Morningstar | Acquisitions Slow Deleveraging Marginally, Heightened Risk in Slowing Property Market
Reflecting a structural slowdown of the property market, Evergrande made several acquisitions in the electric car space in an effort to diversify away from its main residential property development business. Earlier this year, the company, through its subsidiary, Evergrande Health, acquired a 51% stake in National Electric Vehicle Sweden for USD 930 million. The acquired entity holds assets and rights related to Saab Automobile. It also acquired 58% of a Chinese battery maker for CNY 1.06 billion. Last June, the same subsidiary acquired a stake of Faraday Future for HKD 6.7 billion. Faraday Future is an electric car startup based in the U.S. It is difficult to assess these investments in the highly competitive electric car space, as the profitability of these ventures are some years away. These acquisitions will only marginally slow the company’s deleveraging effort given the scale of its property development business. But such acquisitions heighten the risk for the company especially as the property market slows. The company is likely to maintain strong margin for full-year 2018 results based on good contract sales ASP achieved over the past year. We maintain our fair value estimate of HKD 21, along with the company's no-moat rating.The company finished the year with contract sales of CNY 551 billion, up 10% from a year ago, with even growth between volume and average selling price. The company guided a modest target of CNY 600 billion for 2019, reflecting its desire to strive for profitability and continued deleveraging. Land banking slowed to CNY 75 billion for 2018, down 70% year on year, and only 14% of the contract sales during the same period.
Evergrande Health funded two of the larger acquisitions through shareholder loans from Evergrande. Evergrande holds a 75% stake in Evergrande Health. Three acquisitions totaled CNY 13 billion so far with additional CNY 8 billion investment into Faraday pledged for 2019 and 2020.
China Evergrande Group is an investment holding company. Through its subsidiaries, Co. is engaged in property development, property investment, property management, property construction and other property development related services in the People's Republic of China (which include resort complexes with hotels, sports arenas, and other tourist-related activities). Co.'s operations are organized along four business segments: property development, property investment, property management and other businesses. Co.'s other businesses include property construction and other property development related services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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