Wednesday, August 12, 2009

E-House Holdings (EJ) Benefitting from China Housing Bubble v 2.0

Back in early June we mentioned some of the housing data coming out of China that the massive loan growth was helping to stoke. [Jun 10, 2009: Chinese Economic Reports Supplant US Reports in Importance] For example, in 1 month alone (May) sales in Beijing matched the previous 4 months

China’s property sales and investment accelerated, adding to signs that growth in the world’s third-largest economy is recovering. Sales rose 45.3 percent to 1 trillion yuan ($146 billion) in the first five months of 2009 from a year earlier.

Land sales in Beijing in May exceeded the total amount sold in the first four months of the year,

Property sales by value doubled in Beijing, surged 68.5 percent in eastern Zhejiang province and climbed 61.9 percent in Shanghai during the five-month period from a year earlier (bubble?)

In that piece we mentioned one stock that could take advantage of this - E-House (China) Holdings (EJ)

Below is some detail on the property report... one stock I am aware of to play this is E-House Holdings (EJ)

Now remember, a flood of money has been pushed through the banks per government directive. If these loans go bad in a few years is no one's concern today it appears. As long as they "stimulate" bulls are happy.

Sadly by looking ahead, I tend to see bubbles much too early and hide like a rodent in daylight, rather than a pig in (government) mud. So we did not jump on the bandwagon here. Those who do not worry about consequences have benefited greatly - after today's earnings report, EJ is up 30% since my June piece (and was even higher earlier today) That said, what hasn't been up 30% in the past 6 weeks. EJ fell from $34 to $4 when the last Chinese housing bubble broke so I guess it's all about timing your investments around bubbles - works in the U.S. as well.

This is an interesting company for US investors since it is one of the few ways to really play Chinese real estate, but everything in China is now so directly related to what the government will do with the loan growth in the 2nd half of 2009. Since guidance was so good and I cannot see China dropping the hammer on loan growth too much I will try to get this one on a pullback (I know, I keep saying that) and then be careful about holding too much of a position ahead of next earnings.

EJ smashed analysts expectations by 10 cents (excluding items of course!), and guidance was WAY above analyst expectations. Full report here.

Via Reuters
  • Real estate services company E-House China Holdings Ltd (EJ) posted a 65 percent rise in second-quarter profit, buoyed by a rebound in the Chinese real estate sector, and forecast third-quarter revenue above Wall Street estimates, sending its shares to a year-high.
  • For the second quarter ended June 30, E-House reported net income of $19.3 million, or 24 cents per American Depository Share (ADS), compared with $11.7 million, or 14 cents per ADS, a year ago. Excluding special items, it earned 27 cents per ADS.
  • Revenue rose 48 percent to $63.5 million.
  • Analysts on average, had expected 17 cents per ADS, on revenue of $50.7 million.
  • For new properties sold, gross floor area increased almost three-fold to 2.7 million square meters, while the total value of new properties sold, nearly tripled to $3 billion.
  • E-House said it expects third-quarter revenue between $78 million and $80 million, well above the consensus view of $52.7 million, according to Reuters Estimates.
  • In a conference call with analysts, chief financial officer Li-Lan Cheng said the company's development pipeline played a significant role in determining the outlook. Li-Lan also said he expected commission rates to widely improve, based on projects scheduled in the second-half of the year.
  • China's property markets have been undergoing a strong revival in recent times, helped by favorable government policies, including cheaper mortgages and lower downpayments.
E-House (China) Holdings Limited ("E-House") (NYSE: EJ - News) is a leading real estate services company in China. Since its inception in 2000, E-House has experienced rapid growth and is China's largest real estate agency and consulting services company with a presence in more than 30 cities. In addition to its national presence, E-House offers a wide range of services to the real estate industry through its various business segments including primary sales agency, secondary brokerage, consulting and information services, advertising and investment management.

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