Some highlights:
Revenue is generated by service charges and the sale of recyclable materials. Revenue for the three months period ended March 31, 2010 were $3,068,509, representing $474,014 or 18% increase compared to the revenue of $2,594,495 in the same period of 2009. Although suffering the globle economic crisis, our material recycling business is getting better.
The cost of revenue is the direct cost for sale of the recycling materials. For the three months period ended March 31, 2010, the cost of revenue was $1,538,106. It was $256,174 or 20% increase as compared to the cost of sales of $1,281,932 for the three months period ended March 31, 2009. The increase mainly contained $117,297 of labor service fee for sub contractors. This cost was related to our Chinese market expandant. Cost of revenue in the material recycling business for the three months period ended March 31, 2010 and 2009 was $275,761 and $143,190 respectively, an increase of $132,571 or 93%. The increase of cost of sales in our material recycling business was in line with the sales. For the three months period ended March 31, 2010 and 2009, cost of revenue was 50% and 49% of sales respectively.
The gross profit for the three months period ended March 31, 2010 was $1,530,403, representing $217,840 or 17% increase compared to $1,312,563 for the three months preiod ended March 31, 2009. The gross margin reduced from 51% to 50%.
Selling, general and administrative expenses increased to $875,659 for the three months period ended March 31, 2010, from $697,953 for the three months preiod ended March 31, 2009, an increase of $177,706 or 25%. Mainly by increased SG&A expenses and consulting fees.
Net income for the three months period ended March 31, 2010 was $567,310, compared to $572,717 a decrease of $5,407 or 1%. The decrease is mainly due to the reduce of net income in the material recycling business of $14,836 or 70% although our investor relationship expenses and option expenses decreased $11,031, or 18%. Net profit margin for the three months preiod ended March 31, 2010 was 18% while it was 22% for the same period in 2009.
The company has accumulated profit of $4,028,952 as of March 31, 2010 compared to $3,461,642. The positive working capital was $4,000,881 and increased by $613,021. That is mainly due to the increase of $478,788 in cash and cash equivalents and $196,756 in the trade receivables. The strong sales for the three months period ended March 31, 2010 lead to the great increase in cash and trade receivable.
Management believes there are no known trends, events, or uncertainties that could, or reasonably be expected to, adversely affect the Company's liquidity in the short and long terms, or its net sales, revenues, or income from continuing operations. However the management observed increased competition in the material trading business has resulted in decrease margin in these businesses.
First quarter EPS was $ 0.02 slightly disappointing if you ask me. Also the fact that the company gives no clearance of their projects etc. gives me no positive sign. My projections of net income per share this year between $ 0.14 - $ 0.16 are farther away than ever.
POSITION: LONG (ENTRY: $ 0.42)
Monday, May 17, 2010
XINYINHAI TECHNOLOGY (XNYH) $ 0,10 EPS this year achievable
The last time that I put such long texts on this blog, but YES still undervalued if you ask me. I have to confess after reading the 10-Q I am positive about the management decisions they made and I still believe that an EPS of $ 0.10 is almost a fact.
Results of Operations
The recent global recession reduced demand for capital goods in China. Since late 2008, this situation has had a negative impact on both of our business segments. In the first quarter of 2010, which ended on March 31, 2010, the effect of the recession was most dramatic in our equipment distribution business, where revenues declined by 73% to $147,168 during the first quarter of 2010 from $536,904 during the first quarter of 2009 (which was, in turn, 45% lower than in the first quarter of 2008). The decline in equipment distribution reflected delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that we had experienced in 2008, and reduced this business segment to a 7% contribution to our overall revenue during the first quarter of 2010, a level below even the 13% level we experienced in 2007 and 2006. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China. I would say DISINVEST.
Revenue from our printing business, on the other hand, was modestly higher, increasing by 9% to $2,027,210 during the first quarter of 2010, compared to $1,860,077 during the first quarter of 2009. The printing segment of our business had declined in 2008 and 2009, in part due to the weakening of the Chinese banking industry, as many of our customers were conserving cash pending stabilization of the international credit markets. The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008. The move necessitated delays in production, while our equipment was in transit, which in turn interfered with our sales effort, as our customers delayed orders until we could demonstrate that our facilities were up and running. Today, however, our new facility is fully operational, and we expect the traditional growth of our printing business to be renewed.
Over the longer term, the continued revenue growth in our printing services business will require further capital investment. As China’s banking industry rapidly modernizes, our customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S. Our ability to meet that demand will determine the long term growth of our business. Immediately, the development of these new products will require substantial capital investment. For that purpose, we secured a $2.9 million collateralized loan during the third quarter of 2009, and applied $748,379 to improvements in our plant and equipment during the second half of the year. The growth in first quarter printing revenue indicates a first step toward realizing the benefit of that investment. In addition, our backlog of firm orders at March 31, 2010 for 2010 delivery was approximately double the backlog level at March 31, 2009, indicating that we should be able to sustain growth for the remainder of the current year.
The 37.3% gross margin realized by our subsidiary, Harbin Golden Sea, on sales in the first three months of 2010 was only slightly better than the 36.5% gross margin realized in first three months of 2009. The gross margin was adversely affected by the decline of our equipment business, which operated at a loss during the first quarter of 2010. However, margins from our printing business also remained lower than optimal. Our business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business.
We operated substantially more efficiently during the first quarter of 2010 that during the prior year’s quarter. Total expenses during the first quarter of 2010 were $220,280, a 46% decline from the $407,181 in operating expenses that we incurred during the first quarter of 2009. The decline was attributable to our continuing efforts to achieve efficiencies in our operations, leading to a decrease of $50,277 in our selling and distribution expenses and $136,624 in our general and administrative expenses for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. When demand for our products returns to prior levels, we will endeavor to maintain the efficiencies that we implemented during the current slow period.
Our increased efficiency was sufficient to offset the reduction in our revenues from the first quarter of 2009 to the first quarter of 2010. Income from operations, therefore, increased by 26%, from $468,772 to $590,808. During the third quarter of 2009, however, we obtained a one-year bank loan in the amount of $2.9 million, secured by a portion of our real property. This caused us to incur $39,206 in finance costs in the first quarter of 2010, compared to only $198 in the first quarter of 2009. We will continue to incur finance costs related to the loan until it matures in the third quarter of 2010, and thereafter if we decide to refinance the loan.
Our income before income taxes and noncontrolling interests for the first quarter of 2010, therefore, was $554,096, compared to $478,144 in the first quarter of 2009. Commencing in 2008, we became subject to preferential Chinese income tax rates of 9% for 2008, 10% for 2009 and 11% for 2010, respectively. As a result of this government allowance, we were taxed at a 10% rate in the first quarter of 2009, causing an expense of $64,674, and at an 11% rate in the first quarter of 2010, cause an expense of $64,245. In 2011 our income will be taxed at the national rate of 25%.
The operations of our subsidiary, Harbin Golden Sea, produced $498,880 in income during the first quarter of 2010. However, because we own only 90% of Harbin Golden Sea, we deducted a “noncontrolling interest” of $49,888 before recognizing net income on our Consolidated Statements of Income and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income for the first quarter of 2010 was $439,963, representing $.023 per share, a 20% increase from the net income we achieved in the first quarter of 2009.
Liquidity and Capital Resources
Since our subsidiary, Harbin Golden Sea, was organized in 1998, the growth of its operations has been funded by contributions to capital by our Chairman, Mrs. Tian. With the $2.4 million that she invested, Harbin Golden Sea built its facilities and funded its operations, resulting in profitable operations for the past several years. As a result, at March 31, 2010, we had working capital totaling $8,561,560 (an increase of $547,027 since the end of 2009) and no long-term liabilities.
However, Harbin Golden Sea’s business plan calls for significant investment in the growth of Harbin Golden Sea during the next twelve months. We are purchasing new equipment for our new production facility. We also plan to invest in the development of additional product lines. To accomplish those goals, during the third quarter of 2009, we obtained a $2.9 million bank loan collateralized by our real property. The loan bears interest at 5.31% per annum and is due in the third quarter of 2010. We are utilizing the borrowed funds to implement the capital improvements necessary for our growth. Because the loan amount is substantially less than the value of our real property and because we are operating profitably, we expect to be able to refinance the loan when it matures.
Until our sales return to pre-recession levels, a rapid expansion of our facilities would only increase depreciation expense and operational inefficiency. For that reason, the largest portion of our working capital is now invested in developing strategic relationships that will, we hope, benefit us in the future. Within the Chinese business community, the extension of interest-free loans is a normal method of securing good relations and future opportunities. For that reason, as of March 31, 2010, we have extended a total of $5,264,672 in short-term, interest-free loans to parties that have no other affiliation with Harbin Golden Sea or its management. The largest loan, $4,767,750, has been made to Heilongjiang Jindi Real Estate Development Co., Ltd., in anticipation of future benefits to our real estate assets. We also had relatively small loans outstanding to a trading company and a company in the pharmaceutical industry. All of the loans are due within six months after we fund the loan.
Our operations during the first quarter of 2010 used $167,698 in net cash. The disparity between our net income and net cash from operations was primarily attributable to the fact that during the quarter we increased our inventories by $347,942 in anticipation of near-term growth, and also increased our outstanding trade receivables by $698,553. The increase in our trade receivables was primarily a reflection of the timing of sales, and did not reflect any adjustment in our credit policies. We anticipate, therefore, that our trade receivables will increase or decrease in future periods in proportion to the increases or decreases in our sale revenue.
