This article is a bit dated as it comes from August but it's a good summary of Chinese real estate company E-House Holdings (EJ). The risk with this company right now as I see it, is it is in many ways a direct play on how the Chinese are pulling the strings on loan growth. [Aug 12, 2009: E-House Holdings (EJ) Benefitting from China Housing Bubble 2.0] I have no idea of their future plans but for now they seem to have pulled back from an enormous loan growth rate in the 1st half of 2009, and ratched it back to something more akin to huge loan growth rate. But all things being equal I'd rather own the Century 21 of China over the Century 21 of Bubblemerica.

I bought a little more of this name today with the stock down nearly 5%, with the same strategy laid out in the piece right before this - keep riding the horse until it breaks the 50 day moving average at which point I'll stop out a good amount of the position. Of concern is the latest high is lower than the spike high of early August that came immediately after earnings. But nothing yells sell at this point. EJ is trading at roughly 23x 2009 estimates so not cheap on an absolute basis but relative to its growth rate its not outrageous.

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E-House (China) Holdings Limited (E-House) (NYSE: EJ - News) is a leading real estate services company in China. Since its inception in 2000, E-House has experienced rapid growth and is China's largest real estate agency and consulting services company with a presence in more than 30 cities. In addition to its national presence, E-House offers a wide range of services to the real estate industry through its various business segments including primary sales agency, secondary brokerage, consulting and information services, advertising and investment management.

Here is the Investors Business Daily piece - as always I enjoy their articles for providing a nice overview of a business.

  • Following last year's slump, China's housing market got kicking again in the spring. And so did E-House (China) Holdings (NYSE:EJ - News), one of the country's largest residential real estate brokerage firms.
  • The company also operates a real estate database and consulting service. That business is in the early stages of getting spun off as a separate, U.S.-listed company in combination with the real estate unit of Chinese Web portal Sina (NasdaqGS:SINA - News).
  • Developers often outsource sales functions to real estate services firms such as E-House, which employs more than 3,500 sales professionals. Though it's a leading player in and around its base in Shanghai, E-House has expanded to many other cities in China.
  • As buyers returned to the market, E-House's business picked up. In the second quarter, it sold 183% more in total square meters than in the prior year's Q2, for a total of 1 million square meters, or 328 million square feet.
  • If units averaged 500 square feet, that would come to around 656,000 units. The value of new homes sold jumped 172% to $3 billion.
  • Good thing there's volume and rising prices because sales commissions are much lower than in the U.S. -- under 2%. E-House commissions rose from 1.19% in the first quarter to 1.38% in the second quarter.
  • E-House's revenue grew 48% to $63.5 million, and profit climbed 71% to 24 cents per American depositary receipt, or $19.3 million in net income. In 2008, profit had dropped 20% from 2007, the market peak. E-House's management said on Aug. 12 it was one of the earliest and biggest beneficiaries in the market rebound.
  • With a strong pipeline from developers who've hired E-House to sell new units, the company forecast even greater growth in the third quarter, a 98% to 103% jump in revenue from the year-ago period to $78 million to $80 million.
  • The firm says it's the exclusive sales agent for more than 40 projects across China. Many of its rivals are local or regional outfits -- or developers who opt to sell their own units.
  • E-House's biggest client, analysts say, is developer Evergrande Real Estate Group, which is preparing a $1 billion public offering in Hong Kong.
  • The firm, founded in 2000, also sells existing homes, a much smaller part of its overall business. That business took in $5.7 million of the $63.5 million in second-quarter revenue vs. $41.2 million from primary new developments.
  • Its real estate consulting and information services division posted $13.7 million in second-quarter revenue, up 23% from the prior year.
  • Sell-through rates topped 70%, up from 30% to 40% in the second half of 2008. Backlog for 2010 and 2011 has doubled in recent months.

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This part regarding the portal/proposed IPO was new to me...

  • A key part of that division is E-House's proprietary real estate database and analysis system, called China Real Estate Information Circle System, or CRIC for short. In February, E-House joined with Sina to build an online real estate portal in China. E-House licenses CRIC to the new venture. Sina is the majority owner.
  • Their ties deepened more recently when the two agreed to merge E-House's real estate information and consulting business and Sina's online real estate ad business in a separate firm named CRIC.
  • Under terms of the proposed IPO on a U.S. exchange, E-House will be the majority shareholder and Sina the second-largest shareholder.
  • Analyst Keung said of the proposed IPO: It's a chance to further leverage the business. He estimates the venture will add $30 million to $40 million in revenue next year and help E-House's bottom line.

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Should sound familiar...

  • The government eased lending policies late last year to get buyers back in the market after the global recession slowed China's economy and demand for new homes. Government actions, including a $586 billion stimulus package, worked, as did price cuts by developers. Demand spiked. And prices started rising, some say, too fast.
  • Prices are definitely up, but still below the peak in many cities, said analyst Paul Keung of Oppenheimer & Co. in a phone call from China. We're probably in the middle of a long secular growth trend in the sector, but it will have cycles.
  • The pace (of China's housing market) in the second half will continue to grow, just at a slower rate, Keung said. We're going from 50% growth to 30%, not 50% to zero.

Long E-House Holdings in fund; no personal position