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Morningstar | Evergrande Proposes Dividend Payment for 2016, 2017 in Lieu of Special Dividend Upon A-Share Listing

China Evergrande Group has announced that the board has declared a dividend of RMB 1.130 per share for two financial years ending in 2016 and 2017, subject to shareholder approval. The dividend amount is equal to 50% of the earnings for these two financial years. We adjusted our assumptions on dividend payouts based on the proposed dividend in lieu of a special dividend upon a successful A-share listing, and the resultant impact on our valuation is small. We retain our fair value estimate of HKD 21 and maintain the company's no-moat rating.

Assuming the cancellation of the shares acquired during the recent round of buybacks, the proposed dividend would total CNY 14.7 billion, or 50% of the combined earnings of 2016 and 2017. Based on the originally announced A-share listing plan, the company intended to make a special dividend payment upon a successful A-share listing consisting of 50% of the earnings during the prior two years. In our model, we assumed the special dividend would occur in 2020, while no dividend would be paid for 2016 through 2019. We revised the model to reflect the proposed dividend for 2016 and 2017. We then replaced the special dividend in 2020 with a regular dividend payout of 30% for 2018 onward. The proposed dividend payment will slow Evergrande's deleveraging effort somewhat, and the company will likely end the year with net gearing of 170%. We had initially projected a net gearing of 160% at year-end, assuming some landbank replenishment is necessary to sustain the pace of presales and booking.