With the proceeds of our bank loan, we held $2.0 million in cash and equivalents at March 31, 2010. We will have no debt payment obligations until the bank line comes due in the third quarter. And, in accordance with customary banking practice in China, we expect that the bank loan will be extended when it reaches maturity, provided that our financial results are satisfactory to the bank. For that reason, we expect our liquidity will be sufficient in the next year to fund our ongoing operations as well as our near-term growth.
POSITION: LONG (ENTRY $ 0.34)
Results of Operations
The recent global recession reduced demand for capital goods in China. Since late 2008, this situation has had a negative impact on both of our business segments. In the first quarter of 2010, which ended on March 31, 2010, the effect of the recession was most dramatic in our equipment distribution business, where revenues declined by 73% to $147,168 during the first quarter of 2010 from $536,904 during the first quarter of 2009 (which was, in turn, 45% lower than in the first quarter of 2008). The decline in equipment distribution reflected delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that we had experienced in 2008, and reduced this business segment to a 7% contribution to our overall revenue during the first quarter of 2010, a level below even the 13% level we experienced in 2007 and 2006. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China. I would say DISINVEST.
Revenue from our printing business, on the other hand, was modestly higher, increasing by 9% to $2,027,210 during the first quarter of 2010, compared to $1,860,077 during the first quarter of 2009. The printing segment of our business had declined in 2008 and 2009, in part due to the weakening of the Chinese banking industry, as many of our customers were conserving cash pending stabilization of the international credit markets. The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008. The move necessitated delays in production, while our equipment was in transit, which in turn interfered with our sales effort, as our customers delayed orders until we could demonstrate that our facilities were up and running. Today, however, our new facility is fully operational, and we expect the traditional growth of our printing business to be renewed.
Over the longer term, the continued revenue growth in our printing services business will require further capital investment. As China’s banking industry rapidly modernizes, our customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S. Our ability to meet that demand will determine the long term growth of our business. Immediately, the development of these new products will require substantial capital investment. For that purpose, we secured a $2.9 million collateralized loan during the third quarter of 2009, and applied $748,379 to improvements in our plant and equipment during the second half of the year. The growth in first quarter printing revenue indicates a first step toward realizing the benefit of that investment. In addition, our backlog of firm orders at March 31, 2010 for 2010 delivery was approximately double the backlog level at March 31, 2009, indicating that we should be able to sustain growth for the remainder of the current year.
The 37.3% gross margin realized by our subsidiary, Harbin Golden Sea, on sales in the first three months of 2010 was only slightly better than the 36.5% gross margin realized in first three months of 2009. The gross margin was adversely affected by the decline of our equipment business, which operated at a loss during the first quarter of 2010. However, margins from our printing business also remained lower than optimal. Our business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business.
We operated substantially more efficiently during the first quarter of 2010 that during the prior year’s quarter. Total expenses during the first quarter of 2010 were $220,280, a 46% decline from the $407,181 in operating expenses that we incurred during the first quarter of 2009. The decline was attributable to our continuing efforts to achieve efficiencies in our operations, leading to a decrease of $50,277 in our selling and distribution expenses and $136,624 in our general and administrative expenses for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. When demand for our products returns to prior levels, we will endeavor to maintain the efficiencies that we implemented during the current slow period.
Our increased efficiency was sufficient to offset the reduction in our revenues from the first quarter of 2009 to the first quarter of 2010. Income from operations, therefore, increased by 26%, from $468,772 to $590,808. During the third quarter of 2009, however, we obtained a one-year bank loan in the amount of $2.9 million, secured by a portion of our real property. This caused us to incur $39,206 in finance costs in the first quarter of 2010, compared to only $198 in the first quarter of 2009. We will continue to incur finance costs related to the loan until it matures in the third quarter of 2010, and thereafter if we decide to refinance the loan.
Our income before income taxes and noncontrolling interests for the first quarter of 2010, therefore, was $554,096, compared to $478,144 in the first quarter of 2009. Commencing in 2008, we became subject to preferential Chinese income tax rates of 9% for 2008, 10% for 2009 and 11% for 2010, respectively. As a result of this government allowance, we were taxed at a 10% rate in the first quarter of 2009, causing an expense of $64,674, and at an 11% rate in the first quarter of 2010, cause an expense of $64,245. In 2011 our income will be taxed at the national rate of 25%.
The operations of our subsidiary, Harbin Golden Sea, produced $498,880 in income during the first quarter of 2010. However, because we own only 90% of Harbin Golden Sea, we deducted a “noncontrolling interest” of $49,888 before recognizing net income on our Consolidated Statements of Income and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income for the first quarter of 2010 was $439,963, representing $.023 per share, a 20% increase from the net income we achieved in the first quarter of 2009.
Liquidity and Capital Resources
Since our subsidiary, Harbin Golden Sea, was organized in 1998, the growth of its operations has been funded by contributions to capital by our Chairman, Mrs. Tian. With the $2.4 million that she invested, Harbin Golden Sea built its facilities and funded its operations, resulting in profitable operations for the past several years. As a result, at March 31, 2010, we had working capital totaling $8,561,560 (an increase of $547,027 since the end of 2009) and no long-term liabilities.
However, Harbin Golden Sea’s business plan calls for significant investment in the growth of Harbin Golden Sea during the next twelve months. We are purchasing new equipment for our new production facility. We also plan to invest in the development of additional product lines. To accomplish those goals, during the third quarter of 2009, we obtained a $2.9 million bank loan collateralized by our real property. The loan bears interest at 5.31% per annum and is due in the third quarter of 2010. We are utilizing the borrowed funds to implement the capital improvements necessary for our growth. Because the loan amount is substantially less than the value of our real property and because we are operating profitably, we expect to be able to refinance the loan when it matures.
Until our sales return to pre-recession levels, a rapid expansion of our facilities would only increase depreciation expense and operational inefficiency. For that reason, the largest portion of our working capital is now invested in developing strategic relationships that will, we hope, benefit us in the future. Within the Chinese business community, the extension of interest-free loans is a normal method of securing good relations and future opportunities. For that reason, as of March 31, 2010, we have extended a total of $5,264,672 in short-term, interest-free loans to parties that have no other affiliation with Harbin Golden Sea or its management. The largest loan, $4,767,750, has been made to Heilongjiang Jindi Real Estate Development Co., Ltd., in anticipation of future benefits to our real estate assets. We also had relatively small loans outstanding to a trading company and a company in the pharmaceutical industry. All of the loans are due within six months after we fund the loan.
Our operations during the first quarter of 2010 used $167,698 in net cash. The disparity between our net income and net cash from operations was primarily attributable to the fact that during the quarter we increased our inventories by $347,942 in anticipation of near-term growth, and also increased our outstanding trade receivables by $698,553. The increase in our trade receivables was primarily a reflection of the timing of sales, and did not reflect any adjustment in our credit policies. We anticipate, therefore, that our trade receivables will increase or decrease in future periods in proportion to the increases or decreases in our sale revenue.
With the proceeds of our bank loan, we held $2.0 million in cash and equivalents at March 31, 2010. We will have no debt payment obligations until the bank line comes due in the third quarter. And, in accordance with customary banking practice in China, we expect that the bank loan will be extended when it reaches maturity, provided that our financial results are satisfactory to the bank. For that reason, we expect our liquidity will be sufficient in the next year to fund our ongoing operations as well as our near-term growth.
POSITION: LONG (ENTRY $ 0.34)
Rodobo (RDBO) on target
They just filed.
Net Sales:
Net sales for the six months ended March 31, 2010 were $25.4 million, an increase of approximately $10.2 million or 67.5%, compared to net sales for the six months ended March 31, 2009. This increase was primarily driven by volume growth, with the average selling price remaining relatively flat over both periods. We continued our efforts to develop distribution networks and expand the market areas in the seven provinces in which we currently sell products through our sales and administrative office in Beijing. The increase was also attributed to the newly launched Peer product series, which generated $8.7 million of sales for the six months ended March 31, 2010. The Beixue Group, contributed $5.5 million in sales for the six months ended March 31, 2010.
Gross Profit:
Our gross profit increased approximately $4.5 million for the six months ended March 31, 2010, an increase of 66.7% compared to the gross profit for the six months ended March 31, 2009. The overall gross profit margin remained almost flat at 44.5% for the six months ended March 31, 2010 compared to 44.7% for the six months ended March 31, 2009.
Our overall gross profit margin was diluted due to the recent acquisition of lower-margin business. The Beixue Group has a gross profit margin of 8.4% for the six months ended March 31, 2010. Excluding the margin dilution impact of the acquisition, the gross profit margin actually improved from 44.7% for the six months ended March 31, 2009 to 54.4% for the six months ended March 31, 2010, primarily driven by the Peer product line, which has a gross profit margin of 68.7% and accounted for approximately 43.6% of total sales (excluding sales from the Beixue Group) in the six months ended March 31, 2010.
