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Should You Buy China Evergrande Group (3333.HK) During Its Liquidity Uncertainty?

On 20 July 2021, the world’s most indebted developer China Evergrande Group (3333.HK) closed at HKD 7.37 which downed by 10.23%. The share price plunged by 23% since the started of pre-litigation asset preservation process from China Guangfa Bank Yixing Sub-branch. Is it an good opportunity for investor to add China Evergrande Group (3333.HK) in their portfolio?

Price to NAV Value Comparison

After the stock plunged, it there any discount for China Evergrande Group compare to it peer? As on 20 July 2021, the Price to NAV ratio for China Evergrande Group and its peer are shown as following (Data Source: aastocks.com):

Closing Price on 20 July 2021(HKD)NAV(HKD)Price/NAVTotal Debt/Equity
(2020/12)
China Resources Land Ltd. (1109.HK)30.634.00700.899883.77
China Overseas Land & Investment Ltd. (0688.HK)17.834.18470.520874.19
Longfor Group Holdings Limited (0960.HK)41.7521.31471.9587167.13
Country Garden Holdings Co. Ltd. (2007.HK)8.089.47150.8530186.83
Sunac China Holdings Ltd. (1918.HK)22.4532.11010.6991242.06
China Evergrande Group (3333.HK)7.3713.22510.5572487.77
Shimao Group Holdings Limited (0813.HK)17.1231.77040.5388165.02
Logan Group Company Limited (3380.HK)9.78.64541.1219184.06
China Vanke Co., Ltd. (2202.HK)22.3523.03330.9703127.29
Agile Group Holdings Limited (3383.HK)9.4215.46240.60193.74

After stock price correction, China Evergrande Group ‘s Price/NAV ratio is one of the lowest among the peer. However, if it take total debt into consideration, China Evergrande Group seems to be least attractive as it Total Debt/Equity ratio almost doubt when compare to peer.

Spinoff of HengTen Networks Group Limited (0136.HK)

As per announcement on 1 August 2021, a wholly-owned subsidiary of China Evergrande Group agreed to sell 11% of the shares of HengTen Networks Group Limited at a price of HK$3.20 to two entity.

A wholly-owned subsidiary of Tencent Holdings Limited shall acquire 7% of the shares of the Company at a price of HK$3.20 per share, of which the total consideration is HK$2,068,561,052.8.

A third parties shall acquire 4% of the shares of the Company at a price of HK$3.20 per share, of which the total consideration is HK$1,182,034,886.40.

After the transaction, the issued share capital of the Company hold by the wholly-owned subsidiary of China Evergrande Group will decrease from 37.55% to 26.55%.

Conclusion

Even China Evergrande Group ‘s share price shown a great discount to its net asset value, it still may not be a good opportunity for long term investor by its enormous debt. For investor who would like to invest in China ‘s property market, their may better consider the developer with low debt level, such as China Resources Land Ltd. and China Overseas Land & Investment Ltd. .

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