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Don’t Count Out Chinese Real Estate

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Xinyuan Real Estate (XIN) is a big residential property developer in China. As of the end of 2010 they had completed 21 projects. Those 21 projects had a combined size of over 2 million square meters and totaled 23,324 units.

XIN is a vertically integrated company… because they really do it all.

Xinyuan focuses on building apartment buildings. These high-rise and sub-high-rise structures include all the necessary amenities… like retail outlets, health facilities, and even schools.

The company’s strategy is simple.

They focus on developing China’s Tier II cities with solid population growth and good economic activity. XIN’s really focusing on seven strategically selected cities. This gives their growth strategy good focus.

An important part of XIN’s strategy is location. By picking the more affluent and rapidly growing Tier II cities they’ve secured a healthy level of demand.

One of their new projects, Chengdu Splendid, was just launched in May 2011. In May and June alone they sold 11% of the total square footage. That accounted for $74 million of XIN’s sales in Q2.

They also know when to start cutting prices on their properties that aren’t moving. They nearly tripled sales in their Xuzhou International City Garden project by lowering prices a bit.

As a way to expand their business, they also offer other industry related services from property management to landscaping.

Xinyuan has been busy, and it shows in their financials.



Xinyuan released their 2011 numbers on April 16 2012. Year-over-year revenue increased 52.7%, with XIN reporting revenue of $687.5 million for the quarter.

You would think that year after year of huge revenue increases would cause a company to grow lax on expenses. Not with Xinyuan. Gross margin was up big during 2011. For the whole year gross margin was at 29%, considerably better than the already great 25% of 2010. Their selling general and administrative expenses dropped from 7.3% of revenue in 2010 to 6.3% of revenue in 2011!

They’ve not only  been able to hold expenses low while aggressively growing revenue, but they have actually managed to lower them… just look at their amazing net income numbers.

XIN’s net income increased over 100% from 2010 to 2011! In 2010 the company reported net income of $51.1 million, in 2011 it was up to $102.3 million.

As a result, their earnings-per-share have increased over 100% from last year.

In 2010 the company had a diluted earnings per share of $0.33, compared to $0.26 the previous year. In 2011 that was up to $0.68 a share!

The company’s balance sheet looks strong with $319.2 million in cash at the end of 2011, and only $113.1 million of long term debt.