Saturday, May 29, 2010

Are you afraid for Chinese OTCBB stocks?

Normal Chinese stocks listed on Hang Sang or ADR's listed in NY not high growth enough for you? Chinese ETF's nothing for you? Well, there is a bunch of overlooked Chinese stocks that could be a significantly better buy than the state-owned enterprises and big companies picked up by analysts just looking to add a bit of China to their portfolios.

There are a growing number of Chinese companies that sell shares only on the smaller, OTC Bulletin Board (OTCBB). Stocks quoted on the OTCBB must comply with U.S. Securities and Exchange Commission (SEC) reporting requirements. These stocks can prove to be very profitable for those willing to put the time into watching over their investments and keep up their research.

Though Chinese OTC stocks have a higher risk because of little oversight. These stocks stand out in a few ways. First, lack of publicity means many of these stocks are Undervalued, Underowned and Unloved. Second, China's small-and medium-sized enterprises grow much faster than the larger state-owned companies, which are most easily accessed by foreign investors; they are also much less prone to regulatory shocks. Third, many of these stocks are in sectors which are almost inaccessible any other way.

A lot of Chinese OTC-stocks have relatively good balance sheets with almost no debt. The majority has a good a profit margin and of course makes profit. In most cases you're looking at a relatively risk-free investment.

A company like China Kangtai Cactus Bio-Tech (CKGT). The company is a leading grower, developer, producer and marketer of cactus-derived products. Cactus had been used since ancient times as both a food and as medicine for its health benefits. The fact that no net income guidance was provided and that no color on margins was provided in the press release will keep investors in limbo regarding EPS. Geo Investing's low end EPS estimate from their April 20, 2010 research note yields the following:
1st Qtr. 2010 EPS $ 0.04 Reported
2nd Qtr. 2010E $ 0.10
3rd Qtr. 2010E $ 0.17
4th Qtr. 2010E $ 0.20
2010 Full Year Estimate $ 0.51
The EPS calculation assumes that non-GAAP net margins will come in around 30%. Of course, if first quarter margins do not improve, EPS could come in lower, unless revenue growth is more robust than company expectations.

Today's valuation makes it despite some issues attractive. Shares are trading around their book value per share and have only an adjusted P/E below 4.

There are also a number of smaller pharmaceutical companies listed on the OTCBB which could either be bought together to lower the risk profile or bought selectively with a bit of pre-research. Lotus Pharmaceuticals (LTUS)OB) is especially recommended by China OTC-followers. The company is a growing developer and producer of drugs and a licensed national seller of pharmaceutical items in China. The shares are traded at $ 1.04 well below book value of $ 1.44, with an EPS estimate of $ 0.45 this stock has only a P/E of almost three.

Of course there are always risks with investing in Chinese OTC stocks, but you have that also with stocks on a major exchange. There are always companies that won't survive. Fraud, dilution issues and losses can drive stocks down that is why a margin of safety is important when you want to be a value investor.

Chinese small-caps give you a great opportunity to benefit from the growth stories and extraordinary profits that can be made.


Thursday, May 27, 2010

China Insonline Corp (CHIO) in a turn around situation

To discuss financials at this moment is not relevant. The only thing what matters: Can they sell their subsidiary ZYTX to a potential buyer for a good price? A price that will include the prepayment of electronic products in ZYTX’s balance sheet.

Business restructuring is a tedious and time-consuming task. Some other companies underwent also restructuring and are now succesful. You remember China Digital Communications Group which now operates under the name New Energy Systems Group (NEWN). An entrepreneur that wants to succeed, succeeds. In my opinion this company is ready for a new start and at these prices ($ 0.40) it can be worthy to take a small stake.

After reading their 10-Q filing I am not negative and I believe in a succesful implementation of their new business plans.
Some positive highlights:

As of March 31, 2010, all of our capital is equity capital and we have not made any debt financing with any bank or other financial institutions. We believe our capital is sufficient to satisfy our cash requirements for the next twelve (12) months. As for our business development, the Company may consider raising additional funds for the following future business plans if conditions are suitable:

· To expand our operations in different cities in the PRC;
· To acquire companies which would add value to our business expansion;
· To expand our online insurance sales supermarket; and
· To acquire equipment to continually upgrade the existing network portal hardware environment and to strengthen its network security inputs.

The question I would like to ask to the management of China Insonline Corp (CHIO)would be:

How should the restructuring be explained and portrayed to investors so that value created inside the company is fully credited to its stock price?

If Junjun Xu, is a strong or visionary CEO, he marketings the restructuring to the capital market by explaining the growth targets for the new business plan.


China Insonline Corp (NASDAQ:CHIO) 10-Q filed

update soon available

Already one important highlight:

Restructuring of the Business Operation

On May 18, 2010, the Board of the Company approved an internal restructure plan which would lead the Company to concentrate its resources on the online insurance agency business. NFA and ZYTX and their operating segments, including all assets from the software development and online insurance advertising segments, may be sold to third parties at market price. The Company is currently identifying potential buyers for these segments.

After the restructuring, the Company would retain the online insurance agency business and focus on its products and services in the following areas:

· With respect to the Company’s motor vehicle insurance sales business, the Company plans to provide motor vehicle-owners with more value-added services following the purchase of motor vehicle insurance and the Company plans to improve its membership club programs in the area of motor vehicle insurance; and

· The Company plans to gradually grow its property insurance and life insurance business as an insurance agent by utilizing third-party insurance brokers and by choosing cost-effective products. With online product optimization and the ability to compare products online in real-time, the Company will be able to choose more suitable insurance, enhance customer insurance purchasing efficiency and reduce costs.

Wednesday, May 26, 2010

Rodobo (RDBO) May 2010 Presentation available

Yesterday they held a presentation at a conference being held at the Hyatt on the Bund in Shanghai, China.

Tuesday, May 25, 2010

China Organic Agriculture (CNOA) will pay off

On Monday CNOA filed their 10-Q.

Revenue of $32.4 million represents a decrease from $36.7 million in the first quarter of 2009. This decrease reflects fewer orders in the first quarter of 2010 compared to prior period. The company attributes this decrease to the uncertainty of the economic environment as having had a negative impact on its trading activity. As the company acquired Changbai Eco-Beverage Co., Ltd., its new blueberry product segment, on March 23, 2010, its contribution to the Company’s first quarter revenues was limited.

Gross profit was $8.2 million, compared to $8.4 million in the first quarter of 2009. The gross profit margin for the first quarter of 2010 was 25.4% compared to 22.8% in the same period of 2009. This improvement in the gross profit margin largely offset the decline in revenue and was in part attributed to the Company’s decision to more actively trade in beans and soybeans, which have better margins.

Net income attributable to CNOA shareholders in the first quarter of 2010 was $3.0 million. Fully diluted earnings per share in the first quarter of 2010 was $0.04 as compared to $0.05 in the first quarter of 2009.

In addition, based on its review of its receivables as of March 31, 2010, the Company recorded a bad debt provision of $433,584. The Company reports that enhanced collection efforts have resulted in an improvement in its collections subsequent to March 31, 2010.

Interest expense increased in the three month period ended March 31, 2010 as compared to the same period in 2009 due to higher bank borrowings.

As the Company owns 60% of its Dalian Huiming subsidiary, 40% of total net income from Dalian Huiming was recorded as income attributed to noncontrolling interest. Noncontrolling interest decreased from $2.5 million for the first quarter of 2009 to $2.2 million in the first quarter of 2010, reflecting reduced net income from the trading operations conducted by Dalian Huiming.

As of March 31, 2010, China Organic Agriculture had cash and cash equivalents of $25.1 million, up from $18.5 million as of December 31, 2009, excluding restricted cash. Working capital as of March 31, 2010 was $62.7 million as compared to $47.5 million as of March 31, 2009.

The stock is still trading under Book Value of $ 0.82. Their trading businesses make profits. The shift to becoming less dependable on trading is positive and will lead to higher and stable earnings per share the coming quarters. I really believe an EPS-figure of $ 0.22 in 2010 is possible and maybe even conservative.


Sunday, May 23, 2010

10 Investment rules you may consider

The market entered a correction a couple of weeks ago that included a "flash crash", you ask yourself the question: What do I have to do now?

Of course you can move to cash, so when the market turns positive again you will be ready to put capital to work in the undervalued leaders that have had most of the losses, but will emerge if it turnes positive again.

