Thursday, February 16, 2012

Xinyuan Real Estate Q4 Earnings Preview

XIN is scheduled to report its Q4 2011 earnings on February 23rd, 2012.  A week from today.

As we noted previously, estimates are for XIN to turn in an earnings report showing $0.33 per ADS in net income on 181m $USD in revenue.  

As we also noted, there appears to be a slight disconnect in the analyst projections with what the company is projecting.  Kun Tao at Roth Capital partners projects $0.33 EPS, but the company's range for net income appears to be $0.35 to $0.40, even assuming no shares were bought back.  The share repurchases that we speculated were approximately 1.7m ADS's repurchased during the fourth quarter may add another $0.01 onto EPS for the quarter. 

Recently, a Chinese news article was published on Soufun that "appears" to state that XIN has 5.1m RMB (or $810 million USD) in contract sales for the full year in 2011.  I say "appears" because the article is in Chinese and Google Translate is marginally confusing, although on the Yahoo Message Boards some posters claiming to understand Chinese stated that this translation was correct. Here is what the article said:

对于房地产企业来说,百亿是一个具有象征意义的数字,越过这一门槛,表明企业发展进入一个更高的阶段。因此,不少大型房企纷纷将冲进百亿俱乐部,作为企业近期发展目标。
2009年底,鑫苑提出2010年销售额要达60亿~70亿元,2011年要超过100亿元,进入全国百亿俱乐部。正商也曾经在2011年响亮地喊出了“全年销售收入要达到100亿元”的目标。
但是事与愿违,受到限购、限贷等宏观调控政策的影响,鑫苑2011年实际完成51.06亿元,与2010年50亿元的销售额基本持平。而正商地产反差更大,2011年全年的销售额仅26亿元,相对于2010年52亿元的销售额,减少了一半。
倒 是没有喊口号的企业,走势更加稳健。比如建业地产,在人们“被边缘化”的担心中,交出了一份亮丽的答卷,2011年的合同销售额为81.2亿元人民币,同 比增加48%。升龙虽然也受到了较大冲击,但相对于80亿元的销售目标,2011年50.1亿元的销售额也还差强人意。
而外来房企在河南市场的抢眼,进一步表明,现在和未来的市场,都将是实力房企的天下。
面对这样一份成绩单,有的房企得意,有的房企失意,但这些都只是表象,在企业或风光或黯淡表象背后,其实有合乎逻辑的解释。


Got that?  Anyway, assuming this reported number for full-year contract sales is correct, it would mean contract sales for the fourth quarter in the amount of approximately $230m USD, above the company's estimate of between $180m and $200m, which is also what the company guided for revenue.  It should be noted that revenue has traditionally been lower than contract sales, under the percentage of completion method of accounting the company uses.  Here are the numbers for the past couple of years.


2011 Q3: $213.3m Revenue.  $257.1m Contract Sales.  Revenue/Contract Sales = 82.96%
2011 Q2: $182.7m Revenue.  $225.3m Contract Sales.  Revenue/Contract Sales = 81.09%
2011 Q1: $91.8m Revenue.  $98m Contract Sales.  Revenue/Contract Sales = 70.69%
2010 Q4: $137.2m Revenue.  $194.1m Contract Sales.  Revenue/Contract Sales = 70.68%
2010 Q3 $107.6m Revenue.  $151m Contract Sales.  Revenue/Contract Sales = 71.26%
2010 Q2 $94.5m Revenue.  $97m Contract Sales.  Revenue/Contract Sales = 97.42%
2010 Q1 $110.7m Revenue.  $143.4m Contract Sales.  Revenue/Contract Sales = 77.2%


Picking a percentage purely out of thin air using these historical percentages, the average percentage of Revenue/Contract Sales is 82.04%, which applied to $230m USD in contract sales for Q4 would give a revenue number of $188.37m.  This would be within the company's guidance and likely set XIN up for a beat of the $0.33 EPS estimate. 

However, if the low end of the historical percentage (70.68% from 2010 Q4) were to be applied to the hypothetical contract sales number, the result would be $162.29m in revenue for Q4, below the company's guidance and likely setting up a miss of the earnings target.   Alternatively, if the high end of the historical percentages resulted, the result would be $223.68m in revenue, setting up a huge beat. 

So, the point being that the contract sale number from the Soufun article, even if a correct reflection of full year contract sales (i.e., including Q4), still says little about revenue for Q4 other than it is likely somewhere in the range of $160-$220m. 

Can anything be deduced from the fact that the company guided contract sales and revenue in the same amounts for Q4 2011?  Perhaps this suggests that the revenue number won't be too far off from the contract sales number.  However, the company has had a spotty record of accurately guiding the Revenue/Contract Sales percentages in the past.  In two quarters (Q1 of 2011 and Q3 of 2010) the company had guided for revenue in these quarters actually to be higher than contract sales, when of course this was not the case.  So again there is little insight into what the correct revenue number would be based on a contract sales number.

However, if the contract sales number is correct, it would suggest the company recorded more sales than its estimates suggest.  Which is not bad.

Disclosure: Long $XIN. 

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