Monday, November 29, 2010

Renhuang Pharmaceuticals (CBP) announces name change to China Botanic Pharmaceutical Inc.

China Botanic Pharmaceutical Inc.(CBP), today announced that the Company's Articles of Incorporation have been amended to effect the name change of the Company from its former name of Renhuang Pharmaceuticals.

China Botanic noted that after four years it is retiring the name Renhuang Pharmaceuticals and will now officially be known as China Botanic Pharmaceutical Inc. to better reflect the Company's corporate identity, brand image and business operations. The legal structure of China Botanic remains unchanged.

"We are a rapidly growing and expanding botanic and bio-pharmaceutical company and we believe our new corporate name better reflects our business operations and product portfolio," said Mr. Shaoming Li, the Chairman and CEO of China Botanic Pharmaceutical Inc. "We believe our new name – China Botanic Pharmaceutical Inc. can be easily associated with our brand promise and our product categories, and will be well accepted in our target markets. We are actively expanding sales beyond our leading Siberian Ginseng products and introducing new products to drive future revenue and net income growth. We believe this is a good time to set the stage for our new corporate and brand entity."

POSITION: LONG

Weikang Bio-Technology (WKBT) issues 2011 revenue guidance

Weikang Bio-Technology Group Co. (WKBT), today announced that for fiscal 2011, the Company expects revenue to be in the range of $71 to $82 million, net profit to be $27 to $31 million and earnings per share to be $0.97 to $1.12, based upon 28 million shares outstanding.

"We are working extremely diligent to enhance our market penetration as we continue to build a high-quality therapeutics company. We have launched several new therapeutics this year and have plans to launch several more new therapeutics in 2011. In addition, we have expanded our sales coverage area by adding three new distributors," commented Mr. Yin Wang, Chairman and CEO of Weikang Bio-Technology Group. "Therefore, we believe that we have created a solid foundation to continue expanding sales, increase revenue and net income and strengthen shareholder value."

I like it when management gives a guidance, that means that they are confident with their business.


POSITION: LONG

Artificial Life (ALIF) expands Android product line 30+ new titles scheduled for 2011

Artificial Life (ALIF) announced today the expansion of its product portfolio onto the Android platform. In addition to porting from its current collection of major iPhone titles, Artificial Life will also be developing brand new titles specifically for Android.

New Focus

This strategic move is to meet the rising demand by Android users for high quality games and applications. Android phone shipments for the past year have increased by over 800%* and in response to the tremendous growth Artificial Life's expansion onto the Android platform will include over 30 titles. New titles will also feature more business-oriented applications to complement the firm's focus on applications catering to the business community. In addition, the company will place more emphasis on the Chinese market - the world's second largest Android market.

The plan for the launch on the Android platform will include a series of major titles from Artificial Life's games portfolio produced with partners such as BMW, Red Bull, and a new title for the football club FC Bayern Munich. Also in the pipeline, Artificial Life's popular own-branded titles will be available to Android users including: the rhythm-based iSoccer Backstreet(R); iSinkU, the naval strategy game; and the classic platform adventure game, iDroidsMania.

In addition to games, Artificial Life will bring its business and lifestyle applications such as GluCoMo(TM) to Android. GluCoMo is a state of the art mobile health solution providing diabetes monitoring and patient coaching services. By expanding onto the Android platform, a broader audience of diabetics and their caregivers may be reached.

The migration of titles to the Android platform is supported and facilitated by Artificial Life's flagship product Opus-M(TM). Leveraging Opus- M technology, Artificial Life will be able to provide entertainment services and solutions that will allow new Android users to share, compete, and challenge existing users on other mobile platforms. Additionally, with Opus-M, other ALIFE business and lifestyle services will be enabled and synced across the platform.

Experienced Experts

With over 50 million copies of mobile games and business applications sold and downloaded, Artificial Life has gained the reputation as a leading one- stop, 100% in-house game and business applications developer for smartphones.

"We seize the opportunity to expand our market share and broaden our revenue stream by capturing more smartphone users from the growing Android market. Android users are seeking top quality content and we are thrilled to deliver a wide selection of successful games and applications to them in 2011," said Eberhard Schoneburg, CEO of Artificial Life, Inc.

POSITION: LONG

What the hack, there's still time for a Santa rally


Are stocks ready for Santa? Irish and EU debt problems, Asian inflation and rate raising concerns, Korean War treat continued to be overhangs on the market. What the hack!!!!

What we need is positivity so why not buy stocks. They offer you more than bonds, are relatively cheap and give you a feel good feeling.

News from the retail sector remains generally strong worldwide, with good news not just coming from the luxury segment, but also permeating down to the retailers that serve the middle class as well.

Just believe and Santa Claus is coming to you.

Thursday, November 25, 2010

Book Review: More Money Than God



Today I finished More Money Than God. A book written by Sebastian Mallaby.

A lot of book reviews are already written about More Money than God.

The book is a well written piece of art about hedge funds, their business and the managers who run them. Sebastian Mallaby did a great job with a good categorical and chronological approach to the subject.

The most interesting part I found his standpoint on the issue of hedge funds regulation. Mallaby doesn't think it is wise.

Hedge funds are defined by four characteristics: they stay under the radar screen of regulatory authorities; they charge a performance fee; they are partially isolated from general market swings; and they use leverage to take short and long positions on markets. Most importantly, in a financial system riddled with conflicts of interests and skewed incentives, hedge funds get their incentives right. As a result, according to Mallaby, they do not wage any systemic threat to the financial system, and they may even provide part of the solution to our post-crisis predicament.

The first set of well-aligned incentives deals with the issue of ownership. Hedge fund managers mostly have their own money in their funds, so they are speculating with capital that is at least partly their own--a powerful incentive to avoid losses. By contrast, bank traders generally face fewer such restraints: they are simply risking other people's money.

Partly as a consequence, the typical hedge fund is far more cautious in its use of leverage than the typical bank. The average hedge fund borrows only one or two times its investors' capital, and even those that are considered highly leveraged borrow less than ten times. Meanwhile, investment banks such as Goldman Sachs or Lehman Brothers were leveraged thirty to one before the crisis, and commercial banks like Citi were even higher by some measures.

As Mallaby notes, hedge funds are paranoid outfits, constantly in fear that margin calls from brokers or redemptions from clients could put them out of business. They live and die by their investment returns, so they focus on them obsessively.

The second set of incentives deals with how hedge funds operate. They are usually better managed than investment banks. Their management culture tends to encourage team spirit and collaborative work as much as individual performance. Alfred Winslow Jones, the originator of the first hedge fund and the "big daddy" of the whole industry, invented a set of management tools and compensation practices to get the most from his brokers and managers.

According to Mallaby, some of the perverse incentives that banks face come from regulation. Rather than running their books in a way that rigorous analysis suggests will be safe, banks sometimes run their books in a way that the capital requirements deem to be safe, even when it isn't. By contrast, hedge funds are in the habit of making their own risk decisions, undistracted by regulations and the false security provided by credit ratings. As a result, the hedge fund sector as a whole survived the subprime crisis extraordinarily well. By and large, it avoided buying toxic mortgage securities and often made money by shorting them.

The discussion whether hedge funds should be regulated or not will be an interesting one and this book really makes a good contribution for governments to encourage hedge funds.Hedge funds are clearly not the answer to all of the financial system’s problems. They will not collect deposits, underwrite securities, or make loans to small companies. But when it comes to managing money without jeopardizing the financial system, hedge funds have proven their mettle.

Dairy Market in China still fragile

Today an article was published in the China Daily, which consequences this could have for firms like Feihe Int. (ADY), Rodobo Int. (RDBO) and Emerald Dairy (EMDY) have to been seen.

Quality testing procedures come under fire

BEIJING - Only 40 percent of melamine-tainted dairy drinks recently found in Central China's Hunan province have been recalled, and authorities are still hunting for the remainder, the local food safety commission said on Wednesday.

Experts said the reemergence of products tainted by melamine, the toxic chemical blamed for the death of at least six infants and causing 300,000 children to fall ill across the country in 2008, shows loopholes in food safety supervision remain and highlights a lack of qualified testers at local levels.

The bureau of industry and commerce in Xiangfan city in neighboring Hubei province issued an urgent notice on Nov 15, asking all local businesses to look for 50 packages of a type of corn-flavor dairy beverage that were believed to be melamine-tainted.

Each package contains 15 bottles, according to the bureau.

The drinks, produced by the Xiangtan Yuanshan Dairy Industry Company in Hunan, were tested and had a melamine level as high as 4.8 milligrams/kg, according to a statement issued by the Hunan Food Safety Commission Office on Wednesday.

A reading above 2.5 mg/kg suggests that melamine was deliberately added as an ingredient during production, according to a regulation introduced in October 2008, a month after the melamine scandal broke.

The statement said the company had produced 861 packages of contaminated drinks, among which 824 packages had entered markets in Hunan, Hubei and Jiangxi provinces.

As of Wednesday, about 345 packages had been recalled from Jiangxi and Hunan provinces, it said.

Further investigation traced the contamination to the Dongyuan-brand milk powder made in Northwest China's Qinghai province.

Earlier this year, Xiangtan Yuanshan bought 27 kg of the milk powder from its long-term supplier in Changsha, capital of Hunan. With all required quality reports provided, the company did not conduct any checks over the milk powder.

