Monday, February 28, 2011

Baby Boom in China Helps Domestic Firms, Hold Opportunity for Western Companies

Article Seeking Alpha

Rodobo International (RDBO) Passed Inspection to Obtain New Production License

Rodobo has been orally informed that its operating subsidiary in PRC, Harbin Rodobo Dairy Co., Ltd ("Harbin Rodobo"), has passed its on-the-spot inspection performed by the Heilongjiang Bureau of Quality and Technical Supervision ("HBQTS") and will obtain the new production license for its infant formula powder products in March 2011.

On November 1, 2010, the General Administration of Quality Supervision, Inspection and Quarantine of the PRC ("AQSIQ") promulgated new rules which govern the licenses granted to producers of dairy products and infant formula powder (2010 version) ("the New Regulations"). These New Regulations require that such producers, even if they have obtained a production license previously, must re-apply for a production license prior to December 31, 2010 and if a producer is not able to obtain a new production license by March, 2011, such producer must stop its production of dairy products and infant formula powder.

An inspection team composed of experts in the dairy industry from the HBQTS, which is the provincial authority in charge of standardization, metrology, quality and special equipment safety supervision, visited our production facilities in Harbin, PRC on February 23, 2011. These experts conducted inspections of all our production facilities and quality monitoring instruments, quality control procedures and management team, which covers around 100 testing points. The HBQTS experts concluded that we satisfied all the criteria required by the New Regulations.

"We are very pleased that we passed the examination run by the HBQTS, which validates our superior quality control standards. Rodobo is among the first batch of infant formula milk powder producers that has completed the mandatory re-certification process in China." stated Mr. Yanbin Wang, Chairman and Chief Executive Officer. "Although the increasing regulatory scrutiny on our industry may result in increased costs in the short term, we believe it will benefit the industry in the long run. We believe there may be some infant formula milk powder producers that fail to receive a new license from the AQSIQ and, as a result, these producers will be forced to stop production. We believe that this industry reshuffle will restore Chinese consumers' confidence on local brands and create growth opportunities. We will preserve the trust of the government and our customers in the future by continuing to provide Rodobo's high quality and nutritious milk powder products to our customers."


Sunday, February 27, 2011

Irrational behavior in US-listed China stocks

The US-listed China sector has undergone a horrible climate where volatility is high and irrational behavior sweeps the markets. Accusations of fraud (CHBT, CMME, YONG, CGAM, CMFO), fears over the Chinese economy (inflation, real estate bubble.) have killed the appetite for Chinese stocks.

We are in a deep depression and have forgotten the true value of US-listed Chinese companies.

Sometimes I receive the question: What do I have to do now with my Chinese stocks?

"Stocks are falling so hard, do I have to sell and put my money somewhere else?".

Frankly that is what short sellers want you to do, sell at these prices and never come back again.

In this article I will proof that there is still hope and that irrational behavior will be replaced by rational behavior in the future.

There's never been a better time to be a behaviorist. Already more than four decades, the academic theory that financial markets accurately reflect a stock's underlying value was all but unassailable. But lately, the view that investors can fundamentally change a market's course through irrational decisions has been moving into the mainstream.

With the exuberance of the high-tech stock bubble and the crash of 2007 still fresh in investors' memories, we see the same happening in the US-listed China space. Adherents of the behaviorist school are finding it easier than ever to spread the belief that markets can be something less than efficient in immediately distilling new information and that investors, driven by emotion, can indeed lead markets awry. Some behaviorists would even assert that stock markets lead lives of their own, detached from economic growth and business profitability.

A number of finance scholars and practitioners have argued that stock markets are not efficient — that is, that they don't necessarily reflect economic fundamentals. According to this point of view, significant and lasting deviations from the intrinsic value of a company's share price occur in market valuations.

The argument is more than academic. The rise of stock market index funds, was caused in large part by the conviction among investors that efficient-market theories were valuable.

