Despite talk of a housing bubble in China and banks tightening lending, Chinese real estate development continues on. Still, investors are nervous about the sector and the stock valuations reflect that. China Housing & Land Development Inc. (CHLN), for example, is dirt cheap, trading at just 3.5x forward estimates.
China Housing is not new to the real estate scene. It has been in the real estate business since 1992. Headquartered in Xi’an, the capital of Shaanxi province, it specializes in land acquisition and development of both residential and commercial properties in northwest China.
It has also been listed on the NASDAQ since 2006, so it was not among the recent spate of IPOs. It has managed to weather the financial crisis as you can see from the long-term chart below.
It’s been a wild ride though.
China Housing Still Acquiring Land
On Dec 20, the company announced that it signed an agreement to invest with the Xi’an Baqiao district government to acquire land use rights to another 107 acres within its 487 acre development. The company will pay $75 million in installments from 2011 to 2012 for the acreage.
Development of the new acreage is expected to begin in the third quarter of 2012 and last for 5 years.
With the addition of the new acres, China Housing will have 3 residential projects underway in the Baqiao district, totaling 1.65 million square meters of gross floor area.
China Housing Beat Estimates in the Third Quarter
On Nov 12, China Housing reported its third quarter results and surprised on the Zacks Consensus Estimate by 1 cent. Earnings per share were 14 cents compared to the consensus of 13 cents.
It has surprised 3 out of the last 4 quarters and has a pretty positive track record of surprises in recent years.
Revenue rose 42.3% to $34 million from $23.9 million in the third quarter of 2009. But it did decline 7.1% from the second quarter of 2010.
Average residential selling price (ASP) rose 13.9% to RMB 5,694 from RMB 5,001 in the year ago period. It was also slightly higher than the ASP of the second quarter of 2010, which was RMB 5,641.
Outlook for Housing Demand
Not surprisingly, the company is still bullish on housing.
“We believe that overall demand for housing, average selling prices and transaction volume trends in the Xi’an market continue to improve,” said Mr. Pingji Lu, Chairman.
“According to data from E-House (China) and the Xi’an Bureau of Statistics, Xian’s residential sales in the third quarter of 2010 totaled 3.1 million square meters with an average selling price of RMB 6,560, a 2% increase in sales volume and 12% increase in sales price compared to the second quarter of 2010,” he added.
Bullish Guidance for 2010
The company expects a 62% to 97% increase in total contract sales in 2010. Revenue is expected to jump 56% to 91% to a range of $135 million to $165 million from $86.6 million in 2009.
Looking forward, the company believes it can grow revenue by 30% a year for the next several years as long as conditions remain stable.
Zacks Consensus Estimates Rise for 2011
Analysts are currently a little more bullish on the outlook for 2011 than 2010. While they expect 2010 earnings growth of 47%, the Zacks Consensus Estimate has actually fallen 2 cents to 47 cents in the last 60 days.
But the 2011 Zacks Consensus Estimate has actually moved up 6 cents to 87 cents in the same time period.
Clearly, analysts don’t see any slowdown in China’s housing market in the near future because that is earnings growth of another 85.8%.
CHLN Is a Cheap Stock
In addition to having a rock bottom P/E ratio under 4.0, the company also has a price-to-book of just 1.00.
With its growth rates, it also sports a PEG ratio of just 0.2.
Some of the cheapness is a result of the nervousness over the tightening of bank lending and concerns that the government will tighten other regulations further to contain growing speculation in the market.
The company reports fourth quarter results on March 14. That report should provide some light into how much bite the Chinese tightening is really having on the market.
China Housing & Land Development is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
CHINA HOUSING (CHLN): Free Stock Analysis Report
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