Ok...So, I have now initiated a long position in XIN. The rationale being:
a) Pristine balance sheet,
b) Strong revenue and earnings growth
c) Long-term favorable macro-outlook for China and other emerging economies..
IMHO, the equity markets are fairly valued. If you are like me (lagging the broader indices in YTD returns), then you need a blockbuster investment to come back on par.
Now, after much thought, I have realized that the "coming back to par" event does not have to happen by 12/31/2013...It may happen in 2014, 2015 or anytime after that. So, keeping that in mind,XIN is a relatively under-valued stock.
Could this hit $3 in the near-term - very possible. For the longs, If it is attractive at $6. it is definitely attractive at $3. For the shorts, if it was worth shorting all the way from $14 to $2, it may well be worth shorting at $6.
But the fundamentals have only improved. After taking dilution into account, $110MM in 2013E earnings (as per mgt) dividued by fthe fully-diluted pro forma share count of 90 mm shares, leads to $1.20 in earnings. A 10x multiple would lead to $12 - that is the fair "exit" value. This obv assumes that all the capital raised does not yield incremental earnings power.
I would not value this off book value. Unlike financial stocks, there is no mark-to-market and unless one is actively looking to buy real-estate, the fair-market value (which is often based on the last sale/purchase transaction) is the max that anyone would pay for the particular asset. And as we have seen in 2008/2009, the real-estate market can go South very quickly.
The issue of fraud is out of question. A firm like TPG would not invest unless they scrubbed the books and operations with a fine comb.
Patience is key and ultimately, the stock will trade at its fair market value.
Why TPG invested in XIN:
The question we should be asking is : Why TPG invested in Chinese RE? Clearly, they believe in the long-term favorable outlook.
The money will be used to buy land in china.. Its been in the works for months ..Multiple announcments will be coming rapid fire soon..Only a few posters know XIN inside out.. I'm a believer and major investor for a few years.. Check CC analysts the last few years
you are calculating based on 2013 earnings. 2013 is a lackluster year for Xin. Mainland developers are reporting 30% or more growth, but Xin is having none of that. 2015 will be blockbuster year for Xin. New york project will start selling. Plus their huge projects in south and west part of Zhengzhou. I am hoping that they will also get a couple more land parcels through auction. In two years, fair value of Xin can reach $30.
Do you know what they did with $200mm cash? ....Maybe, they used a portion of the extra liquidity to buyback the stock and then sold stock yo TPG at $5.50. They could now use the TPG proceeds to pay off the debt...
See, clearly the company has average yahoos! like you and me who would have asked the same question...and obv, TPG asked the same question when they were "approached" for an investment.
So, relax....bottom line, as long as earnings' power of the incremental 200MM more than offsets the 13% interest cost, the company will stand to benefit....