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China XD Plastic rocks but EJ stinks

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buy-sell November 11, 2010 (Chinavestor) The earnings season is at its best in China with over 30 ADRs reporting this week alone. We picked two prominent Chinese companies, China XD Plastics (NASDAQ:CXDC) and E-House Holdings (NYSE:EJ), from this morning offering to gauge what's happening.

We picked China XD Plastics (NASDAQ:CXDC) for a number of reasons. For one, it is an auto related stock, an industry that is hot in China. For two, we interviewed Julie Chen, Managing Director  and Senior Research Analyst of Hudson Securities, recently and she talked a good deal about this interesting China play. Related story: Julie Chen of Hudson Securities on Industrials.

This morning was the show-off and the stock didn't disappoint. Third quarter revenues came out to $65.3 million, up over 80% YoY. Net income was strong as well, a record $12.3 million, up over 200% YoY.But here is the trick...

CXDC_2010Q3_revearnings

For one, net income has experienced wild swings over the past two years, suggesting while the overall trend is good, investors are up to a bumpy ride. And for two, business outlook is ambiguous to say, at best. "The Company expects its 2010 revenue to be in the range of $210 million and $230 million and it expects its 2010 non-GAAP adjusted net income to be in the range of $35 million and $37 million, excluding any non-cash charges related to stock based compensation and the change in fair value of the existing derivative liabilities and stock-based compensation." Given the previous quarter revenue figures, if our calculation was right, revenues for the next quarter are going to be well below that of the current one. On the same time, China XD Plastics (NASDAQ:CXDC) guided higher on net income...

While we're optimistic about the outlook for the stock, a strong stomach is needed going forward - or a long-term investment approach.

Another stock we've been following for a long time is E-House Holdings (NYSE:EJ), a real estate service company. A lot of investors lost a lot of money with the stock and we wanted to see what's the latest.

The bad news is that E-House Holdings (NYSE:EJ) was a disappointment for us. The market seem to forgive more than we do - the stock is actually slightly higher at 1:45 P.M.

EJ_2010Q3_revearningsa

we're disappointed for a number of reasons. For one, E-House Holdings (NYSE:EJ) reported a dismal 3% revenue growth YoY. For two, net income fell from $34.9 million in 2009 Q3 to a mere $5.9 million for  the current quarter. The only good news was the outlook the company issued - revenues of $115 million - $117 million for the next quarter, slightly below that of 2009 Q4. But we're very careful about such statements, especially in light of recent developments. While we have no right to question the validity of these numbers, we remain vigilant going forward.

Another good news is that E-House Holdings (NYSE:EJ) has plenty of cash, in access of $485 million! Given that the total assets of the company are worth ~$1.49 billion, cash seems to make up almost half of it. The big question is what the company is going to do with such a vast amount. Investing it wisely may do a lof of good, but not using it is a mistake.



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