Net Income:
We achieved $6.1 million of net income for the six months ended March 31, 2010, an increase of $3.0 million (approximately 99.2%) compared with $3.1 million for the six months ended March 31, 2009. This increase in net income was mainly attributable to the increase in net sales, partially offset by an increase in cost of goods sold and operating expenses. This increase in net income was also attributable to a $1.7 million of gain on bargain purchase in connection with the acquisitions of the Beixue Group. There was $0.3 million of non-recurring subsidy income from the government in the six months ended March 31, 2010 compared with $0.4 million of subsidy income in the six months ended March 31, 2009.
Outlook
Over the next twelve months, we intend to pursue our primary objective of increasing market share in the China dairy industry. We are also evaluating acquisition and consolidation opportunities in China’s fragmented dairy industry. We believe that we have sufficient funds to operate our existing business for the next twelve months. We usually finance our operations from funds generated by operating activities. However, in addition to funds available from operations, we may need external sources of capital for our expansion. There can be no assurance that we will be able to obtain such additional financing at acceptable terms to us, or at all.
Harbin Rodobo is entitled to a tax holiday of five years for full Enterprise Income Tax exemption in China. The preferential tax treatment commenced in 2005 and will expire on December 31, 2010. Qinggang Mega is qualified for tax exemptions due to a PRC tax preferential policy for the agricultural industry. Hulunbeier Hailaer Beixue was entitled to a tax holiday of three years for full Enterprise Income Tax exemption in China. The preferential tax treatment for Hulunbeier Hailaer Beixue expired on December 31, 2009 but has been extended for another three years. The estimated tax savings for the three months ended March 31, 2010 and 2009 amounted to $1.0 million and $0.3 million, respectively. The net effect on basic earnings per share had the income tax been applied would decrease earnings per share from $0.18 to $0.14 for the three months ended March 31, 2010, and from $0.83 to $0.63 for the three months ended March 31, 2009.
Earnings per share for the first 6 months were $ 0.31, three months ending March 31 was $ 0.17. They are still on target to deliver an EPS between $ 0.70 - $ 0.80. The distribution of their high margin products has to be top priority to meet my target.
POSITION: LONG (ENTRY: $ 2.40)
Net Sales:
Net sales for the six months ended March 31, 2010 were $25.4 million, an increase of approximately $10.2 million or 67.5%, compared to net sales for the six months ended March 31, 2009. This increase was primarily driven by volume growth, with the average selling price remaining relatively flat over both periods. We continued our efforts to develop distribution networks and expand the market areas in the seven provinces in which we currently sell products through our sales and administrative office in Beijing. The increase was also attributed to the newly launched Peer product series, which generated $8.7 million of sales for the six months ended March 31, 2010. The Beixue Group, contributed $5.5 million in sales for the six months ended March 31, 2010.
Gross Profit:
Our gross profit increased approximately $4.5 million for the six months ended March 31, 2010, an increase of 66.7% compared to the gross profit for the six months ended March 31, 2009. The overall gross profit margin remained almost flat at 44.5% for the six months ended March 31, 2010 compared to 44.7% for the six months ended March 31, 2009.
Our overall gross profit margin was diluted due to the recent acquisition of lower-margin business. The Beixue Group has a gross profit margin of 8.4% for the six months ended March 31, 2010. Excluding the margin dilution impact of the acquisition, the gross profit margin actually improved from 44.7% for the six months ended March 31, 2009 to 54.4% for the six months ended March 31, 2010, primarily driven by the Peer product line, which has a gross profit margin of 68.7% and accounted for approximately 43.6% of total sales (excluding sales from the Beixue Group) in the six months ended March 31, 2010.
Net Income:
We achieved $6.1 million of net income for the six months ended March 31, 2010, an increase of $3.0 million (approximately 99.2%) compared with $3.1 million for the six months ended March 31, 2009. This increase in net income was mainly attributable to the increase in net sales, partially offset by an increase in cost of goods sold and operating expenses. This increase in net income was also attributable to a $1.7 million of gain on bargain purchase in connection with the acquisitions of the Beixue Group. There was $0.3 million of non-recurring subsidy income from the government in the six months ended March 31, 2010 compared with $0.4 million of subsidy income in the six months ended March 31, 2009.
Outlook
Over the next twelve months, we intend to pursue our primary objective of increasing market share in the China dairy industry. We are also evaluating acquisition and consolidation opportunities in China’s fragmented dairy industry. We believe that we have sufficient funds to operate our existing business for the next twelve months. We usually finance our operations from funds generated by operating activities. However, in addition to funds available from operations, we may need external sources of capital for our expansion. There can be no assurance that we will be able to obtain such additional financing at acceptable terms to us, or at all.
Harbin Rodobo is entitled to a tax holiday of five years for full Enterprise Income Tax exemption in China. The preferential tax treatment commenced in 2005 and will expire on December 31, 2010. Qinggang Mega is qualified for tax exemptions due to a PRC tax preferential policy for the agricultural industry. Hulunbeier Hailaer Beixue was entitled to a tax holiday of three years for full Enterprise Income Tax exemption in China. The preferential tax treatment for Hulunbeier Hailaer Beixue expired on December 31, 2009 but has been extended for another three years. The estimated tax savings for the three months ended March 31, 2010 and 2009 amounted to $1.0 million and $0.3 million, respectively. The net effect on basic earnings per share had the income tax been applied would decrease earnings per share from $0.18 to $0.14 for the three months ended March 31, 2010, and from $0.83 to $0.63 for the three months ended March 31, 2009.
Earnings per share for the first 6 months were $ 0.31, three months ending March 31 was $ 0.17. They are still on target to deliver an EPS between $ 0.70 - $ 0.80. The distribution of their high margin products has to be top priority to meet my target.
POSITION: LONG (ENTRY: $ 2.40)
Saturday, May 15, 2010
The Life of a Chinese Contrarian Value Player
It is important to realize that investing using contrarian value strategies is a long-term game. One roll of the dice or a single hand at blackjack is meaningless to the casino owner. He knows there will be hot streaks that will cost him a night's, a week's, or sometimes even a month's revenues. He may grumble when he loses, but he doesn't shut down the casino. He knows he will get it back.
As an investor, you should follow the same principles. You won't win every hand. You will have periodes of spectaculair returns and others you might diplomatically describe as lousy. But it is important to remember that contrarian value strategies, like the odds for the casino owner, put you in the catbird seat. Professional investors, along with everyday folks like me, normally forget this important principle and demand superior returns from every hand.
Even though a strategy works most of the time and generates, excellent returns, no strategy works consistently. The fast-track, aggressive growth stocks will, on occasion, knock the stuffing out of low-P/E or other contrarian methods for several years at a clip-sometimes longer. But over time, it's simply no contest. Still, human nature being what it is, our expectations are almost always too high.
Even when we look at the record of these superb returns (which encompass both bull and bear markets over decades), we are still disappointed that a contrarian value strategy doesn't win each and every year. The probability is zero that any investment strategy would, just as it is that you will win a hundred straight hands at blackjack.
It is widely known that contrarian value strategies have an excellent record of doing better in bear markets. So if we are still in a bear market or we are going to be in one, your Chinese(OTC)stocks with a low P/E could be a nice hedge and outpace the market handily for years to come.
Source:
As an investor, you should follow the same principles. You won't win every hand. You will have periodes of spectaculair returns and others you might diplomatically describe as lousy. But it is important to remember that contrarian value strategies, like the odds for the casino owner, put you in the catbird seat. Professional investors, along with everyday folks like me, normally forget this important principle and demand superior returns from every hand.
Even though a strategy works most of the time and generates, excellent returns, no strategy works consistently. The fast-track, aggressive growth stocks will, on occasion, knock the stuffing out of low-P/E or other contrarian methods for several years at a clip-sometimes longer. But over time, it's simply no contest. Still, human nature being what it is, our expectations are almost always too high.
Even when we look at the record of these superb returns (which encompass both bull and bear markets over decades), we are still disappointed that a contrarian value strategy doesn't win each and every year. The probability is zero that any investment strategy would, just as it is that you will win a hundred straight hands at blackjack.
It is widely known that contrarian value strategies have an excellent record of doing better in bear markets. So if we are still in a bear market or we are going to be in one, your Chinese(OTC)stocks with a low P/E could be a nice hedge and outpace the market handily for years to come.
Source:
Friday, May 14, 2010
Lotus (LTUS) results promosing for the future
Some highlights of their 10-Q filing today:
Total net revenues for the three months ended March 31, 2010 were $14,948,912 as compared to total net revenues of $11,824,287 for the three months ended March 31, 2009, an increase of $3,124,625 or approximately 26.4%.
For the three months ended March 31, 2010, wholesale revenues increased $2,557,681 or approximately 28.6%. In the first quarter of fiscal 2010, we added five new prescription drugs to our products delivered through our national wholesale channels. The five new prescription drugs covered by the National Health Insurance Program have proven their market acceptance. One of the five new prescription drugs is Omeprazole Enteric-coated Capsule which is for the treatment of duodenal ulcer. The other four drugs are traditional Chinese medicine in capsules, tablets and ointment for the treatment of chronic prostate infection, psoriasis, influenza and meridian pain, respectively. As a result, our wholesale revenues for the three months ended March 31, 2010 increased. We anticipate that our wholesale revenues will continue to increase in the rest of 2010 since the newly added five prescription drugs are expected to increase our market share.
