Xinyuan Science & Technology Service (XSTS), the property management subsidiary of Xinyuan Real Estate, filed its 1H18 Report (LINK). Even though XSTS shares are not yet trading publicly, the NEEQ listing provides visibility into the rapid growth of Xinyuan’s recurring revenues and income from this business. Highlights:
The company’s NEEQ listing was approved on 3/15/17 (LINK), but the ownership structure shows that no shares are yet publicly held:
Combining Xinyuan STS year-end results with valuation ranges of Hong Kong listed competitors suggests a fair value of $70-200mm for this subsidiary.
The NEEQ (LINK) is an over-the-counter trading market in China founded in 2012 as a venue for for companies which might not have met the statistical listing requirements of the Shanghai/Shenzhen exchanges or which did not want to enter the long queue for China Securities Regulatory Commission review of Shanghai/Shenzhen IPOs. NEEQ shares surged in 2015, but values and volumes have since faded.
There may not be an opportunity for Xinyuan STS to place shares amid currently depressed market conditions, but the independent reporting related to the listing provides improved visibility into the performance and value of this rapidly growing asset-light Xinyuan business.
Disclosures:
At the time of publication the author is a public shareholder of Xinyuan Real Estate. The author believes that information in this article may be of interest to other public shareholders. The author does not make any recommendation regarding any investment in Xinyuan and investors are encouraged to check all of the key facts cited here from NEEQ, SEC, and HKEX filings prior to making their own investment decisions.
Koneko Research 
Thanks for the article! It seems like losses at the legacy development business is dragging down the results of the property management business. Most people are saying XIN should turn a large profit in Q4, curious to hear your thoughts.
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Based on 1H18 results the property management business should earn about US$7mm for the year. Company guidance is for total earnings of about US$90mm. So the development business is much bigger.
XIN communications in China explain that property development is the company’s main business supported by 5 auxiliary businesses (property management is one). Each auxiliary business is supposed to be profitable by itself, but also to increase the profitability of the main business.
Under XIN’s old accounting (to the end of 2017) revenue and profit were recognized during construction. From 2018 revenues and profit will only be recognized on delivery of completed units to buyers. For unts delivered by XIN in 1Q18 and 2Q18 a lot of the profit was already recorded in 2017. Later in 2018 the company should be delivering more units where no profit was recorded before. So it makes sense that profits in 4Q could be higher. But the company has not given investors any information about what projects will be delivered in 4Q so I don’t think there is any way for investors to judge whether the net income guidance is reasonable.
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Thanks for clarifying!
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