Some China property developers claim they can't release their earnings on schedule, according to 'red flags'.

• This week, several Chinese real estate developers announced that they are unable to release their financial results on schedule or have not yet scheduled board meetings.
• Last year, Evergrande, a troubled property developer, hit markets with its debt crisis.
• Evergrande announced in a filing to the Hong Kong exchange on Tuesday that its auditor added "a significant number of additional audit procedures" due to the "drastic changes" in its operational environment since the second half of 2021.
• According to Nomura, other developers cited the resignation of auditors for not issuing their financial year 2021 earnings on time.

This week, a group of Chinese real estate developers announced that they are unable to release their financial results on schedule or have not yet scheduled board meetings for them.

A troubled property developer caused a stir in investment markets last year due to its debt crisis.

A variety of reasons were given by the developers for not being able to complete the task.

Evergrande announced in a filing to the Hong Kong exchange on Tuesday that its auditor implemented "a large number of additional audit procedures" due to "drastic changes" in its operational environment since the second half of last year.

Due to the effect caused by the Covid-19 outbreak, Evergrande will not be able to release its financial results for the year ended Dec. 31, 2021, by the end of March, according to a filing.

The audited results will be published "as soon as practicable" after the audit is finished.

Kaisa, another major developer, announced in a filing that it will not publish earnings by Mar. 31 because the audit hasn't been completed due to a recent Covid lockdown in Shenzhen. As a result, its shares will halt trading from April 1.

According to Nomura, other developers claimed that the resignation of auditors would prevent them from releasing their FY 2021 earnings on schedule, as stated by Japanese bank Nomura.

PwC has resigned from the audit due to insufficient time and the Covid resurgence in China, according to developer Ronshine.

In the past two months, Aoyuan, Shanghai Shimao, and Hopson have announced changes in their auditors.

Developers changing auditors before their full-year results season often signals potential auditing issues and should prompt market concerns about the reliability of their financial data, according to Nomura in a Monday note.

Squeezed margins and fall in profits expected

Nine property developers have not disclosed the dates of their FY2021 board meetings, according to Nomura.

The possibility of more developers failing to release their results on schedule is increasing, according to Nomura, as listed companies must disclose their board meeting dates at least seven working days before their results dates, which are currently set for 31 March.

Despite the possibility of timely release of FY21 results by developers, we anticipate negative opinions and poor results (tight profit margins, declining profits, and reduced dividend payouts for FY21-22F) for the sector in the upcoming two weeks, which will likely negatively impact the sector's share prices, according to Nomura.

The sales of leading developers, including Evergrande, Shimao, and Sunac, have significantly decreased this year, according to Nomura data.

Outlook for property

The Chinese government's support for Chinese stocks and its commitment to stabilizing the real estate sector boosted investor confidence in mid-March, resulting in a surge in property stocks in Hong Kong last week.

Real estate shares have been unable to maintain a consistent direction since, fluctuating between gains and losses.

The shares of major real estate developers such as Evergrande, China Overseas Land & Investment, and China Vanke are still generally below the lows they reached after the Chinese real estate market was hit by a debt crisis last year following the government's move to curb debt.

The "three red lines" policy, introduced by authorities last year, caused Evergrande's problems to surface. This policy restricts a developer's debt based on their cash flows, assets, and capital levels.

As the debt crisis intensified, other Chinese real estate developers began to exhibit signs of financial strain, with some failing to make interest payments and others defaulting on their debt entirely.

Last year, China indicated it might ease restrictions in order to stimulate its sluggish economy amid pandemic difficulties.

Beijing set a GDP target of approximately 5.5% for this year, while leaders also discussed providing additional economic support to businesses.