I'm going to review some investing rules you can apply.

1. Search for strong sales and earnings growth (especially triple-digit sales growth).

2. Search for revolutionary products with major benefits. (China Kangtai Cactus, CKGT)

3. Heed the message of the overall market--never fight the main trend!

4. Only put more money to work after your past purchases are showing you a profit.

5. Be humble--making money in stocks is tough, so don't kill yourself over one or two bad trades. Be thankful when you hit a big winner.

6. Find an investing system that works for you. The best way to deal with stress from the market is to have a game plan ahead of time. If you wait until things are blowing up in your face, it's too late--by then, your emotions are out of control and you're likely to do the exact opposite of what's constructive.

7. "Markets are never wrong; opinions are," is a quote from Jesse L. Livermore, one of the most colorful, flamboyant, and respected market speculators of all time.

8. When looking for potential purchase candidates, examine both the company's fundamentals and its stock's technical performance. When analyzing the technicals, focus on the stock's momentum and price chart, along with its volume pattern and 50-day moving average.

9. Once you've invested in a stock, be patient. Recognize that time is your friend. Frequently stocks don't go up as fast as you might want them to. But if you can develop a persistent and tolerant attitude coupled with plenty of patience, you'll have a great advantage.

10. Buy value stocks with strong fundamentals and look to figures as Book Value, P/E, PEG-ratio, etc. These investment selection criteria are a superb way to identify companies and give you a margin of safety.

I hope these rules will help you stay calm and avoid panic when the market takes it on chin, as it has the last few weeks.

New Investment Books Blog Shop

I started a new bookshop on this blog. The other subjects: My 40 best investment books and My New Books will soon be integrated in the bookshop.

Also other subjects regarding investing will be available in the bookshop. The choosen books come from own experience, from reader's experience and from bestseller lists. So as an investor you know that most books are good and worthly reading.

By dividing the Book Blog Shop in subjects it makes it easier to get what you are looking for.

The main objective of China Investor King is of course give you some ideas in Chinese stocks that in our opinion are Undervalued, Underowned, Unloved, Underestimated and a lof of other U U U U's.

China is economically the place to be the coming centuries so it will give investors a lot of opportunities. We hope we can give you some.

Saturday, May 22, 2010

PetroChina lines up $60b to boost overseas oil, gas output

By Wan Zhihong (China Daily)
Updated: 2010-05-21 09:44

BEIJING - PetroChina Co, the nation's largest oil and gas producer, will invest $60 billion to increase its overseas oil and gas output to 200 million tons every year, Chairman Jiang Jiemin said on Thursday.

Jiang told reporters that the company's overseas oil and gas cooperation areas would be focused on Central Asia, the Middle East, Africa, the Americas, and the Asia-Pacific.

The chairman, however, did not indicate the time frame of the $60 billion investment. Earlier media reports said the investment would be made over the next decade.

Jiang said PetroChina is also planning to acquire most of the overseas assets of its parent, China National Petroleum Corp (CNPC), except those in politically sensitive areas.

CNPC has overseas investment in 29 countries, while its overseas projects and technology services business has presence in 39 countries.

Chinese oil companies led by CNPC and Sinopec have quickened their overseas expansion pace in recent years, a move analysts said was necessary to cope with the rising domestic energy demand.

CNPC agreed on Wednesday to acquire a 35 percent stake in Royal Dutch Shell's oil and gas unit in Syria. The company also plans to build a refinery in Syria that can process 5 million tons of crude every year, said Jiang.

The company recently completed a deal to develop oil sands in Canada. CNPC will work to achieve 20 million tons of heavy oil production capacity via the deal, said Jiang.

"China's oil imports will continue to see robust increase in the future, as domestic production cannot keep pace with rising consumption," said Zhou Dadi, an analyst with the Energy Research Institute (ERI) under the National Development and Reform Commission (NDRC).

The nation's net oil imports are expected to reach 210 million tons this year, according to Huang Li, an official with National Energy Administration (NEA).

The volume would be about 11 million tons, or 5.5 percent, higher than last year, she said.

According to the China Petroleum and Chemical Industry Association, the country imported about 203.8 million tons of oil in 2009, while exports totaled about 5.16 million tons.

According to a report by the Chinese Academy of Social Sciences, 64.5 percent of China's oil consumption is likely to be met by imports in 2020, due to the gap in domestic consumption and production.

Jiang also said on Thursday that PetroChina plans to increase its natural gas production to half of the company's total oil and gas output in 10 years.

At present natural gas accounts for 3.8 percent in the country's total energy consumption, compared with 10 percent in Asia and 24 percent worldwide.

After reading this I think there is going to be a huge future demand for gas and other cleaner energy. There are some Chinese listed OTC stocks than really can benefit the coming years, one of them is Sino Gas Int. Holdings (SGAS)


Thursday, May 20, 2010

Healthy life with China Kangtai Cactus Bio-Tec (CKGT)

China Kangtai Cactus Biotech, Inc. is a leading grower, developer, producer, and marketer of cactus-derived products, including nutraceuticals, nutritious food, health and energy drinks, beer, wine and liquor, extracts and powders, and animal feed. China Kangtai controls over 387 acres of plants and maintains an active group that holds 18 product patents and is seeking another 12. China Kangtai's high-quality “green” products are sold throughout China via a distribution network that covers 12 of China's 23 provinces and two of China's four municipalities.

In April they announced that it has signed a three-year marketing and sales agreement with Yongkangmen Health and Drug Chain Store Group Ltd. to sell its nutritious and patented cactus-based products, including nutraceuticals, health food, and health and energy drinks.

Yongkangmen Health and Drug Chain Store, headquartered in Beijing City, has controlling ownership in more than 3,000 drugstores throughout China. Additionally, Yongkangmen owns one pharmaceutical manufacturer and three pharmaceutical wholesalers in Hebei Province, and farms Chinese herbal medicine plants on its land in Baekdu Mountain (also known as Changbai Mountain) in Jilin Province.

Under the agreement, all the Yongkangmen drugstores nationwide will promote, market and sell China Kangtai’s cactus-derived products for the next three years.

China Kangtai CEO Jinjiang Wang said, “Traditional Chinese beliefs view herbal-based medicine and dietary supplements as an alternative to healthcare. The demand for our cactus health products has been expanding every year. By leveraging Yongkangmen’s prominence in the health product retail industry, we can expand our market share into new territories exponentially, which creates a win-win situation for both Yongkangmen and Kangtai.”

Last Monday they released their first quarter results (ending March 31). Revenues 2010 increased 66% to $5.5 million from $3.3 million. Net income totaled $2,352,638 as compared to the net income of $956,673 in the same period of 2009. The increase in net income was caused partially by the income from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair values. (See Note 11 to Financial Statements in 10-Q). Absent this income, the company would have had a net income of $836,723 in the first quarter of 2010, as compared to net income of $693,948; and basic and diluted earnings per share would have been $0.04 and $0.04.

With other words: Adjusted net income was up 20.5% to $836,723 or $0.04 per share. GAAP net income was $2.4 million versus $956,673. Gross profit margin was 27% compared with 37% in the first quarter of 2009, primarily attributable to the increased sales of our raw and intermediate materials. The gross profit rate is about 11% for our raw and intermediate materials products. Income from operations increased 34% to $1.2 million from $880,530 in 2009.

Weighted average number of diluted shares outstanding was 21.7 million as of March 31, 2010 compared with 19 million as of March 31, 2009

Especially the Q1 Product Categories Performance was good.

Nutraceuticals revenue increased 32.6% from $1.4 million in 2009 to $1.8 million, or 33% of the total Q1 2010 sales.
Beverages revenue increased 43% from $1.0 million in 2009 to $1.4 million, or 25% of the total Q1 2010 sales.
Raw and intermediate materials segment revenue increased 170% from $0.6 million in 2009 to $1.6 million, or about 30% of the total sales.
Cactus feed revenue increased 82% from $257,844 in 2009 to $468,373, or about 8.5% of the total sales, due to cactus hog feed launched in Q4 2009 after the successful launch of cactus cattle feed and fish feed in July 2008.
Packaged foods provided no revenue in the quarter, compared to $123,592 in Q1 of 2009
Cactus cigarettes, launched in Q4 2009, reported revenue of $212,638, or 4% of total sales.