A test by a quality watchdog in Hunan showed that the melamine content of the milk powder was 68 mg/kg, far exceeding the national standard. The watchdog also said that the quality reports were fabricated.

In June and July, the milk powder was repeatedly tested and found to contain excessive levels of melamine by food watchdogs in Gansu and Jiangsu provinces, although it had passed tests in its hometown, Haidong prefecture of Qinghai province.

Quality control authorities in Haidong who provided the "qualified" test reports refused to talk about the issue, the Economic Information Daily reported on Wednesday.

The two testers in Haidong were not qualified to conduct such tests, the report said.

This latest case of melamine in Hunan adds to a spate of discoveries of melamine-tainted dairy products earlier this year, and Wang Dingmian, former chairman of the Guangdong provincial dairy association, said it is hard to say whether this new batch is part of the remaining stock from the 2008 scandal.

Wang said it was a shame that the source of melamine being added to dairy products had never been established and exposed to the public.

"The question of why melamine keeps entering the market has been puzzling me for a long time, and the closest answer I have is that problems could arise at any step in the production process," he said.

Wang said the lack of qualified testers and equipment contributed to some unreliable testing reports.

Zhi Shuping, minister of the General Administration of Quality Supervision, Inspection and Quarantine, acknowledged at a national conference in October that some quality inspection bureaus at county-level are ill-equipped and lack the expertise needed to do their job.

Wang also said that the central government requirement that all dairy producers check raw materials for melamine could be a heavy burden for small businesses.

Tuesday, November 23, 2010

China Organic Agriculture (CNOA) Q3 results disappointing

Some Highlights from their 10-Q

Sales

Sales for the three months ending September 30, 2010 totaled $42,632,862 compared to $39,656,537 for the three months ending September 30, 2009, a slight increase of 7.5%. Sales for the nine months ending September 30, 2010 totaled $106,281,386 compared to $106,402,273 for the nine months ending September 30, 2009, a slight decrease of 0.1%. Our revenue has slightly improved in the third quarter but is still restrained by the economic conditions in China. Almost all of the agricultural products we trade have stabilized at a higher market price compared to the previous year which results in our customers being more cautious with market conditions and placing fewer orders at a time.

Gross Profit

The Company's gross profit for the three months ending September 30, 2010 was $8,834,203 (or approximately 21% of revenue) compared to $11,108,812 (or approximately 28% of revenue) for the three months ending September 30, 2009. The gross profit for the nine months ending September 30, 2010 was $25,292,423 (or approximately 24% of revenue) compared to $26,423,441 (or approximately 25% of revenue) for the nine months ending September 30, 2009. The decreases in gross profit were attributable to increasing purchase prices of agriculture products. Although our blueberry products yield a higher profit margin, total sales derived from these products account for less than 5% of total revenue so they have not had a significant impact on our margins.

Selling, General and Administrative Expense

Selling, general and administrative expense for the three and nine months ending September 30, 2010 reflected increases of $2,289,178 and $3,241,697, respectively from the comparable 2009 periods. These increases are largely due to higher storage expenses in 2010 which resulted from increased inventory balances and increased amortization expenses for intangible assets.

Interest Expense

Interest expenses were $767,164 and $1,378,916 for the three and nine month periods ending September 30, 2010 and $108,578 and $674,152 for the three and nine month periods ending September 30, 2009. The significant increases were due to the $8.5 million loan used to finance the purchase of Bellisimo Vineyard.

Provision for Income Taxes

The Company is subject to the income tax laws of the People's Republic of China ("PRC"). The PRC’s Enterprise Income Tax is now at a statutory rate of 25%. For the three and nine month periods ending September 30, 2010, the Company accrued $1,469,175 and $5,109,742 in income taxes. The effective tax rates of 25.3% and 25.6% represented by these accruals are higher than the statutory rate as expenses incurred in the US, including those pertaining to the Bellisimo Vineyard, are not deductible for PRC tax purposes.

Noncontrolling Interest

The Company owns 60% of Dalian Huiming, Xinbin Ice Wine, and Changbai Eco-Beverage, and thus 40% of total net income pertaining to these three subsidiaries was recorded as income attributed to noncontrolling interest. Noncontrolling interest decreased from $3,304,176 for the three months ended 2009 to $1,925,075 for the three months ended 2010 and decreased from $7,763,626 for the nine months ended 2009 to $6,686,234 for the nine months ended 2010 due to lower gross profits.


Net Income Attributable to CNOA Shareholders

Net income attributable to CNOA shareholders was $1,873,602 for the three months ending September 30, 2010, a decrease of 58.5% compared to $4,510,193 for the three months ending September 30, 2009. Net income attributable to CNOA shareholders was $7,634,357 for the nine months ending September 30, 2010, compared to net income of $10,916,474, a decrease of 30.1% as compared to the comparable 2009 period. As the Company owns only 60% of Dalian Huiming, Xinbin Ice Wine, and Changbai Eco-Beverage, 40% of total net income from these two entities was recorded as income attributed to noncontrolling interest.


Liquidity and Capital Resources

At September 30, 2010, cash and cash equivalents were $25,075,743 as compared to $18,512,835 at December 31, 2009. Current assets totaled $152,888,853, and current liabilities were $79,012,843. The Company’s current assets include $52,664,249 of inventory and its current liabilities include $57,885,859 in accounts payable. Both of these figures are substantially higher than the prior quarter, reflecting the Company’s decision to buy a substantial quantity of product immediately prior to the end of the second quarter in anticipation of increased prices and to maintain inventories at such levels through the third quarter. The components of the $6,562,908 increase of cash and cash equivalents are reflected below.

We anticipate that our available funds and cash flows generated from operations will be sufficient to meet our anticipated on-going operating needs for the next twelve months. However, we may need to raise additional capital in order to fund acquisitions and any substantive construction projects. We would expect to raise those funds through credit facilities obtained from lending institutions, the issuance of equity, or a combination of both. However, there can be no guarantee that we will be able to obtain such funding, whether through the issuance of debt or equity, on terms satisfactory to management and our Board of Directors.

The company's Q3 EPS was $0.03 and for the first nine months $0.10. Our projection EPS 2010 of $0.18 is not going to be achieved. Book value is $1.29 and cash per share $0.34. Despite the company is still profitable it looks like a fading business. Management clearly has to look for growth opportunities otherwise this company is doomed to left alone in the dark.

Monday, November 22, 2010

Winning in Emerging Markets: A Road Map for Strategy and Execution



Already cited by the Financial Times, Forbes.com, The Economic Times, WSJ/Mint and several other prominent global business publications, Winning in Emerging Markets is quickly becoming the go-to book for mapping a strategy for entering new markets—and then quickly gaining a competitive edge in those high growth regions.

Advancing the discussion about emerging markets themselves and how organizations can best leverage the potential of these regions, Tarun Khanna and Krishna Palepu – both well respected thinkers on the subject – argue there is more to sizing up these markets than just evaluating data points related to size, population, and growth potential. In fact, they say the possibility to expand a company’s progress in developing economies is to first asses the area’s lack of institutional infrastructure—and then to formulate strategies around what the authors call “institutional voids” to the firm’s advantage. Khanna and Palepu say the primary exploitable characteristic of an emerging market are such voids, and though they create challenges, they also provide major opportunity both for multinationals and local contenders.

Winning in Emerging Markets serves as a playbook for measuring a market’s potential and for crafting a strategy to succeed there.

China objects to quantitative easing because it reduces the value of their dollar holdings

Friday, November 19, 2010

Due Diligence on the spot, Lotus Pharmaceuticals

RedChip visiting Lotus Pharmaceuticals (LTUS)

Great news that investment banks and investment boutiques are visiting their clients. So they really can notice what's going on!!!

Chinese economy to see stable growth: OECD

Domestic demand will plug hole caused by decline in exports

BRUSSELS - China's economy in 2011 and 2012 will maintain a stable growth rate of 9.7 percent, lower than this year's estimated 10.5 percent, according to the Organization for Economic Cooperation and Development (OECD).

It said China's renewed buoyancy is projected to continue in 2011-2012, as rising domestic demand offsets a renewed slowdown in exports, stabilizing the current account surplus at around 5.5 percent of the economy.

China has already been listed as an enhanced engagement country of the OECD, which is considering accepting it as member. So far, a total of 33 industrialized economies belong to the organization.

In its latest World Economic Outlook, the OECD also said that acceleration in non-food prices is to be offset by an easing of food price inflation, resulting in the stabilization of inflation at slightly above 3 percent in China this year.

The OECD suggested the stability of the domestic economy would be enhanced if the exchange rate policy were more oriented to allowing an appreciation of the yuan against a basket of currencies.

At a news briefing in Paris on Thursday, Pier Carlo Padoan, chief economist of the OECD, said economic activity in member countries will gradually pick up steam over the coming two years, but that recovery will be uneven and unemployment will remain high.

The organization forecast world economic growth would slow to 4.2 percent in 2011 from 4.6 percent this year, before returning to a rate of 4.6 percent in 2012.

"We see the recovery ongoing but at a somewhat slower pace," Padoan told Reuters in an interview.

With the financial sector returning to normal after the global slowdown, and households and businesses in a position to renew spending and investment, the main challenge facing governments today is moving from a policy-driven recovery toward self-sustained growth.

