- E-House issued a profit warning on March 21, and it is expected to record a loss ranging from approximately 9.2 billion yuan to 9.6 billion yuan in 2021 (2020 profit: 440 million yuan). This led to a 26% plunge in the company’s stock price on the same day, where the price of its USD bond due April 2022 hit the $20 level.
- According to the 2021 interim report, the company recorded a loss of about 1.56 billion yuan in first half of the year. This means that the company’s loss widened to more than 7.5 billion yuan in the second half of the year.
- With reference to the numbers as of last June, the company had general receivables of 7.3 billion yuan, other receivables of 3.6 billion yuan (including investment prepayment and earnest deposits), and financial assets of 1.4 billion yuan. Such a huge loss is an indication of the company’s inability to collect payments from most of the clients (the developers), and it may even include the revenue of new businesses recorded in the second half of the year. This results in an sharp increase in loss provisions.
- We noticed that E-House’s current cash on book should be sufficient to repay the 300 million USD bond due in next month. However, the bigger question lies in their management’s willingness to pay. The company did not make any significant actions in the past months to replenish liquidity and repurchase any bonds at discount. The communications from investor relations were lacking as well – seems like a sign of ‘do nothing’ strategy.
- Currently, E-House has appointed D.F. King to identify creditors, and USD bondholders can submit their holdings to related representatives. We believe an exchange offer for USD bond maturity extension is already in the works.
- As the Chinese real estate sector is not out of the woods yet, if E-House wants to make a turnaround and retrieve its receivables, it must wait until the industry recovers. Time will be the company’s biggest foe. If investors can wait, it may be a better choice to hold on given this current market price.
- E-House was reportedly releasing its 2021 annual result after the market closes on March 31. However, some developers have recently decided to postpone their result announcements. Therefore, we should pay attention to whether E-House will release it on time at the end of this month.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in EHOUSE 7.625% 18Apr2022 Corp (USD), and the analyst who produced this report holds a NIL position in the abovementioned securities.
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