Evergrande shares may plunge 59% say UBS analysts in dramatic sell call

UBS cut its rating on Evergrande from neutral on Jan 12.
UBS cut its rating on Evergrande from neutral on Jan 12.PHOTO: REUTERS

BEIJING (BLOOMBERG) - China Evergrande Group was downgraded to sell by UBS Group analysts, who said shares of the world's most indebted developer may lose more than half their value.

UBS cut its rating on Evergrande from neutral on Jan 12, according to a research report led by analyst John Lam and seen by Bloomberg. The bank also slashed the 12-month target price to HK$6 from HK$15.20 set in September. The target is 59 per cent lower than Evergrande's closing price on Wednesday (Jan 13).

UBS expects Evergrande's contract sales to decline by 2 per cent to 707 billion yuan (S$145 billion) this year, according to a separate Jan 6 report on the developer's property management unit. Last week, Evergrande said it aimed to reach 750 billion yuan of contract sales in 2021.

UBS didn't immediately reply to a request for comment on Thursday. Evergrande said in a written response that the UBS estimate had no factual basis and the company is confident it will reach its 2021 sales target.

The UBS report underscores investor concerns that Evergrande's debt-cutting efforts may force it to prioritize cash flow ahead of profitability. Evergrande's deleveraging strategy and tight liquidity may lead to limited growth potential and uncertainty, the bank's analysts wrote.

UBS estimated Evergrande's earnings per share will decline to 1.11 yuan in fiscal year 2020 before rebounding to 1.24 yuan in 2021. That would still be lower than 1.86 yuan in 2019.