Xinyuan: China, Real Estate and Blockchain

02/09/2018 5:00 am EST


Briton Ryle

Editor, The Wealth Advisory

Xinyuan Real Estate Co., Ltd. (XIN) is a Chinese real estate developer and property manager that’s grown revenue by 96% since 2013 — from $898 million to around $1.8 billion last year, notes Briton Ryle, editor of The Wealth Advisory.

The company develops residential real estate properties such as multilayer apartment buildings, sub-high-rise apartment buildings, and high-rise apartment buildings for China’s ever-growing middle class.

It also develops auxiliary services and amenities in the nearby area. These include retail outlets, leisure and health facilities, kindergartens and schools, small-scale residential properties, and office, mixed-use, and commercial properties.

Its focus is on fast-growing metropolitan areas in mainland China. But it also has several successful development projects in Brooklyn, Manhattan, and Queens in New York City.

The company has paid a dividend since 2011 that it’s hiked twice — by a total of 150%. At current prices, it’s yielding more than 5% annually. From a fundamental standpoint, it’s a solid investment. Management is very good about returning profits to shareholders through stock buyback offers, as well.

It has real revenue, positive earnings, and serviceable debt levels. And from a valuation perspective, it’s an investor’s dream. The company trades at about a 50% discount to its book value, a 76% discount to its enterprise value, and with a P/E ratio 79% lower than its industry peers.

And there’s a catalyst that’s poised to drive the price through the roof in the coming years. In July 2016, Xinyuan announced that it had entered into a strategic partnership with IBM (IBM) to develop its new blockchain-powered real estate finance technology platform.

This is IBM’s first blockchain cooperation in China, and the potential is massive. Xinyuan expects that the platform will be able to support various types of applications, including consumer finance, investment and financing, and industrial finance, by connecting investment and financing institutions, credit bureaus, and merchants.

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The platform connects homeowners with broad channels for financing opportunities while enjoying the safety, transparency, and convenience afforded by IBM’s blockchain technology. And it’s supported by the Industrial and Commercial Bank of China (ICBC).

That development on its own could be huge. But last month, news hit that Xinyuan’s blockchain technology will be used by the Shenzhen local financial regulatory information system to help control China’s massive person-to-person (P2P) lending market.

China hopes to use the technology for keeping a closer eye on the market and giving both lenders and borrows safer access to capital. It’s being tested on a small scale right now but, with success, will likely be implemented nationwide.

Neither of these blockchain developments has been priced into the stock yet. And given the growing frenzy to own any blockchain-related stocks, once the markets make the connection, there’s a good possibility that Xinyuan will be the next stock to ride the blockchain bubble to astronomic heights.

But even without a blockchain-induced rally, Xinyuan’s fundamentals, low valuation, and solid business will lead to a growing stock price. Xinyuan Real Estate Co., Ltd. stock is a buy anywhere under $10. I have a 12-month price target of $14 based on fundamentals and current valuation.

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