Management Comment

China Kangtai CEO Jinjiang Wang said, "Our first quarter of 2010 was marked by continued strong product sales in our largest product segments nutraceuticals, beverages and raw and intermediate materials. Sales in our two traditional core businesses, nutraceuticals and beverages rose 33% to $1.8 million and 43% to $1.4 million respectively. Sales of raw and intermediate materials were up 170% to $1.6 million. This had a negative impact on our gross margin because the gross profit rate for raw and intermediate materials is about 11%, compared with substantially higher margins in the other two categories.

“We were pleased with the 82% gain in cactus feed, reflecting the introduction of new animal feed lines. And we saw our initial revenues from the sale of cactus cigarettes, which we believe will provide us with excellent growth for the remainder of the year,” Mr. Wang said.

What attracted me to this story were the health benefits that some Cactus plants seem to have. My wife is from Mexico and in Mexico Nopales is widely used in capsule form for all kind of treatments.

The Nopal cactus (Opuntia ficus-indica), also known as "prickly pear," is a plant native to the mountains of Mexico. It has been used since ancient times as both a food and as a medicine for its health benefits. The Aztecs considered the cactus, which derives some of its properties from the volcanic soil in which it grows, as a food fit for royalty and a fortifying substance for warriors. A powdered form of Nopal has become popular in modern times as a treatment for a variety of metabolic, digestive and heart problems.

Stabilizes Blood sugar

Nopal cactus contains a large amount of slowly-digestible fiber and tends to slow down the digestion of foods when it is taken just before or with a meal. The cactus has the effect of lowering the Glycemic Index (a measure of how quickly a food raises blood sugar levels) of any foods it is eaten with. Clinical testing has shown that people with high morning blood-sugar levels who ate Nopal cactus for breakfast subsequently had lower or normal blood- sugar levels.

Lowers Cholesterol

The fiber and sterols in Nopal bind with a bile salt in the intestines, which helps limit the amount of blood fats (cholesterol and triglycerides) absorbed by the body, thereby lowering blood cholesterol levels.

Scrubs Blood Vessels

Plaques are areas of inflammation that form on the walls of the blood vessels, where they trap blood fats that can harden or even block the arteries. Nopal cactus sterols, along with its polyphenols and glycoproteins, serve as antioxidants that help reduce inflammation and keep plaques from forming.

Sweeps the Colon

The insoluble plant fibers in Nopal cactus provide dietary roughage, which make it easier to maintain bowel regularity. Nopal also contains soluble plant fiber, which helps absorb toxins, including carcinogens, as it sweeps the colon clean.

Soothes the Stomach

Nopal contains a high amount of mucilage, which helps balance the pH of the stomach and soothes the stomach lining. Tests have shown that Nopal stimulates the healing of stomach ulcers and reduces stomach inflammation.

Protects the Liver

Because Nopal contains antioxidant flavonoids, it helps neutralize free radicals before they can overtax the liver. It also helps absorb toxins, decreasing the liver's load. By supporting the liver, it frees that organ to balance bodily functions, including the immune system.

Hangovers and Obesity

Nopal is sometimes used to help counteract the effects of alcohol consumption. It helps rehydrate the body, soothes the stomach, and improves liver function, thereby preventing the headache, stomach ache and toxic "morning after" feeling. When taken before meals, Nopal's roughage can help create a sensation of fullness that may help prevent overeating and helps stabilize the blood sugar, to ward off hunger. Nopal cactus also contributes calcium and valuable amino acids and other nutrients.

If you ask me a lot of health benefits, also the recent price drop from $ 3.00 in January to $ 1.60 right now makes it an interesting play in the health scene. The book value per share is around $ 1.56. Because of the marketing and sales agreement with Yongkangmen I think there is enough space for healthy growth.

Also the sale of low nicotine and zero nicotine cigarettes under the registered trademark "Shengcao" brand, has a huge potential for growth in China and abroad. China has about 390 million smokers, accounting for 30% of global smokers. Their revolutionary product can not only capture a significant portion of smokers, but also promote consumer consumption in their other health products such as nutraceuticals, nutritious food, health and energy drinks, beer, wine and liquor.


Tuesday, May 18, 2010

Buy China stocks in second half: CLSA

Investors should avoid buying China's stocks until the third quarter when the government starts unwinding measures to curb asset bubbles, said Christopher Wood, chief equity strategist at CLSA Asia Pacific Markets.

China's stocks plunged the most since August yesterday on concern government steps to cool the property market and European austerity measures will hurt economic growth. The Shanghai Composite Index dropped 136.69, or 5.1 percent, to close at 2,559.93, the lowest since May 4, 2009.

"I don't think we're near the end of the monetary tightening cycle," Wood, the second-ranked Asia strategist in Institutional Investor magazine's annual poll, said in an interview yesterday at the CLSA forum in Shanghai. "The government only started taking more aggressive measures in April. Buy stocks in the third quarter."

China last month imposed a ban on loans for third-home purchases and raised mortgage rates and down payment requirements. The central bank ordered lenders this month to set aside more deposits as reserves for a third time in 2010.

Even with the tightening measures, property prices jumped a record 12.8 percent in April from a year earlier and consumer prices rose 2.8 percent, the fastest pace in 18 months.

Premier Wen Jiabao said the government will "decisively" contain excessive increases in housing prices in some cities and curb growth of industries with overcapacity, the Xinhua News Agency reported May 15. China should keep the strength of macroeconomic controls "reasonable" and boost policy coordination, Xinhua said, citing Wen.

Chinese stocks will only "bottom" when it becomes clear the government's tightening is coming to an end, said Wood, who is based in Hong Kong. CLSA said it expects the central bank to raise interest rates in the second half of the year.

The nation's property prices will fall this year, hurting the outlook for other industries such as commodities, Wood said.

The Shanghai stock index has lost 22 percent in 2010, the world's fourth-worst performer among the 93 gauges tracked by Bloomberg, after surging 80 percent last year. The measure entered a bear market on May 11 after falling 21 percent from its Nov 23 high.

"Investors are worried that more property tightening is on the way even as Europe throws up more uncertainties about the global economy," said Michelle Qi, a Shanghai-based portfolio manager at Bank of Communications Schroders Fund Management Co, which oversees about $6.5 billion.

Europe's debt crisis may have spurred the Chinese government to put further tightening measures on hold, prompting Morgan Stanley to upgrade the nation's banks to "equal-weight" from "underweight" in its model portfolio.

The brokerage added Bank of China Ltd, Bank of Communications Co and China Construction Bank Corp to its portfolio, while "taking profit" in selective shares in the consumer, capital goods, auto and media industries, according to a note to clients.

European finance ministers return to Brussels yesterday a week after agreeing to a $1 trillion financial lifeline for the euro region. Ministers are under pressure to show they can reduce deficits fast enough to satisfy investors and then police budgets effectively once targets are met.

The euro will be on par with the US dollar "sooner or later" as the region's debt crisis worsens, said Wood.

He recommended buying emerging-market equities and shares of multinationals that sell to developing nations because of their faster economic growth prospects.

source: China Daily

Monday, May 17, 2010

China Agri Business (CHBU) still on track

Some highlights:

Sales for the three months ended March 31, 2010 totaled $1,540,941, an increase of $1,071,369, or 228%, as compared to sales of $469,572 for the three months ended March 31, 2009. The increase in sales was attributable to positive reponses to our "New Agriculture-Generator" campaign, which was designed to expand our distribution network directly and to establish a closer relationship with farmers through agricultural cooperatives in the rural areas of China. Sales from our Direct Sales Stores amounted to $1,062,461, approximately 69% of total sales in the three months ended March 31, 2010. Sales from our Super Chain Branded Stores amounted to $183,281, approximately 12% of total sales in the three months ended March 31, 2010, as compared to $26,010 in the same period of 2009. Sales from our traditional sales network amounted to $295,199, a decrease of $148,363, or 33%, as compared to $443,562 in the three months ended March 31, 2009. As of April 30, 2010, the Company had established approximately 250 direct sales stores which are controlled and managed directly by the Company, and approximately 100 super chain branded stores, the majority of which are located in Shannxi Province (local province) and Hunan Province.