I agree that behavioral finance offers some valuable insights — chief among them the idea that markets are not always right, since rational investors can't always correct for mispricing by irrational ones. But for investors, the critical question is how often these deviations arise and whether they are so frequent and significant that they should affect the process of financial decision making.

In fact, significant deviations from intrinsic value are rare, and markets usually revert rapidly to share prices commensurate with economic fundamentals. Therefore, investors should continue to use the tried-and-true analysis of a company's discounted cash flow to make their valuation decisions.

Behavioral-finance theory holds that markets might fail to reflect economic fundamentals under three conditions. When all three apply, the theory predicts that pricing biases in financial markets can be both significant and persistent.

Irrational behavior

Investors behave irrationally when they don't correctly process all the available information while forming their expectations of a company's future performance. Some investors, for example, attach too much importance to recent events and results, an error that leads them to underprice stocks with strong fundamentals.

Systematic patterns of behavior

Even if individual investors decided to buy or sell without consulting economic fundamentals, the impact on share prices would still be limited. Only when their irrational behavior is also systematic (that is, when large groups of investors share particular patterns of behavior) should persistent price deviations occur.

Hence behavioral-finance theory argues that patterns of overconfidence, overreaction, and overrepresentation are common to many investors and that such groups can be large enough to prevent a company's share price from reflecting underlying economic fundamentals — at least for some stocks, some of the time.

When investors assume that a company's recent weak performance alone is an indication of future performance, they may start selling shares and drive down the price.


A well-known pattern of stock market deviation has received considerable attention in academic studies during the past decade: short-term momentum.

In the case of our China space, negative returns for stocks over the past few months are followed by several more months of negative returns. Behavioral-finance theory suggests that this trend results from systematic overreaction.

But academics are still debating whether irrational investors alone can be blamed for the short-term-momentum pattern in returns.

Similarly, irrational investors don't necessarily drive short-term momentum in share price returns. Profits from these patterns are relatively limited after transaction costs have been deducted. Thus, small momentum biases could exist even if all investors were rational.

Furthermore, behavioral finance still cannot explain why investors overreact under some conditions (such as IPOs) and underreact in others (such as earnings announcements). Since there is no systematic way to predict how markets will respond, some have concluded that this is a further indication of their accuracy. (Eugene F. Fama, "Market Efficiency, Long-term Returns, and Behavioral Finance," Journal of Financial Economics, 1998, Volume 49, Number 3, pp. 283–306.)

Persistent Mispricing in US-listed China stocks

A classic example is the pricing of most of the US-listed China stocks. A lot of them trade under intrinsic value or even under net cash per share (CNOA).

Focus on Intrinsic Value

What are the implications for managers of US-listed China companies?

The market deviations that we have now makes it even more important for the executives of a company to understand the intrinsic value of its shares. This knowledge allows it to exploit any deviations, if and when they occur, to time the implementation of strategic decisions more successfully.

Here are some examples of how corporate managers can take advantage of market deviations.

•Repurchasing shares when the market under-prices them relative to their intrinsic value

•Paying for acquisitions with cash instead of shares when the market underprices them relative to their intrinsic value

•Paying dividends at times when trading and transaction multiples are lower than can be justified by underlying fundamentals

Bear in mind. I don't recommend that companies base decisions on an assumed difference between the market and intrinsic value of their shares. Instead, these decisions must be grounded in a strong business strategy driven by the goal of creating shareholder value. Market deviations are more relevant as tactical considerations when companies time and execute such decisions.

Provided that a company's share price eventually returns to its intrinsic value in the long run, managers would benefit from using a discounted-cash-flow approach for strategic decisions. What should matter is the long-term behavior of the share price of a company, not whether it is undervalued by 30 or 40 percent at any given time.

For strategic business decisions, the evidence strongly suggests that the market reflects intrinsic value.

What we learn from all this is that our China depression will fade away, only time will tell us when US-listed China stocks are valued at reasonable prices again.

