Recently there have been many articles and blog posts written in a bearish tone towards China's economy and its companies. Not many China bulls are around, but maybe people should take another look at the world's second largest economy.
More specifically, as reported by Ansuya Harjani of CNBC, in this article, the chief economist for the Greater China at the bank, Jun Ma, mentioned his take. He said that he expects the real estate construction to support growth in China.
"Land sales growth began picking up in the fourth quarter of last year, and now it's growing 50 percent year on year which means developers are very bullish," he said. "The purpose of them buying land is to build something. I expect within two quarters construction activities will pick up."
Now to talk about China Housing & Land Development Inc. (CHLN), whose shares closed today (May 22, 2013) at $2.01, down 9.46% from the previous days close. The last few months I have watch CHLN hit as low as $1.58 and to as high as $2.70 (52-Week High). The company released their first quarter 2013 results earlier this month. The results were very positive as they beat their financial forecast. Ironically since then they have seen their stock price fall slowly.
In my opinion, the stock price of CHLN is undervalued for the following brief reasons:
- Company has had 5 consecutive quarters with better than expected financial result.
- Future growth looks prosperous with its two new projects: Park Plaza & Puhua Phase III.
- GeoInvesting has confirmed Operations
- Way undervalued compared to one of its competitors: China HGS Real Estare Inc. (HGSH)
- Lastly by my very simple future value and target price evaluation/estimate I performed below. All formulas used can be explained here.
I used data from the past 9 years. Please note that the real estate development sector's average P/E ratio is 32.40. If I had used that for my future P/E estimate, I would have gotten a future stock price of $20.72, which I know is unreasonable. I took the average and used only 25% of that to get a future P/E of 8.1.
It is in my opinion, after doing my research and evaluation, that CHLN is extremely undervalued. Even by using a very conservative P/E for my future stock target you can see the potential stock return. Combined with the fact that CHLN sees an average volume of only 247,684 shares, this stock could quickly appreciate with any significant volume increase and even see a run similar to one of its peers, Xinyuan Real Estate Co., Ltd (XIN) or HGSH.