Cost of goods sold for the three months ended March 31, 2010 totaled $865,118, an increase of $718,876, as compared to cost of goods sold of $146,242 for the three months ended March 31, 2009. Gross profit rate was 44%, a decrease of 25 percentage points as compared to 69% for the three months ended March 31, 2009. The increase in cost of goods sold and decrease in gross profit margin rates was attributable to our new direct sales stores. To attract more farmers to our direct sales stores, in addition to selling products manufactured by the Company, our direct sales stores also sell certain fertilizer products manufactured by third parties. For the three months ended March 31, 2010, total sales of third party products was $870,754, or 57% of total sales. Following is an analysis of our gross profit margin for the three months ended March 31, 2010 (We did not have direct sale stores in the same period of 2009).

Net income for the three months ended March 31, 2010 was $331,808, an increase of $224,892, or 210% as compared to net income of $106,916 for the three months ended March 31, 2009. The increase in net income primarily resulted from our "New Agriculture-Generator" campaign and expansion of our direct sales network.

Q1 EPS diluted was $ 0.02, I think there is room to grow this EPS to $ 0.03 the coming quarters. My expectation was an EPS of $ 0.12 this year, maybe it was sharply set but I still believe in it. I know the expanding of their growth programs will continue to pressure net income, but right now I am not going to revise my projections.


Sancon (SRRY) disappointing

Some highlights:

Revenue is generated by service charges and the sale of recyclable materials. Revenue for the three months period ended March 31, 2010 were $3,068,509, representing $474,014 or 18% increase compared to the revenue of $2,594,495 in the same period of 2009. Although suffering the globle economic crisis, our material recycling business is getting better.

The cost of revenue is the direct cost for sale of the recycling materials. For the three months period ended March 31, 2010, the cost of revenue was $1,538,106. It was $256,174 or 20% increase as compared to the cost of sales of $1,281,932 for the three months period ended March 31, 2009. The increase mainly contained $117,297 of labor service fee for sub contractors. This cost was related to our Chinese market expandant. Cost of revenue in the material recycling business for the three months period ended March 31, 2010 and 2009 was $275,761 and $143,190 respectively, an increase of $132,571 or 93%. The increase of cost of sales in our material recycling business was in line with the sales. For the three months period ended March 31, 2010 and 2009, cost of revenue was 50% and 49% of sales respectively.

The gross profit for the three months period ended March 31, 2010 was $1,530,403, representing $217,840 or 17% increase compared to $1,312,563 for the three months preiod ended March 31, 2009. The gross margin reduced from 51% to 50%.

Selling, general and administrative expenses increased to $875,659 for the three months period ended March 31, 2010, from $697,953 for the three months preiod ended March 31, 2009, an increase of $177,706 or 25%. Mainly by increased  SG&A expenses and consulting fees.

Net income for the three months period ended March 31, 2010 was $567,310, compared to $572,717 a decrease of $5,407 or 1%. The decrease is mainly due to the reduce of net income in the material recycling business of $14,836 or 70% although our investor relationship expenses and option expenses decreased $11,031, or 18%. Net profit margin for the three months preiod ended March 31, 2010 was 18% while it was 22% for the same period in 2009.

The company has accumulated profit of $4,028,952 as of March 31, 2010 compared to $3,461,642. The positive working capital was $4,000,881 and increased by $613,021. That is mainly due to the increase of $478,788 in cash and cash equivalents and $196,756 in the trade receivables. The strong sales for the three months period ended March 31, 2010 lead to the great increase in cash and trade receivable.

Management believes there are no known trends, events, or uncertainties that could, or reasonably be expected to, adversely affect the Company's liquidity in the short and long terms, or its net sales, revenues, or income from continuing operations. However the management observed increased competition in the material trading business has resulted in decrease margin in these businesses.

First quarter EPS was $ 0.02 slightly disappointing if you ask me. Also the fact that the company gives no clearance of their projects etc. gives me no positive sign. My projections of net income per share this year between $ 0.14 - $ 0.16 are farther away than ever.


XINYINHAI TECHNOLOGY (XNYH) $ 0,10 EPS this year achievable

The last time that I put such long texts on this blog, but YES still undervalued if you ask me. I have to confess after reading the 10-Q I am positive about the management decisions they made and I still believe that an EPS of $ 0.10 is almost a fact.   

Results of Operations

The recent global recession reduced demand for capital goods in China. Since late 2008, this situation has had a negative impact on both of our business segments. In the first quarter of 2010, which ended on March 31, 2010, the effect of the recession was most dramatic in our equipment distribution business, where revenues declined by 73% to $147,168 during the first quarter of 2010 from $536,904 during the first quarter of 2009 (which was, in turn, 45% lower than in the first quarter of 2008). The decline in equipment distribution reflected delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that we had experienced in 2008, and reduced this business segment to a 7% contribution to our overall revenue during the first quarter of 2010, a level below even the 13% level we experienced in 2007 and 2006. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China. I would say DISINVEST.

Revenue from our printing business, on the other hand, was modestly higher, increasing by 9% to $2,027,210 during the first quarter of 2010, compared to $1,860,077 during the first quarter of 2009. The printing segment of our business had declined in 2008 and 2009, in part due to the weakening of the Chinese banking industry, as many of our customers were conserving cash pending stabilization of the international credit markets. The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008. The move necessitated delays in production, while our equipment was in transit, which in turn interfered with our sales effort, as our customers delayed orders until we could demonstrate that our facilities were up and running. Today, however, our new facility is fully operational, and we expect the traditional growth of our printing business to be renewed.

Over the longer term, the continued revenue growth in our printing services business will require further capital investment. As China’s banking industry rapidly modernizes, our customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S. Our ability to meet that demand will determine the long term growth of our business. Immediately, the development of these new products will require substantial capital investment. For that purpose, we secured a $2.9 million collateralized loan during the third quarter of 2009, and applied $748,379 to improvements in our plant and equipment during the second half of the year. The growth in first quarter printing revenue indicates a first step toward realizing the benefit of that investment. In addition, our backlog of firm orders at March 31, 2010 for 2010 delivery was approximately double the backlog level at March 31, 2009, indicating that we should be able to sustain growth for the remainder of the current year.

The 37.3% gross margin realized by our subsidiary, Harbin Golden Sea, on sales in the first three months of 2010 was only slightly better than the 36.5% gross margin realized in first three months of 2009. The gross margin was adversely affected by the decline of our equipment business, which operated at a loss during the first quarter of 2010. However, margins from our printing business also remained lower than optimal. Our business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business.

We operated substantially more efficiently during the first quarter of 2010 that during the prior year’s quarter. Total expenses during the first quarter of 2010 were $220,280, a 46% decline from the $407,181 in operating expenses that we incurred during the first quarter of 2009. The decline was attributable to our continuing efforts to achieve efficiencies in our operations, leading to a decrease of $50,277 in our selling and distribution expenses and $136,624 in our general and administrative expenses for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. When demand for our products returns to prior levels, we will endeavor to maintain the efficiencies that we implemented during the current slow period.

Our increased efficiency was sufficient to offset the reduction in our revenues from the first quarter of 2009 to the first quarter of 2010. Income from operations, therefore, increased by 26%, from $468,772 to $590,808. During the third quarter of 2009, however, we obtained a one-year bank loan in the amount of $2.9 million, secured by a portion of our real property. This caused us to incur $39,206 in finance costs in the first quarter of 2010, compared to only $198 in the first quarter of 2009. We will continue to incur finance costs related to the loan until it matures in the third quarter of 2010, and thereafter if we decide to refinance the loan.

Our income before income taxes and noncontrolling interests for the first quarter of 2010, therefore, was $554,096, compared to $478,144 in the first quarter of 2009. Commencing in 2008, we became subject to preferential Chinese income tax rates of 9% for 2008, 10% for 2009 and 11% for 2010, respectively. As a result of this government allowance, we were taxed at a 10% rate in the first quarter of 2009, causing an expense of $64,674, and at an 11% rate in the first quarter of 2010, cause an expense of $64,245. In 2011 our income will be taxed at the national rate of 25%.

The operations of our subsidiary, Harbin Golden Sea, produced $498,880 in income during the first quarter of 2010. However, because we own only 90% of Harbin Golden Sea, we deducted a “noncontrolling interest” of $49,888 before recognizing net income on our Consolidated Statements of Income and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income for the first quarter of 2010 was $439,963, representing $.023 per share, a 20% increase from the net income we achieved in the first quarter of 2009.

