Xinyuan Real Estate (NYSE:XIN)

Xinyuan Real Estate Co is a mainland China property developer, who typically erects apartment buildings between 6 and 43 stories tall. They also develop retail outlets, leisure and health facilities, kindergartens and schools, small-scale residential properties, and office, mixed-use and commercial properties. A small (yet still expensive) apartment is the typical home purchased by middle class Chinese. Xinyuan has 22 current Chinese developments, with 11 of them in Zhengzhou, the rest in other Tier 1 or Tier 2 cities.

It has been a boom and bust business for Chinese builders in the past decade, with overbuilding in some smaller cities, and continuing pent-up demand in wealthier cities such as Beijing, Shanghai and the southern manufacturing mecca of Shenzhen. The housing market in China is heavily influenced by central government policies, which are often geared toward dampening financial overleveraging, and discouraging real estate speculation.

China is less than a year into a new 6%+ growth phase, and that has typically boded well for real estate, which is by far the largest segment of the internal Chinese economy.

Xinyuan has had no sell-side analyst coverage since 2010. Count of outstanding common shares went from 131.4 million in Dec 2016 to 164.8 million in Nov 2017. The US-traded American Depositary Receipts (ADRs) are each backed by two shares of common stock deposited with JP Morgan Chase Bank. There were 42.25 million ADRs reported in Dec 2017, but in Nov 2017 there was a filing with the SEC for newly registered 50 million ADRs. In Nov and Dec 2017, the company issued a total of $300 million of 8.875% senior notes due in 2020.

All in all, Xinyuan has recently geared up its leverage with increasing debt financing. Total assets increased by $2.2 billion by Q3 2017 while equity increased by just $100 million (their Q4/year-end filing is due out shortly). Their reported landbank increased to 4.9 million sqm in 2017 from 2.2 million the prior year. Their 2017 usage was about 1.4 million sqm.

Xinyuan describes itself in China as an “International Technology and Real Estate Conglomerate”. All of Chairman Zhang’s public appearances promote the company’s blockchain research. XIN's unit of Blockchain Tech (Ruizhou Technology): has the third highest number of patents among Chinese blockchain companies. On the other hand, a majority of CEO Zhang’s public appearances promote the company’s development of technology-focused business parks. Xinyuan’s Chinese public relations announcements have described parks under development in Zhengzhou and Qingdao/Pingdu. The company has also negotiated with local governments regarding potential parks in Tianjin, Changsha, Wuhan, and Dalian. But the company communicates much less with its US investors, often with almost no information about these initiatives that are so publicly discussed within China.

Metrics to watch include the value of "Real Estate Development Properties Completed", as interest expenses on finished but unsold properties is about 8.8%. Also while revenue growth has been strong, Xinyuan has been trading at the low end of peer valuation multiples, partially because of their lower profitability margins. Their P/E ratio was as low as 2.2 in 2014 just as Chinese real estate last peaked, and still is only 6.4 today. Over the last decade, Xinyuan stock has often appeared cheap to potential investors, but sometimes it has been an illusion, as the E in P/E suddenly faded away.

Price: 6.10 | Annualized Dividend: $0.40 | Dividend Yield: 6.6%

If the numbers are legit, then this is a very good buy at this price. By my book, it's worth at least $600 M (or about $9 / share), and trading at a market cap of $300 M ($4.47 / share ). I like that's it's been paying a dividend recently, and if it keeps paying 0.10 quarterly, that would mean nearly a 9% yield. So maybe... get paid 9% a year while I wait for my investment to double. Sounds like a game plan to me.