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Xinyuan Real Estate Co., Ltd. Message Board

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  • stan.ackman stan.ackman Apr 5, 2012 3:17 PM Flag

    Is XIN worth the risks

    hmmm, great reply.

    It is a matter of time for XIN to reach $6 as long as it is not taken private by the management. (Look, another risk here, management could throw a $4 a share offer to take it private. It is very likely to be approved by shareholders.)

    The big question is how long it could reach $6. Current price implies a 100% return potential. If it takes more than 2 years to get it, the return will not be attractive for its risks. But for people like JB with average cost below $2, it definitely makes sense to keep their shares.

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    • Your risk reward is off. A 100% return in two years is worth the risk. I have 2200 shares and I'm buying more when it hits 3. If it hits 2.50 I will back up the truck.

    • Here is why you are wrong about going private at 4

      1. Company could have gone private at 4 when stock was 1.75. It would have been much easier sell
      2. Your credibility is definitely is better when you are listed on a major exchange in the world. That is one reason why most companies like to go public. It is easier to raise capital.
      3. When go private market attached premium is gone, so is discount. Look at all the stocks on major exchanges, most trade 2X to 10X their book value. Although in XIN's case opposite is true, they would be foolish not to wait for better times, to reflect the premium.

    • Do you think a purchase offer of $4 would gain shareholder approval? I suspect it would.

      In terms of the time component, I guess each person has to make his own judgment as to what the non share price risks are and how heavily to weigh each (VIE, potential fraud -- although I learned tonight XIN uses E&Y, potential Chinese real estate bubble, etc.)

      But if we think that XIN can reach $6 in only two years, a gain of 80%, then that leaves lots of room for outside risks to be recognized and run, and still have the risk/reward ratio in an investor's favor.

      Is the $6 price target your own view? If y, which of the outside risks prevent you from taking a long position? Based on our previous conversations, I'd guess it's probably the real estate problem, y? How do you see that playing out?

      • 1 Reply to hmmm26
      • The reason why I don't give a normal current P/E valuation on this stock is because its earning potential. We should never rely on peak earnings to project future earnings. XIN's current record earnings are made during the "bubble" stage. Industry participants all agree it will be more difficult to do real estate developing in China in the future.

        The problem has already emerged, especially among those weaker players in the industry. Although XIN is in a stronger position than some of its peers, XIN is not immunized from an industry meltdown. The normal industry circle is after a peak, weaker players will take the initiative to bring the whole industry down by slashing the price and reducing inventories, which have already started to happen. The stronger players have to follow. Otherwise, they could not meet their sales target. Eventually, weaker players have to either exit or be bought by stronger ones. This whole consolidation process will take at least 3-5 years, during which all industry players' earnings will be reduced if not swing to losses. At that time, a $6 price may imply a P/E ratio as high as 30. For high operation and financial leverage companies like XIN, profits could easily plunge by 80-90% if revenue drops by 20-30%.

        Someone may say such a risk has already discounted into the current price. Somewhat, it is, but not fully. The current price absolutely does not reflect a profit drop of 80-90%. Again, my specialty is industry analysis. I could see an inevitable industry consolidation within the Chinese real estate industry. If it does happen, the best buying point will normally be around one year before the consolidation is done.

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