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E-House IPO: first look

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China. Hot. Housing market in China? Red hot. Put an “e” (hint: eBay) before that? Sizzling. So do we jump into this sizzling (hot) IPO, just by looking at its name and its business, the residential real estate brokage in China? The answer is obviously No.

First a little bit history on Chinese residential housing market. Like many things else, China’s housing market is not market-driven until middle 1990s. Before that most people in cities got assigned apartments by their “Danwei” (employer). Housing was part of the benefit, just like healthcare, provided by the goverment. So what’s the problem here? The housing market was vastly under-developed, and average people have small living spaces. I remember when I worked for a state owned manufacturing company in Shanghai after graduation from college (1993), it would take me 10 years in the waiting line to get “a small apartment” from my “Danwei”, if I’m lucky to get one at all. One of my coworker (and his wife, kid) lived in a 2 bedroom apartment with his bro’s family, his parents, i.e., totally 8 people shared the little 50 square meters (about 550 square foot).


(Pic above: brokers near Zhongshan Park: Ji Feng Yi Ju and ColdWell Banker, the US chain)

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China E-House IPO

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I read from PacificEpoch about the filing. From its SEC filing, here is an summary:

“We are a leading real estate services company in China based on scope of services, brand recognition and geographic presence. We provide primary real estate agency services, secondary real estate brokerage services as well as real estate consulting and information services. We were ranked as the largest real estate agency and consulting services company in China for three consecutive years from 2004 to 2006 by the China Real Estate Top 10 Committee, as measured by the number of transactions facilitated, transaction value and gross floor area, or GFA, of properties sold, and geographic coverage…

We have experienced substantial growth since our inception in 2000 and became a leader in the real estate services market in Shanghai within two years of our inception. We have expanded our operations from Shanghai to 19 other cities throughout China. Our revenues grew from $31.2 million in 2004 to $56.0 million in 2006, representing a compound annual growth rate, or CAGR, of 34.0%, and our net income increased from $5.6 million in 2004 to $18.1 million in 2006, representing a CAGR of 80.0%…”

I noticed its CEO Zhou Xin has 67% of the shares. Neil Shen, the co-founder of Ctrip and Home Inns, has 12% of the stake. Will the “3rd baby” of Neil Shen as good as its siblings? My gut feeling is no. Actually we should count this is Zhou Xin’s “first baby”.

I will post my analysis later on…the following is a picture taken outside E-house office near Zhongshan park in Shanghai