"As the stimulus is withdrawn, governments will have to provide a credible medium-term framework, to stabilize expectations and strengthen confidence, particularly for the private sector," said the OECD.

Meanwhile, OECD Secretary-General Angel Gurra said: "Enhanced confidence could result in a faster-than-projected recovery."

Gross domestic product (GDP) across OECD is projected to rise by 2.3 percent in 2011 and 2.8 percent in 2012.

In the United States, activity is projected to rise by 2.2 percent in 2011 and then by 3.1 percent in 2012.

Eurozone growth is forecast at 1.7 percent in 2011 and 2 percent in 2012, while in Japan, GDP is expected to expand by 1.7 percent in 2011 and by 1.3 percent in 2012.

Emerging markets are expected to grow at a quicker pace than OECD members, helping to lift global trade growth to more than 8 percent annually in 2011 and 2012.

But uneven growth within the OECD area, as well as between the OECD and emerging economies, will add to global imbalances, which are among the most significant threats to the recovery.

The OECD warns countries against taking unilateral action in response to exchange rate volatility, and says that international cooperation, notably within the G20 process, will be essential in warding off protectionism.

The report also highlights other downside risks that could derail the recovery, including the potential for renewed falls in real estate prices, most notably in the US and the United Kingdom, high sovereign debt in some countries and possible abrupt reversals in government bond yields.

Wednesday, November 17, 2010

Famous short-seller James Chanos negative about China

Chanos vs. China
Posted by Fortune

November 17, 2010 3:00 am

The influential short-seller is betting that China's economy is about to implode in a spectacular real estate bust. A lot of people are hoping that Chanos - who called Enron right - is wrong this time.

By Bill Powell, contributor

The scene is a cocktail party high above the Shanghai skyline on a summer night a few months ago. Our host is a Master of the Hedge Fund Universe, one who doesn't want to be identified in the press. We'll call him Pete. Pete comes to China at least twice a year to stay abreast of what's happening in the world's most dynamic economy. He has said, in fact, that if he didn't have kids in school in the U.S., he would consider moving here, so bright is the future. In attendance are other hedge fund investors, venture capitalists, and fund managers, China bulls all. If there is one sure-fire way to ruin the atmosphere on such a pleasant evening, it is this: Ask the crowd what they think of the legendary short-seller James Chanos, CEO of Manhattan-based Kynikos Associates.

So that's what I do.

"Hey," I say to a cluster of people surrounding Pete. "Did you guys see what Jim Chanos said about China on Charlie Rose the other night?"

"No," says an American venture capitalist working in Shanghai. "What did he say?"

"He said, 'China's on an economic treadmill to hell.' "

For over a year now Chanos -- the man who got Enron (among other things) right before anyone else -- has been on a rampage about China. The guy who became famous -- and rich -- shorting companies now says he is shorting the entire country.

When I mention the "treadmill to hell" line to the group in Shanghai, the reaction is the usual one when Chanos's name comes up here: "What does he know about China?" the American VC asks. "Has he ever lived here? Does he have staff here? Does he speak Chinese?"

The answers are no, no, and no. But our host, who counts Chanos as a friend, knows that is not the point. "He did get Enron right," Pete says. "And Tyco. And the whole mortgage bust." He concludes: "Look, he may be wrong, but you need to tell me why he's wrong, not point out that he doesn't live here."

Chanos smiles when I relate the story to him on a recent morning in New York. He knows what a lightning rod he has become. "The only time I have ever been heckled giving an investment presentation was earlier this year at Oxford," he says. "Some Chinese graduate students got so annoyed with me that they started to shout me down, saying the same sort of stuff: 'What do you know about China? How dare you say such things!' "

It's not, of course, just young Chinese people who get worked up on the subject. What Fortune Global 500 company isn't betting that China is the future? For many companies, the possibility that Jim Chanos could be right, that there could be a U.S.-or-Japanese-style bust in China, is beyond scary. It's unthinkable.

Something unprecedented

How did Chanos come to his China obsession? It started in 2009, when he and his team at Kynikos looked at commodity prices and the stocks of big mining companies. "Everything we did in our microwork [on commodities] kept leading us back to China's property market," Chanos says. China's construction boom was driving demand for nearly every basic material.

One day, at a research conference in 2009, Chanos listened to an analyst tick off numbers about the scale of China's building boom. "He said they were building 5 billion square meters of new residential and office space -- 2.6 billion square meters in new office space alone. I said to him, 'You must have the decimal point in the wrong place.' He said no, the numbers are right. So do the math: That's almost 30 billion square feet of new construction. There are 1.3 billion people in China. [In terms of new office space alone] that amounts to about a five-by-five-foot cubicle for every man, woman, and child in the country. That's when it dawned on me that China was embarking on something unprecedented.''

Kynikos didn't post anyone in China. Analysts make occasional research trips, though Chanos himself does not. Given his reputation there, he says, "it's probably best that I don't go. I can just see the New York Post headline: NEW YORK INVESTOR KILLED IN MYSTERIOUS ONE-MAN EARTHQUAKE."

Chanos says that underlying his firm's analysis are data the Chinese government itself reports publicly, such as numbers from the Bureau of Statistics and the National Development and Reconstruction Commission, the country's most powerful economics ministry. In the past year, he says, his team has developed a "proprietary database" that tracks real estate sales in China. "We are not fudging data or just hearing or seeing what we want to hear and see," he insists. And he has a standard retort to those who say you can't know China because you don't live there: "I didn't work at Enron either."

So many empty properties

To understand Chanos's China skepticism -- he calls it "Dubai times 1,000" -- it's worth visiting the Rose and Ginko Valley housing development near Sheshan Mountain, a new suburb outside Shanghai. Block after block after block of villas have gone up. And they are empty.

In the country's largest, most affluent cities -- Beijing, Shanghai, Guangzhou, and Shenzhen, known as tier-one cities to the real estate cognoscenti -- it is not an unusual phenomenon. There is a lot of new, unoccupied housing in China. Just how much -- and just how much of a concern it should be -- is a central debate.

Fixed-asset investment accounts for more than 60% of China's overall GDP. No other major economy even comes close. And of that fixed investment, slightly less than a quarter is attributable to new real estate investment.

There are reliable data on the amount of new construction under way each year, and on how much is sold. In 2009, for instance, buyers in China purchased 44% more residential floor space than they did in 2008.

Unoccupied houses in a subdivision in the Kangbashi district outside Ordos City, Inner Mongolia

But there are no official estimates yet for the vacancy rates for private housing, for how much of that new housing bought is actually occupied. (The government, signaling that it understands how much it matters, is carrying out a census now to try to get a grip on the question.)

Consider the Sheshan project. A spokesman for the Chongqing-based development company would say only that almost all the units were sold in advance. That, in fact, has been standard-operating procedure in the market for new housing in China. Buyers plunk down money based on a plan, and the developer takes those commitments to the bank to get financing for construction. Very few projects are done on spec.

But that still leaves the question that makes a lot of people nervous -- and Chanos bearish -- about China: Why are so many flats and villas that have been bought and paid for empty? And how could that augur anything but pain for the real estate market in China? And if it means pain for the real estate market, considering that new property sales accounted for 14% of GDP in 2009, doesn't that mean trouble, sooner or later, for the broader economy?

That the real estate market in China is hugely speculative is not in dispute. An investor who lives near me in suburban Shanghai has bought -- count 'em -- 43 units over the past three years. He is still sitting on them, because, he believes, prices will continue going up.

Chanos ticks off reasons for that kind of behavior. Individual Chinese investors are limited in where they can put their renminbi. They can stash it in a standard bank account and receive a negative rate of return, given an inflation rate running at about 3%. They can put the money in the stock market, but equities in China are much more volatile than those in developed markets. Capital controls limit investment opportunities for individuals abroad. So that leaves real estate.

Chanos acknowledges that China's emerging middle class sees real estate as a store of value. To many, buying an apartment in Shanghai or Beijing is like buying a bar of gold. And many -- "too many," Chanos says -- have kept on buying as prices have gone up in the past five years.

Chanos's team, like a lot of other people, is trying to get a grip on just how many empty units there are in China. One prominent bear in China, independent economist Andy Xie, has put the amount at the equivalent of 15% of GDP. Chanos doesn't endorse that specific figure but believes "it's a big problem, and it's getting worse, not better, as more units come onstream."

Chanos: Right or wrong?

There's no question the speculative fervor in real estate has captured the Chinese government's attention. Last spring Beijing moved to stiffen financing requirements, and it is trying to limit the number of units any single investor can buy to two. For a time that did cool off the market. But Chanos points out that prices are rising again, and more than 30 million new apartments, villas, and houses are due to come onto the market next year. If the government intensifies its efforts to try to limit speculation, the market may turn down sooner than most think, Chanos believes. And if the government doesn't intensify the effort against speculators, "they'll just be climbing up a few more rungs on the diving board." Either way, he says, "they're going to end up in the same place." Consider Dubai, he says: At the peak of its building boom, there were 240 square meters of property under development for every $1 million in national GDP. In urban China today that ratio is four times as high. "We've seen this movie before," he says. Whether it was Dubai a couple of years ago, Thailand and Indonesia during the Asian crisis of the late '90s, or Tokyo circa 1989, "this always ends badly."