Friday, February 25, 2011

Xinyuan Real Estate (XIN) GFA Sold, Contract Sales, Revenue and Net Income for the Fourth Quarter of 2010 and the Full Year of 2010 All Exceeded the High End of the Company's Guidance

Press release

Highlights for the Fourth Quarter 2010

Total revenues were US$137.2 million, a 27.5% increase over US$107.6 million in the third quarter of 2010 and 5.5% above the high end of Company guidance range.

Contract sales totaled US$194.1 million, a 28.5% increase over US$151.0 million in the third quarter of 2010 and 29.4% above the high end of Company guidance range.

Total gross floor area ("GFA") sales were 173,200 square meters, 26.0% increase over 137,500 square meters in the third quarter of 2010 and 23.7% above the high end of Company guidance range.

Selling, General, and Administrative ("SG&A") expenses as a percent of total revenue continued to decline to 6.7% compared to 6.9% in the third quarter of 2010.

Net income was US$21.6 million, a 170.0% increase over US$8.0 million in the third quarter of 2010 and 35.0% over the high end of the Company guidance range.

Diluted net earnings per share attributable to ordinary shareholders was US$0.14 equivalent to US$0.28 per American Depositary Share ("ADS"), compared to diluted net earnings per share of US$0.05 equivalent to US$0.10 per ADS in the third quarter of 2010.

Cash and cash equivalents, including restricted cash, increased by US$32.1 million to US$295.6 million as of December 31, 2010 from US$263.5 million as of September 30, 2010. Short and long term debt decreased by US$46.4 million to US$295.9 million compared to US$342.3 million as of September 30, 2010.

The Company's wholly owned subsidiary, Henan Xinyuan Real Estate Co., Ltd. ("Xinyuan China") completed the purchase of the remaining 55% equity interest in Zhengzhou Jiantou Xinyuan Real Estate Co. Ltd. ("Jiantou Xinyuan") in November 2010.

2011 Outlook

After a strong fourth quarter of 2010, GFA sales are expected to experience a sharp seasonal sequential decrease to approximately 95,000 square meters due to the Chinese Traditional New Year in the first quarter of 2011. Contract sales are expected to reach approximately US$115 million with average selling prices advancing selectively in first quarter of 2011.

First quarter 2011 revenue using the percentage of completion method is expected to total around US$120 million and net income is expected to be around US$13 million.

For the year the Company believes that with 12 concurrent active projects from the second quarter onwards it will achieve contract sales growth of more than 20% reaching approximately US$710 million in 2011 over 2010's total of US$588.3 million. Revenue under the percentage of completion method is expected to grow by 40% reaching approximately US$650 million for the year, as accelerated construction spending and higher percent completions will lead to higher revenue recognition under the percentage of completion method of accounting. Net income is expected to grow more than 45% reaching approximately US$75 million as gross margin improves year-on-year and operating expenses grow less than revenue.

Tighter rules to reshuffle entire dairy industry in China


Some highlights of the story
Up to a quarter of the country's dairy producers could be eliminated in an ongoing campaign to reshuffle a sector marred by a slew of safety scandals in the last couple of years, insiders have revealed.

Since September, food-safety watchdogs have required manufacturers of registered milk products to renew their licenses under tightened regulations. The new registration deadline is the end of March.

To be fully accredited, producers must have adequate equipment for conducting melamine and food-additive tests, as well as have designated personnel for daily product checks, among other requirements that include better training for staff, according to a notice jointly issued in November by the General Administration of Quality Supervision, Inspection and Quarantine, the Ministry of Industry and Information Technology and the National Development and Reform Commission.

"About 20 to 25 percent of the existing milk-processing companies will disappear from the market, as has been widely estimated," Wang Dingmian, former executive director of the Dairy Association of China, was quoted as telling China Business News.

Many of them are small companies, accounting for a mere 10 to 12 percent of the market share, he said.

There are about 1,800 companies that deal in dairy products, but about 60 to 70 percent of the domestic market share is controlled by five diary giants, according to a report by the National Business Daily.

Some producers and farmers with milk-producing cows, however, complained that the new regulations were costly and would force them out of business.