Liquidity and Capital Resources
Since our subsidiary, Harbin Golden Sea, was organized in 1998, the growth of its operations has been funded by contributions to capital by our Chairman, Mrs. Tian. With the $2.4 million that she invested, Harbin Golden Sea built its facilities and funded its operations, resulting in profitable operations for the past several years. As a result, at March 31, 2010, we had working capital totaling $8,561,560 (an increase of $547,027 since the end of 2009) and no long-term liabilities.

However, Harbin Golden Sea’s business plan calls for significant investment in the growth of Harbin Golden Sea during the next twelve months. We are purchasing new equipment for our new production facility. We also plan to invest in the development of additional product lines. To accomplish those goals, during the third quarter of 2009, we obtained a $2.9 million bank loan collateralized by our real property. The loan bears interest at 5.31% per annum and is due in the third quarter of 2010. We are utilizing the borrowed funds to implement the capital improvements necessary for our growth. Because the loan amount is substantially less than the value of our real property and because we are operating profitably, we expect to be able to refinance the loan when it matures.

Until our sales return to pre-recession levels, a rapid expansion of our facilities would only increase depreciation expense and operational inefficiency. For that reason, the largest portion of our working capital is now invested in developing strategic relationships that will, we hope, benefit us in the future. Within the Chinese business community, the extension of interest-free loans is a normal method of securing good relations and future opportunities. For that reason, as of March 31, 2010, we have extended a total of $5,264,672 in short-term, interest-free loans to parties that have no other affiliation with Harbin Golden Sea or its management. The largest loan, $4,767,750, has been made to Heilongjiang Jindi Real Estate Development Co., Ltd., in anticipation of future benefits to our real estate assets. We also had relatively small loans outstanding to a trading company and a company in the pharmaceutical industry. All of the loans are due within six months after we fund the loan.

Our operations during the first quarter of 2010 used $167,698 in net cash. The disparity between our net income and net cash from operations was primarily attributable to the fact that during the quarter we increased our inventories by $347,942 in anticipation of near-term growth, and also increased our outstanding trade receivables by $698,553. The increase in our trade receivables was primarily a reflection of the timing of sales, and did not reflect any adjustment in our credit policies. We anticipate, therefore, that our trade receivables will increase or decrease in future periods in proportion to the increases or decreases in our sale revenue.

With the proceeds of our bank loan, we held $2.0 million in cash and equivalents at March 31, 2010. We will have no debt payment obligations until the bank line comes due in the third quarter. And, in accordance with customary banking practice in China, we expect that the bank loan will be extended when it reaches maturity, provided that our financial results are satisfactory to the bank. For that reason, we expect our liquidity will be sufficient in the next year to fund our ongoing operations as well as our near-term growth.


Rodobo (RDBO) on target

They just filed.
Net Sales:

Net sales for the six months ended March 31, 2010 were $25.4 million, an increase of approximately $10.2 million or 67.5%, compared to net sales for the six months ended March 31, 2009. This increase was primarily driven by volume growth, with the average selling price remaining relatively flat over both periods. We continued our efforts to develop distribution networks and expand the market areas in the seven provinces in which we currently sell products through our sales and administrative office in Beijing. The increase was also attributed to the newly launched Peer product series, which generated $8.7 million of sales for the six months ended March 31, 2010. The Beixue Group, contributed $5.5 million in sales for the six months ended March 31, 2010.

Gross Profit:
Our gross profit increased approximately $4.5 million for the six months ended March 31, 2010, an increase of 66.7% compared to the gross profit for the six months ended March 31, 2009. The overall gross profit margin remained almost flat at 44.5% for the six months ended March 31, 2010 compared to 44.7% for the six months ended March 31, 2009.

Our overall gross profit margin was diluted due to the recent acquisition of lower-margin business. The Beixue Group has a gross profit margin of 8.4% for the six months ended March 31, 2010. Excluding the margin dilution impact of the acquisition, the gross profit margin actually improved from 44.7% for the six months ended March 31, 2009 to 54.4% for the six months ended March 31, 2010, primarily driven by the Peer product line, which has a gross profit margin of 68.7% and accounted for approximately 43.6% of total sales (excluding sales from the Beixue Group) in the six months ended March 31, 2010.

Net Income:
We achieved $6.1 million of net income for the six months ended March 31, 2010, an increase of $3.0 million (approximately 99.2%) compared with $3.1 million for the six months ended March 31, 2009. This increase in net income was mainly attributable to the increase in net sales, partially offset by an increase in cost of goods sold and operating expenses. This increase in net income was also attributable to a $1.7 million of gain on bargain purchase in connection with the acquisitions of the Beixue Group. There was $0.3 million of non-recurring subsidy income from the government in the six months ended March 31, 2010 compared with $0.4 million of subsidy income in the six months ended March 31, 2009.

Over the next twelve months, we intend to pursue our primary objective of increasing market share in the China dairy industry. We are also evaluating acquisition and consolidation opportunities in China’s fragmented dairy industry. We believe that we have sufficient funds to operate our existing business for the next twelve months. We usually finance our operations from funds generated by operating activities. However, in addition to funds available from operations, we may need external sources of capital for our expansion. There can be no assurance that we will be able to obtain such additional financing at acceptable terms to us, or at all.

Harbin Rodobo is entitled to a tax holiday of five years for full Enterprise Income Tax exemption in China. The preferential tax treatment commenced in 2005 and will expire on December 31, 2010. Qinggang Mega is qualified for tax exemptions due to a PRC tax preferential policy for the agricultural industry. Hulunbeier Hailaer Beixue was entitled to a tax holiday of three years for full Enterprise Income Tax exemption in China. The preferential tax treatment for Hulunbeier Hailaer Beixue expired on December 31, 2009 but has been extended for another three years. The estimated tax savings for the three months ended March 31, 2010 and 2009 amounted to $1.0 million and $0.3 million, respectively. The net effect on basic earnings per share had the income tax been applied would decrease earnings per share from $0.18 to $0.14 for the three months ended March 31, 2010, and from $0.83 to $0.63 for the three months ended March 31, 2009.

Earnings per share for the first 6 months were $ 0.31, three months ending March 31 was $ 0.17. They are still on target to deliver an EPS between $ 0.70 - $ 0.80. The distribution of their high margin products has to be top priority to meet my target.  


Saturday, May 15, 2010

The Life of a Chinese Contrarian Value Player

It is important to realize that investing using contrarian value strategies is a long-term game. One roll of the dice or a single hand at blackjack is meaningless to the casino owner. He knows there will be hot streaks that will cost him a night's, a week's, or sometimes even a month's revenues. He may grumble when he loses, but he doesn't shut down the casino. He knows he will get it back.

As an investor, you should follow the same principles. You won't win every hand. You will have periodes of spectaculair returns and others you might diplomatically describe as lousy. But it is important to remember that contrarian value strategies, like the odds for the casino owner, put you in the catbird seat. Professional investors, along with everyday folks like me, normally forget this important principle and demand superior returns from every hand.

Even though a strategy works most of the time and generates, excellent returns, no strategy works consistently.  The fast-track, aggressive growth stocks will, on occasion, knock the stuffing out of low-P/E or other contrarian methods for several years at a clip-sometimes longer. But over time, it's simply no contest. Still, human nature being what it is, our expectations are almost always too high.

Even when we look at the record of these superb returns (which encompass both bull and bear markets over decades), we are still disappointed that a contrarian value strategy doesn't win each and every year. The probability is zero that any investment strategy would, just as it is that you will win a hundred straight hands at blackjack.

It is widely known that contrarian value strategies have an excellent record of doing better in bear markets. So if we are still in a bear market or we are going to be in one, your Chinese(OTC)stocks with a low P/E could be a nice hedge and outpace the market handily for years to come.


Friday, May 14, 2010

Lotus (LTUS) results promosing for the future

Some highlights of their 10-Q filing today:

Total net revenues for the three months ended March 31, 2010 were $14,948,912 as compared to total net revenues of $11,824,287 for the three months ended March 31, 2009, an increase of $3,124,625 or approximately 26.4%.