Chanos puts his money where his mouth is. Late last month he went before the Grant's Interest Rate Observer conference at the Plaza Hotel in Manhattan and not only made his case for being bearish on China, but ticked off individual stocks that he is shorting. Poly HK is one: a real estate developer that trades on the Hong Kong exchange (and a company that Goldman Sachs (GS) recommended as a buy as recently as last month). It's a state-owned company that started out as a defense contractor but, enticed by the real estate boom, has plunged in as a property developer. Chanos is also short the listing for the Hong Kong Stock Exchange. And he believes that China Merchants Bank, one of Beijing's largest, is deeply exposed to the financing affiliates of local governments throughout China. About 11% of its total loans outstanding, according to Chanos, are to these local financing affiliates (known as local government funding vehicles, or LGFVs).

Why does that matter? A key prop under the bullish case for China's real estate market is lack of leverage. The financial system is simply not going to be at risk, the thinking goes, even if there is a real estate bust. But Chanos believes the LGFVs are deeply exposed to property development, and that if there is a turn in the market, the pain felt by China Merchants Bank, as well as others, will be considerable. Victor Shih, a professor at Northwestern University, did a study earlier this year and concluded that these LGFVs accumulated $1.6 trillion in new debt from 2004 to 2009. As Chanos points out, China's own bank regulator has recently been moving to rein in local borrowing, after concluding that 26% of the outstanding debt is "high risk."

A downturn in China would have serious ripple effects throughout the world. Chanos believes the iron ore producers, and Brazilian giant Vale (VALE) in particular, will be victims. China's huge capital investment has required vast amounts of steel and other metals, and that in turn has made it the largest market in the world for iron ore. Vale traded in early November near a 52-week high, and its CEO, Roger Agnelli, recently boasted that he has the biggest fleet of ships in the world outside of the U.S. Navy. If you take Chanos's view of the world, that's not a good thing. As he put it, "They're going to have a lot of empty ships on their hands."

A case for the bulls

Short-sellers are generally derided until and unless they turn out to be right. So it is now. Sentiment about China is so optimistic that people think Chanos either has lost his mind or is somehow involved in a giant hip fake and can't really be serious. (For the record, he won't say how much of Kynikos's more than $1 billion under management is in play in China-related positions.) "Why do I go public with this?" he asks. "For the same reason I did with Enron. All the public ever hears is the longs. I have a case to make, and I have no hesitation making it. These are our convictions about China, and we're acting on them. So argue with me. We want to hear the counterarguments. Believe me, we do.''

Plenty of people are willing to take him up. The China bulls' case has many parts, but the most important is leverage -- or rather, the lack of it. Consider the gentleman -- his name is Cheng Yue Shi -- who told me that he owned 43 flats in and around Shanghai. He doesn't rent out any of them -- which is not uncommon in China; rents are cheap, and many owners therefore believe the time and hassle of being a landlord isn't worth it. And of the 43 units he owns, he paid for every single one of them -- not a single mortgage involved. According to a recent study by CLSA Asia Pacific Securities, the use of mortgages is increasing in China, but only 40% of all houses purchased are debt-financed. Even when they are, Chinese buyers typically have to put down 30% or more of the sales price.

No liar loans here. No securitization of mortgages. This is housing finance done the old-fashioned way: The buyers have skin in the game. The lack of leverage throughout the system should mean that even if there is a significant decline in real estate prices, the financial system in China is unlikely to be crippled.

Chanos argues that there is more debt held off the books in local financing vehicles than the bulls care to admit, and that bad loans, once the real estate market turns down, will pile up more quickly than most think. This is an area in which government regulators in China have acknowledged they need to get more information into the marketplace, but even with what's known publicly, the bulls simply disagree with Chanos. Arthur Kroeber, managing director of Gave- Kal Dragonomics, a Beijing-based economic consultancy, says the central government is already forcing local governments to scale back borrowing, and in fact has ordered closed several LGTVs that did not have enough revenue to service their loans from banks. "China's government debt," Kroeber says, "is clearly manageable."

The second component of the bullish case is straightforward: They say the combination of price spikes and overbuilding in Beijing and Shanghai simply gets too much attention. Andy Rothman, the chief China economist for CLSA, notes that the total amount of floor space bought in smaller, tier-three cities (where nearly 357 million people -- or 57% of China's urban population -- reside) has been slowly increasing as a percentage of the national total. And in those cities prices are up to 70% lower than they are in the four richest cities in the country: Beijing, Shanghai, Shenzhen, and Guangzhou. "There is no national housing bubble," Rothman asserts.

The guy who'll get China over the goal line

Personal income, moreover, continues to rise in China, as does consumption. In the first half of this year, real urban disposable income rose by more than 6%, on top of a 10% rise last year. "Rising incomes still support middle-class affordability," Rothman says. As a result, "it's the world's best consumption story."

Chanos's response to those two basic points is forthright: "It's an economy on steroids," he says. Just as Japan in the 1980s grew largely on the back of capital investment, eventually it has to stop. "Japan became a capital-destruction machine, and that's what China is now. You have an economy that's 60% fixed-asset investment, and not even in the developing world is that sustainable. It wasn't in Japan; it wasn't in Korea."

Chanos is agnostic as to the timing of when a serious China bust might come, nor does he have specific ideas as to what might trigger a downturn. He just believes it's coming. One possibility -- reflected by a steep stock market decline on Nov. 12 -- is that accelerating inflation may force China's central bank to tighten credit more quickly than expected, putting additional pressure on real estate developers.

I tell him toward the end of an interview that I, too, am invested in China, that in fact I'm long real estate. My wife and I bought a modest house in suburban Shanghai a few years ago, and, on paper anyway, we've done pretty well. Similar houses in our area have sold for considerably more than what we paid. He smiles and says, "Well, good luck with that."

In truth, I am still, relatively speaking, a China bull. But I live near the Rose and Ginko Valley development, and even before meeting Chanos, I must admit, each time I drove by it at night, I secretly wished I would see a few lights on. I still do -- now more than ever.

The published article has some strong bias.

The key problem for Mr. Chanos wrong conclusion is that he does not count in many other factors. He does not understand Chinese and it's government. It is not simple mathematics or statistics. Even in mathematics or statistics domain, one could not use data sampled from US or Japan and simply applying it to China. There are several key factors I think Chanos missed.

The first factor is Chinese saving rate. The majority people buy houses with much higher percentage down payment.

The second factor is Chinese government keeps putting measurements to limit the price increase or price control. For example, people who apply a loan to purchase a second house must put 50% down.

The third factor is Chinese ethic is different compared with people elsewhere. The Chinese feel obligated to pay once they made the commitment. There are barely any bankruptcy cases related to house purchase.

There are many more other factors and I suggest Mr. Chanos to learn more about China and Chinese before making conclusions that might be misleading.

Also the fact that Chanos has been telling the same Doomsday Story about China already for a very long time, but as recently, China is one of few survivors of the great recession. You can't use your models on China when it doesn't follow your rules.

Tuesday, November 16, 2010

China Agri-Business (CHBU) much better results than expected

Much better Q3 results than we had expected.

EPS Q3 $0.07 (Expected $0.04)
First nine months $0.15 (Expected $0.12)
Cash per share $0.89
Book Value $0.96

Our final 2010 EPS expectation of $0.17 will likely be succeeded.

The current price of $0.81 is below their book value and cash value per share. This stock will trade above one buck this year. Just wait and see!

Monday, November 15, 2010

China Nutrifruit's (CNGL) good Q2 results

China Nutrifruits Q2 results were published today.

Second Fiscal Quarter Highlights

Growth in net sales and net income continued during the second fiscal quarter due to strong market demand. Most of the products sold in this quarter were produced after mid-July 2010 when our new production season began. During the second fiscal quarter, we launched new seabuckthorn and blackcurrant glazed fruit and concentrate juice products. We are building a new fruit and vegetable power production line, which is expected to become operational in January 2011.

The following are some of our financial results for the second fiscal quarter of 2011 in comparison to our financial results for the second fiscal quarter of 2010.

Net Sales: Net sales increased $3.2 million, or 20.0%, to $23.2 million for the second fiscal quarter of 2011 from $19.3 million for the same period last year.

Gross Margin: Gross margin was 47.2% for the second fiscal quarter of 2011, as compared to 50.1% for the same period last year.

Net Income: Net income increased $0.8 million, or 13.2%, to $7.2 million for the second fiscal quarter of 2011 from $6.4 million for the same period last year.

Fully diluted earnings per share: Fully diluted earnings per share were $0.18 for the second fiscal quarter of 2011 and 2010.

For the first 6 months EPS was $0.22. Some months ago they affirmed their financial guidance of $90-$95 million in revenue and $22-$23 million in net income for fiscal year 2011. So the coming two quarters they have to announce an EPS of around $0.17 per quarter. Personally I think they are going to beat their guidance.

POSITION: LONG

Sancon Resources Recovery (SRRY) Q3 results

Today Sancon filed their Q3 results. EPS Q3 $0.02 EPS first nine months $ 0.07

Revenue is generated by service charges and the sale of recyclable materials. Revenue for the three months period ended September 30, 2010 were $3,354,608 representing $542,691 or 19% increase compared to the sales of $2,811,917 in the same period of 2009.

