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Brett Mayo
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I'm a happy go lucky guy. I love the city I live in (Nashville). I'm a devote follower of Ben Graham, Warren Buffett, Peter Lynch, John Bogle, Ben Franklin, Charlie Chaplin, Charlie Munger, and you!
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  • Review Of Xinyuan's 20-F Annual Report

    I spent the weekend going through Xinyuan's 20-F report; and here's a 10-second takeaway / highlights from the report.

    First I should disclose, I am long XIN; and I have a vested interest in the Stock / Company doing well over the long-pull.

    Now the highlights:

    What Xinyuan does:

    Xinyuan Real Estate Co., Ltd. develops residential real estate properties for middle-income consumers, primarily focusing on selected Tier II cities in China. They also have some properties in the US (with the primary one in New York City's Williamsburg district).


    Xinyuan has a book-value around $12.20 per Share, vs. a current market price of $4.30 as of this writing. They are trading at 35% of book-value. Which means the shares can be picked up for 65% off. The Stock trades at a P/E of 3 X's (which is a yield of 33%), and pays a 4.5% Dividend.


    The above leads to some frustration on my part, because Xin is not being as aggressive with their buyback program as they should be. They have $60 million + of authorized money to buy back shares between now and 2015; and I don't know why they aren't being more aggressive at these low prices.

    In their defense, they have been super-aggressive with new projects; and that is tying up a significant part of their cash. And, in the long run, these projects will lead to increased revenues and profits. Still, buying your own company for 65% off would be immediately accretive to the eps figures.

    Corporate Jet:

    Xinyuan bought a jet to use for corporate purposes. Payments on this jet are $1.5 million per quarter. Now, they earn about $120 million per year, so they can surely afford the $6 million per year for the jet. However, I'd like to see exactly how they figure a jet is a better use of capital than repurchasing shares, or raising the dividend, or buying more land. If Xinyuan was trading at 150% of book, and 40 X's earnings; hey, go for the jet! But, trading at 3 X's earnings, and 35% of book, you should probably pass on the jet.


    Simply put, Xinyuan's future has never looked so bright! In the last two months they've spent $259 million acquiring land rights for development. Here's a company with a Market Cap of $338 million, that spent $259 in the last couple months. Net-Income runs around 14% of revenues (for Xin); I'd conservatively expect these two projects to add $36 million in net-income. One projects is in the suburbs of Shanghai, the other is in Changsha City.

    They have 28 completed projects under their belts since 1997.

    They have acquired 13 land parcels (9 development projects) in the last 8 months or so. In the company's history the have never had a more optimistic future.


    They will have very strong pre-sales in 2014, and it is this author's opinion the stock price will rise to meet its' business value. Stock price and intrinsic business value eventually meet. It is never a straight shot, and they can differ wildly over time; but one day this stock will rise to meet it's underlying business value.

    What to know up front:

    This is a Chinese real-estate, and as such it is crazy volatile. Warren Buffett once said, "I'd rather have a lumpy 15% return on capital than a smooth 12%." I tend to agree with him. So, if you have the stomach for it, I think this is a great opportunity.

    TPG Capital has warrants to buy XIN at $6 per share. They have warrant on 25 million shares (12 million ADSs). If XIN gets above $6, TPG may exercise the warrants and dilute the current Shares.

    If you're looking for a low Beta stock this ain't it.

    Final: If anybody wants more info, feel free to comment and I'll try to answer as I am able. Thank you for your time!

    Disclosure: I am long XIN, SFUN.

    Apr 28 1:27 PM | Link | 14 Comments
  • Xinyuan Is Benjamin Graham's Dream Come True!

    There has been a lot of hesitation with writing this article. So much good work has been done already with Xinyuan, that I don't offer much original thought to the debate. That said, let's get started!

    Xinyuan (Ticker: XIN) is a Chinese real estate developer, focused on residential properties for middle-income consumers, primarily focusing on selected Tier II cities in China. You can think about high-rise middle-income apartment complexes, within a city, and that gets you close to what they do. Xinyuan also does auxiliary services and amenities, such as retail outlets, leisure and health facilities, kindergartens, and schools.

    But why should you invest your hard-earned money in this company? Good question!

    The Stock of Xinyuan is mis-priced. By every single financial measurement I can think of, this Stock is under-valued. Here's a breakdown of some common metrics:

    P/E (Price/Earnings) = 2.2 X's (for an earning's yield of 45%!). Anyway, you slice that, it's cheap. An American company selling under 10 X's (earning's yield of 10%) is cheap. We're talking about Xinyuan being 70%-90% under valued. They earned $159 Million in net-income (after salaries, bonuses, taxes, etc.), and yet the entire company could be bought for $347 Million on the open Market, which works out to $4.87 per Share.

    Book Value = $11.55 per Share. The Market is saying this company is worth significantly more dead than alive. Yet, this thriving enterprise employees over 500 people, and earns over $100 Million per year. This company is currently trading at 42% of their book / liquidation value. Bargains like this are rare. I will acknowledge, I can't predict the timing of when this situation will correct itself; but I can come to conclusions about Xinyuan being terribly mis-priced.