For the three months ended March 31, 2010, retail revenues increased by $1,115,204 or 52.2%. At the end of fiscal 2009, we appointed a general manager for our Over-the-Counter Drug Division that manages our own ten drug stores' sales, and the newly created direct sales to other Over-the-Counter drug stores in Beijing. The general manager has strong management skills in medical sales and marketing and logistics and is an expert in delivery of services to drug stores in Beijing. As of the end of last fiscal year, our Over-the-Counter Drug Division successfully entered into supply contracts with more than five hundred drug stores in Beijing. All contracts have a term from one to two years and are renewable upon mutual agreement. In the first quarter of fiscal 2010, we served more than 700 other Over-the-Counter drug stores in Beijing. Due to the growth and success of our OTC Drug Division's sales force, our retail revenues for the first quarter of fiscal 2010 substantially increased. We expect our retail revenue from our own ten drug stores will remain in its current level with small growth and our retail revenue from our direct sales to other drug stores in Beijing will continue to increase in the rest of 2010.
For the three months ended March 31, 2010, other revenues decreased by $548,260 or approximately 73.4%. This is not important because it is only a fraction of their revenues.
Gross profit for the three months ended March 31, 2010 was $8,705,283 or 58.2% of total revenues, as compared to $6,638,129 or 56.1% of total revenues for the three months ended March 31, 2009. The slight increase in gross profit margin was attributable to the decrease in cost of sales as a percentage of revenue. The decrease in cost of sales as a percentage of revenue was primarily contributed to better managed raw materials and third party manufactured finished goods purchase as well as more efficient control in labor fees. We expect that our gross profit margin will remain in its current level with slight growth in the future.
Lotus reported net income of $4,928,918 for the three months ended March 31, 2010 as compared to net income of $3,568,102 for the three months ended March 31, 2009. This translated to basic earnings per common share of $0.10 and $0.08, and diluted earnings per common share of $0.09 and $0.07, for the three months ended March 31, 2010 and 2009, respectively.
At March 31, 2010 and December 31, 2009, we had a cash balance of $1,125,181 and $3,945,740, respectively. These funds are distributed in financial institutions located in China.
Our working capital position increased $3,014,169 from $(4,952,734) at December 31, 2009 to $(1,938,565) at March 31, 2010. This increase in working capital is primarily attributed to an increase in inventories of approximately $2.26 million, an increase in prepaid expenses and other assets (current portion) of approximately $0.24 million, a decrease in accounts payable and accrued expenses of approximately $0.13 million, a decrease in other payables of approximately $0.84 million, a decrease in taxes payable of approximately $0.65 million, a decrease in unearned revenue of approximately $0.37 million, a decrease in Series A convertible redeemable preferred stock of approximately $1.69 million offset by a decrease in cash of approximately $2.82 million, a decrease in accounts receivable of approximately $0.11 million and an increase in due to related parties (current portion) of approximately $0.18 million.
At March 31, 2010, we had Series A Convertible Redeemable Preferred Stock of $2,477,433 as compared to $4,170,572 at December 31, 2009, a decrease of $1,693,139. The decrease was primarily attributable to the conversion of the Series A Convertible Redeemable Preferred Stock of $2,166,000 offset by the amortization of discount on convertible redeemable preferred stock of $151,553 and the issued additional convertible redeemable preferred stock of $321,308 as dividends in the first quarter of fiscal 2010.
Our balance sheet as of March 31, 2010 also reflects notes payable to related parties of $5,069,839 due on December 30, 2015 which was a series of working capital loans made to us since December 31, 2005 by the Company’s Chief Executive Officer, his wife, two employees of the Company and a Board member. These loans bear interest based on a floating annual interest rate, which is 80% of China bank interest rate and are unsecured. During the three months ended March 31, 2010, we did not repay any portion of the principal of these loan balances.
The changes in asset and liabilities discussed above is based on a comparison of amounts on our balance sheets as of March 31, 2010 and December 31, 2009 and does not necessarily reflect changes in assets and liabilities reflected on our cash flow statement, for which we use the average foreign exchange rate during the period to calculate these changes.
We believe that our working capital is sufficient to fund our current operations for the next 12 months. Lotus East has historically funded its capital expenditures from its working capital. Lotus East has contractual commitments for approximately $53.9 million related to a Technology Transfer Agreement and the construction of the new manufacturing facility in Inner Mongolia and a New Drug Patent Transfer Agreement. While it intends to fund the costs with its existing working capital associated with the Technology Transfer Agreement and the New Drug Patent Transfer Agreement and a portion of the construction of the new manufacturing facility, it is dependent upon the continued growth of its operations and prompt payment of outstanding accounts receivables by its customers to ensure that it has sufficient cash for these commitments. In addition, its ability to fully fund the costs associated with the new manufacturing facility is materially dependent upon its ability to obtain secured bank financing and/or government grants and/or third party finance.
A lot of reading but I still think an EPS of $ 0.45 this year is possible. The stock is trading below book value of $ 1.44.
Total net revenues for the three months ended March 31, 2010 were $14,948,912 as compared to total net revenues of $11,824,287 for the three months ended March 31, 2009, an increase of $3,124,625 or approximately 26.4%.
For the three months ended March 31, 2010, wholesale revenues increased $2,557,681 or approximately 28.6%. In the first quarter of fiscal 2010, we added five new prescription drugs to our products delivered through our national wholesale channels. The five new prescription drugs covered by the National Health Insurance Program have proven their market acceptance. One of the five new prescription drugs is Omeprazole Enteric-coated Capsule which is for the treatment of duodenal ulcer. The other four drugs are traditional Chinese medicine in capsules, tablets and ointment for the treatment of chronic prostate infection, psoriasis, influenza and meridian pain, respectively. As a result, our wholesale revenues for the three months ended March 31, 2010 increased. We anticipate that our wholesale revenues will continue to increase in the rest of 2010 since the newly added five prescription drugs are expected to increase our market share.
For the three months ended March 31, 2010, retail revenues increased by $1,115,204 or 52.2%. At the end of fiscal 2009, we appointed a general manager for our Over-the-Counter Drug Division that manages our own ten drug stores' sales, and the newly created direct sales to other Over-the-Counter drug stores in Beijing. The general manager has strong management skills in medical sales and marketing and logistics and is an expert in delivery of services to drug stores in Beijing. As of the end of last fiscal year, our Over-the-Counter Drug Division successfully entered into supply contracts with more than five hundred drug stores in Beijing. All contracts have a term from one to two years and are renewable upon mutual agreement. In the first quarter of fiscal 2010, we served more than 700 other Over-the-Counter drug stores in Beijing. Due to the growth and success of our OTC Drug Division's sales force, our retail revenues for the first quarter of fiscal 2010 substantially increased. We expect our retail revenue from our own ten drug stores will remain in its current level with small growth and our retail revenue from our direct sales to other drug stores in Beijing will continue to increase in the rest of 2010.
For the three months ended March 31, 2010, other revenues decreased by $548,260 or approximately 73.4%. This is not important because it is only a fraction of their revenues.
Gross profit for the three months ended March 31, 2010 was $8,705,283 or 58.2% of total revenues, as compared to $6,638,129 or 56.1% of total revenues for the three months ended March 31, 2009. The slight increase in gross profit margin was attributable to the decrease in cost of sales as a percentage of revenue. The decrease in cost of sales as a percentage of revenue was primarily contributed to better managed raw materials and third party manufactured finished goods purchase as well as more efficient control in labor fees. We expect that our gross profit margin will remain in its current level with slight growth in the future.
Lotus reported net income of $4,928,918 for the three months ended March 31, 2010 as compared to net income of $3,568,102 for the three months ended March 31, 2009. This translated to basic earnings per common share of $0.10 and $0.08, and diluted earnings per common share of $0.09 and $0.07, for the three months ended March 31, 2010 and 2009, respectively.
At March 31, 2010 and December 31, 2009, we had a cash balance of $1,125,181 and $3,945,740, respectively. These funds are distributed in financial institutions located in China.
Our working capital position increased $3,014,169 from $(4,952,734) at December 31, 2009 to $(1,938,565) at March 31, 2010. This increase in working capital is primarily attributed to an increase in inventories of approximately $2.26 million, an increase in prepaid expenses and other assets (current portion) of approximately $0.24 million, a decrease in accounts payable and accrued expenses of approximately $0.13 million, a decrease in other payables of approximately $0.84 million, a decrease in taxes payable of approximately $0.65 million, a decrease in unearned revenue of approximately $0.37 million, a decrease in Series A convertible redeemable preferred stock of approximately $1.69 million offset by a decrease in cash of approximately $2.82 million, a decrease in accounts receivable of approximately $0.11 million and an increase in due to related parties (current portion) of approximately $0.18 million.
At March 31, 2010, we had Series A Convertible Redeemable Preferred Stock of $2,477,433 as compared to $4,170,572 at December 31, 2009, a decrease of $1,693,139. The decrease was primarily attributable to the conversion of the Series A Convertible Redeemable Preferred Stock of $2,166,000 offset by the amortization of discount on convertible redeemable preferred stock of $151,553 and the issued additional convertible redeemable preferred stock of $321,308 as dividends in the first quarter of fiscal 2010.
