Xinyuan Real Estate: Down, But Not Out

Aug. 20, 2019 12:20 PM ETXinyuan Real Estate Co., Ltd. (XIN)26 Comments
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  • Xinyuan reported solid Q2 2019 results, but there are still some risks to the story.
  • I do not believe that Xinyuan has a debt problem, but, in my opinion, this thought could change in short order.
  • I hold a Xinyuan position, and I plan to stay long the stock.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Start your free trial today »

Xinyuan Real Estate's (NYSE:XIN) stock is up over 11% so far in 2019, but XIN shares are still significantly underperforming the S&P 500 (SPY) over the last 8 plus years.

ChartData by YCharts

The poor stock performance has been a drag on the results for the R.I.P. portfolio, but, in my opinion, there are still reasons to stay long Xinyuan. Simply put, the stock is down, but it's not out.

The Results

On August 16, 2019, Xinyuan reported adjusted Q2 2019 EPS of $0.19 on revenue of $609.4M, which compares favorably to the year-ago quarter.

Source: Q2 2019 Earnings Press Release

There has definitely been some noise in the numbers related to the adoption of ASC 606, but, as shown, there is a lot to like about the Q2 2019 results. Highlights for the quarter:

  • Contract sales declined by 20% YoY (from $633.9M to $507.4M)
  • Total revenue increased by 71.3% YoY (from $355.8M to $608.4M)
  • Gross profit came in at $159.2M (YoY growth of 45.5%) with SG&A expenses as a percentage of total revenue down by almost 3 percentage points (from 10.3% to 13.2%)
  • Net income and diluted net earnings per ADS were $19.8M and $0.19, respectively, which were significant improvements from the Q2 2018 results (-$9.3M and -$0.10)

During the conference call, management spent a considerable amount of time giving investors an update on the foreign (i.e., non-China) properties, and I believe that the Hudson Garden and the UK projects have the real potential to be significant catalysts for the stock. Additionally, management mentioned that they applied to list the property management business in Hong Kong, which is a positive development for this company. Moreover, management also stood by their full-year 2019 guidance for contract sales (10% YoY growth) and consolidated net income (15-20%).

This all sounds good, right? It

ChartData by YCharts

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This article was written by

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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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