The revenues in the waste service business increased from $2,188,996 for the three months period ended September 30, 2009 to $2,610,355 for the three months period ended June 30, 2010, an increase of $421,359 or 19%. The revenue in the material recycling business also increased $121,332 or 19% from $622,921 for the three months period ended September 30, 2009 to $744,253 for the three months period ended June 30, 2010. The increase in revenue in waste service is partially because of acquisition of Shanghai Sheng Rong in May 2010. Although suffering the global 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 September 30, 2010, the cost of revenue was $1,861,857. It was $244,336 or 15% increase as compared to the cost of sales of $1,617,521 for the three months period ended September 30, 2009. Among which, the cost of revenue in the waste service business increased $224,191 or 17% from $1,351,673 for the three months period ended September 30, 2009 to $1,575,864 for the three months period ended September 30, 2010. The increase mainly contained $224,287 of raw material expenses for our new cardboard business. Cost of revenue in the material recycling business for the three months period ended September 30, 2009 and 2010 was $265,848 and $285,993 respectively, an increase of $20,145 or 8%. The increase of cost of sales was in line with the sales.

For the three months period ended September 30, 2010 and 2009, cost of revenue was 56% and 58% of sales respectively.

The gross profit for the three months period ended September 30, 2010 was $1,492,751, representing $298,355 or 25% increase compared to $1,194,396 for the three months period ended September 30, 2009. The gross margin increased from 42% for the three months period ended September 30, 2009 to 44% for the three months period ended September 30, 2010.

Gross profit in the waste service business increased $197,168 or 24% from $837,323 for the three months period ended September 30, 2009 to $1,034,491 for the same periods in 2010. Gross profit in the material recycling business increased $101,187 or 28% from $357,073 for the three months period ended September 30, 2009 to $458,260 for the same period in 2010. The increase in revenue becomes the main reason for the growth in gross profit.

Selling, general and administrative expenses increased to $895,868 for the three months period ended September 30, 2010, from $588,521 for the three months period ended September 30, 2009, an increase of $307,347 or 52%. The SG&A expenses in the waste service business was $247,001 for the three months period ended September 30, 2009, this number increased to $436,545 for the three months period ended September 30, 2010. It increased $189,544 or 77%. The SG&A expenses in the material recycling business increased $95,224 or 30% from $315,120 for the three months period ended September 30, 2009 to $410,344 for the three months period ended September 30, 2010. The increase was mainly contained $53,303 of wages, $15,957 and $16,157 of equipment repair expenses of freight outwards. The SG&A expenses also included investor relationship expenses and option expenses which increased $22,579 or 86% from $26,400 for the three months period ended September 30, 2009 to $48,979 for the three months period ended September 30, 2010. The SG&A expenses was 27% and 21% of the revenue for the three months period ended September 30, 2010 and 2009.

Net income for the three months period ended September 30, 2010 was $546,288, compared to $504,012 for the three months period ended September 30, 2009, an increase of $42,276 or 8%. Net profit margin for the three months period ended September 30, 2010 was 16% while it was 18% for the same period in 2009.

Overview of the Company and its Operations

Sancon Resources Recovery, Inc. is an environmental service and waste management company that operates recycling facilities in China and Australia. Sancon specializes in the collection and recovery of industrial and commercial solid wastes such as plastic, paper, cardboard, and glass. The recycled materials are re-used by Sancon's manufacturing customers in China to make a wide variety of new products including outdoor furniture, construction materials, building materials, road surface, and various new products. Sancon's China operation is licensed by the Chinese government for waste management services, and is certified with ISO 9001 and ISO14001 standards. Sancon currently ships more than 4,000 tons of recycled industrial and commercial waste material annually to its customers in China. Sancon's main operations and services include industrial waste management consulting, collection and reprocess of recyclable materials such as plastic, glass, cardboard, and paper before its re-entry into manufacture cycles as raw materials. Sancon also provides its full waste management services to large consumer products maker such as Pernod Ricard. The use of recycled material is both environmentally friendly and is a key part of today's competitive manufacturing process to lower costs. As China gains global manufacturing dominance and current economic crisis, Chinese manufacturers are increasingly turning to recycled materials to lower its costs, resulting tremendous demand for recycled materials import. The major customers for Sancon are Chinese manufacturers and recycled material traders which are located mainly in the Chinese provinces of Shanghai, Guangdong, Zhejiang and Fujian.

The Trend in Chinese Market
According to China National Resources Recycling Association, recyclable solid waste import to China has experienced a dramatic increase in the last 2 decades. During early 1990’s, China imported 1-2 million tons of recyclable wastes per year. By 1999, China imported 10 million tons of recyclable solid wastes per year. In 2006, China imported 37 million tons of recyclable wastes. China’s total domestic recycled volume is estimated to have reached over 1 billion tons annually.

The State Development and Reform Commission of China promotes the recycling industry with a four-pronged solution ranging from energy saving and clean production to integrated use of resources and developing environmental protection industry, to accelerate the development of the recycling economy. The concept of recycling economy is included in the 11th Five-year Plan.

The Chinese Government is emphasizing environmental policies & projects for all sectors and entities. On August 2008, China's top legislature passed a law to promote circular economy and will come into force on January 1, 2009. The aim of the law is to boost sustainable development through energy saving and reduction of pollutant discharges. At present China's environmental industry is highly fragmented and at its infancy stage.

Due to the serious environment pollution problems faced in China, the 11th Five-year plan emphasis energy saving, emission reduction and environmental protection at the highest level ever. At the end of the 11th Five-year plan, the annual production of the environmental industry will exceed 1.1 trillion RMB, of which environmental equipment spending is 120 billion RMB, environmental services is 100 billion RMB, resources recovery is 660 billion RMB, cleaning products spending is 250 billion RMB.

In the past 30 years of development, environmental production value in China increased from 0.5% of GDP to the current 1.6%. China will expedite the demonstration and promotion of technologies for energy saving and emission reduction; actively promote the development of the environmental services industry; and also intensify the financial services for the environmental industry; and tax benefit policies for the environmental industry. During the 11th Five-year period, investment for environmental protection will reach 1.4 trillion RMB. Central government financing is investing in environmental industry at annual compound growth rate of 18%. Chinese government set out policies supports 4 key areas: developing a resources recovery and recycling economy; pollution reduction and ecological protection; environment testing instruments; environmental services and the development of the environmental industry.

Sancon is uniquely position to benefits from these initiatives as an early mover in the industry and one of the few foreign companies being awarded a waste management license in China. Sancon has for the past years developed one of the largest collection and recovery network in China for commercial wastes and expects to expand into other areas of environmental services.

Sancon's Visions and Goals
The long-term objective of Sancon is to seek and develop further alternative resources recovery solutions, which will protect our environment and maximize sustainable usage for industrial waste materials. At Sancon we believe reducing the environmendal impact of manufactured products is through both professional services offered to manufacturers and commercial entities to increase recyclability of waste materials, and efficient redeployment of waste materials.

As we already mentioned in an earlier post we don't think it is possible to break an EPS 2010 figure of more than $0.10. The stock price looks cheap and could get a run up with increased government spending in the environmental industry. 

Saturday, November 13, 2010

Weikang Bio-Technology Group (WKBT) excellent Q3 results

Yesterday Weikang published their Q3 results.

Nine months EPS $0.45, Q3 $0.22
In October they gave a revenue guidance for 2010 of $55 million, net profit of $21 million and earning per share of $0.75. The company also expects stockholders' equity to be $48 million or $1.71 per share.

For fiscal year 2011, Weikang Bio-Technology is targeting revenue growth to be in the range of 30% to 50% over 2010 revenue. In the same press release of October they said that they plan to launch two new therapeutics in the fourth quarter of 2010 and an additional three new therapeutics in the first quarter of 2011. Combined, the new therapeutics are expected to add approximately $8.8 million in revenue and up to approximately $3.3 million in net income in 2011. In addition, the recent launch of its new Rongrun Good Health Package has the potential to add approximately $8.5 million in revenue and $3.1 million in net income in 2011.

In total, the new therapeutics and Good Health Package are expected to add up to $17.3 million in revenue and $6.4 million in net income for 2011.

"We are extremely excited about our growth prospects for 2011 and beyond. We believe that the market for our high-quality therapeutics will continue to expand as China is expected to become the second largest pharmaceutical market by 2020," commented Mr. Yin Wang, Chairman and CEO of Weikang Bio-Technology Group. "Moreover, our research team is focused on developing new therapeutics that address a large number of health problems and have a broad consumer appeal."

The conclusion is that Q4 EPS will be around $0.30. If you look to the balance sheet you see that they have a huge cash position of almost $30 million ($1.07 per share), that gives the company enough room to expand without raising funds.

POSITION: LONG

Artificial Life (ALIF) Q3 2010 Results and 2011 Product Strategy

Yesterday Artificial Life announced its third quarter results for 2010 showing again strong increases in revenues and profits.

Business Highlights for Q3, 2010:

The Company's flagship m-commerce platform Opus-M(TM) drives strong revenue growth in Q3 2010 with quarterly revenues exceeding US$10 mm for the first time (a 21% increase over 2009), and a net profit exceeding US$5 mm (a 29% growth compared to 2009).

The strongest revenue generators for the Q3 2010 were Opus-M(TM) and the mobile health care and telemedicine products Mobil Diab(R), which complements the newly released diabetes monitoring iPhone app GluCoMo(TM).