Our balance sheet as of March 31, 2010 also reflects notes payable to related parties of $5,069,839 due on December 30, 2015 which was a series of working capital loans made to us since December 31, 2005 by the Company’s Chief Executive Officer, his wife, two employees of the Company and a Board member. These loans bear interest based on a floating annual interest rate, which is 80% of China bank interest rate and are unsecured. During the three months ended March 31, 2010, we did not repay any portion of the principal of these loan balances.
The changes in asset and liabilities discussed above is based on a comparison of amounts on our balance sheets as of March 31, 2010 and December 31, 2009 and does not necessarily reflect changes in assets and liabilities reflected on our cash flow statement, for which we use the average foreign exchange rate during the period to calculate these changes.
We believe that our working capital is sufficient to fund our current operations for the next 12 months. Lotus East has historically funded its capital expenditures from its working capital. Lotus East has contractual commitments for approximately $53.9 million related to a Technology Transfer Agreement and the construction of the new manufacturing facility in Inner Mongolia and a New Drug Patent Transfer Agreement. While it intends to fund the costs with its existing working capital associated with the Technology Transfer Agreement and the New Drug Patent Transfer Agreement and a portion of the construction of the new manufacturing facility, it is dependent upon the continued growth of its operations and prompt payment of outstanding accounts receivables by its customers to ensure that it has sufficient cash for these commitments. In addition, its ability to fully fund the costs associated with the new manufacturing facility is materially dependent upon its ability to obtain secured bank financing and/or government grants and/or third party finance.
A lot of reading but I still think an EPS of $ 0.45 this year is possible. The stock is trading below book value of $ 1.44.
China Organic Agriculture Announces Year-End 2009 Financial Results
CALISTOGA, Calif. & DALIAN, China--(BUSINESS WIRE)--China Organic Agriculture, Inc. (OTCBB: CNOA - News), a company headquartered in Liaoning Province in China engaged in the trading and distribution of agricultural products, announced today its financial results for the year ended December 31, 2009.
Revenue of $143.9 million represents a 27.7% increase from $112.7 million in 2008. The company’s Dalian Huiming subsidiary, acquired in October 2008, contributed significantly to the revenue and operating results.
Gross profit was $37.1 million, compared to $25.4 million in 2008.
Revenue for 2009 was $143.9 million, representing a 27.7% increase over the $112.7 million of revenue recorded in 2008. This increase reflects the Company’s shift in focus, accomplished through the purchase of 60% of Dalian Huiming, to trading “green and healthy” grains in China. The rice included in these categories is priced two to three times higher than regular grains, which explains the increase in revenues at a greater rate than our increase in volume.
Gross profit for 2009 was $37.1 million, an increase of 46.1% compared to $25.4 million in 2008, reflecting both the increase in sales and higher prices. Gross profit margin increased to 25.8% in 2009 compared to 22.5% in 2008.
The company recorded a bad debt provision of $1.9 million in 2009 due to the company’s conclusion that recovery of a portion of the outstanding receivables from some customers may be difficult. In addition, the company recorded an impairment of $1.5 million pertaining to the Bellisimo Vineyard in 2009, reflective of the reduced real estate valuations in Sonoma County, California.
As the company owns 60% of its Dalian Huiming subsidiary, 40% of total net income from Dalian Huiming was recorded as income attributed to noncontrolling interest. Noncontrolling interest increased from $1.3 million for 2008 to $10.3 million in 2009, reflecting Dalian Huiming’s acquisition in the latter part of 2008.
Net income attributable to CNOA shareholders was $10.9 million for 2009 representing a 38% decrease compared to net income in 2008 of $15.7 million, excluding $1.9 million of income in 2008 pertaining to discontinued operations. The decrease in net income attributable to CNOA reflects $2.9 million of after-tax-costs pertaining to the bad debt provision and the impairment reserve.
Earnings per share decreased to $0.15 per diluted share compared to $0.27 per diluted share from continuing operations for 2008. China Organic Agriculture Inc.’s Form 10-K will be filed shortly.
“We are pleased to deliver these audited results for the 2009 fiscal year,” said Jinsong Li, Chief Executive Officer. “We appreciate your patience during the extension period. I would like to take this opportunity to thank our valued shareholders for their continued support.” Mr. Li continued, “I am happy with the recent acquisition of 60% of the stock of Changbai Eco-Beverage, a blueberry product producer, as announced in March. We believe that this acquisition will provide the Company with significant opportunities as the demand for blueberry based products in China increases with the growing interest in healthy food alternatives. Changbai is well positioned to serve this market and to benefit from this growth and we are optimistic about our opportunities and plans for 2010 and onward.”
Selected consolidated figures are presented below. For full figures, please reference China Organic Agriculture, Inc.’s Form 10-K filing, which will be located on the SEC's EDGAR website.
Looking to the results we see that the last quarter only made $ 0.01 but this was mainly because of the bad debt provision and impairment reserve. Cash per share was $ 0.25 and the book value increased from $ 0.77 to $ 0.78. P/E is still low. I hope the 10-K filing will give us some clearance for the future.
POSITION: LONG (ENTRY: $ 0.56)
Revenue of $143.9 million represents a 27.7% increase from $112.7 million in 2008. The company’s Dalian Huiming subsidiary, acquired in October 2008, contributed significantly to the revenue and operating results.
Gross profit was $37.1 million, compared to $25.4 million in 2008.
Revenue for 2009 was $143.9 million, representing a 27.7% increase over the $112.7 million of revenue recorded in 2008. This increase reflects the Company’s shift in focus, accomplished through the purchase of 60% of Dalian Huiming, to trading “green and healthy” grains in China. The rice included in these categories is priced two to three times higher than regular grains, which explains the increase in revenues at a greater rate than our increase in volume.
Gross profit for 2009 was $37.1 million, an increase of 46.1% compared to $25.4 million in 2008, reflecting both the increase in sales and higher prices. Gross profit margin increased to 25.8% in 2009 compared to 22.5% in 2008.
The company recorded a bad debt provision of $1.9 million in 2009 due to the company’s conclusion that recovery of a portion of the outstanding receivables from some customers may be difficult. In addition, the company recorded an impairment of $1.5 million pertaining to the Bellisimo Vineyard in 2009, reflective of the reduced real estate valuations in Sonoma County, California.
As the company owns 60% of its Dalian Huiming subsidiary, 40% of total net income from Dalian Huiming was recorded as income attributed to noncontrolling interest. Noncontrolling interest increased from $1.3 million for 2008 to $10.3 million in 2009, reflecting Dalian Huiming’s acquisition in the latter part of 2008.
Net income attributable to CNOA shareholders was $10.9 million for 2009 representing a 38% decrease compared to net income in 2008 of $15.7 million, excluding $1.9 million of income in 2008 pertaining to discontinued operations. The decrease in net income attributable to CNOA reflects $2.9 million of after-tax-costs pertaining to the bad debt provision and the impairment reserve.
Earnings per share decreased to $0.15 per diluted share compared to $0.27 per diluted share from continuing operations for 2008. China Organic Agriculture Inc.’s Form 10-K will be filed shortly.
“We are pleased to deliver these audited results for the 2009 fiscal year,” said Jinsong Li, Chief Executive Officer. “We appreciate your patience during the extension period. I would like to take this opportunity to thank our valued shareholders for their continued support.” Mr. Li continued, “I am happy with the recent acquisition of 60% of the stock of Changbai Eco-Beverage, a blueberry product producer, as announced in March. We believe that this acquisition will provide the Company with significant opportunities as the demand for blueberry based products in China increases with the growing interest in healthy food alternatives. Changbai is well positioned to serve this market and to benefit from this growth and we are optimistic about our opportunities and plans for 2010 and onward.”
Selected consolidated figures are presented below. For full figures, please reference China Organic Agriculture, Inc.’s Form 10-K filing, which will be located on the SEC's EDGAR website.
Looking to the results we see that the last quarter only made $ 0.01 but this was mainly because of the bad debt provision and impairment reserve. Cash per share was $ 0.25 and the book value increased from $ 0.77 to $ 0.78. P/E is still low. I hope the 10-K filing will give us some clearance for the future.
POSITION: LONG (ENTRY: $ 0.56)
Thursday, May 13, 2010
China Organic Agriculture (CNOAE) pure value
I don't like uncertainty and I don't like delayments in filings. Despite that I think China Organic Agriculture, Inc. (CNOA), a company headquartered in the Liaoning Province in China engaged in the trading and distribution of agricultural products has still my vote.
The company through its subsidiaries, is engaged in the distribution of agricultural products in China, including green rice, organic rice, soybeans, ice wine and other agricultural products. It distributes its products mainly through large agricultural distributors, including Shen Zhen Shen Jin Da Agricultural By-product Trading Co. Ltd., Beijing Jingu Hengfa Trading Co. Ltd., Shanghai Liang You Group Co. Ltd., Jinyunda Industry Development Co. Ltd. and Guang Dong Guangliang Industry Co. Ltd.
