(Yicai) Jan. 10 -- China Evergrande Group’s stock price dropped even after the troubled property developer denied a short-seller report that claims the firm has never been profitable. 

China Evergrande [HKG: 3333] ended 2.8 percent down at 21 Hong Kong cents (3 US cents) a share today, resulting in a nearly 12 percent slump since the beginning of this year.

GMT Research's report was “without basis,” the indebted builder said in a stock exchange filing yesterday, adding that it reserves the right to take legal action against the short seller.

Evergrande said the report’s author was suspicious it did not have profit due to a low gross margin. In fact, falling profits since 2021 are related to the share of properties sold with a low gross margin, as well as lower sales prices as a result of the real estate sector’s difficulties, the Guangzhou-based company said.

“There is no relevance between the fact that gross profit was low, and the allegation that the company has never been profitable,” the firm pointed out.

The Hong Kong-based short seller said in the report, published Dec. 1, that Evergrande's delayed 2021 earnings report shows that the property firm significantly inflated its revenue and profit and is highly likely to have done so for years. “There were never any profits,” it concluded.

The report used examples to show how severe Evergrande's loss is. But according to the company, the deep losses are related to its scale and asset quality. There is no relevance between the size of the loss and the allegation that it has never been profitable, it said.

Evergrande said the report has no substantive basis, as it used the company’s financial results from last year to prove the accuracy of its forecast in respect of the company in 2016. Members of the firm's auditing committee and auditors from Prism in Hong Kong and Shanghai have reviewed the report and said they stand by their previous auditing work.

Editor: Emmi Laine