Evergrande Group Stock Prediction: Will it Succeed in Reversing Default? (2023)

China Evergrande Group (3333)it has made international news in recent months due to its enormous debt.

With debts exceeding $300 billion, the developer-turned-conglomerate is astandardrisk. With such a huge debt load and the group's broad interests beyond ownership, Evergrande poses a systemic risk to China and potentially the rest of the world.

In this article, we'll look at the latest Evergrande news, fundamentals, and analyst forecasts to gauge whether China's second-biggest developer will be able to pull itself out of trouble.

Evergrande (3333) Stock Analysis: Term to Term

Earlierthis month, Evergrande was able to avoid default by paying off more than $140 million in coupon bonds before the 30-day grace period expired. This was the third time in the last month that he managed to avoid default at 11 a.m.

On November 17, the company sold its remaining stake in streaming service platform HengTen Networks Group, dubbed 'China's Netflix', for HKD2.13 billion (US$273 million), a discount of more than 24%. .

In thatbusiness, Evergrande suffered a loss of HKD 8.5 billion, illustrating the company's dire need for cash. At the beginning of the year, Evergrande was HengTen's largest shareholder, but has now pulled out of the broadcast business entirely amid a scramble to raise funds.

Evergrande News: Sale of assets and real estate discount

In September, Evergrandesoldabout 20% of its stake in Shengjing Bank to a state-owned asset management company for CNY9.99 billion (US$1.5 billion) to settle its obligations to the creditor.

That same month, the group offered deep discounts on its real estate units to boost sales, offering30% offto reach its annual target of CNY 800 billion. In the year to August, Evergrande posted sales of CNY450.6 billion, up 22% from the previous year.

"If we successfully achieve sales of 200 billion yuan during the 'golden and silver months' of September and October... it will give us a solid foundation to reach the domestic sales target of 800 billion yuan," Evergrande said.

He also tried to sell his real estate services unit, Evergrande Property Services, only to see the deal fall apart in October. At that time, Evergrande hadplanned to sella 50.1% stake in the real estate services arm for HKD 20 billion.

Evergrande Technical Analysis: Stocks Take a Beating

With all the problems, it's no wonder the company's stock has taken a beating. Since the beginning of 2021, the Hong Kong-listed Evergrande 3333 HK share price has fallen by more than 80% of its value.

The stock was trading at this year's high of over HKD 17 in January, before dipping below HKD 10 five months later. Since then, the shares have been in free fall and are currently trading around HKD 2.80 (as of November 25).

On November 23, shares improved slightly, rising to HKD 3.01, their highest level in ten weeks, before ending the day up 6.6% at HK$2.93. Its publicly traded subsidiaries, China Evergrande New Energy Vehicle and Evergrande Property Services, rose 15% and 8.4%, respectively.

What is causing all these problems?

So what put Evergrande in such a situation? While the Covid-19 pandemic has slowed sales, a more fundamental reason may have played a bigger role.

For decades, China has experienced a real estate boom, with the sector contributing almost29% of the country's gross domestic product. Behind the boom, however, was a story of massive leverage taken by real estate developers.

Starting this year, Beijing stepped in andstricter lending rulesfor developers to reduce their leverage levels, a move applauded by many countries but which leaves national real estate agents bearing the brunt.

Developer Fantasia Holdings last monthfailed to pay $206 million in owed bonds, while Sinic Holdingsdefaulting on his $246 million bonds, illustrating the problems of the sector.

Evergrande Stock Price Prediction: China Government to Ease Some Real Estate Restrictions

To avoid disastrous consequences for the real estate sector and further weaken growth, Chinese authorities have been tightening the country's strict rules, providing some support to developers.

However, the changes are minimal and no major policy changes are expected from Beijing, as Nomura analysts noted:

“As Beijing has been tightening its real estate restrictions since late September, including asking banks to ease overly aggressive restrictions on development loans, urging banks to speed up the approval of home loan applications, and By allowing developers to issue bonds in the onshore interbank bond markets, bank lending to real estate appears to have stabilized.”

