E-House China Holdings (EJ – NYSE)
Dear Bottarelli Research Member,
It’s been another wild trading week, sparked by a 25-point Fed cut on Tuesday followed by a surprise Fed announcement regarding liquidity facilitation on Wednesday. But through it all, I’ve discovered yet another powerful investment opportunity that operates outside U.S. borders, and this enables us to continue making strong returns while limiting our exposure to any U.S. recession fears. We used this international positioning tactic last week with our play on Fushi International (FSIN — NASDAQ), and we’re already showing a 24% gain in less than a week. So let’s continue this winning strategy with today’s newest pick!
This company is hitting on all cylinders in a sector that you might not expect, so hold onto your seats. You see, they’re the fastest growing real estate brokerage firm in China.
Now, before you get scared away from a real estate play, please understand that the Chinese real estate market is nowhere near where we stand here in the U.S. Case in point, while every U.S. homebuilder is reporting year-over-year profit declines of at least 50%, this company just reported total revenues of $30.6 million in the third quarter. That’s an amazing increase of 293% from the $7.8 million they reported in Q3 2006! What’s more, over the last nine months, they’re showing total revenues of $70.7 million, good for an increase of 229% from $21.5 million for the same period in 2006. How’s that for smokin’?
This company could soon emerge as the “Century 21 of China,” and believe me, real estate is one business that I understand very well. Best of all, my due diligence shows that things will only get better in 2008. After all, the average person in China saves 20-30% of their wages. That’s a huge percentage, especially considering the miniscule amount that we save here in the U.S. And since many Chinese are now using their savings to place down payments on land (both in and outside of their major cities), you’re not nearly as exposed to the dangers of sub-prime and predatory lending that occurred here in the U.S.
Just take a moment and think about the massive brokerage fees that’ll occur as China’s landscape explodes into suburban sprawl. Make no mistake, real estate brokerages are cash machines in real estate boom times, and that’s exactly what we’re seeing right now in China. I have poured over this investment opportunity with a fine-tooth comb, and I believe we could easily see shares double from current levels within a year.
In fact, I’ve been watching this stock since their IPO on August 8th, and now is the time to jump on board. The company is called E-House China Holdings (EJ – NYSE), and I’d like to establish a new position anywhere under $25.00 per share. I truly think shares of EJ are ready to launch going into January, so add EJ to your small-cap ledger now!
SELL RECOMMENDATIONS
JA Solar Holdings (JASO – NASDAQ): We’ve had huge success playing JASO all year long, but now it’s officially time to lock in our gains for good. I still think we could see share prices hit $85.00 in 2008, but with such large price swings, I’ll now leave it up to Bryan to trade JASO options in the Bottarelli Research Options service. On a side note, I continue to trade JASO options myself, so if you’d ever like my insights going forward, feel free to shoot me an e-mail!
Crystallex International (KRY – AMEX): I think we’ve all waited long enough on this one, but since Hugo Chavez continues to dominate the headlines in Venezuela, KRY simply cannot gain any upward traction. Therefore, let’s close out the position and move on. Sell.
Lighting Science (LSGP.OB): Similar to KRY, I had huge expectations for this company, but the stock simply cannot mount any sort of upside momentum. They’re certainly in the right market sector, and thee public continues to embrace the idea of LED technology. But unfortunately, the stock cannot move higher. When you see situations like this, it’s time to close out the position and move on. Sell.
UPDATES
Oceanfreight (OCNF – NASDAQ): Over the last few weeks, the dry bulk shipping sector has experienced some weakness, but don’t worry. Bryan and I have spoken in depth about this situation in our weekly talks, and it’s clear that global shipping is not going away anytime soon. We’re just facing a momentary profit-taking period, and you can expect the sector to recover as we lead into 2008. This position will pay off, so let’s give it some breathing room. Hold.
Provident Energy Trust (PVX – NYSE), Advantage Energy Income Fund (AAV – NYSE), & Canetic Resources Trust (CNE – NYSE): Although our Canadian Energy Trusts are off their highs, we’re in the seasonally strong winter period. Therefore, I fully expect all three trusts to advance. The money they throw our way on a monthly basis is hard to find anywhere else, and with a declining dollar and money market funds paying next to nothing, I would like to continue buying all three on this dip.