The demand for the Company's iPhone and iPad games continues to be very strong. The total number of iPhone/iPad game downloads generated in 2010 through October 31, 2010 was approximately 12 million compared to approximately 8 million for the entire fiscal year of 2009. This brings the total number of iPhone downloads generated to approximately 20 million to date.

The Company also announced its 2011 product strategy and expansion plans: more focus on Android and new social network games and business products.

The strong growth and demand for its iPhone and smartphone products encourages the Company to develop more iPhone/iPad games and apps and to expand into more mobile growth sectors globally. The Company plans to venture boldly into the social gaming and social business apps arena. Based on its powerful Opus-M(TM) platform, new engaging and innovative social network business products are scheduled for Q1 2011 release.

To satisfy the increasing demand for Android and smartphone content from its partners, the Company plans to launch Android versions for most of its existing and successful iPhone/iPad apps and games. The focus will be on engaging social network games and augmented reality games and apps.

The Company also plans to launch several groundbreaking new Android business apps and to port its GluCoMo(TM) product line to Android. The Company plans to release at least 20 Android apps and games in 2011 with the first batch of products to be released in Q1 2011. The Company plans to release more Windows Phone 7 products as well in the coming year having recently branched out onto this emerging platform.

The flagship product Opus-M(TM) will be further enhanced in 2011 with the addition of several new functional modules such as augmented reality interfaces. Further details will be announced.

In 2011, the Company's new subsidiary Green Cortex, Inc. is expected to start its full operations and to launch its first products to consumers.

"We are very satisfied with our growth and financial performance this year with another record quarter in terms of revenues and profits in Q3, 2010. We expect further strong growth for the remainder of the year and for 2011," said Frank Namyslik, CFO of Artificial Life, Inc.

"Our business is doing very well and we continue to expand, especially in the m-commerce arena with our flagship product Opus-M(TM) as the foundation of our growth. The strong demand for iPhone/iPad products coincides with the growing needs of all smartphone users for top quality applications. We see increased demand in many app outlets such as the Android Market. Therefore, in 2011, we will focus on further enhancing Opus-M(TM) and on the development of: new iPhone/iPad apps, more Android apps and ports, new augmented reality apps, and new green products for our subsidiary, Green Cortex, Inc. We will place particular focus on innovative social networking games and business apps across multiple platforms. We are preparing several substantial new partnerships and joint ventures. In short, it seems that 2011 will be a very exciting and a very busy year for us," said Eberhard Schoneburg, CEO of Artificial Life, Inc.

Financial Results

Results of Operations -- Quarter Ended September 30, 2010 compared to Quarter Ended September 30, 2009
Over $10.5 mm in revenues, over US$5 mm in net profits
Revenues:
Revenues for the quarter ended September 30, 2010 were US$10,560,747 as compared to US$8,723,481 for the quarter ended September 30, 2009. The increase of revenues of US$1,837,266 or 21% was mainly due to revenue recognized from global license deals for its m-commerce platform, Opus-M(TM), as well as license income from the sales of its Mobil-Diab(R) product.

Cost of Revenues:
Cost of revenues mainly consisted of amortization of intangible assets. Cost of revenues for the quarter ended September 30, 2010 was US$3,463,190 as compared to US$1,732,798 for the quarter ended September 30, 2009. The increase of US$1,730,392 or 100% was primarily due to the increased amortization of additional license rights acquired and write-off of certain license rights.

Gross Margin:
Gross margin for the quarter ended September 30, 2010 was US$7,097,557 as compared to US$6,990,683 for the quarter ended September 30, 2009. The increase of US$106,874 or 2% was mainly due to revenue recognized from global license deals for its m-commerce platform, Opus-M(TM), and Mobil-Diab(R), offset by amortization of license rights acquired.

General and Administrative:
General and administrative expenses consisted of salary for administrative personnel, rent, professional fees, and costs associated with employee benefits, supplies, communications, travel, and allowance for doubtful accounts. General and administrative expenses for the quarter ended September 30, 2010 were US$627,137 as compared to US$464,360 for the quarter ended September 30, 2009. The increase of US$162,777 or 35% was mainly due to increase in professional fees.

Sales and Marketing:
Sales and marketing expenses consisted of salary expenses of sales and marketing personnel, costs relating to marketing materials, advertising, trade show related expenses, traveling and public relations activities. Sales and marketing expenses for the quarter ended September 30, 2010 were US$442,475 as compared to US$527,476 for the quarter ended September 30, 2009. The decrease of US$85,001 or 16% was mostly due to decrease in consulting expenses.

Research and Development:
Research and development expenses consisted of salary, training, consulting, subcontracting and other expenses incurred to develop and fulfill the design specifications and productions of the products and services from which they derive their revenues. Research and development expenses for the quarter ended September 30, 2010 were US$651,886 as compared to US$927,212 for the quarter ended September 30, 2009. The decrease of US$275,326 or 30% was primarily due to decrease in consulting and data hosting expenses.

Depreciation and Write-off of Fixed Assets:
Depreciation and write-off of fixed assets for the quarter ended September 30, 2010 was $1,095,313 as compared to US$1,320,867 for the quarter ended September 30, 2009. The decrease of US$225,554 or 17% was primarily due to decrease in write-off of certain fixed assets.

Other Income / Expense:
Other income for the quarter ended September 30, 2010 was US$1,612,389 as compared to US$124,656 for the quarter ended September 30, 2009. Net other income of US$1,612,389 was primarily due to foreign currency transaction gain of approximately US$1,624,000 in this quarter compared to loss of approximately US$56,000 in the third quarter of 2009. The increase in foreign currency transaction gain was mostly due to the significant effect of the strengthening of the Euro relative to the United States Dollar on the trade receivables denominated in Euro.

Income from Operations and Net Income:
Income from operations for the quarter ended September 30, 2010 was US$4,280,746, an increase of 14%, as compared to income from operations of US$3,750,768 for the quarter ended September 30, 2009. The income from operations is primarily due to revenue of US$10,560,747 generated from global license deals for its m-commerce platform, Opus-M(TM) and Mobil-Diab(R), offset by the cost of revenue of US$3,463,190 and the operational cost of US$2,816,811.

Net income for the quarter ended September 30, 2010 was US$5,055,651, an increase of 29%, as compared to net income of US$3,906,424 for the quarter ended September 30, 2009. The basic and diluted net income per share for the third quarter of 2010 was US$0.08, as compared to US$0.08 for the quarter ended September 30, 2009.

Cash and Liquidity:
As of November 11, 2010, cash receipt of approximately US$10.8 million has been collected from its customers in settlement of the trade accounts and installment receivables, as compared to the cash receipt of approximately US$4.6 million collected during the full year of 2009. As of November 11, 2010 the Company has US$1.87 million in cash.

The strong growth story continues and the company expands into the social gaming and social business apps sector which we view as positive. First nine monts EPS $0.20, Q3 $0.08. We believe EPS 2010 will be around $0.26-$0.27. The company expects that cash flows generated from 2010 operations and additional financing through various sources will be sufficient to fund operations, working capital, and commitment needs for the next 12 months. The stock price just trades above book value of $1.02 and has an P/E-ratio below 5.

POSITION: LONG

Thursday, November 11, 2010

Morgan Stanley says buy China equities

SINGAPORE - Morgan Stanley recommended "cheap" stocks in South Korea and China and advised reducing holdings in Southeast Asia after rallies drove indexes in Indonesia, the Philippines and Malaysia to record highs.

"South Korea and China are examples of markets that are not in any way expensive," Jonathan Garner, Morgan Stanley's Hong Kong-based chief Asian and emerging-market strategist, said in an interview in Singapore on Tuesday. "We don't find it difficult to find large-cap Chinese stocks which are attractive and we are quite happy to recommend."

China's low earnings volatility and "relatively contained" inflation make it more "attractive", Garner said. Oil driller CNOOC Ltd and coal producer China Shenhua Energy Co are on the brokerage's focus list of companies. In contrast, high earnings growth expectations are embedded in valuations for some Southeast Asian markets, leaving them "no margin of error" for unexpected interest rate increases, he said.

The Shanghai Composite Index has climbed 33 percent from its July 5 low as fund flows to emerging markets surged. Stocks in the gauge are valued at 17.7 times estimated earnings, less than half the multiple of 43 when the market peaked in 2007. South Korea's Kospi Index has risen 16 percent this year, adding to last year's 50 percent jump. The gauge is at 11 times estimated earnings, the lowest in Asia after Pakistan and Vietnam.

In Southeast Asia, benchmark indexes in Indonesia, the Philippines and Malaysia are among Asia's best performers this year.

The rally drove the Jakarta Composite Index to 18.4 times earnings, the Philippine Stock Exchange Index to a multiple of 15 and the FTSE Bursa Malaysia KLCI Index to 16.3.

The MSCI Emerging Markets Index has surged 16 percent this year, more than twice the 7.4 percent gain in the MSCI World Index of shares in developed markets.

China's stock market may benefit from quantitative easing as excess liquidity flows into equities, Michael Kurtz, head of Asian strategy at Macquarie Bank Ltd, said in an interview with Bloomberg Television on Wednesday.

While the US government's debt-buying plan "creates challenges for China", some of this liquidity may be diverted to the A-share market, he said.

