Late at night on January 9, China Evergrande (3333HK) issued an announcement in response to the report "Evergrande has never been profitable" released earlier by short-selling agency GMT Research. Evergrande said, "The relevant reports have no actual basis, and the so-called conclusions are only the author's speculation and doubts." ”
Previously, in early December 2023, China Evergrande announced that it had noticed that an institution had published a report on December 1, 2023 that the company had never made a profit. At the time, Evergrande only clarified that the report had no actual basis, and said that it would further clarify the contents of the report later.
China Evergrande said it reserved the right to take legal action against the agency. 
Evergrande said that the bearish conclusion is only the author's speculation
It is reported that in the relevant short selling report on December 1, 2023, the institution GMT Research believes that Evergrande has changed the sales revenue recognition method since 2021, which has reversed the revenue of more than 664 billion yuan and net profit of 102 billion yuan previously recorded, and the contract liabilities have also increased significantly, and the profits from these sales will theoretically be reconfirmed. The agency said that while there is little evidence, Evergrande's gross profit in the past two and a half years is only 16 billion yuan, and it is suspected that these profits never existed.
On December 4, 2023, China Evergrande clarified at that time that the report had no actual basis. At the same time, China Evergrande also made it clear that the company will further clarify the content of the report.
On the evening of January 9, China Evergrande said that the company's directors had reviewed the report, believed that the report had no actual basis, and made further clarifications on the following aspects.
One is revenue recognition. The company changed its approach to revenue recognition in 2021. This change was made in response to a more standard-compliant accounting treatment in the current environment, mainly in response to the company's liquidity crisis and significant staff attrition.
Second, the financial statements of the past years have been audited. The Company's financial statements for the past years have been audited by PwC with a standard unqualified opinion. Even in its departure letter, there was no question about the company's revenue recognition for past years.
Third, there is a lack of direct correlation between the data and conclusions of the report. The report argues that the company's gross profit is low and it is doubtful that the profit does not exist. In fact, the decline in profits since 2021 is not only the decline in selling prices caused by industry difficulties, but also related to the proportion of properties with low gross profit sold by the company. Simply because the gross profit is low, it is doubted that the profit does not exist, and there is a lack of correlation; The report provides examples of companies that have suffered significant losses. The company's losses are significant and related to the company's size and asset quality. There is a lack of relevance to the large losses and the belief that the company has never made a profit.
Fourth, the report did not give substantial evidence that the company had never made any profits. The report found no substantial evidence that the company had never been profitable, and its so-called conclusions were merely speculation and suspicion on the part of the authors.
Fifth, the report uses the results of 2023 to demonstrate its accuracy of the company in 2016, and there is no substantive basis.
For the purposes of the report, the directors did not have sufficient information to take further action. The Directors will continue to monitor information from all parties and take appropriate further actions or measures as necessary.
Winding-up hearings are facing at the end of the month
China Evergrande said it confirmed that members of the audit committee had reviewed the report, and that the company's auditor, Pak Bhd, had reviewed the report, and said that it would not withdraw their previous audit opinion on the company's financial statements.
China Evergrande reserves the right to take legal action against the agency, the announcement said.
It is worth mentioning that recently, China Evergrande has also been in negative news. In addition to the announcement on January 1, Evergrande Auto previously planned to receive the first $500 million strategic investment in Newton Group (NWTNUS) share subscription agreement expired, causing Evergrande Automobile's "life-saving money" to fly. On January 8, Liu Yongzhuo, president of Evergrande Automobile, was also criminally detained in accordance with the law on suspicion of violating the law and committing crimes.
For Evergrande at present, the outside world is most concerned about the winding-up petition hearing to be held on January 29.
On December 4, 2023, Evergrande's petition for winding-up was reheard in the High Court of Hong Kong, and the petitioning party stated that it would not ask the court to grant a winding-up order and did not object to Evergrande's application for adjournment.
Subsequently, China Evergrande said that it needed to discuss the restructuring plan again, so it requested an adjournment, and the remaining creditors did not object to the adjournment application. After hearing submissions, the judge adjourned the winding-up hearing to 29 January 2024.