directors and company’s average purchase prices this year.

The shares of Country Garden Holdings, for instance, closed 9 per cent higher last week to HK$11.86 on Friday. The counter, however, is still 9.3 per cent down from the directors’ and company’s average purchase price of HK$13.08 per share this year, partly because of the recent collapse of a construction site in eastern China causing six deaths and injuring scores of workers.

Overall insider activity was mixed last week as buying fell while the selling among directors rose.

Based on exchange filings from August 6 to 10, 17 companies recorded 85 purchases worth HK$99 million versus six firms with 35 disposals worth HK$29 million. The buy figures were down from the previous week’s 23 companies, 97 purchases and HK$242 million.

On the selling side, the number of firms was unchanged while the number of trades and value were up from the previous week’s 17 disposals worth HK$22 million.

Aside from directors, the buy-back activity was down last week with 11 companies that posted 40 repurchases worth HK$1.4 billion based on filings from August 3 to 9. The figures were sharply down from the previous week’s 19 firms, 91 trades and HK$1.83 billion.

Robert Halili is managing director of Asia Insider