Xinyuan Real Estate Co., Ltd. ("Xinyuan") (NYSE: XIN) is a developer of high quality residential real estate projects aimed at providing middle-income consumers with a comfortable community lifestyle. Xinyuan was founded in 1997 and ranked No.1 in Zhengzhou by residential contract sales in 2004. By 2006 the Company covered a total population of over 64.7 million people in eight strategically selected Tier II cities: Beijing, Hefei, Jinan, Kunshan, Suzhou, Zhengzhou, Xuzhou and Chengdu.
The Company purchases development sites primarily through public auctions of government land. This method allows Xinyuan to obtain unencumbered land use rights to unoccupied land without the need for additional demolition, re-settlement or protracted legal processes to obtain title. As a result, the Company is able to begin construction soon after site acquisition. Xinyuan raised USD $289 million in its 2007 IPO and was the first Chinese real estate developer listed on the New York Stock Exchange.
There are several reasons I believe Xinyuan is still a highly underrated Chinese stock:
1. Seeking Alpha contributor Charles Zhang pointed out that Xinyuan sold USD $200 million of bonds April 25th, 2013. These bonds were issued by BofA Merrill Lynch, Morgan Stanley, and Barclays. Xinyuan's bonds are trading above par indicating investors do not suspect any chance of fraud.
2. TPG only days ago announced its USD $109 million investment in the company trough the purchases of convertible notes. This is a very impressive announcement by a large name institutional backer. Extensive background checks, independent verifications, and financial auditing had to be done before TPG made such a large investment. This kind of institutional investment will surely attract more buyers to Xinyuan's stock.
3. Looking at XIN's financials, its book value is $11, while the stock is still trading at approximately half of that. Further, they have over half a billion in future contracts, and a net worth of property in the United States alone of approximately $400 million including New York, California, and Nevada.
4. Xinyuan is easily able to service its debts, which is highly critical for a real estate developer. With current liabilities of $683 million and assets convertible to cash within 1 year of $1.5 billion, liquidity is not a problem. This equates to a current ratio of a very respectable 2.2.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
We can add one more. In September and October 2013, XIN made five land quisitions by paying over $350 millions total. I hope this massive cash outlay convincingly answers to those questioning XIN's cash holding. Even after spending so much, XIN has enough cash reserve for additional major land acquisitions.