T.H. Capital - Leju Holding Limited: Market Hike In March Led To Market Tightening; Maintain Hold
LEJU will report 1Q16 results before the marketopens on May 16, 2016 with a 7:00 AM ET conference call. It's highly likely thatthe company may deliver better 1Q16 results compared with consensus as LEJU benefiteda great deal from the market hike in the first quarter of 2016. However, webelieve the hike has already led to the government’s tightening regulations inShenzhen and Shanghai since late March, which will impact the business for therest of 2016. We maintain our Hold rating until we see business stabilization.Outlookfor the rest of 2016 is not optimistic due to new restrictive policies in tier1 cities – LEJU provided full year revenueguidance at around $660M. We believe the upside potentials from this guidancecan be limited due to the new policies. Post the market hike in March, both governmentsin Shanghai and Shenzhen tightened regulations restricting house purchases. Undersuch policies, migrant populations need longer period of tax payments in thecity before becoming eligible to buy a house. Shanghai and Shenzhen are the twomajor markets for LEJU, accounted for about 25% - 30% of total transactionvalue. In addition, banks have also tightened standards on mortgage. As aresult, there has been a sudden decline in transaction volumes in April 2016 fromthe level of March 2016; vs. a growth M/M in April 2015. Putting all together,we are modeling 2Q16 revenue at $185.5M (17.6% Y/Y growth) and 2016 revenue at $668.4M (16.1% Y/Y growth).