Xinyuan Real Estate: An Investment in Chinese Growth

Most of my recent posts have been a bit on the boring side- (closed end funds and solid blue chip companies) so I thought I would write about a more speculative China stock today, similar to my SSRX post of a few months ago.

Xinyuan Real Estate (XIN) is a residential real estate developer that focuses on building large scale quality residential projects for the middle class. It typically builds multi-layer apartment buildings together with auxiliary services and amenities, such as retail outlets, leisure and health facilities, kindergartens and schools.

Here are some of the reasons I like XIN as a longer term investment:

1. The stock seems pretty cheap. The forward PE ratio is only five times earnings. The 5 year PEG ratio is only 0.12, but this is only based on one analyst.
2. The upcoming Expo 2010 Worlds Fair in Shanghai should be bullish for China stocks in general, and should help companies like XIN. I was fortunate to attend the 1964 NY World Fair as a child and it left a lasting impression on me. I checked the returns of the Dow Jones Averages for 1963 and 1964:
   
   • 1963: +17%
   • 1964: +14.6% (not bad)
3. Many China stocks are coming off a sharp correction early this year and may be poised for another bull run heading into the 2008 Olympic Games followed by the Shanghai World's Fair in 2010.
4. The recent earthquake in China has created more of a need for real estate construction companies.
5. XIN reported strong growth in the first quarter and will be reporting its second quarter results on June 3. I expect the stock to do well heading into the earnings announcement.

Full Disclosure: I have a small starter position in XIN and plan to add more shares on price dips.

Comments

[Securities ...:]

You are spot on. XIN is a company in which I hold shares as well as call options. The Chinese middle class are uninterested in returning to the old ways of living in starkness, dispair, no running water, laundry or bathing facilities, etc. Now that they have a taste of the middle class they want more. Their purchasing power has been locked up for a significantly long time and now that they're changing to a consumerist society they're looking to upgrade their diggs.

They have a population problem - demand exceeds supply for housing/shelter and the population has the financial means to fix the problem.

Sentiment: Significantly Strong Bullish Outlook for near and long-term.

2008 May 20 07:01 AM

[Philip Obal:]

XIN is definately targetting the middle class who has purchasing power. It's buildings are high quality for middle to upper-middle class. Demand is there.

I expect earnings to push the stock price much higher!

2008 May 20 09:26 AM

[User 381735:]

This is actually a pretty exciting concept, that is investing in foreign companies such as you have. A lot of people begin to lose money when our economy falls to a low point like right now, but they may not realize that many foreign markets are still going strong and making plenty of money for their investors.

I will certainly be looking into this a little further, these foreign markets may just be where the money is at.

Jessica
Real Estate License Direct

Mar 23 11:59 PM