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WIKI ANALYSIS
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E-House went public in July/August 2007. It is the leading real estate services company in China, with most of its business currently centered in Shanghai. Neil Shen (Shen Nanpeng), founder of Ctrip (NASDAQ:CTRP) and HomeInns (Nasdaq:HMIN)is an early investor, board member, and holder of approximately 11% of the shares.
Real Estate in China, and especially Shanghai, is booming, and EJ's business should grow rapidly. The market and the company should be immune to any slowdown in the US housing market or economy overall, but they are vulnerable to PRC government measures aimed at cooling the housing market, though to date those measure have been mostly ineffective.
Business
E-House advertises and sells homes to individuals and collects a selling commission on each transaction. Currently the company generates the majority of its revenue from its primary real estate agency services. The primary services essentially denote that this is the first time the property in question has been sold on the open market.
Developers rely on EJ to sell these new homes, and, in a tightening market, they will be even more likely to retain a professional agency instead of trying to sell the properties themselves. Furthermore, EJ has begun “pre-selling” arrangements with developers, where the company essentially pays for a portion of the developers' inventory and then collects that capital back once the sales are complete.[1]
In addition to the primary real estate services, the company also is active in secondary real estate transactions. This represents transactions between existing homeowners who are selling to new buyers. While this only represented about 10% of revenue for the fourth quarter, it looks to be a growing part of the business as the company consolidates and strengthens its 160 regional locations across five Chinese cities. Strengthening this portion of its business provides diversification from the primary market and gives the company additional choices to offer its purchasing customers.
Finally, E-House has a consulting and information services arm that is expanding quite rapidly. A new database product dubbed CRIC has been built and is now in the process of being rolled out to paying subscribers. One key relationship has been cemented with Sina.com (SINA) which should give the platform strong visibility among those searching for houses.
Financials
The company pulled in $121m in revenue for 2007 which translated to earnings of $0.56 per share. Management is guiding expectations for 2008 of $210-240m in revenue which would essentially double last year's at the high end. Analysts believe that this guidance is extremely conservative when looking at the selling agreements signed with certain development projects as well as the added benefit of the database subscriptions. The consensus earnings numbers for 2008 and 2009 are $0.87 and $1.18 which appear to be realistic given EJ’s strength in the market.
Notes
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