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Xinyuan Real Estate Co., Ltd. Message Board

  • shelly_showman shelly_showman Sep 25, 2012 2:34 PM Flag

    We had a discussion after Vanke had their annual

    Vanke had said due to restrictions etc., they were going to expand into other markets. I asked what is going to happen to Xin when the big dawgs enter Xin's markets in tier 2 and 3 and start taking their market share? This is something an Xin holder should be concerned about. Now I haven't gone to search
    Infn's info about Vanke reaching their goals 3 months early, so don't know if it's because they entered the
    markets they said they were going to, but I read another article a day or two ago, on another developer who did what Vanke said they were going to do. Following is the important part.

    'has entered into 121 cities throughout the country, and has had 218 projects, with the sales contribution of the second- and third-tier cities being 98.8% in the first half year of 2012. '

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    • @casey (the discussion needed to be moved back out):

      First, I'm happy to see the discussion turn to legal issues, for once; I'm tired of you damn accountants hogging all the glory!

      There's no need to worry at all about an outside offer at current valuations being accepted, unless the CEO were part of the buying group (a "going private" type of M&A transaction). This is due to the fact that he controls a large enough percentage of voting shares to single handedly reject any takeover offer. That's not an accident.

      There's only two possibilities: either a 3rd party offer that was so attractive that the CEO was willing to give up owning "his" company (which would be outstanding for shareholders, since they'd receive that same, outstanding price), or the CEO teams up with other well funded investors to take the company private (considerably less good).

      Going private is a potential nightmare for investors because the CEO's motive for getting a good price in the 3rd party offer example, namely that he'd be a seller in the transaction, suddenly reverses itself. This time, as a buyer of shares, the CEO's motive (as well as his well funded buying buddies' motive) is to reduce, not increase, the price of however many shares remain outstanding.

      Naturally, under US law with a US company, minority shareholders' rights are reasonably well protected against a CEO's exploitation, but there's many, many impediments to the proper functioning of the system when applied to China stocks (but I won't bore you with details).

    • A good valuation of XIN would be $ 20. At that valuation, they would achieve ready access to the United States capital markets and earn a competitive advantage by a lower cost of capital. There would be a number things that would have to happen get there. Expanding pipeline would be one of those things. The company currently is highly concentrated in two markets. They have smaller developments in two other areas. There is a lot more to China. To be that company trading at $ 20, the company needs to show they can win auctions in a broader base and control costs and ASP to achieve an average of $ 30 GP.

      Currently, despite press reports to the contrary the market, is devoid of real competition, competition lowering ASP, raising land prices or construction price. The effective way to combat the competition when it comes is to develop a brand.

      • 2 Replies to caseysxyz
      • Casey, good point to bring up developing a brand. However, in real estate industry, developer brand name has much less influence compared to many other factors when a customer make purchase decisions. Instead, location and price have much higher impact. This is unfortunately a characteristic of real estate industry. Overall, the developers who have higher scale and efficiency offer better combination of location and price to attract potential customers. XIN, due to its size, has limited resources (financial, national connections, etc.) to expand its project base.

        Overall, the Chinese real estate industry has passed the high growth era and becomes a mature industry. While a high growth industry offer opportunities to most players, regardless of their sizes, a mature industry like real estate will only benefit players with large market shares. A industry consolidation is coming and will come more quickly in the future. Overall, the best strategy for mid-size firms such as XIN is to unwind their business. If XIN really has the amount of assets in their book, they should be able to return at least 70% of its book value to its shareholders. As a result, everybody bought XIN below $3 should have a decent gain. However, the big question is whether XIN does have the amount of assets on their financials and whether the chairman is smart enough to exit the Chinese real estate industry.

      • Oh they're developing a brand all right, but it's a secret. Devoid of competition? Tell that to the other
        59,999 developers in China, but that's right, you are probably talking about the US.

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