The publicly traded ADRs of Fang Holdings Ltd. (SFUN-US) represent an attractive investment opportunity with the potential to appreciate considerably in the next twelve months. The upside primarily stems from the belief that current stock price is significantly undervalued compared to SFUN’s intrinsic value. The substantial gap between the market and intrinsic value exists largely because of extremely low interest in the stock, as illustrated by the minimal daily trading liquidity (AVAT = ~US$1.5 million).
SFUN is one of the leading online players in China’s real estate industry. The company’s operation primarily consists of the following three parts: China Index Holdings (CIH), marketing services, and listing services. SFUN has lost its appeal to the market after several years of inconsistent financial performance driven by its failed entry into offline real estate direct sales (O2O) and unfavorable real estate market from 2016 to 2018. The company’s financials are further complicated by the meaningful depreciation and mark-to-market fluctuations related to their various non-core assets. As a result, the business and financial performance of the company are not very well understood by investors at this point.
However, the company believes that following potential catalysts can allow SFUN regain investor attention and lead to significant stock price appreciation:
- (1) imminent spin-off of its real estate database and analytics business,
- (2) turnaround in operating performance and possible spin-off of its traditional portal services businesses and
- (3) additional strategic restructuring and asset sales.
CIH, which is underappreciated by investors, will continue to grow strongly, and the value of this business will be unlocked when the company completes its spin-off in the next twelve months. Moreover, after several volatile years, the performance of Portal Services is stabilizing and may return to growth, driven by management re-focusing their effort on these businesses amidst a more benign real estate environment.