As a quick administrative note, next week will be your last small-cap alert of the 2007 calendar year. Due to the holidays, we will close out the year with one final small-cap pick on Friday, December 21st. I have something really exciting lined up, so get ready for another tremendous opportunity. But until then, here’s Bryan with more on EJ. Enjoy!
Sincerely,
P.S. Before signing off, please be sure that you check out Bryan’s “P.S.” section at the end of his report. As you’ll see, we are now offering you the best small-cap renewal opportunity of the year, and I want to ensure that loyal Bottarelli Research readers like you take full advantage of this discounted membership opportunity leading into 2008. So please don’t miss it!
Now here’s Bryan…
The “Century 21 of China”
While preparing this week’s research report, I’ve discovered three upside catalysts that make E-House China Holdings (EJ – NYSE) a remarkable addition to our small-cap ledger. But before diving into these three upside catalyses, let’s start from the top.
Founded in 2000 and headquartered in Shanghai, E-House China Holdings (EJ – NYSE) provides real estate agency services, real estate brokerage services, and real estate consulting and information services within three major metropolitan areas of the People’s Republic of China: Shanghai, Wuhan, and Hangzhou. In addition, they also serve booming markets in Hong Kong and Macau.
As you can see from the map below, E-House has a pretty strong foothold on the entire country — with key operations in all of the high density locations:
E-House has their brokerage operation split into three business units: primary real estate agency services, secondary real estate brokerage services, and consulting and information services.
- Their primary real estate business segment consists ofbrokerage services to any real estate developers of residential properties. These services include preparing a customized marketing plan covering print media, television, Internet, billboards, housing exhibits, and entertainment events.
- Their secondary real estate business consists of brokerage advisory services, such as consulting on choices of properties, accompanying potential buyers on house viewing trips, drafting purchase contracts, negotiating price and other terms, providing proof of title, coordinating with the notary, the bank, or the title transfer agency. This segment also includes all of EJ’s brokerage storefronts, which support their primary real estate operation by selling any remaining unsold units of their residential properties.
- And finally, EJ’s consulting and information segment consists of land acquisition and property development consulting. This is where EJ leverages their industry expertise to provide custom consulting to a broad range of clients — ranging from banks and investors to government and non-profit organizations.
Combine all three segments, and you have a strong understanding of EJ’s total business. But what really gets me excited about this investment opportunity is the three upside catalysts listed below:
UPSIDE CATALYST #1: MARKET DOMINANCE
When it comes to the dominant real estate brokerage position in China, EJ tops the list. And it’s not even close. Over the last three consecutive years (going from 2004 to 2006) EJ has ranked as the largest real estate agency and consulting services company in China (measured by the number of transactions facilitated, the transaction value and gross floor area of properties sold, and the total geographic coverage).
Why has EJ been able to enjoy such a dominant market position? Well, the answer comes in the form of Upside Catalyst #2.
UPSIDE CATALYST #2: PROPRIETARY CRIC DATABASE
What enables EJ to maintain their dominant brokerage position in China is their proprietary real estate database and analytical system called the China Real Estate Information Circle (or CRIC for short). This database is the Chinese version of the MLS in United States, and if you’re unfamiliar with the MLS, it’s widely considered to be the essential component for successful real estate brokerages.
MLS stands for Multiple Listing Service, and it consists of a group of private databases that allow real estate brokers representing sellers to share information about properties with real estate brokers who represent potential buyers.
This powerful countrywide database enables a real estate agent to search for any and all homes for sale in a given geographic area or price range. Ask any real estate broker, and they’ll agree that the MLS is the lifeblood of the entire brokerage industry. And that leads directly into the critical aspect of this investment. You see, here in the Unites States, there is no single authoritative MLS. In other words, the MLS system is governed by a wide number of private entities. But in China, it’s a different story.
According to EJ, their CRIC system is the only information system in China that provides up-to-date, comprehensive, and in-depth information covering residential and commercial real estate properties in all major regions of China. This means EJ has sole ownership to this powerful database for all of China — giving them a barrier to entry that’ll be impossible to penetrate for any competing brokerage firm!
