Xinyuan's Q3 2017 Results: Another Good Quarter But Questions Remain

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WG Investment Research


  • The company reported impressive Q3 2017 operating results, but there were three items that negatively impacted earnings.
  • Xinyuan's capital return story keeps getting better.
  • Xinyuan is a long-term buy at today's price.

Xinyuan Real Estate (NYSE:XIN) is a hidden gem that has outperformed the broader market so far in 2017.

(Source: Nasdaq)

The outperformance over the last 10 plus months has been great but, in my opinion, the stock still has a lot of room to run. I have been impressed with this Chinese real estate company since I started following it years ago and the management team just gave me another reason to stay long -- the company reported strong Q3 2017 operating results and management again showed that they are running a shareholder-friendly company.

Q3 2017 Results, Another Good Quarter But Questions Remain

On November 9, 2017, Xinyuan reported what I would consider strong Q3 2017 financial results, especially when you consider the backdrop (i.e. government restrictions in China). The Q3 2017 highlights were:

  • For the quarter, contracts sales increased 15.1% YoY (from US$525.4M to US$604.5M) and total revenue increased 8.6% YoY (from US$444.3M to US$482.4M).
  • SG&A expenses as a percentage of total revenue was 10.6% for Q3 2017, which was down from the 12.1% reported in the same period of the prior year.
  • Net income declined 41% YoY (from US$28.0M to US$16.5M) and net earnings per diluted ADSs ("American Depositary Shares") was US$0.22 for Q3 2017 (down from US$0.41 for Q3 2016).

The top-line growth was impressive, but the declines in net income and net earnings per ADSs are somewhat concerning. When widening the lens, Xinyuan reported a 19% YoY increase in total revenue (from US$1.05B to $US1.25B) but a 29% YoY decline in net income (from US$62.7M to US$44.7M) for the nine months ended September 30, 2017.

(Source: Q3 2017 Earnings Release)

The company had a charge related to extinguishing some high-interest debt in Q3 2017, but, as shown, there were two other items that also negatively impacting earnings: (1) an increase

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long XIN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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