For the three months ended March 31, 2010, wholesale revenues increased $2,557,681 or approximately 28.6%. In the first quarter of fiscal 2010, we added five new prescription drugs to our products delivered through our national wholesale channels. The five new prescription drugs covered by the National Health Insurance Program have proven their market acceptance. One of the five new prescription drugs is Omeprazole Enteric-coated Capsule which is for the treatment of duodenal ulcer. The other four drugs are traditional Chinese medicine in capsules, tablets and ointment for the treatment of chronic prostate infection, psoriasis, influenza and meridian pain, respectively. As a result, our wholesale revenues for the three months ended March 31, 2010 increased. We anticipate that our wholesale revenues will continue to increase in the rest of 2010 since the newly added five prescription drugs are expected to increase our market share.

For the three months ended March 31, 2010, retail revenues increased by $1,115,204 or 52.2%. At the end of fiscal 2009, we appointed a general manager for our Over-the-Counter Drug Division that manages our own ten drug stores' sales, and the newly created direct sales to other Over-the-Counter drug stores in Beijing. The general manager has strong management skills in medical sales and marketing and logistics and is an expert in delivery of services to drug stores in Beijing. As of the end of last fiscal year, our Over-the-Counter Drug Division successfully entered into supply contracts with more than five hundred drug stores in Beijing. All contracts have a term from one to two years and are renewable upon mutual agreement. In the first quarter of fiscal 2010, we served more than 700 other Over-the-Counter drug stores in Beijing. Due to the growth and success of our OTC Drug Division's sales force, our retail revenues for the first quarter of fiscal 2010 substantially increased. We expect our retail revenue from our own ten drug stores will remain in its current level with small growth and our retail revenue from our direct sales to other drug stores in Beijing will continue to increase in the rest of 2010.

For the three months ended March 31, 2010, other revenues decreased by $548,260 or approximately 73.4%. This is not important because it is only a fraction of their revenues. 
Gross profit for the three months ended March 31, 2010 was $8,705,283 or 58.2% of total revenues, as compared to $6,638,129 or 56.1% of total revenues for the three months ended March 31, 2009. The slight increase in gross profit margin was attributable to the decrease in cost of sales as a percentage of revenue. The decrease in cost of sales as a percentage of revenue was primarily contributed to better managed raw materials and third party manufactured finished goods purchase as well as more efficient control in labor fees. We expect that our gross profit margin will remain in its current level with slight growth in the future.

Lotus reported net income of $4,928,918 for the three months ended March 31, 2010 as compared to net income of $3,568,102 for the three months ended March 31, 2009. This translated to basic earnings per common share of $0.10 and $0.08, and diluted earnings per common share of $0.09 and $0.07, for the three months ended March 31, 2010 and 2009, respectively.

At March 31, 2010 and December 31, 2009, we had a cash balance of $1,125,181 and $3,945,740, respectively. These funds are distributed in financial institutions located in China.

Our working capital position increased $3,014,169 from $(4,952,734) at December 31, 2009 to $(1,938,565) at March 31, 2010. This increase in working capital is primarily attributed to an increase in inventories of approximately $2.26 million, an increase in prepaid expenses and other assets (current portion) of approximately $0.24 million, a decrease in accounts payable and accrued expenses of approximately $0.13 million, a decrease in other payables of approximately $0.84 million, a decrease in taxes payable of approximately $0.65 million, a decrease in unearned revenue of approximately $0.37 million, a decrease in Series A convertible redeemable preferred stock of approximately $1.69 million offset by a decrease in cash of approximately $2.82 million, a decrease in accounts receivable of approximately $0.11 million and an increase in due to related parties (current portion) of approximately $0.18 million.

At March 31, 2010, we had Series A Convertible Redeemable Preferred Stock of $2,477,433 as compared to $4,170,572 at December 31, 2009, a decrease of $1,693,139. The decrease was primarily attributable to the conversion of the Series A Convertible Redeemable Preferred Stock of $2,166,000 offset by the amortization of discount on convertible redeemable preferred stock of $151,553 and the issued additional convertible redeemable preferred stock of $321,308 as dividends in the first quarter of fiscal 2010.

Our balance sheet as of March 31, 2010 also reflects notes payable to related parties of $5,069,839 due on December 30, 2015 which was a series of working capital loans made to us since December 31, 2005 by the Company’s Chief Executive Officer, his wife, two employees of the Company and a Board member. These loans bear interest based on a floating annual interest rate, which is 80% of China bank interest rate and are unsecured. During the three months ended March 31, 2010, we did not repay any portion of the principal of these loan balances.

The changes in asset and liabilities discussed above is based on a comparison of amounts on our balance sheets as of March 31, 2010 and December 31, 2009 and does not necessarily reflect changes in assets and liabilities reflected on our cash flow statement, for which we use the average foreign exchange rate during the period to calculate these changes.

We believe that our working capital is sufficient to fund our current operations for the next 12 months. Lotus East has historically funded its capital expenditures from its working capital. Lotus East has contractual commitments for approximately $53.9 million related to a Technology Transfer Agreement and the construction of the new manufacturing facility in Inner Mongolia and a New Drug Patent Transfer Agreement. While it intends to fund the costs with its existing working capital associated with the Technology Transfer Agreement and the New Drug Patent Transfer Agreement and a portion of the construction of the new manufacturing facility, it is dependent upon the continued growth of its operations and prompt payment of outstanding accounts receivables by its customers to ensure that it has sufficient cash for these commitments. In addition, its ability to fully fund the costs associated with the new manufacturing facility is materially dependent upon its ability to obtain secured bank financing and/or government grants and/or third party finance.

A lot of reading but I still think an EPS of $ 0.45 this year is possible. The stock is trading below book value of $ 1.44.

China Organic Agriculture Announces Year-End 2009 Financial Results

CALISTOGA, Calif. & DALIAN, China--(BUSINESS WIRE)--China Organic Agriculture, Inc. (OTCBB: CNOA - News), a company headquartered in Liaoning Province in China engaged in the trading and distribution of agricultural products, announced today its financial results for the year ended December 31, 2009.

Revenue of $143.9 million represents a 27.7% increase from $112.7 million in 2008. The company’s Dalian Huiming subsidiary, acquired in October 2008, contributed significantly to the revenue and operating results.
Gross profit was $37.1 million, compared to $25.4 million in 2008.

Revenue for 2009 was $143.9 million, representing a 27.7% increase over the $112.7 million of revenue recorded in 2008. This increase reflects the Company’s shift in focus, accomplished through the purchase of 60% of Dalian Huiming, to trading “green and healthy” grains in China. The rice included in these categories is priced two to three times higher than regular grains, which explains the increase in revenues at a greater rate than our increase in volume.

Gross profit for 2009 was $37.1 million, an increase of 46.1% compared to $25.4 million in 2008, reflecting both the increase in sales and higher prices. Gross profit margin increased to 25.8% in 2009 compared to 22.5% in 2008.

The company recorded a bad debt provision of $1.9 million in 2009 due to the company’s conclusion that recovery of a portion of the outstanding receivables from some customers may be difficult. In addition, the company recorded an impairment of $1.5 million pertaining to the Bellisimo Vineyard in 2009, reflective of the reduced real estate valuations in Sonoma County, California.

As the company owns 60% of its Dalian Huiming subsidiary, 40% of total net income from Dalian Huiming was recorded as income attributed to noncontrolling interest. Noncontrolling interest increased from $1.3 million for 2008 to $10.3 million in 2009, reflecting Dalian Huiming’s acquisition in the latter part of 2008.

Net income attributable to CNOA shareholders was $10.9 million for 2009 representing a 38% decrease compared to net income in 2008 of $15.7 million, excluding $1.9 million of income in 2008 pertaining to discontinued operations. The decrease in net income attributable to CNOA reflects $2.9 million of after-tax-costs pertaining to the bad debt provision and the impairment reserve.

Earnings per share decreased to $0.15 per diluted share compared to $0.27 per diluted share from continuing operations for 2008. China Organic Agriculture Inc.’s Form 10-K will be filed shortly.

“We are pleased to deliver these audited results for the 2009 fiscal year,” said Jinsong Li, Chief Executive Officer. “We appreciate your patience during the extension period. I would like to take this opportunity to thank our valued shareholders for their continued support.” Mr. Li continued, “I am happy with the recent acquisition of 60% of the stock of Changbai Eco-Beverage, a blueberry product producer, as announced in March. We believe that this acquisition will provide the Company with significant opportunities as the demand for blueberry based products in China increases with the growing interest in healthy food alternatives. Changbai is well positioned to serve this market and to benefit from this growth and we are optimistic about our opportunities and plans for 2010 and onward.”