"A large device used for melamine testing could cost up to 10 million yuan ($1.4 million). That would be a burden for small producers," the National Business Daily quoted Yang Min, who holds stock in a small diary company, as saying.

Even if the producer can afford the equipment, a daily expenditure of 1,200 to 1,500 yuan from the testing would also add up, Yang argued, adding that the major stockholders decided to sell their factories.

Since the melamine-tainted powder scandal, more and more domestic consumers are turning to international brands.

Zhang Yongjian, an expert on the food and drug industry with the Chinese Academy of Social Sciences, told the Global Times that the reshuffle of the dairy industry will result in temporary shortages in dairy supply, but it will save China's dairy industry in the long run.

"With the shoddy products weeded out from the market, promising manufacturers, especially regionally renowned ones or second-tier brands, will have bigger room to grow and prosper in the market to create a benign cycle for China's dairy industry," he said

Great news for US-listed stocks such as Rodobo Int. (RDBO) or Emerald Dairy (EMDY).

NIVS IntelliMedia (NIV) Announces Additional Order into India Market

Press release

If they really can tap into the Indian market with more and bigger contracts this could be a hitter.


Thursday, February 24, 2011

Tuesday, February 22, 2011

China Mobile Signs First Order with NIVS IntelliMedia (NIV)

Press release

The order from China Mobile relates to the NIVS N61 model, which is a mobile phone designed for young children.

A  milestone for the company so I hope they receive a lot of  follow-up contracts from China Mobile. 


Chinese Dairy Market Looks Promising

Rodobo Int. (RDBO) and Emerald Dairy (EMDY) mentioned

Article Seeking Alpha

Wednesday, February 16, 2011

SkyPeople (SPU) Launches 'Qian Mei Duo(TM)' High-Fiber Fruit Juice Beverages

Press release

Qian Mei Duo™ Products on SkyPeople Fruit Juice Website
With more Chinese consumers drinking juice beverages as a healthy alternative to carbonated soft drinks, the company is poised to generate robust growth in both our Hedetang and Qian Mei Duo brands in the coming years.


NIVS IntelliMedia Announces Entrance into India Market with Contract for $1.7 Million in Custom Mobile Phones

Some highlights of the press release

We are pleased to announce our first mobile phone contract to the Indian market," said Tianfu Li, NIVS' Chairman and CEO. "The contract is for a minimum of $1.7 million with the potential for more, based on our initial negotiations with the distributor. This order is a significant milestone for NIVS, as it not only represents our first expansion of NIVS branded cell phones outside of China's domestic market, it also represents a new revenue opportunity as we begin to cater to India's burgeoning population and rapidly expanding network of mobile phone subscribers."

With a population of 1.2 billion, India has seen very strong growth in mobile phone market in the last few years. According to the Telecom Regulatory Authority of India, the country currently has the 2nd largest mobile phone market after China, with an estimated 752 million mobile phone subscribers as of February 2011. Based on Informa Telecoms and Media's latest forecast, India is the fastest growing telecommunications industry in the world and it is projected that India will have 1.159 billion mobile subscribers by 2013.

NIVS is implementing various corporate growth initiatives for 2011, with a particular focus on its fast-growing mobile phone business, and is committed to establishing itself as China's preeminent integrated consumer electronics company. The Company will continue to focus on innovative research and development and expects to expand its product portfolio with increasingly popular consumer electronics devices in China and in other high growth markets in Asia, including India's growing mobile market.



Tuesday, February 15, 2011

Rodobo (RDBO) Q1 2011 results

Rodobo International, Inc. ( RDBO), a fast growing dairy company in China, reported financial results for the first quarter ended December 31, 2010.

