Introduction

Xinyuan Real Estate (XIN) has been getting better press recently. For example, one scribe recently wrote: “

“After reporting 26.6% revenue growth in 2015, with growth accelerating in 2H15, the stage is set for accelerating revenue growth in 2016. Contract sales outpaced revenue growth for yet another year in 2015. The revenue-to-contract sales ratio has been approaching record lows, and will rebound as projects are completed. With contract sales also projected to grow another 10-15%, I expect another strong year of revenue growth.”

The result of positive news has been an increase in its NYSE price from $3 to $5 in less than 12 months. And even at $5, it has a P/E of only 5.54 and a dividend rate of 4%.

XIN just released its financial report for the first quarter of 2016. It sounded good. Sales and profits were up when compared to the first quarter of 2015. But also, it indicated that recent land purchases financed primarily by debt. The more debt/leverage, the greater are the chances for boom or bust. Below, I consider these issues more closely along with other points in the report that got my attention. My information sources include XIN’s quarterly report and earnings call, along with Konecko Research. Konecko is a China-based business news site that does a good job of covering XIN developments.

Revenues and Profits Up

XIN reported:

“In the first quarter of 2016, the Company’s total revenue increased 41.2% to US$235.4 million from US$166.7 million in the first quarter of 2015. Net income for the first quarter of 2016 was US$6.9 million ($6.1 million attributable to XIN shareholders) compared to US$4.5 million for the first quarter of 2015.”

This positive news should probably be assessed against a broader frame of quarterly results and this is done in Table 1. Revenues and profits, when looked at against the last three quarters are disappointing. Are we talking about a seasonal problem here? Is the first quarter regularly weaker than other quarters? A comparison with other 2015 quarters suggests that this might be the case. But the seasonality argument does not hold up when the 2014 numbers are viewed: there, the first quarter results were better than the second and third quarters.