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Xinyuan Real Estate Co., Ltd. Message Board

  • hmmm26 hmmm26 Sep 17, 2012 10:52 PM Flag

    Rewritten Thread: XIN's P/E Discount With Its Peers

    Yahoo won't let me bump that old thread forward, so I'll copy and paste it to here. I've updated the P/E numbers for XIN and CHLN, and while the other P/E's are now a couple of months out of date, I don't think there's been any earth shattering changes since then.

    Here's the reconstructed thread:

    My belief is that XIN prices more cheaply than its peers because it's perceived as a greater fraud risk than they are, with the "too much" cash problem, the Longtop connection, and the company's ongoing opposition to a Cash Verification procedure as the main reasons for that perception.

    But, I'm always open to other viewpoints, so if there are other suggestions, I'm all ears. Here's some reference numbers. This is a quick job, but:

    XIN: P/E 1.5

    CHLN: P/E 4.5

    This, despite not paying a dividend and never IPO'ing. CHLN joined US capital markets through the very murky reverse merger method (This method is in the process of being outlawed by the SEC; I personally won't buy any stock that hasn't had a real IPO).

    China Vanke: Forward P/E 8

    E-House (EJ): Forward P/E 9. (I admit this is only a "half match" to XIN, industry wise, but I don't know of any other perfect matches for both US listing and industries besides CHLN).

    SFUN: Forward P/E 8. (Same note as EJ).

    If we view CHLN's discount from 8ish to 4.5 as likely having been caused by its cruddy, reverse merger method of listing, then these numbers seem fairly consistent, with the lone, unhappy exception of XIN.

    I believe XIN's discount versus its peers is best explained by the market having a higher fraud concern for it than for the others, but I'm open to other suggestions. What's your opinion?

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    • @hmmmm

      Your friend Ms. Google cannot help?

    • @casey (and anyone else with strength in accounting):

      Can you take a look at Sawy's recommendations on this thread for what ratios I might use to launch a research project that tries to compare XIN's cash to other Chinese RE development companies'?

      I'm currently leaning toward "cash to annual sales," but I'm totally open minded and seeking input on this point.

      My idea here is an attempt to quantify the "Does XIN have 'too much' cash?" question. TIA.

      • 1 Reply to hmmm26
      • Days in cash are more meaningful for the null hypothesis. Cash to sales is misleading, as it will not tease out cost of capital and structural differences. Compare days in cash then look at debt to equity or some other debt ratio. You should be able to throw a regression at but it is excessively early in China and I am meeting with bankers and lawyers today. For me that would change my comfort level with the null. The null being XIN’s cash is too high.

    • Two observations.

      First, all of the valuations are lousy. XIN just happens to be the worse. The market bakes something in common into all these valuations. The market does not trust Chinese accounting.

      Second, I do not disagree that the valuation might be based on perceived fraud risk. I think the market is wrong. So goes the buyer's logic, I see something the market missed. If I did not believe that why would I be a buyer?

    • As I have stated before you can drive yourself nuts trying to understand why the market does what it does. What is important is deciding whether the market is right. Xin yields 6%. That is real money. The company is buying back stock. The only concern is about one individual who may or may not have done something wrong with another company. This is a pretty pitiful reason not to like Xin.

      • 2 Replies to walrathcrai
      • A couple points, Walt:

        1. I think people put too much emphasis on the annualized dividend's 6% yield. First, potential buyers can't view the dividend they're going to receive as 6% because half that dividend's already been paid out and there's no guarantee that XIN's going to renew either the quarterly format or even the dividend itself for 2013. All they can be absolutely sure of are two more .04 quarterly dividends; whatever happens after that is pretty much just a fingers crossed type thing.

        The second thing about dividend yields is a personal peeve of mine. Higher yields aren't just caused by rising dividend amounts; they can equally be caused by falling share prices. For example, you would say that a 16% dividend yield's better than a 6% yield, right?

        Well, to get to a 16% yield, all XIN's management would have to do is tank XIN's share price to $1. Presto-change-oh, they've vastly "improved" XIN.

        2. On Gurnee, I don't think any of us care whether he was crooked or not, or in the know or not at Longtop; what we care about are answers to questions like "why wasn't he fired the day after Longtop was unmasked?" And, why does XIN, like Longtop before it, seem to have more balance sheet cash than other similarly situated, similarly sized Chinese real estate companies (although, on this point I grant that a research project is probably not a bad idea; my hangup here has always been on picking what ratio to use so different companies become comparable -- cash to annual sales, maybe?).

        3. IMHO, the biggest fraud perception problem for XIN is also the easiest for it to fix: It's continuing opposition to do a Cash Verification makes it look like it's got something to hide. And maybe it does.

      • Market response to a given day or given month can be totally unexplainable. However, market response to a three-year period most time can be explained very well. Market can make mistake sometime, but it is smart enough to correct it sooner than a three year period.

        Also, I never trust the dividend yield as a indicator of a stock's future performance. Dividend is something can be cut anytime in the future. I have seen numerous bankrupted companies paying more than 6% dividend rate before they discontinue them.

    • The market simply says XIN is too good to be true. Based on its scale and efficiency, XIN has no way to be more profitable (in terms of ROE, net profit margin) than Vanke. It is just something that cannot be explained by my competitive analysis.

      RE developing industry is all about scale and efficiency. XIN does not have enough scale for sure due to its size and numbers of projects. XIN is also far from efficient based on the scattering of projects locations. If XIN is small enough to only have projects in Zhengzhou, it may be very profitable.

      As a lont time value investor, I have see many value traps and many real value stocks. I have seen one real value stock that the market fails to correct in more than three years. Sometime, we have to be humble to accept that the market is not that slow to correct its mistake.

 
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