In March they completed the acquisition of 60% of the stock of Changbai Eco-Beverage Co. Ltd. ("Changbai") for RMB70 million ($10.25 million). Changbai is mainly engaged in the research, production and sale of various natural products including blueberry drinks, blueberry health care products and bee products to meet the increasingly market demands in China for these goods. As a result of becoming a part of the China Organic Agriculture’s family, Changbai will be able to more quickly expand both its distribution and its product mix in China’s expanding blueberry market. By utilizing the Company’s existing distribution network, Changbai will be able to do this while benefiting its distribution efficiencies and overall profitability.
The Chinese economy’s dramatic rise in the disposable income has increased the demand for "green foods" such as those provided by China Organic Agriculture with a book value of $ 0.77, cash per share of $ 0.27 and EPS first nine months of $ 0.14 I have the patience to wait until the annual report is filed. Buying at prices between $ 0.50 and $ 0.60 can be a profitable move for the nearby future.
POSITION: LONG (ENTRY: $ 0.56)
The company through its subsidiaries, is engaged in the distribution of agricultural products in China, including green rice, organic rice, soybeans, ice wine and other agricultural products. It distributes its products mainly through large agricultural distributors, including Shen Zhen Shen Jin Da Agricultural By-product Trading Co. Ltd., Beijing Jingu Hengfa Trading Co. Ltd., Shanghai Liang You Group Co. Ltd., Jinyunda Industry Development Co. Ltd. and Guang Dong Guangliang Industry Co. Ltd.
In March they completed the acquisition of 60% of the stock of Changbai Eco-Beverage Co. Ltd. ("Changbai") for RMB70 million ($10.25 million). Changbai is mainly engaged in the research, production and sale of various natural products including blueberry drinks, blueberry health care products and bee products to meet the increasingly market demands in China for these goods. As a result of becoming a part of the China Organic Agriculture’s family, Changbai will be able to more quickly expand both its distribution and its product mix in China’s expanding blueberry market. By utilizing the Company’s existing distribution network, Changbai will be able to do this while benefiting its distribution efficiencies and overall profitability.
The Chinese economy’s dramatic rise in the disposable income has increased the demand for "green foods" such as those provided by China Organic Agriculture with a book value of $ 0.77, cash per share of $ 0.27 and EPS first nine months of $ 0.14 I have the patience to wait until the annual report is filed. Buying at prices between $ 0.50 and $ 0.60 can be a profitable move for the nearby future.
POSITION: LONG (ENTRY: $ 0.56)
Tuesday, May 11, 2010
Artificial Life (ALIF) attractive play in the booming Iphone/pad market
Normally I don't write about other opportunities than Chinese ones. But this one I wanted to share because they are also expanding in the Chinese market for mobile games.
Artificial Life, Inc. (OTC BB: ALIF) is a public US corporation headquartered in Los Angeles, with its production center in Hong Kong and additional offices in Berlin (EMEA headquarters) and Tokyo. As a leading provider of broadband 3G content and technology solutions in the world, they develop and sell a wide range of mobile applications for 3G, 3.5G and 4G network-enabled mobile (smart) phones. Currently their main business areas are: high quality 2D and 3D interactive (massive multiplayer) mobile games, mobile participation television (MoPA-TV®, mobile business applications (Mobil Diab® and Mobile Property) and their mobile commerce technology platform OPUS-M™. Recognized internationally for outstanding content quality and technology. The company has received many international awards and has been ranked one of the fastest growing companies in Asia Pacific by Deloitte.
The company has signed major licensing deals with Linkin Park, Robbie Williams, Red Bull Racing F1, BMW Sauber F1, BMW AG, Red Bull Air Race, Starz Media, Paramount, Cartoon Network, STAR TV, VfB Stuttgart, Borussia Dortmund, FC Bayern München, and Klitschko Brothers. They are now selling their products through over 1200 active channels of resellers and carriers around the globe and sold approximately 20 million licenses of mobile games in 2009.
A corporate factsheet you can download:
http://www.artificial-life.com/site/en/investor_relations
The company announced solid growth in revenues and profits for fiscal year 2009. Revenues grew 22% to $27,454,474 and net income was $7,568,719, representing a net profit margin after taxes of 28%.
During the course of 2009, Artificial Life Inc. strengthened its global position as a leading, full-service mobile software provider by offering a wide variety of mobile products, including mobile games, mobile TV, mobile business applications, and mobile productivity tools and technology.
For the year 2009, Artificial Life sold over 12 million licenses for its mobile Java games worldwide. 2009 also saw significant growth in the market for iPhone games and applications, and though a relative newcomer to the iPhone market, the company became one of the leading iPhone publishers. The company had over 10 million game downloads globally and 70% of its games achieved a top-10 ranking, 46% a top-5 ranking, and 33% of the games even reached a #1 ranking on Apple’s download charts in many countries around the globe.
Approximately 51% of Artificial Life’s revenues were derived from mobile games, while approximately 22% were derived from sales of non-game-related mobile products such as Mobil Diab™, a mobile healthcare application for business; 21% from sales of MobileBooster®, a productivity tool that has now become an integrated part of the newly released m-commerce platform, OPUS-M™; and 6% from sales of Mobile Property, a mobile application for the real estate industry.
Net income decreased in 2009 to $7,568,719 as compared to $10,575,285 for the year ended December 31, 2008. The decrease of $3,006,566 was primarily due to stock-based compensation expense of $2,385,500, bad debt expense of $2,636,979, and income tax benefit of $1,060,000 in this year compared to income tax benefit of $106,870 in 2008. The basic and diluted net income per share for the year ended December 31, 2009 was $0.15 compared to the basic and diluted net income per share for the year ended December 31, 2008 of $0.23 and $0.22, respectively.
Eberhard Schoneburg, CEO of Artificial Life, Inc., said:
“2009 was again a very positive year for Artificial Life despite the global financial crisis that has hit many of our clients and affected most of our key competitors negatively. We managed to remain profitable with a solid 28% net profit margin and grew 22% in terms of revenues even though we deferred an additional $4.8 million in revenues and respective potential profits to 2010. We improved our accounts receivables situation by collecting substantial amount of cash in Q4 2009 and Q1 2010, and by utilizing working capital strategies to offset receivables and payables with certain customers and licensors and to acquire licenses while minimizing cash outflow and cash usage. We have benefited from a liquidity perspective and reduced our credit risk and exposure.
On May 10 they revealed their current iPhone title sales, download numbers and key ranking statistics. The company announced that as of April 30th, 2010, it has produced and released 29 games for the iPhone, iPod touch and iPad. So far, the top title was downloaded close to 2.8 million times, the second most over 2.3 million times and the third most over 1.7 million times. The average number of downloads per game was about 0.42 million. Paid iPhone games were sold at between USD 0.99 to USD 4.99 with an average price per game of USD 2.49.
The total number of iPhone game downloads generated as of the end of April 2010 was approximately 4.4 million in total compared to approximately 8 million for the whole year of 2009.The company had already announced earlier this year the release of three new iPhone games on the Apple App Store: Linkin Park 8-Bit Rebellion! -- the first ever massive multiplayer iPhone game featuring the rock band Linkin Park; Red Bull Racing Challenge and Spartacus: Blood and Sand -- the official game for the TV series from Starz Digital Media.
Artificial Life's latest release, the Linkin Park 8-Bit Rebellion! game was particularly successful and has hit the #1 rank for music games for iPhone and iPad in a total of 22 countries, achieved a Top 5 ranking in 38 countries and Top 10 ranking in 47 countries since its release. In the Adventure Game category it reached Top 5 rankings in 16 and Top 10 rankings in 21 countries. The game also achieved a Top 50 overall games ranking in 18 countries and Top Gross 50 record in 15 countries respectively.
Among the produced games, 21 are based on licensed and branded intellectual property from a variety of licensors while 8 games are based on Artificial Life's proprietary IP. The games have been sold in a total of 84 countries worldwide. The distribution of game downloads by regions is: 52% in North America, 32% in Europe and Africa, 11% in Asia Pacific, 3% in Latin America and 2% in the Middle East. The Top 5 countries in terms of number of downloads for our products are: United States, United Kingdom, Canada, France and Germany (with 47%, 10%, 6%, 5% and 5% of downloads respectively).
As of April 30th, 2010, all the new games released have achieved Top 100 or higher download rankings in their categories.
"2010 has started very well for our iPhone and iPad business. We again achieved many #1 rankings for our products all around the globe. This speaks for the quality of our games. And just in the first 4 months of the year we have already generated over 50% of the downloads we generated in the full fiscal year 2009. We will continue to produce high quality games and business apps for the iPhone and iPad throughout the remainder of the year," said Eberhard Schoneburg, CEO of Artificial Life, Inc.We also invested heavily in new products and technologies in 2009 to further strengthen our technological advantage and leading position in the mobile content space for the years to come. We more than doubled our investments in new technologies and products with over $22 million in 2009, as compared to $10 million invested in 2008. Most of these investments were dedicated to our new OPUS-M™ platform, our tele-medicine platform and mobile diabetes application Mobil Diab®, and our new and very powerful augmented reality technology. We expect to see substantial growth and new business in all these areas in the coming months and years.”
Their IR-department works good. I send an email and my questions were answered the next day. They are actively seeking for diversification not only in terms of sales geography but also in terms of products. For mobile games, they try to expand their shares in all markets, including Asia, with the upcoming launch of various iPhone games in Asian languages. At the same time, Artificial Life is moving into areas such as business applications, and has devoted substantial effort since last year on the launch of a new line of products using augmented reality. In my opinion they can achieve an EPS between $ 0.25 and $ 0.30 this year. At a stockprice of $ 1.20 there is enough room for price appreciation.
