Stocks Surge Nearly 150%!

• Article
• 2024-07-21
• 17 Comments

After the interest rate cut, the Hong Kong stock market has seen a continuous rebound, with real estate developers performing well.

Among them, Kaisa Group (01638.HK), New World Development (00017.HK), and others have seen their shares rise by more than 20% in the last five trading days.

However, the most noteworthy company in the sector is China Aoyuan Group (03883.HK).

On September 23, China Aoyuan saw its stock open high and surge, with the intraday increase once approaching 150%.

This astonishing rise was also attributed to news stimulation.

Is the sharp increase in mid-term profits not real?

China Aoyuan is also one of the established real estate companies, but it still cannot escape the impact of the industry's downward cycle.

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In January 2022, China Aoyuan, which was struggling to support itself, announced that it would not redeem or pay the upcoming large amount of U.S. dollar debt and interest, resulting in a debt default.

In July 2023, China Aoyuan introduced a debt restructuring plan, which was approved by creditors in November, including the issuance of four new bonds totaling $2.3 billion, and $1.6 billion in perpetual bonds.

At the shareholders' meeting held at the end of June, China Aoyuan's founder Guo Zizhen stated that after the completion of the overseas debt restructuring, the company's net assets increased by approximately 31.35 billion yuan, and the interest-bearing debt as of the end of June this year decreased by approximately 28.4 billion yuan compared to the end of last year, with the balance sheet situation improving.

However, after the market closed on September 20, China Aoyuan announced its mid-term performance for 2024.

In the first half of the year, the company's revenue decreased by 56.73% year-on-year to 4.734 billion yuan (RMB, the same below), while the net profit attributable to the parent company increased by 857.64% year-on-year to 22.312 billion yuan.

However, China Aoyuan also stated that the main reason for the profit was the completion of the overseas debt restructuring.

Excluding the restructuring gains, the first half of the year was still a loss.

It is worth noting that although the overseas debt restructuring has been completed, the operational situation and debt pressure of China Aoyuan still need to be monitored.

The mid-term report shows that as of the end of June this year, China Aoyuan's interest-bearing debt, including loans, preferred notes, and bonds, totaled 76.205 billion yuan, of which about 53.409 billion yuan will be due within one year.

As of the end of the mid-term, China Aoyuan's cash and bank deposits were about 1.6 billion yuan.

Restricted bank deposits were about 2.318 billion yuan, and this amount was used as margin and mortgage guarantees or was subject to judicial freezing and restrictions imposed by creditors.

In addition, as of the end of the report period, China Aoyuan's total assets were 188.634 billion yuan, and the total liabilities were 190.407 billion yuan, still in a state of insolvency.

Overall, in the first half of 2024, China Aoyuan has both worries and joys, with significant pressure on operations and cash flow, but at least the overseas debt restructuring has been completed.

Introducing Middle Eastern strategic investors may be the real reason for the stock price surge on September 23.

On the evening of September 20, China Aoyuan announced that major shareholder Ace Rise agreed to transfer about 622 million common shares of the company to Multi Gold.

It is reported that after the completion of the transfer, Ace Rise and Multi Gold will have the rights to about 502 million and 622 million shares of China Aoyuan, with shareholding ratios of about 13.31% and 16.48%, respectively.

So far, China Aoyuan's founder Guo Zizhen's shareholding in the company has been reduced to about 618 million shares, and the shareholding ratio has also been reduced to about 16.38%, and he will no longer be the controlling shareholder of the company.

Multi Gold will become the single largest shareholder of China Aoyuan.

In addition, the board of China Aoyuan believes that Multi Gold is very likely to establish an important strategic cooperation relationship with the company in existing or future business, and Multi Gold is confirmed as a "strategic investor."

The board of China Aoyuan also believes that due to Multi Gold's acquisition of the target shares, and its becoming a major shareholder representing Multi Gold's long-term strategic investment, it shows Multi Gold's confidence in China's prospects.

The above transfer will not have any adverse impact on the company's overall operations and financial performance.

It is reported that Multi Gold is a professional investment institution in the United Arab Emirates, focusing on project investment in the Middle East and North Africa, and its management structure also includes influential local family members from the United Arab Emirates.

In addition, Multi Gold's sole director and ultimate beneficial owner, Alobeidli, has rich experience in technology, real estate, and other fields.

Since 2023, Alobeidli has served as the general manager of Magnuvest Investment, which has participated in several real estate projects in the United Arab Emirates.

China Aoyuan pointed out that looking forward, Alobeidli will introduce potential investors to the company and bring more development opportunities to the company.

At present, the real estate market is still in an adjustment period, and real estate companies are competing for "thick blood," and the cash flow situation is a crucial matter for the company's survival.

The first impression of the strategic investor from the Middle East is that they have a lot of money, and they may help China Aoyuan further alleviate the pressure on cash flow in the future, which may be the main reason for the funds' crazy buying today.