Bookkeeping: Rebuilding E-House Holdings (EJ) Position on Earnings Blowout

The market often makes little sense to me; if a company like Caterpillar (CAT) reported an earning report like we just saw from E-House Holdings (EJ), CNBC anchors would be in tears of joy and the stock would be up 20%.  Instead EJ is up 2%, despite beating by 15 cents... AND increasing guidance.  My first thought this morning when I saw the numbers was "going to have to chase another one" - guess not.

We had a very small long position as the stock had broken support the past few weeks but we are using today's muted reaction as an entry point to expand our position by just under a 2% allocation.  Even better we have a nice entry point near $20.80 which is not too far above a nice support area so if the market begins to punish E-House Holdings again, we can exit with minor damage.  We'll place a stop loss somewhere in the mid to upper $19s. As the month of October shows - this is a volatile stock.  (range of $17 to $24)

I will update this entry with more details on the earnings as I have time.

Per Briefing.com:
8:08AM E-House China reports 3Q09 net income of $0.46/ADS, ex-item, vs. $0.31 First Call consensus; revenue increased 119% y/y to $86.2 mln vs. $78.9 mln consensus (EJ) 20.42 : Co issues upside guidance for Q4, sees revs of $103-$106 mln vs. $85.9 mln consensus. Co states, "Our strong third quarter results clearly demonstrate the success of our strategy and our ability to create value for our shareholders. For the whole year of 2009, we expect to achieve more than 10 million square meters of new properties sold, which will set an industry record and further solidify our industry leadership position."

EDIT 10 AM: Full report here.  Some details below

Revenue

• Third quarter total revenues were $86.2 million, an increase of 119% from $39.3 million for the same quarter of 2008. 
• Third quarter revenues from primary real estate agency services were $59.4 million, an increase of 195% from $20.1 million for the same quarter of 2008. This increase was mainly due to a 235% increase in total gross floor area and a 314% increase in total transaction value of new properties sold, partially offset by a lower average commission rate of 1.4% in the third quarter of 2009, compared to 1.9% for the same period in 2008. 
•  Third quarter revenues from secondary real estate brokerage services were $6.1 million, an increase of 246% from $1.8 million for the same quarter of 2008. The increase was mainly due to higher total secondary real estate transaction volume under improved market conditions, despite a decrease in the total number of secondary real estate brokerage stores E-House operated to 112 as of September 30, 2009, from 136 stores as of September 30, 2008. 
• CRIC, a subsidiary of E-House, provides real estate information, consulting, advertising and online services. Third quarter revenues from CRIC were $20.5 million, an increase of 19% from $17.2 million for the same quarter of 2008. The growth was attributable to an increase in data integration and subscription services as CRIC further expanded coverage and marketing of the CRIC database in 2009. 

• Third quarter cost of revenues was $18.7 million, an increase of 130% from $8.1 million for the same quarter of 2008. 
• The increase was mainly due to higher salaries and commissions paid to the Company's sales staff as a result of higher transaction volume and value of new properties sold, and a higher agency fee paid for signing new primary real estate projects. The expansion of real estate advertising services also contributed to the increase in cost of revenues in the third quarter due to additional cost of purchasing advertising spaces for resale. 

• Third quarter income from operations was $40.4 million, an increase of 310% from $9.9 million for the same quarter of 2008. 
• Income from operations excluding share-based compensation expenses (non-GAAP) for the third quarter of 2009 was $42.7 million, an increase of 291% from $10.9 million for the same quarter of 2008. 

• Third quarter net income attributable to E-House shareholders was $34.9 million, an increase of 220% from $10.9 million for the same quarter of 2008. 
• Third quarter net income attributable to E-House shareholders excluding share- based compensation expenses (non-GAAP) was $37.2 million, an increase of 211% from $12.0 million for the same quarter of 2008. 
• The increase was mainly due to an increase of income from operations and an increase of other income, primarily representing cash subsidies received by the Company's subsidiaries from local governments as incentives for investing in certain local districts, partially offset by a higher effective tax rate.  
• The effective tax rate was unusually low in the third quarter of 2008 as a result of a clarification of the gradual tax rate implementation under the new enterprise income tax law, pursuant to which one of the Company's subsidiaries located in Pudong New Area of Shanghai is eligible for a gradual rate increase to 25% over the 5-year period beginning from January 1, 2008. 

• Non-GAAP, $37M earnings or 46 cents EPS - up 211%

• Total gross floor area reached 3.3 million sq meters, up 235%
• Total value of new properties sold was $4.3 billion, up 314%

• The Company estimates that its revenues for the fourth quarter of 2009 will be in the range of $103 million to $106 million, an increase of 164% to 172% over the same quarter in 2008. E-House's revenues for the fourth quarter of 2009 other than revenues generated from the online real estate business that was merged into CRIC in October 2009 are estimated to be in the range of $90 million to $92 million, an increase of 131% to 136% over the same quarter in 2008.

E-House (China) Holdings Limited ("E-House") (NYSE: EJ - News) is a leading real estate services company in China. Since its inception in 2000, E-House has experienced rapid growth and is China's largest real estate agency and consulting services company with a presence in more than 30 cities. In addition to its national presence, E-House offers a wide range of services to the real estate industry through its various business segments including primary sales agency, secondary brokerage, consulting and information services, advertising and investment management. 

[Sep 30, 2009: China Real Estate Information Seeks US IPO Worth $200M]
[Sep 29, 2009: E-House Holdings in Investors Business Daily]
[Aug 12, 2009: E-House Holdings (EJ) Benefitting from China Housing Bubble 2.0]

Long E-House Holdings in fund; no personal position