"What matters significantly more for emerging markets equities are their own valuations, their earnings growth and the policy environment in the emerging world itself," Garner said on Tuesday.

Bloomberg News

It is just a matter of time when big institutional funds are going to snap up US-listed Chinese stocks.

Lotus Pharmaceuticals (LTUS) good Q3 results

Total net revenues for the three months ended September 30, 2010 were $18,504,934 as compared to total net revenues of $14,512,704 for the three months ended September 30, 2009, an increase of $3,992,230 or 27.5%.

For the three months ended September 30, 2010, wholesale revenues increased by $1,659,142 or 14.3%. The increase was mainly attributable to the increased revenues from our newly added five new drugs of approximately $2,164,000 offset by the decreased revenues from other drugs of approximately $505,000. The decrease of wholesale revenue from other drugs was mainly attributable to being out of stock of Levofloxacin Lactate for injection (brand name “Jun Xin”) and Nicergoline for injection (brand name “Ni Mai Jiao Lin”) as discussed above. 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 September 30, 2010, retail revenues increased by $2,333,088 or 80.3%. The significant increase was primarily attributable to the growth and success of our OTC Drug Division’s sales force. 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.

Overall, cost of revenues for the three months ended September 30, 2010 increased $1,932,555 or 32.2% as compared to the total cost of revenues for the three months ended September 30, 2009. Our total cost of revenues as a percentage of total net revenues for the three months ended September 30, 2010 increased to 42.8% from 41.3% for the three months ended September 30, 2009. Cost of revenues as a percentage of net revenues from our wholesale operations decreased from 34.9% for the three months ended September 30, 2009 to 32.2% for the three months ended September 30, 2010. In the three months ended September 30, 2010, 13.1% of cost of revenues attributable to our wholesale operations was attributable to the newly added five new drugs and 86.9% of cost of revenues attributable to our wholesale operations was attributable to our other drugs. In the three months ended September 30, 2009, 100% of cost of revenues attributable to our wholesale operations was attributable to our other drugs. The different revenue mix in the three months ended September 30, 2010 had an effect of lowering cost of revenues as a percentage of revenues as compared to the three months ended September 30, 2009. Cost of revenues as a percentage of net revenues from our retail operations for the three months ended September 30, 2010 increased to 69.6% from 66.8% for the three months ended September 30, 2009. During the summer of 2010, it was humid in Beijing. In addition, one of our warehouses was removed from service in order to construct the new building in Beijing. Therefore, our remaining warehouse space could not meet our demand in summer. We addressed this issue by shortening the storage period for our inventory and by reducing our unit sales price. As a result, the cost of revenues as a percentage of net revenues from our retail operations was increased. We expect our total cost of revenues as a percentage of total net revenues will remain in its current level in the rest of 2010.

Gross profit for the three months ended September 30, 2010 was $10,579,203 or 57.2% of total net revenues, as compared to $8,519,528 or 58.7% of total net revenues for the three months ended September 30, 2009. We expect that our gross profit margin will remain in its current level with minimal growth in the rest of 2010.


Total operating expenses for the three months ended September 30, 2010 were $3,619,558, as compared to the total operating expenses of $2,506,420 for the three months ended September 30, 2009, an increase of $1,113,138 or 44.4%. This increase included the following:

For the three months ended September 30, 2010, selling expenses amounted to $2,452,629 as compared to $1,895,901 for the three months ended September 30, 2009, an increase of $556,728 or 29.4%. For the three months ended September 30, 2010, our selling expenses as a percentage of total net revenues was 13.3% while for the three months ended September 30, 2009, our selling expenses as a percentage of total net revenues was 13.1%. This increase of our selling expenses is primarily attributable to the increase of our sales revenues. We expect our selling expenses will increase in the near future since we anticipate that our revenues will increase in the rest of 2010.

For the three months ended September 30, 2010, research and development expenses amounted to $21,517 as compared to $0 for the three months ended September 30, 2009, as a result of our research and development agreement with a third party for the clinical trial of the Laevo-Bambuterol drug noted above.

For the three months ended September 30, 2010, general and administrative expenses were $1,145,412, as compared to the general and administrative expenses of $610,519 for the three months ended September 30, 2009, an increase of $534,893 or 87.6%. These changes were summarized below:

The changes in these expenses from the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 included the following:

Salaries and related benefits increased by $33,363 or 23.8%. We anticipate that our salaries and related benefits will remain in its current level with minimal increase in the rest of 2010.

Amortization of our intangible assets and depreciation on our fixed assets increased by $211,110 or 89.2%, which was primarily attributable to the increase in amortization from Inner Mongolia land use right. For the three months ended September 30, 2009, we did not record any amortization for Inner Mongolia land use right for which we recorded twelve-month period amortization in the last quarter of 2009 while for the three months ended September 30, 2010, we recorded three-month period amortization for Inner Mongolia land use right.

Rent increased by $5,338 or 7.1%.

Travel and entertainment expenses decreased by $10,902 or 67.0% which is mainly attributable to decreased travel and entertainment activities.

Professional fees increased by $337,115 or 647.8%, which was primarily attributable to the increase in fees related to our consultants’ service for corporate affairs and development for which we did not have corresponding expenditure in the comparable period of 2009.

Other general and administrative expenses, which included office supplies, general management fees, car insurance, meeting expenses and other office expenses, decreased by $41,131 or 45.8% reflecting efforts at reducing non-sales related corporate activities as well as stricter controls on corporate spending.

As a result of forgoing, we reported income from operations of $6,959,645 for the three months ended September 30, 2010 as compared to income from operations of $6,013,108 for the three months ended September 30, 2009, an increase of $946,537 or 15.7%.

For the three months ended September 30, 2010, total other expenses amounted to $59,371 as compared to other expense of $547,541 for the three months ended September 30, 2009, a decrease of $488,170 or 89.2%. This change was primarily attributable to:

For the three months ended September 30, 2010, our debt issuance costs amounted to $0 as compared to $112,355 for the three months ended September 30, 2009, a decrease of $112,355 or 100.0%. The decrease was attributable to the decrease in amortization amount on debt issuance costs associated with the issuance of Convertible Preferred Stock Series A in February 2008 which we amortized on a 24-month period and began our amortization in March 2008. Debt issuance costs were fully amortized in February 2010. The amortization amount for the three months ended September 30, 2010 was 0 as compared to the three months of amortization expenses in the comparable prior period.

For the three months ended September 30, 2010, interest expense was $59,896 as compared to $436,481 for the three months ended September 30, 2009, a decrease of $376,585 or 86.3%. The decrease in interest expense was primarily attributable to the decrease in interest expenses associated with the Convertible Preferred Stock Series A.

For the three months ended September 30, 2010, our income tax expense was $200,348, as compared to $74,770 for the three months ended September 30, 2009, an increase of $125,578 or 168.0%. The increase in income tax expense was mainly attributable to the increase in taxable income generated by our operating entities.

NET INCOME
As a result of these factors, we reported a net income of $6,699,926 for the three months ended September 30, 2010 as compared to net income of $5,390,797 for the three months ended September 30, 2009. This translated to basic earnings per common share of $0.13 and $0.12, and diluted earnings per common share of $0.12 and $0.11, for the three months ended September 30, 2010 and 2009, respectively.


The functional currency of our operating subsidiaries and affiliates is the Chinese Renminbi (“RMB”). The financial statements of our operating subsidiaries and affiliates are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $1,426,434 for the three months ended September 30, 2010, as compared to $65,626 for the three months ended September 30, 2009. This non-cash gain had the effect of increasing our reported comprehensive income.

As a result of our foreign currency translation gains, we had comprehensive income for the three months ended September 30, 2010 of $8,126,360, compared with $5,456,423 for the three months ended September 30, 2009.

At September 30, 2010 and December 31, 2009, we had a cash balance of $897,650 and $3,945,740, respectively. These funds are distributed in financial institutions located in China.

Our working capital increased $3,123,659 to working capital deficit of $(1,829,075) at September 30, 2010 from working capital deficit of $(4,952,734) at December 31, 2009. This increase in working capital is primarily attributed to an increase in accounts receivable of approximately $0.15 million, an increase in inventories of approximately $0.16 million, an increase in prepaid expenses and other assets (current portion) of approximately $0.17 million, a decrease in accounts payable and accrued expenses of approximately $0.27 million, a decrease in other payables of approximately $0.70 million, a decrease in taxes payable of approximately $1.25, a decrease in Series A convertible redeemable preferred stock of approximately $4.17 million offset by a decrease in cash of approximately $3.05 million, a decrease in deferred debt costs of approximately $0.05 million, an increase in unearned revenue of approximately $0.18 million and an increase in due to related parties (current portion) of approximately $0.47 million.

The changes in asset and liabilities discussed above is based on a comparison of amounts on our balance sheets as of September 30, 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.

Our balance sheet as of September 30, 2010 also reflects notes payable to related parties of $5,174,292 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 nine months ended September 30, 2010, we did not repay any portion of the principal of these loan balances.

