China's Biggest Aircon Maker Slumps After Skipping Dividend

(Bloomberg) -- A favorite Chinese consumer stock among foreign investors lost $4.2 billion Thursday after the company skipped its dividend for the first time in 11 years.

China’s biggest air-conditioner maker Gree Electric Appliances Inc. slumped 9 percent in Shenzhen, its biggest drop since December 2016, following the surprise omission of a dividend when the company released results Wednesday night. The value of shares traded hit a record $2.7 billion and was the most actively traded stock through the Shenzhen-Hong Kong stock link with foreign investors selling a net 2.36 billion yuan ($373 million) of shares.

Citigroup Inc. said the dividend decision is likely a one-off and Gree could still maintain a payout ratio of about 60 percent going forward. In its earnings statement, the company said it’s withholding cash for possible spending on capacity expansion, smart factories, production facility upgrades and other uses.

Thursday’s share price slide presents a good opportunity for investors to buy, as Gree’s valuation is attractive and its plan to expand advanced manufacturing and integrated circuits is positive longer term, said Liu Guanghuan, an analyst at New Times Securities Co.

Others are unlikely to follow Gree’s decision on the payout, given that China’s securities regulator urges companies to pay dividends, Liu said. The Shenzhen stock exchange on Thursday asked Gree to explain why it skipped the dividend and whether it has been taking measures to protect the interests of smaller investors.

Gree trades at 11 times estimated earnings, compared to 18 times for the Shenzhen Composite Index, according to data compiled by Bloomberg. Investors using the link had owned 8.4 percent of Gree’s shares as of Wednesday, Hong Kong stock exchange data show, making it one of the most popular Chinese picks with foreigners.

Credit Suisse Group AG cut its rating on Gree to neutral from outperform, but most other analysts have buy ratings after the Zhuhai-based company’s full-year net income beat estimates. Prior to Thursday’s slump, Gree climbed 15 percent this year, while the Shenzhen Composite Index slid 4.7 percent.

Shares of other appliance manufacturers fell Thursday: Midea Group Co., also a favorite of foreign investors, lost 2.3 percent in Shenzhen and Qingdao Haier Co. dropped 1.8 percent in Shanghai.

--With assistance from Jeanny Yu Richard Frost Amanda Wang and Amy Li

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies, Philip Glamann

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