J.P.Morgan downgrades Country Garden on share placement plan, slashes target price
J.P.Morgan downgrades Country Garden on share placement plan, slashes target price

J.P.Morgan downgrades Country Garden on share placement plan, slashes target price

 

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The proposed share placement of Country Garden, China’s largest property developer by sales, at a price close to the five-year trough will likely induce investors’ apprehension over its liquidity conditions, said J.P.Morgan said in a research note on Wednesday.

Country Garden said Wednesday that it’s looking to raise about HK$2.83 billion ($361million) selling new shares at a discount.  The company is offering 870 million shares at HK$3.25 apiece, according to a filing to the Hong Kong Stock Exchange, representing a discount of 12.6% to Tuesday’s share closing price of HK$3.72. 

However, as one of the five model property developers selected by the regulators with approval for onshore bond sales, Country Garden may still be one of the survivors among private developers, should the government continue to support its refinancing activities, according to the note.

The bank anticipated that investors’ concerns triggered by the share placement will likely weigh on the share price performance of the stock in the near term, while also dragging down the share price of its sister company Country Garden Services .

In addition to the impact of market sentiments, Country Garden’s foundamentals are also weakening and investors will likely be concerned that Country Garden may sell stake in Country Garden Services for cash, the bank said.

The bank expects Country Garden’s core net profit to grow by 20% – 25% on year in the first half of the year, lower than its full-year guidance of 40% growth, saying that it’s getting increasingly difficult for the property management companies to achieve the 40% growth target.

The rating for Country Garden was downgraded from Overweight to Underweight, with its target price slashed from HK$7.6 to HK$2.5. Country Garden Services was downgraded from Overweight to Neutral, with its target price chopped from $58 to $21.

Shares of Country Garden tumbled by 15% to close at HK$3.16 on Wednesday. Shares of Country Garden Services plunged by nearly 22% to Hk$17.44.