China HGS Real Estate Inc., while relatively small, is a leader in the Chinese residential property development sector; pound-for-pound one of the best operations running, as evinced by their 2Q FY10 (ending March 31) financial data which was released today, showing a massive 1,300% jump in revenue.

Despite increasingly stringent domestic real estate market policy requirements from the Chinese government, CAHS saw continuous strong demand for its Hanzhong developments where, thanks to the strength of the CAHS brand’s identity, extensive marketing initiatives, a larger inventory of units on hand, and rising income levels in second- and third-tier cities, the Company achieved new performance records.

CEO of CAHS, Mr. Xiaojun Zhu, commented on the rapid growth despite unfavorable market conditions, particularly in second- and third-tier cities, citing “remarkable growth in personal income in Hanzhong and the surrounding areas” as the primary factor driving new living standards and housing quality demands – a factor which he contends will generate sustainable sector growth for the foreseeable future.

Mr. Xiaojun Zhu detailed the extensive corporate governance requirement initiatives undertaken thus far, and posited that the Company was in good shape to be listed on a major US exchange, as CAHS has effectively established a solid board now led by Ms. Shenghui Luo, with a majority of directors being independent (recent appointments include Mr. Gordon Silver, Mr. David Sherman and Mr. Yuankai Wen). CAHS has also created committees for auditing, compensation, nominating and corporate governance.

Among the 2Q data are a variety of extremely positive indicators:

• Revenue up 1,315.1% to $13M ($0.9M in 09) on strong sales at the Company’s Mingzhu Garden (51.5% of sales) and Yangzhou Pearl Garden (48.5%) locations
• Gross Profit up 1,115.4% to $5.7M ($0.5M in 09)
o Total Operating Expenses up 251.4% to $0.4M or 3% of revenue
o Selling and Distribution up 988.9% to $144,090, or 1.1% of sales
o General and Administrative up 150.8% to $0.2M (stock listing associated)
• Gross Margin down 7.1% to 43.4% due to rising labor and material costs
• Net Income up 1,461% to $5M ($0.3M in 09) or an EPS of $0.11/share
• Operating Income up 1,384.0% to $5.3M
• Operating Margin up 1.9%

With the Ming Zhu Xin Ju, Ming Zhu Nan Yuan Phase II in Hanzhong, Mingzhu Garden in Hanzhong and Yangzhou Pearl Garden in Yang County – projects all currently in development phase – the strong financials will soon have lots of room to stretch out, leading to substantial downstream return on investment capital to the Company’s shareholders.