China's housing market is red hot again.
E-House China Holdings Limited
), one of China's largest real estate agencies, has beaten the
Zacks Consensus Estimate by wide margins the last 3 quarters. This
Zacks Rank #1 (Strong Buy) is expected to see triple digit growth
in 2013 and 2014.
E-House provides real estate services in about 250 cities in China
including online advertising and e-commerce, acting as a primary
sales agency, secondary brokerage services, information and
consulting services and real estate management.
300% Earnings Beat in Q2
On Aug 16, E-House reported its second quarter results and blew by
the Zacks Consensus Estimate by 300%. Analysts had expected a loss
of $0.04 but E-House reported profit of $0.08.
Revenue jumped 43% to $163.4 million led by the real estate agency
group and online services. Online services saw revenue soar 79% to
$71.9 million. The real estate agency services group saw revenue
rise 38% to $62.6 million.
Online services has been two years in the making. The upgraded 3.0
version of the e-commerce platform launched to customers on June
18. As of Aug 15 it had signed 986 e-commerce contracts with its
developer clients. This platform is expected to be a big revenue
driver in future quarters.
Raised Revenue Guidance
After a huge second quarter, E-House raised its full year revenue
guidance to $630 million from its previous guidance of $600
million. That's a 36% increase from 2012 which had revenue of
China's Housing Market is Red Hot
Since the financial crisis, as housing prices rose, the Chinese
government became concerned enough about the possibility of a
housing bubble that it tried to cool the housing market.
It instituted new mortgage down payment requirements. In some
cities, it also restricted the number of properties a single person
could own in order to cut down on speculative investment.
These new regulations did cool the housing market. But this year,
as the Chinese economy slowed, the new leadership hasn't been as
willing to slow the price increases.
Since the new leadership took control in March, it hasn't
instituted any new housing regulations. In an economy where there
is almost no other investment options, besides stocks, which aren't
considered a good investment by a majority of the population, that
leaves only housing.
For many Chinese, housing is still considered a "sure thing." In
August, home prices in China's largest cities rose over 20% year
over year, the largest increase in the last 3 years.
As long as the government doesn't move to tighten housing,
companies like E-House should benefit.
Analysts have turned bullish. Just 90 days ago, E-House was
expected to earn just $0.01 in 2013. Now, the Zacks Consensus
Estimate is calling for $0.17.
Shares at 1-Year High
Investors ignored E-House until its second quarter earnings report
and then the stock soared.
The shares aren't cheap. It is trading with a forward P/E of 54.
But it has tremendous earnings growth. E-House is expected to grow
earnings by 142.3% in 2013 and another 103% in 2014.
For investors looking for a play on the Chinese housing market,
which is one of the hottest in the world, E-House is one to keep on
the short list.
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She
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E-HOUSE CHINA (EJ): Free Stock Analysis Report
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