Century 21 China Real Estate (CTC)

Q2 2011 Earnings Conference Call

August 16, 2011 8:00 AM EST

Executives

Josh Gartner – Brunswick Group

Donald Zhang – Chairman of the Board

Harry Lu – Vice Chairman of the Board

Kevin Cheng Wei – CFO

Analysts

Liping Cai – William Blair

Ella Ji – Oppenheimer

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Liping Cai with William Blair. Please proceed.

Liping Cai – William Blair

Hi, good evening. I have a few questions. The first one is regarding your third quarter guidance. Based on what you have guided to it seems like you’re expecting essentially a flat revenue growth from the second quarter to the third quarter, so you’re not expecting any seasonal uptick?

Harry Lu

Usually [ph] the market will have seasonal uptick, but due to the current market environment, I think we probably shouldn’t expect a big jump on transaction widening in cities like Beijing, Shanghai and Tianjin. And also [inaudible] some of the primary project has been delayed to another month or so, so we kind of expect that revenue has to come – come in probably at the last quarter of this year and that’s the reason why we have this forecast here, Liping.

Liping Cai – William Blair

Okay. And so, Harry, you mentioned you don’t expect the market to recover up probably until the second half 2012, so you’re saying the revenue level in the second quarter is something we should model out for the next few quarters?

Harry Lu

For secondary market, probably we’re still going to see some chance out to increasing on the store productivity, but the more important I think is the primary part of the business. So I think for the rest of the year, by the time when the project have been kicking, we should be able to see some uptick on the revenue.

Liping Cai – William Blair

Okay. And, yes, I am talking about for the primary and commercial business, how much growth – or as a percentage of total revenue how should we think about it for 2011 and maybe 2012?

Kevin Wei

Well, I mean, we disclosed that we have a pipeline that of which about 290,000 square meters GFA that are currently available for sales and obviously we’ll try to push these through the third quarter as well as the fourth quarter of this year. Unfortunately, we cannot give any specific breakdown guidance on our next quarter revenue. Having said that, I mean in the second quarter we had about RMB10 million. We definitely expect to have a much significant increase in terms of the primary and commercial business revenue and contribution in the third quarter as well as in the fourth quarter.

Liping Cai – William Blair

Okay, that’s helpful. And then lastly for your store closing or temporary store closures, so do you expect to close additional stores in the next couple of quarters? And, if so, do you have a target of how many stores you would like to have in its main cities?

Harry Lu

I think we’ll probably would – should not expect a big amount of a store closure in the follow-on quarter, so we’re probably looking at something around 450 to 470 of a store in operation for the rest of the year.

Liping Cai – William Blair

Okay, thanks a lot.

Donald Zhang

Thank you, Liping.

Operator

(Operator Instructions). Your next question comes from the line of Ella Ji with Oppenheimer. Please proceed.

Ella Ji – Oppenheimer

Hi, good evening, Donald, Harry, and Kevin. Relating to – regarding your primary and the commercial business you mentioned that you have 14 projects, how many of them are in the purchase restriction markets?

Harry Lu

I think that luckily none of the project for that – latest acquired a company in Shanggu, are commercial properties. So even though there is – some of the projects are in the city of Beijing or some in the restricted city, but they are not referred to a restriction policy, because it’s a commercial properties.

Ella Ji – Oppenheimer

Great. And you said that the commission rate for those projects are on 3% or do you think that’s maintainable in the future?

Kevin Wei

Well, actually the current quarter 3% is obviously based on the 37,000-square meter – actual square GFA sold, and the range is from 1.4% from one particular to 600% in another project. So it’s totally a future weighted average of blended commission rate will be dependent on the product mix, if you will. So the more – there is a quite a bit of these 3 million GFA – are probably going to be in the bulk range of 1.5% and to 2% kind of range. So the more of those units got sold, the effective commission rate could potential come down.

Like we said before, I mean some of our other project we earned more of a premium, if you will, when we achieve certain targets. So each quarter these effective commission rate could vary going forward, but we have been enjoying fairly a decent commission rate so far, although the volume are quite low. Going forward, we certainly expect the volume would be higher, but potentially the rates could come down.

Ella Ji – Oppenheimer

Got it. And given that the secondary market is still quite slow, I’m wondering if there is any change in the commission rates in the secondary brokerage market.

Harry Lu

Yes, it depends on the competition which we do see in some cities. Especially in a city like Beijing we do see that effective commission rate is actually going down. But that’s not stable and that varies from month to month, and then for recent months we do see some big uptick on the commission ratio. So Shanghai is kind of a very stable for commission rate. So we consider and expect a big decrease I think before commission rate, especially effective commission rate.

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