China Evergrande (3333 HK) has issued a positive profit alert, and is expecting 1H18 PAT to increase by more than 125% YoY, while net profit from the core business to increase by more than 100% YoY. We note that these are before accounting for minority interests.

The group has attributed these substantial increases to various reasons such as the improvement in product quality, reduction in expenses, and greater floor area of properties delivered.

At the same time, the group also expects that its net gearing ratio will drop from 184% as of end-FY17 to below 130% as of 30 June 2018.

While we are encouraged by management’s ability to successfully lower the group’s gearing level, we are still aware that the group still has some ground to cover before being in-line with its peers.

We maintain our HOLD rating and our fair value estimate of HK$20.72.

Source: OCBC Research - 7 Aug 2018