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E-House: Recent Partial Spin-Off Uncovers Undervaluation Of Parent Company

Elevator Pitch

E-House (NYSE:EJ), a leading real estate services company in China, completed a partial spin-off of Leju Holdings Ltd (NYSE:LEJU), in the ratio of 0.05 Leju shares for each outstanding ordinary share of E-House on January 15, 2015, which resulted in E-House's shareholding interest in Leju decline from approximately 75% to 70%. After reviewing the market capitalizations of both companies, I noticed a distinct discrepancy in the valuations of the two companies. Leju, an online-to-offline real estate e-commerce platform, was acquired by E-House in 2009 and was subsequently spun-off as a listed entity on NYSE on April, 17, 2014. The value of E-House's 70% stake in Leju is approximately $938 million, taking into account Leju's market capitalization of $1.34 billion as of January 30, 2015. The value of E-House's shareholding interest in Leju alone is almost equivalent to E-House's current market capitalization of $969 million. This suggests that E-House is severely undervalued as the market is currently ascribing little or no value to E-House's non-Leju businesses such as real estate brokerage services and real estate information & consulting…