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Xinyuan Real Estate Co., Ltd. Message Board

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  • growth.value growth.value Sep 25, 2012 5:00 PM Flag

    We had a discussion after Vanke had their annual

    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.

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    • Convincing a company to unwind's no easy task. I think I can count on the fingers of one hand the amount of companies I've see choose that path voluntarily (as opposed to being compelled by bankruptcy/liquidation proceedings).

      If the industry's consolidating, wouldn't a purchase by a larger competitor be an easier way to monetize XIN's Book Value?

      • 1 Reply to hmmm26
      • XIN certainly can be a M&A candidate, but finding a good buyer is not easy.

        Ideal buyers are firms that specialize in geographic areas that XIN does present and that do not have geographic penetration as high as Vanke or Poly. Those companies can buy XIN to create synergy as far as developing efficiency and reduce learning curve in particular geographic areas.

        However, most these ideal buyers currently do not have enough financial luxury to pay a nice price on XIN. Also, XIN's most assets are not attractive to them. Also, most employees including the CEO could be useless after the merger. The most valuable resources are XIN's local top management and local sales teams. Unless the CEO gets a offer too high for him to turn down, I doubt there is any difference between unwinding the business and being acquiring by somebody and getting fired or demoted to a regional head.

 
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