Bank lending to the real estate sector has increased recently, with lending to the sector growing 8.2% year-on-year at the end of October, compared with an increase of 7.6% in the previous month.

Chinese authorities will focus on protecting the rights of homebuyers - officials will help deliver houses that have been sold but remain unfinished - and will increase financial support for public rental housing, but will refuse to develop the real estate sector to stimulate growth, Nomura noted. .

“In summary, we still don't see a marked change in real estate restrictions and our vision of a Volcker moment in China remains intact, for now. We believe the worst for the real estate market and the broader economy is yet to come, and only then (perhaps spring 2022) will we see some real changes to real estate restrictions,” Nomura said.

Beijing politics is the spark, Evergrande's excessive leverage is the dynamite

Daniel Fernández, professor of economics at the Francisco Marroquín University,wrote at the American Institute for Economic Research:: “This decision (by the Chinese authorities) was the spark; the financial irresponsibility of Evergrande's directors was dynamite.

“Evergrande's benefits are below those registered in 2010, when its turnover was one tenth of what it is today. As if that were not enough, the construction of new homes is practically paralyzed due to lack of supplies, due in large part to Evergrande's non-payment to suppliers.

“Therefore, Evergrande's earnings are not what the company claims; it probably suffered losses in the second half of 2021,” he said, adding: “Evergrande's margins have plummeted since 2018 and are currently not even enough to pay the interest on its debt.”

China Evergrande Group Stock Prediction: Evergrande Default Still Likely

"Evergrande's chances of survival without public aid or without a massive injection of money from an unsuspecting investor are therefore nil," Fernández concluded.

Last week,S&P Global RatingsHe said that while Evergrande has managed to avoid formal default thus far, it may eventually be unable to maintain its massive debt load:

“We believe that the government wants to dismantle Evergrande in a controlled manner or allow an orderly restructuring of the debt to take place. Officials want to maximize the number of pre-sold homes that Evergrande completes to protect the interests of homebuyers and fully reimburse contractors and other small businesses that support the venture. Evergrande also has substantial assets that it can sell and can use the proceeds to pay off bonds or other obligations as they come due.

“At some point, however, Evergrande's massive debt will catch up with him. The company has lost the ability to sell new homes, meaning its core business model is effectively extinct. This makes full payment of your debts unlikely.

“We still believe that an Evergrande default is very likely. While the issuer has been able to cover recent coupon payments, the biggest test will come in March and April 2022, when it will have to make a much larger redemption ($3.5 billion) of principal on its US dollar senior public notes. .

Evergrande Stock Price Prediction: Price Targets for 2021, 2022, 2025

What is the latest analyst sentiment for China Evergrande Group? Is it 'buy', 'sell' or 'hold'?

Four out of five analysts followed bymarket clockhave a 'sell' rating on the stock and only one has a 'buy' recommendation. Evergrande (EGRNF) over-the-counter (OTC) in the US is currently priced at 32.7 cents (as of November 25).

Analysts tracked by MarketWatch have an average price target for EGRNF of $2.52.

In September, JPMorgan downgraded its rating from overweight to underweight, while Goldman Sachs downgraded its outlook to sell from neutral, according toMercadoBeat.

GovCapital, a machine learning stock forecasting website, estimated that EGRNF would rise to 66.1 cents by the end of the year and hit zero in November 2022.

AI basedportfolio investorMeanwhile, the 3333 share price forecast predicted that Hong Kong-listed shares would rise to HKD 2.41 by the end of the year, before falling to near zero in July 2022.

At the time of writing this article (November 25), data fromcapital.comshows trader sentiment at 93% bullish and 7% bearish. The data is calculated automatically, based on the open positions for Evergrande shares on the platform. It should not be considered as an incentive to trade the asset.

When looking for Evergrande stock predictions, it's important to note that analyst predictions can be wrong. Analyst projections are based on a fundamental and technical study of the stock's performance. Past performance is not a guarantee of future results.

It is important that you do your own research and always remember that your decision to trade depends on your attitude towards risk, your experience in the market, the layout of your investment portfolio and how comfortable you are with losing money. You should never invest money that you cannot afford to lose.

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