This Bubble Just Might Be Bigger Than Gold

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

The numbers are just about to start pouring in now for a lot of U.S.-listed Chinese stocks and what better way to start off than by looking at China Real Estate Information Corporation (NASDAQ/CRIC). Between this company and E-House (China) Holdings (NYSE/EJ), an investor has two of the best benchmark businesses through which they can follow the Chinese real estate market.

China Real Estate Info operates in 70 Chinese cities and is actually a subsidiary of E-House (China) Holdings. The company merged with the online real estate business of SINA Corporation (NASDAQ/SINA), then did its own initial public offering of American Depositary Shares. The business itself sells subscription real estate information that provides regional real estate data and online communities. The company’s customers include everyone that’s involved in the real estate industry including developers, lawyers, brokers, agents, and individual consumers. From my analysis, there’s no business in China that has more in-depth knowledge of that country’s real estate market.

With China’s real estate market in a bubble, business at China Real Estate Info is booming. The company reported that, in its latest quarter, the fourth quarter of 2009, total revenues grew to 41.3 million dollars, representing a 203% increase over the same quarter in 2008. For all of 2009, total revenues were 95.7 million dollars, representing an increase of 91% over revenues of 50.0 million dollars generated in all of 2008.

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On the earnings front, fourth-quarter net income grew to 32.4 million dollars in 2009, for an increase of 507% over net income of $5.3 million for the same quarter in 2008. The latest quarter’s earnings included a one-time 22.1-million-dollar gain. Excluding this gain, fourth-quarter net income grew only 93% to 10.3 million dollars, as compared to net income of $5.3 million generated in the fourth quarter of 2008.

China Real Estate Info finished the year with 311 million dollars in cash (due to its IPO) and expects that the first quarter of 2010 will show top-line growth of well over 50%.

If you get a chance, pull up China Real Estate Info’s latest financial report from the Internet and take a look at the breakdown of the company’s total revenues. Not only will you see that all its business lines are booming, but also that sales are actually accelerating. No doubt; any domestic business would love to experience growth like this.

China’s real estate market is in a bubble and no one knows when it is going to burst. Companies like China Real Estate Info and E-House illustrate just how fast the real estate services industry is growing in China. What’s important about following these two benchmark companies in that industry is what they are predicting for the future. So far, it’s full steam ahead in the first quarter of 2010. Clearly, the real estate bubble in China has farther to go. When it bursts, however, the performance should be spectacular.