Selected consolidated figures are presented below. For full figures, please reference China Organic Agriculture, Inc.’s Form 10-K filing, which will be located on the SEC's EDGAR website.

Looking to the results we see that the last quarter only made $ 0.01 but this was mainly because of the bad debt provision and impairment reserve. Cash per share was $ 0.25 and the book value increased from $ 0.77 to $ 0.78. P/E is still low. I hope the 10-K filing will give us some clearance for the future.


Thursday, May 13, 2010

China Organic Agriculture (CNOAE) pure value

I don't like uncertainty and I don't like delayments in filings. Despite that I think China Organic Agriculture, Inc. (CNOA), a company headquartered in the Liaoning Province in China engaged in the trading and distribution of agricultural products has still my vote.

The company through its subsidiaries, is engaged in the distribution of agricultural products in China, including green rice, organic rice, soybeans, ice wine and other agricultural products. It distributes its products mainly through large agricultural distributors, including Shen Zhen Shen Jin Da Agricultural By-product Trading Co. Ltd., Beijing Jingu Hengfa Trading Co. Ltd., Shanghai Liang You Group Co. Ltd., Jinyunda Industry Development Co. Ltd. and Guang Dong Guangliang Industry Co. Ltd.

In March they completed the acquisition of 60% of the stock of Changbai Eco-Beverage Co. Ltd. ("Changbai") for RMB70 million ($10.25 million). Changbai is mainly engaged in the research, production and sale of various natural products including blueberry drinks, blueberry health care products and bee products to meet the increasingly market demands in China for these goods. As a result of becoming a part of the China Organic Agriculture’s family, Changbai will be able to more quickly expand both its distribution and its product mix in China’s expanding blueberry market. By utilizing the Company’s existing distribution network, Changbai will be able to do this while benefiting its distribution efficiencies and overall profitability.

The Chinese economy’s dramatic rise in the disposable income has increased the demand for "green foods" such as those provided by China Organic Agriculture with a book value of $ 0.77, cash per share of $ 0.27 and EPS first nine months of $ 0.14 I have the patience to wait until the annual report is filed. Buying at prices between $ 0.50 and $ 0.60 can be a profitable move for the nearby future.


Tuesday, May 11, 2010

Artificial Life (ALIF) attractive play in the booming Iphone/pad market

Normally I don't write about other opportunities than Chinese ones. But this one I wanted to share because they are also expanding in the Chinese market for mobile games.

Artificial Life, Inc. (OTC BB: ALIF) is a public US corporation headquartered in Los Angeles, with its production center in Hong Kong and additional offices in Berlin (EMEA headquarters) and Tokyo. As a leading provider of broadband 3G content and technology solutions in the world, they develop and sell a wide range of mobile applications for 3G, 3.5G and 4G network-enabled mobile (smart) phones. Currently their main business areas are: high quality 2D and 3D interactive (massive multiplayer) mobile games, mobile participation television (MoPA-TV®, mobile business applications (Mobil Diab® and Mobile Property) and their mobile commerce technology platform OPUS-M™. Recognized internationally for outstanding content quality and technology. The company has received many international awards and has been ranked one of the fastest growing companies in Asia Pacific by Deloitte.

The company has signed major licensing deals with Linkin Park, Robbie Williams, Red Bull Racing F1, BMW Sauber F1, BMW AG, Red Bull Air Race, Starz Media, Paramount, Cartoon Network, STAR TV, VfB Stuttgart, Borussia Dortmund, FC Bayern M√ľnchen, and Klitschko Brothers. They are now selling their products through over 1200 active channels of resellers and carriers around the globe and sold approximately 20 million licenses of mobile games in 2009.

A corporate factsheet you can download:

The company announced solid growth in revenues and profits for fiscal year 2009. Revenues grew 22% to $27,454,474 and net income was $7,568,719, representing a net profit margin after taxes of 28%.

During the course of 2009, Artificial Life Inc. strengthened its global position as a leading, full-service mobile software provider by offering a wide variety of mobile products, including mobile games, mobile TV, mobile business applications, and mobile productivity tools and technology.

For the year 2009, Artificial Life sold over 12 million licenses for its mobile Java games worldwide. 2009 also saw significant growth in the market for iPhone games and applications, and though a relative newcomer to the iPhone market, the company became one of the leading iPhone publishers. The company had over 10 million game downloads globally and 70% of its games achieved a top-10 ranking, 46% a top-5 ranking, and 33% of the games even reached a #1 ranking on Apple’s download charts in many countries around the globe.

Approximately 51% of Artificial Life’s revenues were derived from mobile games, while approximately 22% were derived from sales of non-game-related mobile products such as Mobil Diab™, a mobile healthcare application for business; 21% from sales of MobileBooster®, a productivity tool that has now become an integrated part of the newly released m-commerce platform, OPUS-M™; and 6% from sales of Mobile Property, a mobile application for the real estate industry.

Net income decreased in 2009 to $7,568,719 as compared to $10,575,285 for the year ended December 31, 2008. The decrease of $3,006,566 was primarily due to stock-based compensation expense of $2,385,500, bad debt expense of $2,636,979, and income tax benefit of $1,060,000 in this year compared to income tax benefit of $106,870 in 2008. The basic and diluted net income per share for the year ended December 31, 2009 was $0.15 compared to the basic and diluted net income per share for the year ended December 31, 2008 of $0.23 and $0.22, respectively.

Eberhard Schoneburg, CEO of Artificial Life, Inc., said:

“2009 was again a very positive year for Artificial Life despite the global financial crisis that has hit many of our clients and affected most of our key competitors negatively. We managed to remain profitable with a solid 28% net profit margin and grew 22% in terms of revenues even though we deferred an additional $4.8 million in revenues and respective potential profits to 2010. We improved our accounts receivables situation by collecting substantial amount of cash in Q4 2009 and Q1 2010, and by utilizing working capital strategies to offset receivables and payables with certain customers and licensors and to acquire licenses while minimizing cash outflow and cash usage. We have benefited from a liquidity perspective and reduced our credit risk and exposure.

On May 10 they revealed their current iPhone title sales, download numbers and key ranking statistics. The company announced that as of April 30th, 2010, it has produced and released 29 games for the iPhone, iPod touch and iPad. So far, the top title was downloaded close to 2.8 million times, the second most over 2.3 million times and the third most over 1.7 million times. The average number of downloads per game was about 0.42 million. Paid iPhone games were sold at between USD 0.99 to USD 4.99 with an average price per game of USD 2.49.

The total number of iPhone game downloads generated as of the end of April 2010 was approximately 4.4 million in total compared to approximately 8 million for the whole year of 2009.The company had already announced earlier this year the release of three new iPhone games on the Apple App Store: Linkin Park 8-Bit Rebellion! -- the first ever massive multiplayer iPhone game featuring the rock band Linkin Park; Red Bull Racing Challenge and Spartacus: Blood and Sand -- the official game for the TV series from Starz Digital Media.

Artificial Life's latest release, the Linkin Park 8-Bit Rebellion! game was particularly successful and has hit the #1 rank for music games for iPhone and iPad in a total of 22 countries, achieved a Top 5 ranking in 38 countries and Top 10 ranking in 47 countries since its release. In the Adventure Game category it reached Top 5 rankings in 16 and Top 10 rankings in 21 countries. The game also achieved a Top 50 overall games ranking in 18 countries and Top Gross 50 record in 15 countries respectively.

Among the produced games, 21 are based on licensed and branded intellectual property from a variety of licensors while 8 games are based on Artificial Life's proprietary IP. The games have been sold in a total of 84 countries worldwide. The distribution of game downloads by regions is: 52% in North America, 32% in Europe and Africa, 11% in Asia Pacific, 3% in Latin America and 2% in the Middle East. The Top 5 countries in terms of number of downloads for our products are: United States, United Kingdom, Canada, France and Germany (with 47%, 10%, 6%, 5% and 5% of downloads respectively).

As of April 30th, 2010, all the new games released have achieved Top 100 or higher download rankings in their categories.