POSITION: LONG (ENTRY $ 1.20)
Artificial Life, Inc. (OTC BB: ALIF) is a public US corporation headquartered in Los Angeles, with its production center in Hong Kong and additional offices in Berlin (EMEA headquarters) and Tokyo. As a leading provider of broadband 3G content and technology solutions in the world, they develop and sell a wide range of mobile applications for 3G, 3.5G and 4G network-enabled mobile (smart) phones. Currently their main business areas are: high quality 2D and 3D interactive (massive multiplayer) mobile games, mobile participation television (MoPA-TV®, mobile business applications (Mobil Diab® and Mobile Property) and their mobile commerce technology platform OPUS-M™. Recognized internationally for outstanding content quality and technology. The company has received many international awards and has been ranked one of the fastest growing companies in Asia Pacific by Deloitte.
The company has signed major licensing deals with Linkin Park, Robbie Williams, Red Bull Racing F1, BMW Sauber F1, BMW AG, Red Bull Air Race, Starz Media, Paramount, Cartoon Network, STAR TV, VfB Stuttgart, Borussia Dortmund, FC Bayern München, and Klitschko Brothers. They are now selling their products through over 1200 active channels of resellers and carriers around the globe and sold approximately 20 million licenses of mobile games in 2009.
A corporate factsheet you can download:
http://www.artificial-life.com/site/en/investor_relations
The company announced solid growth in revenues and profits for fiscal year 2009. Revenues grew 22% to $27,454,474 and net income was $7,568,719, representing a net profit margin after taxes of 28%.
During the course of 2009, Artificial Life Inc. strengthened its global position as a leading, full-service mobile software provider by offering a wide variety of mobile products, including mobile games, mobile TV, mobile business applications, and mobile productivity tools and technology.
For the year 2009, Artificial Life sold over 12 million licenses for its mobile Java games worldwide. 2009 also saw significant growth in the market for iPhone games and applications, and though a relative newcomer to the iPhone market, the company became one of the leading iPhone publishers. The company had over 10 million game downloads globally and 70% of its games achieved a top-10 ranking, 46% a top-5 ranking, and 33% of the games even reached a #1 ranking on Apple’s download charts in many countries around the globe.
Approximately 51% of Artificial Life’s revenues were derived from mobile games, while approximately 22% were derived from sales of non-game-related mobile products such as Mobil Diab™, a mobile healthcare application for business; 21% from sales of MobileBooster®, a productivity tool that has now become an integrated part of the newly released m-commerce platform, OPUS-M™; and 6% from sales of Mobile Property, a mobile application for the real estate industry.
Net income decreased in 2009 to $7,568,719 as compared to $10,575,285 for the year ended December 31, 2008. The decrease of $3,006,566 was primarily due to stock-based compensation expense of $2,385,500, bad debt expense of $2,636,979, and income tax benefit of $1,060,000 in this year compared to income tax benefit of $106,870 in 2008. The basic and diluted net income per share for the year ended December 31, 2009 was $0.15 compared to the basic and diluted net income per share for the year ended December 31, 2008 of $0.23 and $0.22, respectively.
Eberhard Schoneburg, CEO of Artificial Life, Inc., said:
“2009 was again a very positive year for Artificial Life despite the global financial crisis that has hit many of our clients and affected most of our key competitors negatively. We managed to remain profitable with a solid 28% net profit margin and grew 22% in terms of revenues even though we deferred an additional $4.8 million in revenues and respective potential profits to 2010. We improved our accounts receivables situation by collecting substantial amount of cash in Q4 2009 and Q1 2010, and by utilizing working capital strategies to offset receivables and payables with certain customers and licensors and to acquire licenses while minimizing cash outflow and cash usage. We have benefited from a liquidity perspective and reduced our credit risk and exposure.
On May 10 they revealed their current iPhone title sales, download numbers and key ranking statistics. The company announced that as of April 30th, 2010, it has produced and released 29 games for the iPhone, iPod touch and iPad. So far, the top title was downloaded close to 2.8 million times, the second most over 2.3 million times and the third most over 1.7 million times. The average number of downloads per game was about 0.42 million. Paid iPhone games were sold at between USD 0.99 to USD 4.99 with an average price per game of USD 2.49.
The total number of iPhone game downloads generated as of the end of April 2010 was approximately 4.4 million in total compared to approximately 8 million for the whole year of 2009.The company had already announced earlier this year the release of three new iPhone games on the Apple App Store: Linkin Park 8-Bit Rebellion! -- the first ever massive multiplayer iPhone game featuring the rock band Linkin Park; Red Bull Racing Challenge and Spartacus: Blood and Sand -- the official game for the TV series from Starz Digital Media.
Artificial Life's latest release, the Linkin Park 8-Bit Rebellion! game was particularly successful and has hit the #1 rank for music games for iPhone and iPad in a total of 22 countries, achieved a Top 5 ranking in 38 countries and Top 10 ranking in 47 countries since its release. In the Adventure Game category it reached Top 5 rankings in 16 and Top 10 rankings in 21 countries. The game also achieved a Top 50 overall games ranking in 18 countries and Top Gross 50 record in 15 countries respectively.
Among the produced games, 21 are based on licensed and branded intellectual property from a variety of licensors while 8 games are based on Artificial Life's proprietary IP. The games have been sold in a total of 84 countries worldwide. The distribution of game downloads by regions is: 52% in North America, 32% in Europe and Africa, 11% in Asia Pacific, 3% in Latin America and 2% in the Middle East. The Top 5 countries in terms of number of downloads for our products are: United States, United Kingdom, Canada, France and Germany (with 47%, 10%, 6%, 5% and 5% of downloads respectively).
As of April 30th, 2010, all the new games released have achieved Top 100 or higher download rankings in their categories.
"2010 has started very well for our iPhone and iPad business. We again achieved many #1 rankings for our products all around the globe. This speaks for the quality of our games. And just in the first 4 months of the year we have already generated over 50% of the downloads we generated in the full fiscal year 2009. We will continue to produce high quality games and business apps for the iPhone and iPad throughout the remainder of the year," said Eberhard Schoneburg, CEO of Artificial Life, Inc.We also invested heavily in new products and technologies in 2009 to further strengthen our technological advantage and leading position in the mobile content space for the years to come. We more than doubled our investments in new technologies and products with over $22 million in 2009, as compared to $10 million invested in 2008. Most of these investments were dedicated to our new OPUS-M™ platform, our tele-medicine platform and mobile diabetes application Mobil Diab®, and our new and very powerful augmented reality technology. We expect to see substantial growth and new business in all these areas in the coming months and years.”
Their IR-department works good. I send an email and my questions were answered the next day. They are actively seeking for diversification not only in terms of sales geography but also in terms of products. For mobile games, they try to expand their shares in all markets, including Asia, with the upcoming launch of various iPhone games in Asian languages. At the same time, Artificial Life is moving into areas such as business applications, and has devoted substantial effort since last year on the launch of a new line of products using augmented reality. In my opinion they can achieve an EPS between $ 0.25 and $ 0.30 this year. At a stockprice of $ 1.20 there is enough room for price appreciation.
POSITION: LONG (ENTRY $ 1.20)
Sunday, May 9, 2010
Rodman & Renshaw Conference May 16-18
A lot of Chinese companies attend the Rodman & Renshaw Annual Global Investment Conference in London. This conference is being held at the Grosvenor House Hotel on May 16-18, 2010. For more information:
http://www.rodm.com/conferences?id=48&link=presenters
I think for some companies that present themselves there it could be benificial for their stockprice. If some people go, let me know, and you can publish your findings on this blog.
http://www.rodm.com/conferences?id=48&link=presenters
I think for some companies that present themselves there it could be benificial for their stockprice. If some people go, let me know, and you can publish your findings on this blog.
Saturday, May 8, 2010
Dr. Doom Marc Faber negative about the markets and China
Dr. Marc Faber also known as Dr Doom is an investment adviser, investment analyst and fund manager author and publisher of the Gloom Boom & Doom Report ,and the author of "Tomorrows Gold" . Dr Faber is known for his contrarian investment approach. Dr Marc Faber is associated with a variety of funds and is a member of the Board of Directors of numerous companies.
In 1987 he warned his clients to cash out before Black Monday on Wall Street. He made them handsome profits by forecasting the burst in the Japanese Bubble in 1990. He correctly predicted the collapse in US gaming stocks in 1993; and he foresaw the Asia-Pacific financial crisis of 1997/98 and the resulting global volatility. Dr Doom motto is "Follow the course opposite to custom and you will almost be right"
Mr. Faber is also the author of several books, including Tomorrow’s Gold – Asia’s Age of Discovery, and is a director of Ivanhoe Mines Ltd. , a mining firm focused on the Asia Pacific region. He is also an adviser to a number of private investment funds.
For his predictions check the videos on his website.
http://marcfaberchannel.blogspot.com/
What is happening in China right now?
China's central bank raised reserve ratios for banks over the weekend. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones. The new requirement will increase bank reserves by another half percent. This raised some investor concerns about monetary tightening, but officials were quick to respond, saying that "moderately easy" policies would continue.