    Price/Sales = 0.39. They did close to $900 Million in Sales last year (with terrific margins), and look to repeat that this year.

    Dividend = 4%.

    *for non-math nerds, you can skip this next paragraph and go straight to the $60 Million Share Buyback part.

    Relative Graham Value / Intrinsic Value = $32.93 Ben Graham, the father of value investing came up with a formula for intrinsic value. The formula is "Value = Earnings per Share(8.5 +2g)"...g stands for annual growth rate. I used 5% as a super-conservative guess for the future growth rate. Here's the math. Value = $1.78 EPS multiplied by (18.5). Value = $32.93.

    $60 Million Share Buyback. This Share repurchase goes through 2015 (and they should accelerate it to take advantage of these low prices). Anyway, at today's prices the buyback will cut the outstanding Share count by 17%.

    So, a 45% earning's yield, plus a 4% dividend, plus a 6% share reduction (per year); that comes out to a 55% return on investment. If that doesn't get you excited, check your pulse!

    Other reasons to buy Xinyuan:

    TPG Capital invested $109 Million into Xinyuan common shares and convertible notes. A large private equity firm like TPG putting up millions is a huge vote of confidence in Xinyuan's future. You can bet your bottom dollar that TPG did a huge amount of due diligence (site visits, cash audits, meetings with Management) before putting millions at risk.

    The founder and co-founder of the company still own about 40% of the company's outstanding shares. You can bet the founder's want the stock to perform well too.

    Despite the doom-and-gloom stories about ghost cities, China moves on. I mean, this fascinating article came out just this week;

    Urbanization in China will continue. Around 53% of the Chinese population now lives in Urban areas, up from just 26% in 1990. And, there are predictions for around 70% in cities by 2035. Even if that proves overly optimistic, make no mistake; the trend from rural to city will continue. And, Xinyuan building in Tier II cities should bode well for this urbanization move. My hypothesis is Tier I cities (Beijing, Shanghai, etc.) have already experienced the hyper-growth phase; and it should be easier for Tier II cities to continue growing at reasonable levels.

    Another Chinese real estate company; Soho China Ltd (Ticker: 0410 , Hong Kong Exchange) has largely rebounded off their 2008 low's. Soho has risen almost 200% since their 2008 bottom. While no slouch, XIN has risen about 125% since their 2008 bottom.

    Okay, time to wrap this up. I'm sure people will bring up the SEC judge barring the Big Four Accounting firms being suspended from auditing U.S. listed Chinese companies for 6 months (the accounting firms have already appealed this decision). It is a big deal, I don't make light of it; but if anything, this ordeal has offered an even better price for a great company.

    Warren Buffett said, "I prefer a lumpy 15% return to a smooth 12% any day." Well, owning Xinyuan will be lumpy. But, in the long-pull, owning Xinyuan may be the best investment decision you'll ever make.

    Please let me know your thoughts, I look forward to a very lively debate in the comments section below!

    Disclosure: I am long XIN, GLW, BRK.B, BKE, CYAN, .

    Additional disclosure: I am not a professional security analyst. I do however enjoy investing, and learning everything I can about business. But make no mistake, my article should only be used as a starting point for further research. I wish you the best!

    Jan 25 12:38 PM | Link | 8 Comments
  • Confessions Of A Gambling Value Investor

    I've read Phillip Fisher, Benjamin Graham, Warren Buffett, and Peter Lynch, so Ishould know how to behave.

    I shouldn't worry about the gyrations of a stock price and should focus on the underlying business.

    However, I now find myself checking stock futures before getting out of bed in the morning, checking stock prices on my cell phone while driving (which is illegal I think), and the last straw...I put my cell phone in a ziplock bag to check stock prices while showering.

    I'm a dude. It takes me five minutes to shower. How much could possibly change in the five minutes I'm in the shower?

    Ok, let's be real here. Gambling is fun; and the stock market can have some casino like qualities (sure wish I could order a bloody mary from my stock app on my iPhone), but I should know better.

    I believe Warren Buffett being in Omaha gives him a supreme advantage over being on Wallstreet. Also, Sir John Templeton had the best performances of his life after he moved to the Bahamas and received the Wall Street Journal on a one week delay.

    Investing should be fun. If it's not, you're doing it wrong. But I need to derive more fun from learning about businesses, and less fun out of watching the stock price 'beep' and 'boop' all over the place. (Seriously, those noises are about to drive me bonkers.)

    Ben Graham lays out a good strategy in The Intelligent Investor about a proper portfolio allocation. I'm currently in the range that would make him proud, and now I just need to let it ride.

    Here's a new rule for myself to keep me in check: Check my stock prices only twice per day.(whaaaaaaaaaat?!) Once in the morning and once around closing time.

    The stock doesn't know I own it. So habitually looking at it doesn't do either one of us (me or the stock) any good.

    Since I don't look at the stocks as much on down days, if we get a huge market correction, I wouldn't need to take my own advice at all anyway.

    Disclosure: I am long GLW, BKE, BRK.B.

    Additional disclosure: I'm not a financial advisor, I'm just some dude that gets a lot of joy out of saving money and investing it.

    Jun 24 12:54 AM | Link | 2 Comments
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