Oct. 13 (Bloomberg) -- Evergrande Real Estate Group Ltd., China’s second-biggest developer by sales, surged the most in two years after a 79 percent jump in sales countered concerns about accounting regularities at a unit.
The stock climbed 20 percent to HK$3.50 at the midday break in Hong Kong trading, set for its biggest gain since Nov. 5, 2009. Contracted sales jumped to 9.16 billion yuan ($1.4 billion) in September, the company said yesterday, prompting the developer to consider raising prices to slow sales when it attains its full-year target of 70 billion yuan.
“We believe the company has already reached its annual sales target and be the first among the large national developers,” Haitong International Research analysts Hugo Hou and Katie Chan, who rate the stock a “buy,” said in a report today. The nine-month data is equivalent to 99 percent of the company’s 2011 sales target, they said.
Evergrande said sales surged as it focused on so-called third-tier, or less affluent cities, which weren’t affected by the government’s property curbs on home purchases and mortgages aimed at speculators in larger markets including Shanghai and Beijing.
Evergrande is “confident” contracted sales will exceed 100 billion yuan in 2012 as it continues to focus on less affluent cities, Chief Executive Officer Xia Haijun said at a press conference in Hong Kong yesterday.
Evergrande’s Guangzhou unit was one of 114 companies the government inspected after it provided inaccurate information on 6.4 billion yuan of assets in its 2009 financial report, overstated costs and underpaid taxes, the ministry of finance said in a statement yesterday. The developer said the irregularities have been rectified in the 2010 statement.
“It’s affecting the credibility or corporate governance image of the company,” said Kenny Tang, Hong Kong-based general manager at AMTD Financial Planning Ltd. “Because investors are focusing on the earnings growth of the company for valuation, the most important thing is whether the earnings are true.”
Excluding today’s gain, Evergrande shares have slumped more than 50 percent from their July peak to a 16-month low this month on concern developers face a funding squeeze amid the government’s property curbs. Almost 70 percent of developers said their cash-flow conditions in August worsened from July, independent investment-advisory firm CEBM Group Ltd. said in an Aug. 5 report, citing a monthly survey of real-estate companies in 12 Chinese cities.
“Some property developers have the problem of reporting inaccurate revenue figures, overstating costs and delaying or underpaying taxes,” according to the ministry’s statement.
The Guangzhou unit was ordered by the government to amend the accounting and pay back the taxes, according to the ministry.
“The accounting reporting at our listed Hong Kong company completely reflects the accurate assets and revenue,” CEO Xia said yesterday. “The problem at our Guangzhou unit was only because we didn’t combine the reporting of all its subsidiaries in 2009.”
Severe Credit Outlook
Chinese developers face an “increasingly severe” credit outlook, which may force them to cut prices and turn to costlier funding sources as sales weaken, Standard & Poor’s said on Sept. 27. A 30 percent decline in sales may leave many developers facing a liquidity squeeze, S&P said after conducting stress tests of the nation’s real estate companies, adding that “the worst isn’t over for China’s real estate developers.”
Fewer than half of the 70 cities monitored by the government in August posted month-on-month gains in home prices for the first time, according to Samsung Securities Co. SouFun Holdings Ltd. said residential values last month dropped for the first time in a year.
China’s central bank has raised interest rates five times over the past year, curbed lending to property developers and raised down payments on home loans to tackle asset risks in the property market. The government has also limited purchases of housing in cities where gains have been deemed excessive.
--Bonnie Cao. Editors: Linus Chua, Andreea Papuc
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