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.


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