Not only that, but EJ has also commercialized their CRIC system, offering subscription-based services that provide searching and reporting functions. Subscribers to the CRIC system include property developers, land brokers, banks, insurance companies, financial institutions, and appraisers. In essence, anyone who requires real estate market and transaction information is a CRIC subscriber!
So what you have is a situation where EJ’s CRIC system is the only logical way for Chinese real estate buyers and sellers to do business. What an amazing market advantage, especially leading into (what Mark feels) will be a real estate boom cycle in China that could be infinitely larger in scope than what we just experienced here in the U.S.! Armed with the major competitive advantage of CRIC, it now becomes clear why Upside Catalyst #3 could be the cherry on the sundae.
UPSIDE CATALYST #3: NO PUBLICLY-TRADED COMPETITORS
Here’s the really cool thing about investing in EJ. When it comes to publicly-traded competition, EJ has none. Zip.
You see, shares of EJ went public on the New York Stock Exchange on August 8th 2007, and upon ringing the opening bell, E-House officially became the first Chinese real estate stock to list on the U.S. market. Therefore, if anyone across the world wants to invest in a Chinese-brokerage firm, they have one choice and one choice only: EJ.
Once investors realize this, you could soon see a supply/demand imbalance that blasts shares to the upside. This virtual monopoly could lead to a great disequilibrium in available shares compared to buying demand, and the ending result will most likely be shares moving aggressively higher. And if those three upside catalysts aren’t enough, EJ just reported their latest financial numbers, and they were absolutely blockbuster.
Mark already mentioned EJ’s Q3 numbers, which were amazing in their own right. But most recently, on Thursday, November 15th, E-House announced that their Q4 revenue is expected to increase by 33% — and this Q4 increase will allow their total 2007 revenues to come in anywhere between $117 million to $120 million. That’s up 114% from their 2006 totals!So, if you believe (like Mark and I do) that the Chinese real estate market is only in the beginning stages of upside growth, then it’s easy to understand why shares of EJ look primed for explosive growth.
After all, since real estate brokerages don’t produce anything, they have relatively low overhead. That’s why EJ enjoys 34% profit margins and 46% operating margins. What’s more, with $178.85 million in cash compared to only $9.95 million in debt, EJ carries a total of $2.34 cash per share. These are dynamite financials for a company that just went public, so everything looks in line for an explosive small-cap winner. Therefore, let’s go ahead and add shares of EJ to our small-cap ledger now.
PLAY: Buy shares of E-House China Holdings (EJ – NYSE) at or under $25.00, good for the week.
P.S. SMALL CAP END OF YEAR SPECIAL! I’d like to close off the 2007 calendar year by offering loyal Bottarelli Research Small Cap readers like you an exceptional deal. After all, over the last few weeks, we’ve really seen some of our small-cap positions take off. Our Fushi International recommendation from last week, for example, has already gained 24.78%. Evergreen Solar, which we recommended on November 19th, is already up 31.60%. Then there’s Graham Corporation, which is up 78.71% from our October 1st entry price. And don’t forget about Solarfun Power Holdings, which is now up a whopping 176.76%! Just look at this amazing chart!
To celebrate this success, and to ensure that you’re with us for even more explosive winners in 2008, I would like to offer a special renewal discount for every Bottarelli Research Small Cap member in good standing.
Starting now (and going until December 24th) you can lock in 9 more months of Bottarelli Research Small Cap service for the discounted price of $1,000.
Since the current 6-month rate is $950, that’s like getting three additional months of service, FREE OF CHARGE.
When you renew, your extension will be applied to the end of your current subscription term, so you are never penalized for renewing early. In other words, you won’t lose any days of service by locking in this special rate today. For example, if your subscription is currently set to expire in February of 2008, taking this special offer right now will add 9 more months of service onto the end of your February expiration date. So, if you enjoy being a Bottarelli Research Small Cap member, and you intend to be part of our elite trading group next year, then it behooves you to lock in this special membership extension now!
REMEMBER: This special discount is only available until December 24th. So give yourself an early holiday present and lock in 9 more months of service now! To take this special offer, simply click the discounted renewal link below and select the 9-month term titled “End of Year Special.”
https://www.bottarelliresearch.com/renew/?service=smcap&offer=WKIM2R67ES
Above all, I thank you for a wonderful 2007, and I’m looking forward to an even better 2008. I hope you choose to continue to be with us!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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