On May 24, 2013 I released an article entitled, "Why China Housing & Land Development Inc. Should Be Valued Over $3 Per Share" and recently CHLN has hit that mark. This is an approximate gain of 50% from my call in May. In that brief article I outline a few reasons/forward looking statements why I had valued CHLN over $3.00 a share. I also did a simple target price evaluation/estimate. I used 9 years of historical data and came to a stock price target of $4.50 a share.
Since my article, there have been many different news articles issued around the world about how Chinese property prices have been skyrocketing out of control. One article from the Global Times stated:
New home prices in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen in particular, soared over 20 percent year on year.
Another article from BBC news:
Property remains a popular investment choice in China and prices have now risen for nine months in a row.
And yet another from the Irish Times:
Property prices are on the rise in China, heightening concerns a bubble is forming.
With all those articles being printed it made me go back and revisit my research on CHLN. The company has continued to produce better than expected financial results. In fact, currently they have had 6 consecutive quarters of better than expected numbers. In its second quarter earnings call the CEO, Xiaohong Feng, talked about how they had been receiving increased revenues from their newer projects, Puhua Two and Three, Park Plaza, and the Ankang project.
Another piece of information from the call that I found to be a positive was when Feng said,
We plan to launch one additional project before the end of 2013, that has got delayed, which will represent one of our largest projects today.
The project is not expected to start adding any revenues for the third quarter but CHLN said they will begin receiving official presale's starting in the fourth quarter. This is just another way CHLN continues to grow its revenues and capitalize on the current real estate conditions in China.
One fear is that the Chinese government may have to enforce stricter policies to control property prices from going to high. The damages from a massive property bubble can have negative effects on the economy. But with that being said, property is just to important right now to China's economy and it is in my opinion that the government would be foolish to do anything drastic. Currently they should be trying to find a balance. Another risk I must point out is that CHLN is a stock that sees a very low average volume of 163,752 shares and has a smaller float of currently 24,040,000 shares. With that being said and with all lower float stocks, it has at times dramatic intra-day price swings and could be a risky investment for many.
It is in my opinion that the third quarter earnings for CHLN could blow expectations out of the water and continue to show great growth. It is not unreasonable to think that with all the new news surfacing about Chinese real estate prices growing so rapidly that CHLN is not also moving at a incredible rate. The combination of the positive market trends of China's real estate market and the growing of the development of CHLN should create another excellent quarter. CHLN should continue to receive more attention as more and more news breaks about China's property bubble. The shares could be poised for appreciation in the short term as the anticipation for earnings are right around the corner. Any real spike in volume could grab investors attention and send this to new 52-week highs. The long term also looks like a good investment with one of their largest projects in the works.
Additional disclosure: This article covers a foreign stock. Please be aware of the risks associated with these stocks.