BEIJING, May 17, 2011 /PRNewswire-Asia/ -- The closely watched Qidong land area held by Evergrande has soaring value, a small part of which has had a value expansion of over 30 times within 4 years, has brought rich profits. On May 16, Evergrande (3333.HK) announced that it would sell its land with 49% equity in Yanyang Town, Qidong City, Jiangsu Province, to Chinese Estates (00127.HK) at the cash price of USD 500 million.
According to the reports of media in Hong Kong, for the small part of Qidong land of large scale (with 49% equity) subordinated to Evergrande transferred by Evergrande this time, the land cost is RMB 150 per square meter. And Chinese Estates has purchased the land of 1.58 million square meters with 49% equity at the price of HKD 3.88 billon, meaning that the land cost actually has exceeded RMB 5,000 per square meter. The transaction between Evergrande and Chinese Estates is in the way of equity cooperation. According to Zhao Xiwen, the senior analyst of Cinda International Research Institute, the selling price of Evergrande this time conforms to the market price, far higher than the land purchase price then, without any suspicion of selling at a sacrifice for the purpose of cash out. According to Evergrande's performance announcement in April, the Group achieved the sales amount of 25.95 billion yuan in January to April 2011, completing 37% of the full-year target.
According to data, Qidong has a population of one million, belonging to the boundary of Jiangsu, which is the land closest to Chongming Island of Shanghai. Along with the availability of Changjiang Tunnel Bridge connecting Chongming Island, plus the concept of Disney, the house price of Chongming Island has been doubled and redoubled in the recent two years. It is expected the "Chongming-Qidong Bridge" available at the end of the year will be a big opportunity for the development of real estate market in Qidong. According to Song Huiyong, the Controller of Shanghai Zhongyuan Property Research & Advisory Board, "There is a chance for Qidong to sell at 8,000 - 10,000 yuan per square meter. In case of good prospect, the selling price might be higher." According to the data of soufun.com, for the project of "Zhongbang Shanghai City" in Qidong City Center, recently, the price of joint-row villas is about 3.5 million yuan per suit, while the price of detached villas is about 7.6 million yuan per suit.
The capital market has offered positive response to the selling behavior of Evergrande this time. On May 17, the share price of Evergrande soared in the adverse market when the Hong Kong stocks were frustrated completely, with the opening price of HKD 5.5 and the highest price of HKD 5.78.
Du Jinsong, Supervisor of Credit Suisse in charge of mainland real estate, pointed out that the Company may obtain the cash in advance when selling at this moment, which is beneficial news. GuocoCapital holds the opinion that the introduction of strategic investors would reduce the capital investment in the preliminary development stage of Qidong Project and Phase I of Qidong Project would possibly be launched into the market at the end of 2011; in addition, this sale would display the hidden value of the Company in the Qidong Project, and cause the market to increase the valuation of its net asset value per share. "Under the situation of increasingly tight credit policy in China at present, this transaction will eliminate the worry of the market about the financing sources."
Goldman Sachs maintains invariant EPS of Evergrande for three years. According to Goldman Sachs, this Project has higher-than-expected selling price; therefore, it is estimated that the net asset value at the end of this year would increase to HKD 11.72 by 2%. The current price has a discount of 54% compared to the net asset value, with the PE ratio of 7.2 times. Goldman Sachs maintains the rate of "Convinced Buy", with the target price increasing from HKD 8.08 to HKD 8.2.