"2010 has started very well for our iPhone and iPad business. We again achieved many #1 rankings for our products all around the globe. This speaks for the quality of our games. And just in the first 4 months of the year we have already generated over 50% of the downloads we generated in the full fiscal year 2009. We will continue to produce high quality games and business apps for the iPhone and iPad throughout the remainder of the year," said Eberhard Schoneburg, CEO of Artificial Life, Inc.We also invested heavily in new products and technologies in 2009 to further strengthen our technological advantage and leading position in the mobile content space for the years to come. We more than doubled our investments in new technologies and products with over $22 million in 2009, as compared to $10 million invested in 2008. Most of these investments were dedicated to our new OPUS-M™ platform, our tele-medicine platform and mobile diabetes application Mobil Diab®, and our new and very powerful augmented reality technology. We expect to see substantial growth and new business in all these areas in the coming months and years.”

Their IR-department works good. I send an email and my questions were answered the next day. They are actively seeking for diversification not only in terms of sales geography but also in terms of products. For mobile games, they try to expand their shares in all markets, including Asia, with the upcoming launch of various iPhone games in Asian languages. At the same time, Artificial Life is moving into areas such as business applications, and has devoted substantial effort since last year on the launch of a new line of products using augmented reality. In my opinion they can achieve an EPS between $ 0.25 and $ 0.30 this year. At a stockprice of $ 1.20 there is enough room for price appreciation.


Sunday, May 9, 2010

Rodman & Renshaw Conference May 16-18

A lot of Chinese companies attend the Rodman & Renshaw Annual Global Investment Conference in London. This conference is being held at the Grosvenor House Hotel on May 16-18, 2010. For more information:

I think for some companies that present themselves there it could be benificial for their stockprice. If some people go, let me know, and you can publish your findings on this blog.

Saturday, May 8, 2010

Dr. Doom Marc Faber negative about the markets and China

Dr. Marc Faber also known as Dr Doom is an investment adviser, investment analyst and fund manager author and publisher of the Gloom Boom & Doom Report ,and the author of "Tomorrows Gold" . Dr Faber is known for his contrarian investment approach. Dr Marc Faber is associated with a variety of funds and is a member of the Board of Directors of numerous companies.

In 1987 he warned his clients to cash out before Black Monday on Wall Street. He made them handsome profits by forecasting the burst in the Japanese Bubble in 1990. He correctly predicted the collapse in US gaming stocks in 1993; and he foresaw the Asia-Pacific financial crisis of 1997/98 and the resulting global volatility. Dr Doom motto is "Follow the course opposite to custom and you will almost be right"

Mr. Faber is also the author of several books, including Tomorrow’s Gold – Asia’s Age of Discovery, and is a director of Ivanhoe Mines Ltd. , a mining firm focused on the Asia Pacific region. He is also an adviser to a number of private investment funds.

For his predictions check the videos on his website.

What is happening in China right now?

China's central bank raised reserve ratios for banks over the weekend. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones. The new requirement will increase bank reserves by another half percent. This raised some investor concerns about monetary tightening, but officials were quick to respond, saying that "moderately easy" policies would continue.

Chinese officials are working continually to prevent bubbles and overcapacity problems. A host of measures has been rolled out to quell property speculation and prevent a potential property bubble from bursting. The reserve rate rise, a safety measure and a liquidity reducer, is the third banks have faced this year.

China's banks appear to be in good health. ICBC, the country's biggest lender, reports that its net income climbed 18 percent to $6.1 billion for the first three months of 2010. China's Construction Bank recorded a 34 percent increase to $5.1 billion during the first quarter. Although non-performing loans are not currently a large problem, raising the reserve ratio will further increase the banks' ability to withstand shocks.

With this in mind not every country is on the verge of collapse.

Friday, May 7, 2010

China not in problems

The sovereign debt crisis is like a second act of the banking crisis. First we had Bear Sterns, then we took a deep breath, then we had Lehman and the Great Crash of 2008. Now we have Greece, we are breathing in, and it’s very possible more shoes will dropkick the markets. But what makes it possitive is that China has everything under control.

Here is a nice look at the countries with the highest risk of defaulting on their debt:

(Source: Bespoke Investment Group)

Thursday, May 6, 2010


I have to confess with some other China OTC players that even the most undervalued stocks become cheaper every day. If you look today at prices you think that World War III has begun. Investors are worried that Greece's debt problems could spread to even China. Let me laugh....

How some markets are reacting is irrational. Irrational behaviour can indeed persist for long periods of time.

You would say that investing in Chinese OTC companies with low fundamental valuations is a hedge against most other asset classes and overvalued stocks but in this markets the market is right.

Despite what is happening today and the days to come the growth we see in Chinese undervalued stocks will support the EPS in the coming years and in the long run reward those who continue to own.

That said, in times of turmoil, you have to be willing to buy stocks that haven gotten crushed even when it means that the chance excists of being crushed more.

Of course we are still in the glowing halo of recovery and a lot of the recovery is priced in to the general market. But is that also the same for our Chinese OTC stocks. I disagree with the quote from a famous OTC trader: Bet the trend and take money off the table in the expectation that you will be able to pay less and get more in the future.

As a contrarian value investor I am standing firm and look to add to my positions. Well, that’s my game.

Risk aversion back on the agenda

He wants to make some money you think ........"yes I say". So this week I went to my bookshelves and I thought which books could be helpful for investors. I wrote some names on a piece of paper and came up with my TOP-40. Visit page My 40 best investment books.

I thought also which books helped me to start investing in Chinese stocks en start this blog. I came up with two names:  


As a customer of Amazon I now participate in an affiliate program. My current Chinese investments don't make money because the risk aversion is back on the agenda, which means that almost everything with Greece, Spain, Portugal, Ireland and China in their name is being sold rapidly.
Maybe the life of a middleman will make me some bucks. So to all my readers I scream take the word out: ORDER BOOKS, PROMOTE MY BOOKS..........I need some cash to expand my current loss-making Chinese positions. 

Monday, May 3, 2010

China Insonline Corp (CHIO) ready to Rock & Roll

If one stock is hated, loved and out of favor than it is CHIO. This stock is a trader’s ball that sometimes scores. For an investor like me that has CHIO shares at prices way above $ 1.00 it is just waiting to see a rebound.

A lot is said about the company. But one thing is for sure it is damn cheap. Fundamentals don’t say anything about a company some investors say. But for me it is just that margin of safety. If book value is much higher than the stock price, P/E is lower than five, etc. etc ……… I love it.

Of course a lot can go wrong with a company, but life is not sure especially the life of a contrarian value investor. To see other people making money and your money being hammered is never easy. Sometimes it takes time and guts to see a company rise like a phoenix from the ashes.

The Case

China INSOnline Corp. (CHIO), incorporated on December 23, 1988, is an Internet services and media company focusing on the China’s insurance industry. The company operates in three segments: software development, online insurance advertising and insurance agency within China. With localized Websites targeting Greater China, the Company primarily provides, through Beijing Zhi Yuan Tian Xia Technology Co., Ltd. (ZYTX), a network portal through its industry Website, (Soobao), to insurance companies, agents and consumers for advertising, online inquiry, news circulation, online transactions, statistic analysis and software development. The company is also a licensed online motor vehicle, property and life insurance agent generating revenues through sales commissions. On October 28, 2008, the company acquired Guang Hua Insurance Agency Company Limited (GHIA).

China INSOnline Corp. reported their net income for the second quarter of fiscal 2010 jumped 33% to $1.16M. The company’s book value per common share jumped emphatically to $0.61/share, attributed to 23% growth in the company’s total assets, when compared to the prior quarter.

Modest growth (3%) in revenues and superior margin growth during the quarter are credited with producing a greater bottom line. “[…] An array of high margin services to the insurance industry in China consistently delivers profits to our shareholders. We will continue to focus on high margin opportunities with our online platform and continue focus on creating greater shareholder value going forward," commented Ms. Betty Xu, the company’s CEO.

Earning $0.11/share, or $4.29 M in the six-month period ended December 31st, 2009, the company’s twelve month trailing Earnings-Per-Share (EPS) totals $0.25. Where the price-to-earnings (P/E) ratio is among the most common and reliable measures of value, the company is in my opinion undervalued. Given the recent market price, the company trades with a P/E ratio less than 2.5. If value investors are willing to pay for bargains at these prices, they are likely to find CHIO attractive at twice the current market price. For every other investor that could mean a large ROI. Especially with the hiring of veteran Mr. Han in January the company is ready to Rock and Roll again.