First Quarter 2011 Highlights:

Revenue was $25.6 million, up 153.9% from $10.1 million in 1Q10, close to the upper range of the company's 1Q11 guidance $24 - $26 million

Gross profit was $9.8 million, up 84.8% from $5.3 million in 1Q10

Net income was $4.1 million, up 80.2% from $2.3 million in 1Q10, outperforming 1Q11 guidance range of $3.2 - $3.5 million

Earnings per diluted share was $0.15, up from $0.14 in 1Q10

Second Quarter 2011 Guidance:

Management feels confident to give its guidance for the second quarter of 2011 for revenue to be in the range of $23 - $26 million and net income to be in the range of $3.3 - $3.6 million.

"We started off 2011 with another quarter of record revenue and strong profitability. It is our fifth consecutive top line growth quarter," stated Mr. Yanbin Wang, Chairman and Chief Executive Officer. "We saw continuous strong market demand for Rodobo's high quality and nutritious milk powder products in the first quarter, especially for whole milk powder products. During the quarter, we further developed our existing market by adding more sales outlets and strived to increase sales per outlet. We will continue to consolidate our acquisition, realign our product lines and improve our capacity utilization in the rest of this year."

Q1 results

Friday, February 11, 2011

Man Shing Agricultural Holdings, Inc. (MSAH) announces FY 2011 Q2 results

Q2 results

Man Shing Agricultural Holdings, Inc. (MSAH) is one of the largest Chinese exporters of fresh ginger to Japan, the United Kingdom, and the Netherlands, today announced financial results for the three and six months ended December 31, 2010.

Financial Highlights for the Three Months Ended December 31, 2010

Revenue increased 58% year-over-year to $8.2 million

Gross profit increased 91% to $3.3 million; gross margin increased to 41% from 34%

Net income increased 94% to $2.3 million; basic EPS of $0.06

Mr. Shili Liu, Chairman and Chief Executive Officer of Man Shing, stated, "Our record financial results during the second quarter of fiscal 2011 were highlighted by an increase in revenue of 58% and an increase in gross profit of 91%, each as a result of an increase in the price of ginger and cost controls. In addition, gross margins improved by 7% to 41% from 34% and net income increased by 94%. The climate of the Shandong Province has enabled us to consistently increase our production capacity, and the lack of high-quality ginger from China in the international market allowed us to increase our prices by up to 35% as compared to same period in prior year."

Mr. Shili Liu continued, "Our factories' quality control standards have driven customer demand and loyalty for Man Shing's high quality ginger. By improving operating efficiencies at our thermostatic storing warehouse, where the freezing and packaging takes place after the harvesting of our ginger, we have been able to increase our operating margins. We believe that economies of scale will continue to improve our cost structure, which will benefit our profit margins going forward."

Financial Highlights for the Six Months Ended December 31, 2010

Revenue increased 58% year-over-year to $15.5 million

Gross profit increased 114% to $6.5 million; gross margin increased to 42% from 31%

Net income increased 92% to $4.5 million; basic EPS of $0.12

A very interesting stock that can capitalize on higher food prices. With a forward PE below 3 there is enough upside potential.


Thursday, February 10, 2011

The War on China MediaExpress Holdings (CCME)

In my article: Shorting China part of a bigger plan,, I started the discussion about what the reason could be for investors/traders being so negative in regard to China and Chinese companies.

I am convinced China MediaExpress Holdings (CCME) plays a minor role within this debate, although the fact that the company is a major victim of short selling. Short selling in itself is not illegal and widely used by traders to make money when they think that a share price is likely to fall. However, it is illegal when a trader deliberately tries to force the share price to go down by spreading rumours and false facts about the company. These trades are known as "trash and cash".

Many US-listed China companies had to face systematic attacks by short-sellers. In most cases discrepancies between SAIC filings and SEC filings were the trigger for decreasing stock prices. In respect to China MediaExpress the misunderstanding about buses and contracts was a hot topic. The report of Muddy Waters is accusing China MediaExpress to inflate their numbers.

Would it be a major corporate scandal if not all the information is as clear as should be. Would be the value of the company at stake? If there were some minor differences I don't think the estimated value would be $5.28 as Muddy Waters calculated.

