EJ Notes:

CSFB Report 10/04/07 – Initiation

• Estimating 48% growth in 2008 and 2009 (EPS)

• 80% of revenue comes from new home sales

• High projected growth rate justifies premium multiple

• Asset light, highly scalable growth model

• Brand name wins the company higher transaction volume and also demands premium pricing on commission rates (base 1-1.3% while EJ averages around 2.2%)

• Sold 2m Sq M in 2006, estmate 3.6m in 2007, 5.5m in 2008 and 7.9m in 2009

• EJ began secondary market in 2006 – this business likely to overtake new home business eventually

  • Should be a profitable division by 2008

• $169m in IPO proceeds likely to fund future acquisitions

• Accounts receivable usually take a long time to collect after closing on a property

• Most bigger developers do not use outsize agencies, but small to medium size developers outsource to drive efficiency

  • Property market highly fragmented and immature

• Margins higher as agents receive less of the commission than in more developed markets.

• Most developers agree to a base commission plus a premium for agents who sell at a higher price.

  • Competition may narrow these premium incentives

• Sales growth will be propelled due to new development programs coming online.

• Mortgage availability continues to rise. And yet most require a 30-40% down payment which helps prevent excesses

• Demand beginning to outpace supply

• Property agents allowed to represent both buyer and seller and can charge up to 1% of price from each side

• CSFB believes valuation should resemble that of a consumer stock, not a property company

• After IPO, net cash is $182m

• EJ guiding revenue $24-26m for Q3 which should put them on target to reach CSFB’s 2007 revenue estimate of $107m (Q4 is usually a strong one with year end property push)

• It appears that 70% of 2008 Sq M property to sell has been secured by entering agreements with developers

• Government has been concerned with rising property costs and efficient use of land resources – could become a macro risk.

CIBC report 11/18/07

• Q3 revenue 30.6m versus consensus of 26.9m – both primary and secondary markets seeing strong growth

• Management guiding Q4 revenue of $43-49m - CIBC expects 48.9m and EPS of $0.25

• EJ has $2.38 of cash per ADR

• Government restrictions on down payments for second homes and limits on foreign real estate investment should actually help EJ with stable market and elimination of some opportunistic competitors

Q3 earnings release (11/15/07)

• Revenue 30.6m, up 293% Y/Y, EPS $0.11 for Q3 and $0.26 for 2007 YTD

• Selling subscriptions of CRIC and expect this to represent meaningful source of future revenue

CIBC report 11/28/07

• Annual attempts by Cinese government to col property inflation are usually met with limited success

• In a more challenging market, developers could see a greater need for EJ’s services. – Historically has landed attractive contracts after government restrictions enacted

• As of 11/27, the company has 2,900 CRIC subscribers – the basic service is priced at $4,000 annually.3

EPS Release and conf call 3/7/08

-          Revenue $121m up 116%, net income 41.7m up 130%, net margin 34.5% versus 32.3% last year

-          FY EPS 0.56 and Q4 0.29

-          Guiding Q1 revenue $29-32m for 2008 $210-240m

-          “Achieved rapid growth in all of our business lines.”

-          More than 5,000 developers subscribed to database product

o        Agreement with Sina.com increases publicity

-          1) Primary Real Estate Agency Services – 41.5m revenue in Q4 - $100.5m for 2007

o        2007 average commission rate was 2.4% up from 2.2% in 2006 (bonus from exceeding sales targets on number of projects)

-          2) Secondary real estate brokerage services

o        Represented $4.5m for Q4

o        160 secondary brokerage stores in 5 cities in China

-          3) Real estate consulting and information services

o        $4.3m revenue in Q4

o        Expected to increase substantially in 2008 as company commercializes CRIC database system

-          Balance sheet had $101.1m 12/31 – but operating net cash outflow was $73.4m in Q4

o        Increase in payments of customer deposits by $120m

-          Formed a real estate investment fund – not investing own capital – receiving management fees – initial commitments of $100m

-          Raised $97.9m in secondary offering 2/1/08

-          No long-term debt

-          Making progress collecting on accounts receivable – year end represented 202 days of revenue versus 253 days a year ago

-          January and February traditionally weak heading into spring selling season – usually picks up in March

-          Volume much more important to success than price.  Expect market prices to be a bit lower to stimulate demand but should support robust volume

o        Uncertainty creates incentive for developers to contract with agent such as EJ

-          Projecting commission rate conservatively at 1.5% due to fewer incentive bonuses next year

 

Broker Reports 3/10/08

-          SIG - Earnings were 20% above consensus.  Revenues similarly above expected levels

-          Considering long-term contracts signed and potential subscriptions to database, 2008 guidance appears conservative

-          EJ’s ability to capitalize developers gives it leverage in negotiating selling agreements

-          Raising estimates to $0.84 for 2008 and $1.16 for 2009

-          Contra case assumes potential for regulations to diminish real estate activity.

-          MER – “Good faith” payments to developers for exclusive selling arrangements create barriers to entry for competition.