Xinyuan's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Xinyuan Real Estate Co., Ltd. (XIN)

Q2 2012 Results Earnings Call

August 10, 2012 8:30 AM ET

Executives

Helen Zhang – Financial Controller

Yong Zhang – Chairman and CEO

Tom Gurnee – Chief Financial Officer

Analysts

Liang Sun – CICC

John Herron – Herron and Associates

Albert Jones – Jones Capital Management

Presentation

Operator

Please standby. We are about to begin. Good day, everyone. Welcome to the Xinyuan Real Estate Second Quarter 2012 Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Helen Zhang for opening remarks and introductions. Please go ahead, ma’am.

Helen Zhang

Hello, everyone. And welcome to Xinyuan’s second quarter 2012 earnings conference call. The company’s second quarter earnings result were released earlier today and are available on the company’s IR website, as well as on Newswire services.

Before we continue, please note that a discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties. As such, our result might be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our registration statement and our Form 20-F and other documents filed with the U.S. Securities and Exchange Commission. Xinyuan does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Today, you will hear from Mr. Yong Zhang, our Chairman and Chief Executive Officer, who will comment on current operations and provide some perspectives on the market environment. He will be followed by Mr. Tom Gurnee, our Chief Financial Officer, who will provide some additional color on our performance, review the company’s financial results and discuss our outlook for the second quarter and rest of the year.

Following management’s prepared remarks we’ll open the call to questions. During the Q&A session, Mr. Zhang will speak in Mandarin, and I will translate his comments into English. Please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars.

I will now turn the call over to Xinyuan’s Chairman and CEO, Mr. Zhang. Please go ahead, sir.

Yong Zhang

Hello, everyone, and thank you for joining us today. We are very encouraged to announce the best quarter in our operating history with recorded contract sales. Revenue and net income, all of our major projects is experiencing the healthy level of GFA sales and ASP trend in the second quarter.

It will reflect on our effective pricing and marketing strategy, our affordable and high quality development projects, as well as improving overall property market environment. At the metro level, the Chinese government has taken action to expand the economy, which bode well for the property industry as a whole.

As a result, we have seen consistent improvement both traffic and demand activity in our development projects over the past three quarters. We expect that property market to remain stable for the rest of the year.

Yesterday, we acquired a new parcel of land in Suzhou with GFA of 128,000 square meters at a total cost of RMB270 million. We are pleased to share our profit and success with our shareholders.

In the second quarter we continued the quarterly dividend program begin last quarter and announced the additional US$20 million share buyback program, after completing the US$10 million repurchase program announced in May 2011.

Xinyuan has stronger balance sheet with a solid management team and a proven development strategy to continue our growth momentum into last year. As a result, we are pleased to increase our year end financial forecast.

Now, I would turn a call over to Tom Gurnee, our Chief Financial Officer.

Tom Gurnee

Thank you, Chairman. The second quarter 2012 was simply an extraordinary quarter, with all of our projects performing well, GFA sales surged, prices hedged higher, and on top of that we resolved some tax issues in the quarter that added $2.6 million to net income, more on that later.

Let’s get started with contract sales. At $258 million in the second quarter contract sales highly exceeded our expectations and blew away our admittedly timid guidance. At this time last quarter we had seen a very low January followed by February and March recoveries. We were not quite sure how this might segue into the second quarter, so we expected normal seasonal quarter-on-quarter growth 20%.

Quite simply we were wrong. There was more of this Q2 performance and seasonality as evidence by the greater than 60% sequential growth. It appears the buyer sentiment has improved markedly.

Unless we get overexcited by this development, it should be noted that the government is recently made several statements consistently over the last several months in the press about the results keep building on housing prices. These statements may put a damper on buyer sentiments, we remained cautious in our projections as I will describe later.

Let me comment briefly on the contract sales project-by-project within the group. Our biggest single project at 565,000 square meters is Chengdu Splendid located in the city of Jinan, while we have had our shares, the way we are getting these projects up to ground, contract sales in the second quarter more than doubled over the first quarter giving a sales momentum to the remaining life of the project.

Kunshan, the project on the outskirts of Shanghai is considered to be more Tier 1.5 city than Tier 2 city, recorded RMB141 million or US$23 million of contract sales in the second quarter net of cancelations after recording a negative RMB38 million or $6 million in sales last quarter.

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