Most companies, that are under attack by short sellers choose to ignore them out of a concern for dignifying them or publicizing them. The fact that China MediaExpress on Monday announced a detailed letter available to their shareholders on its investor website is a positive sign. The letter is available at the “Investor Relations” section of CCME’s website,

Transparency is a two way street, so I would certainly appreciate a full inquiry by the SEC and the NASDAQ concerning the misinformation used by Muddy Waters and others to manipulate the market.

The deliberate circulating of negative rumors and shady facts by amateur hedge fund managers; aiming to push prices down because they were short selling stocks is having a major impact on the US-listed China market's integrity. A lot of reports that have recently been published have a very short time frame, which gives you a uncomfortable feeling. Because you are really going to think: Is shorting China really part of a bigger plan?

The fact that "long-only" managers are not trading CCME. Who the hell was selling like crazy last week?

Long only managers have increased their positions in the company.

Many traditional long-only managers design their portfolios to perform over the next six to twelve months. Hedge funds attack the resulting inefficiency from both sides. They do not care whether a stock is going to do well in one year or not. They want to perform well today or this week or, at worst, this month. These funds usually hold positions for a short period of time.

A lot of them are "black box" funds, where computer programs tell them what to buy. Other are news driven and want to know whether the next piece of news, or "data"point," will be positive or negative. Some of these short-term-oriented funds rely on technical analyses, the study of security trading patterns, to decipher the likely near-term future direction, while others rely on the manager's trading instinct, feel and experience.

Many of the "black box" funds use a combination of insights, and some have been quite successful. These type of funds, tend to have little to none transparency. Nobody on the outside really knows much about the portfolio.

Source: Interactive Data Management Solutions AG

These “black box” funds could also have been playing a part of the giant move in China MediaExpress Holdings last week.

In case of China MediaExpress Holdings (CCME) fact-based articles like the one of Michael Anderson are more reliable, than the accusative articles without merits.

Independent analysts of Global Hunter and Northland who did an amount of due diligence and groundwork in China are whipped out and not taking serious anymore; despite the fact that they have more knowledge and insight in the company than any of us.

Last December the Wall Street Journal mentioned that the SEC (Securities and Exchange Commission) was going after Chinese RTO firms. Taking into account the negative reports published lately, you could start to think some kind of cold war is going on between the U.S. and US-listed China companies, Having their own strong believes about how to run a business, and meeting at the battlefield of the stock exchanges.

Although no weapons are involved, the amount of money makes it worth to fight for. So the fight between longs and shorts will continue. After all: "It's not the short selling that's the problem, it's the damage to the integrity of Chinese companies”.

Where are the regulators? Where is the Securities and Exchange Commission (SEC)?


Tuesday, February 8, 2011

NIVS IntelliMedia Technology Group (NIV) still an undervalued opportunity

One of China Investor King's Porfolio companies highlighted today: NIVS IntelliMedia Technology Group.

Article Daily Finance

American Lorain (ALN) receives line of credit from ICBC

Today American Lorain announced that the head office of Industrial and Commercial Bank of China ("ICBC") has granted the company a RMB 105 million line of credit.

The line of credit was granted with specific allocation of 40 million yen to Junan Hongrun, 40 million yen to Shandong Lorain, and 25 million yen to Beijing Lorain, American Lorain's three major operating subsidiaries. The line of credit serves as a prerequisite for short term loans and is effective for 1 year.

Mr. Si Chen, Chairman and CEO of American Lorain commented: "American Lorain had a 60 million yen line of credit from ICBC Shandong branch last year. We are very much delighted to see that now ICBC has approved and extended the line of credit to 105 million yen on the head office level, which implements more stringent credit standards. We believe obtaining the line of credit is meaningful to our macro cash flow planning and management for the year 2011, which we try to translate into stronger and sustainable growth for the Company going forward."


Wednesday, February 2, 2011

Tuesday, February 1, 2011

The Long Case For American Lorain

One of my five Amigos, is a company called American Lorain (ALN).

Article Seeking Alpha