Net cash provided by operating activities for the nine months ended September 30, 2010 was $18,978,615 as compared to net cash provided by operating activities of $25,252,740 for the nine months ended September 30, 2009. For the nine months ended September 30, 2010, net cash provided by operating activities was primarily attributable to net income of $17,951,106 and the add back depreciation and amortization of $1,337,324, amortization of deferred debt issuance costs of $52,226, amortization of discount on convertible redeemable preferred stock of $151,553, interest expense attributable to beneficial conversion feature of preferred shares of $184,660 and stock-based compensation of $353,775 and the changes in operating assets and liabilities, such as: a decrease in prepaid expenses and other current assets of $553,428, an increase in accounts payable and accrued expenses of $190,113, an increase in unearned revenue of $153,160 and an increase in due to related parties of $323,264, offset by an increase in accounts receivable of $110,085, an increase in inventories of $133,004, a decrease in other current payables of $738,398 and a decrease in taxes payable of $1,290,507.

For the nine months ended September 30, 2009, net cash provided by operating activities was primarily attributed to net income of $13,744,432, and the add back of depreciation and amortization of $1,081,953, amortization of deferred debt issuance costs of $311,388, amortization of discount on convertible redeemable preferred stock of $880,788, amortization of prepaid expense attributable to warrants of $14,849 and stock-based compensation of $113,834 and the changes in assets and liabilities, such as: a decrease in accounts receivable of $4,379,267, a decrease in inventories of $801,428, a decrease in prepaid expenses and other current assets of $2,018,565, an increase in accounts payable and accrued expense of $230,951, an increase in taxes payable of $1,721,716, an increase in unearned revenue of $658,165 and an increase in due to related parties of $178,047 offset by recognition of unearned revenue of $594,738 and a decrease in other current payables of $287,905.

Net cash used in investing activities for the nine months ended September 30, 2010 amounted to $22,054,326 which was attributable to the purchase of property and equipment. For the nine months ended September 30, 2009, net cash used in investing activities was attributed to the payment for installments on intangible assets of $8,622,567 and the purchase of property and equipment of $15,352,107.

Net cash provided by financing activities for the nine months ended September 30, 2010 and 2009 was $0.

We reported a net decrease in cash for the nine months ended September 30, 2010 of $3,048,090 as compared to a net increase in cash of $1,282,681 for the nine months ended September 30, 2009.

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. As of September 30, 2010, Lotus East has contractual commitments of approximately $55.0 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 in Inner Mongolia, 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. Our ability to fully fund the costs associated with the new manufacturing facility in Inner Mongolia is materially dependent upon our ability to obtain secured bank financing and/or government grants and/or other third party finance.

There is no guarantee that Lotus East can obtain these financings on favorable terms at the right time. Although the Chinese government has announced an economic stimulation plan, there is no guarantee that we will be awarded the government grants successfully. While Lotus East’s management believes the Company will be successful in securing the necessary funding through its increasing revenue, faster collections on receivables, and continuing discussions with various commercial banks, there are no assurances that the funding will be available in the amounts or at the time required to meet Lotus East’s commitments. In the event that Lotus East is not successful in obtaining the funds it needs for the Technology Transfer Agreement and the New Drug Patent Transfer Agreement, it is possible that it could default under the terms of the two agreements and forfeit any funds paid to date. If Lotus East fails to obtain all of the funding necessary to complete the construction of the new facility in Inner Mongolia, which is estimated to be approximately $52.9 million in the next five years, it could get back approximately $40.6 million spent to date, including the approximately $33.4 million for the payments on the land use rights, which is refundable if the Chinese local government would not grant it land use rights certificate.

EPS first nine months $0.33, EPS Q3 $0.12. We believe our target for 2010 of $0.45 will be exceeded, but we stick with our EPS target for this year. Book value increased to $1.68.

POSITION: LONG

Tuesday, November 9, 2010

The Mining Valuation Handbook



I ordered this book yesterday because I couldn't resist the fact to know more about the mining sector. I am a firm believer that China and Commodities (Miners) are one of the best investments for the coming years.

Also the fact that Qiao Xing Universal Resources (XING) has changed their business model to the mining business gives me more motivation to study about mining valuation.

Sunday, November 7, 2010

How to play the Mexican mining boom?

Mexico is a major producer of silver, base metals and gold. A country with a rich mining history that spans almost 500 years. In the last 500 years, Mexico’s silver industry has provided almost one-third of the world’s silver. Historically, the country has been the world’s largest silver producer, year after year; however, in 2009 Peru produced more silver than Mexico. Mexico’s historic production records exceed 10 billion oz. of silver; current annual production is around 100 million oz. per year.

The current government of Mexico passed energy reform measures in 2008 and fiscal reforms in 2009. The administration continues to faces several economic challenges, including improving the public education system, upgrading infrastructure, modernizing labor laws, and fostering private investment in the energy sector. President Felipe Calderon has stated that his top economic priorities remain reducing poverty and creating jobs.

Relative political and financial stability, legal security for investors and its location next to one of the world’s top importers of resources are all positive factors impacting Mexico’s mining industry today. These factors are, however, countered somewhat by the highly unionized nature of Mexican mining and metallurgical workers, a lack of potable water, corruption and possible socio-economic issues generated by low wages and under employment as potential impediments to the continued prosperity of the mining industry.

Some mining firms have shuttered a handful of exploration projects in remote areas in Mexico as the industry grapples with threats from drug cartels and rising security costs, Mexico’s mining chamber said last month. Cartels are threatening mining operations not just in the violent corridor along the U.S.-Mexico border but in isolated, mountainous regions in other parts of Mexico, where traffickers grow marijuana and heroin poppies, the chamber said.

Executives belonging to Mexico's National Mining Chamber have reported cases of drug traffickers extorting, kidnapping, attacking and selling drugs to their workers.

Despite these concerns Mexico stays a top destination for investment in Latin America. Spending on new projects is on the rise and the industry sees investment at over $13 billion from this year through 2012.

Historically, and presently, the majority of silver has been discovered at the Mexican Silver Belt, called La Faja de Plata. This belt, which extends for approximately 800 kilometres along the Sierra Madre Occidental Mountains, is easily the world’s most productive silver district. Silver is found in this region in a combination of epithermal vein and carbonate replacement deposits with production grades ranging from 5 to 30 oz/T silver. Co-products gold, copper, zinc and lead are also extracted for the region. The majority of miners in the region extract the resources through underground tunnel.

The main mining provinces in Mexico are Sonora, Coahuila, Zacatecas, Chihuahua, Baja California Sur, San Luis Potosí, Durango and Guanajuato.

This year the stock prices of a lot of miners exploded, but some of them lagged behind while the prospects are good. One of them is IMPACT Silver Corp (TSX:IPT, PINK:ISVLF).

IMPACT Silver Corp. is a silver producer with an extensive portfolio of advanced silver projects in Mexico. The company currently produces silver from multiple mines and a 500 tonnes per day processing plant at the Royal Mines of Zacualpan. With mining operations having been profitable from the first day of production and continuing to be profitable even at lower metal prices, IMPACT has distinguished itself as a respected precious metals producer.

IMPACT plans to grow into a premier producer of silver through internal growth and now controls over 623 km2 in the Zacualpan Districts realizing its goal of consolidation in the surround areas. The Company owns the 272km2 Royal Mines of Zacualpan Silver District, the 200km2 Mamatla District and the Zacatecas Silver Project as well as the most recent 150 km2 Southeast Mineral Concessions to its project portfolio through additional external acquisitions.

Last year, the company announced its first 43-101 resource definition in the Mamatla Silver District, outlining the combined Capire and Aurora 1 Measured and Indicated Mineral Resources estimates at 7.2 million ounces silver, 94.3 million pounds zinc and 38.8 million pounds lead This mineral estimate only covers %0.1 (0.2 sq km) of the 200 sq km Mamatla Silver District (see November 17th 2009 news release or go to Mamatla District under the Projects tab for more information). An updated NI 43-101 Mineral Resource Estimate is currently being prepared.

The Mamatla VMS district represents an opportunity that upon successful completion of the proposed exploration and development programs would propel IMPACT to become a multi-million ounce silver producer.

Despite a lot of good news this year the stock hasn’t moved. Clearly off the radar and ready for a nice run up.

Another company that is worthy looking at is Goldgroup Mining Inc. (TSX:GGA, PINK:GGAZF). Its vision is building a premier gold producer in Mexico. The company’s goal is to build +200,000 oz Au per year production within three years through organic growth.

Goldgroup's ownership of the Cerro Colorado mine and its earnable interests in its advanced stage projects represents an estimated mineral resource (NI 43-101 compliant) totaling approximately 1 million oz Au* plus the potential to considerably increase these estimated resources from its portfolio of highly prospective properties. The Cerro Colorado Mine in Sonora has projected 25,000 ounces of unhedged gold for this year.

The last company I think has considerable value and is still priced relatively low compared to their peers, is a turnaround play called Genco Resources (TSX:GGC, PINK:GGCRF). This company had some major problems in the past but with a new management, a NI 43-101 technical report and a feasibility study, Genco can have investors attention again. Especially after the merger offer from Silvermex Resources at the end of September. The combined company will possess a fully operational mine and a substantial silver reserve and resource base. The transaction will provide shareholders with an experienced, production-focused, management team with a successful record of enhancing shareholder value. The combined company will be well capitalized with over $6 million in cash.

More information can be found in the following corporate presentations.
Impact Silver Corp.
Goldgroup Mining
Genco Resources

POSITION: LONG ALL THREE COMPANIES MENTIONED IN ARTICLE
I think China and Commodities (Metals) are the investment cases for the coming years