Chinese officials are working continually to prevent bubbles and overcapacity problems. A host of measures has been rolled out to quell property speculation and prevent a potential property bubble from bursting. The reserve rate rise, a safety measure and a liquidity reducer, is the third banks have faced this year.
China's banks appear to be in good health. ICBC, the country's biggest lender, reports that its net income climbed 18 percent to $6.1 billion for the first three months of 2010. China's Construction Bank recorded a 34 percent increase to $5.1 billion during the first quarter. Although non-performing loans are not currently a large problem, raising the reserve ratio will further increase the banks' ability to withstand shocks.
With this in mind not every country is on the verge of collapse.
In 1987 he warned his clients to cash out before Black Monday on Wall Street. He made them handsome profits by forecasting the burst in the Japanese Bubble in 1990. He correctly predicted the collapse in US gaming stocks in 1993; and he foresaw the Asia-Pacific financial crisis of 1997/98 and the resulting global volatility. Dr Doom motto is "Follow the course opposite to custom and you will almost be right"
Mr. Faber is also the author of several books, including Tomorrow’s Gold – Asia’s Age of Discovery, and is a director of Ivanhoe Mines Ltd. , a mining firm focused on the Asia Pacific region. He is also an adviser to a number of private investment funds.
For his predictions check the videos on his website.
http://marcfaberchannel.blogspot.com/
What is happening in China right now?
China's central bank raised reserve ratios for banks over the weekend. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones. The new requirement will increase bank reserves by another half percent. This raised some investor concerns about monetary tightening, but officials were quick to respond, saying that "moderately easy" policies would continue.
Chinese officials are working continually to prevent bubbles and overcapacity problems. A host of measures has been rolled out to quell property speculation and prevent a potential property bubble from bursting. The reserve rate rise, a safety measure and a liquidity reducer, is the third banks have faced this year.
China's banks appear to be in good health. ICBC, the country's biggest lender, reports that its net income climbed 18 percent to $6.1 billion for the first three months of 2010. China's Construction Bank recorded a 34 percent increase to $5.1 billion during the first quarter. Although non-performing loans are not currently a large problem, raising the reserve ratio will further increase the banks' ability to withstand shocks.
With this in mind not every country is on the verge of collapse.
Friday, May 7, 2010
China not in problems
The sovereign debt crisis is like a second act of the banking crisis. First we had Bear Sterns, then we took a deep breath, then we had Lehman and the Great Crash of 2008. Now we have Greece, we are breathing in, and it’s very possible more shoes will dropkick the markets. But what makes it possitive is that China has everything under control.
Here is a nice look at the countries with the highest risk of defaulting on their debt:
(Source: Bespoke Investment Group)
Thursday, May 6, 2010
Irrationality
I have to confess with some other China OTC players that even the most undervalued stocks become cheaper every day. If you look today at prices you think that World War III has begun. Investors are worried that Greece's debt problems could spread to even China. Let me laugh....
How some markets are reacting is irrational. Irrational behaviour can indeed persist for long periods of time.
You would say that investing in Chinese OTC companies with low fundamental valuations is a hedge against most other asset classes and overvalued stocks but in this markets the market is right.
Despite what is happening today and the days to come the growth we see in Chinese undervalued stocks will support the EPS in the coming years and in the long run reward those who continue to own.
That said, in times of turmoil, you have to be willing to buy stocks that haven gotten crushed even when it means that the chance excists of being crushed more.
Of course we are still in the glowing halo of recovery and a lot of the recovery is priced in to the general market. But is that also the same for our Chinese OTC stocks. I disagree with the quote from a famous OTC trader: Bet the trend and take money off the table in the expectation that you will be able to pay less and get more in the future.
As a contrarian value investor I am standing firm and look to add to my positions. Well, that’s my game.
How some markets are reacting is irrational. Irrational behaviour can indeed persist for long periods of time.
You would say that investing in Chinese OTC companies with low fundamental valuations is a hedge against most other asset classes and overvalued stocks but in this markets the market is right.
Despite what is happening today and the days to come the growth we see in Chinese undervalued stocks will support the EPS in the coming years and in the long run reward those who continue to own.
That said, in times of turmoil, you have to be willing to buy stocks that haven gotten crushed even when it means that the chance excists of being crushed more.
Of course we are still in the glowing halo of recovery and a lot of the recovery is priced in to the general market. But is that also the same for our Chinese OTC stocks. I disagree with the quote from a famous OTC trader: Bet the trend and take money off the table in the expectation that you will be able to pay less and get more in the future.
As a contrarian value investor I am standing firm and look to add to my positions. Well, that’s my game.
Risk aversion back on the agenda
He wants to make some money you think ........"yes I say". So this week I went to my bookshelves and I thought which books could be helpful for investors. I wrote some names on a piece of paper and came up with my TOP-40. Visit page My 40 best investment books.
I thought also which books helped me to start investing in Chinese stocks en start this blog. I came up with two names:
and
As a customer of Amazon I now participate in an affiliate program. My current Chinese investments don't make money because the risk aversion is back on the agenda, which means that almost everything with Greece, Spain, Portugal, Ireland and China in their name is being sold rapidly.
Maybe the life of a middleman will make me some bucks. So to all my readers I scream take the word out: ORDER BOOKS, PROMOTE MY BOOKS..........I need some cash to expand my current loss-making Chinese positions.
I thought also which books helped me to start investing in Chinese stocks en start this blog. I came up with two names:
and
As a customer of Amazon I now participate in an affiliate program. My current Chinese investments don't make money because the risk aversion is back on the agenda, which means that almost everything with Greece, Spain, Portugal, Ireland and China in their name is being sold rapidly.
Maybe the life of a middleman will make me some bucks. So to all my readers I scream take the word out: ORDER BOOKS, PROMOTE MY BOOKS..........I need some cash to expand my current loss-making Chinese positions.
Monday, May 3, 2010
China Insonline Corp (CHIO) ready to Rock & Roll
If one stock is hated, loved and out of favor than it is CHIO. This stock is a trader’s ball that sometimes scores. For an investor like me that has CHIO shares at prices way above $ 1.00 it is just waiting to see a rebound.
A lot is said about the company. But one thing is for sure it is damn cheap. Fundamentals don’t say anything about a company some investors say. But for me it is just that margin of safety. If book value is much higher than the stock price, P/E is lower than five, etc. etc ……… I love it.
Of course a lot can go wrong with a company, but life is not sure especially the life of a contrarian value investor. To see other people making money and your money being hammered is never easy. Sometimes it takes time and guts to see a company rise like a phoenix from the ashes.
The Case
China INSOnline Corp. (CHIO), incorporated on December 23, 1988, is an Internet services and media company focusing on the China’s insurance industry. The company operates in three segments: software development, online insurance advertising and insurance agency within China. With localized Websites targeting Greater China, the Company primarily provides, through Beijing Zhi Yuan Tian Xia Technology Co., Ltd. (ZYTX), a network portal through its industry Website, www.soobao.cn (Soobao), to insurance companies, agents and consumers for advertising, online inquiry, news circulation, online transactions, statistic analysis and software development. The company is also a licensed online motor vehicle, property and life insurance agent generating revenues through sales commissions. On October 28, 2008, the company acquired Guang Hua Insurance Agency Company Limited (GHIA).
China INSOnline Corp. reported their net income for the second quarter of fiscal 2010 jumped 33% to $1.16M. The company’s book value per common share jumped emphatically to $0.61/share, attributed to 23% growth in the company’s total assets, when compared to the prior quarter.
http://www.tradestationfundamental.com/Credit.asp?ticker=chio
Modest growth (3%) in revenues and superior margin growth during the quarter are credited with producing a greater bottom line. “[…] An array of high margin services to the insurance industry in China consistently delivers profits to our shareholders. We will continue to focus on high margin opportunities with our online platform and continue focus on creating greater shareholder value going forward," commented Ms. Betty Xu, the company’s CEO.
Earning $0.11/share, or $4.29 M in the six-month period ended December 31st, 2009, the company’s twelve month trailing Earnings-Per-Share (EPS) totals $0.25. Where the price-to-earnings (P/E) ratio is among the most common and reliable measures of value, the company is in my opinion undervalued. Given the recent market price, the company trades with a P/E ratio less than 2.5. If value investors are willing to pay for bargains at these prices, they are likely to find CHIO attractive at twice the current market price. For every other investor that could mean a large ROI. Especially with the hiring of veteran Mr. Han in January the company is ready to Rock and Roll again.
POSITION: LONG (ENTRY: $ 1.50)
A lot is said about the company. But one thing is for sure it is damn cheap. Fundamentals don’t say anything about a company some investors say. But for me it is just that margin of safety. If book value is much higher than the stock price, P/E is lower than five, etc. etc ……… I love it.
Of course a lot can go wrong with a company, but life is not sure especially the life of a contrarian value investor. To see other people making money and your money being hammered is never easy. Sometimes it takes time and guts to see a company rise like a phoenix from the ashes.
The Case
China INSOnline Corp. (CHIO), incorporated on December 23, 1988, is an Internet services and media company focusing on the China’s insurance industry. The company operates in three segments: software development, online insurance advertising and insurance agency within China. With localized Websites targeting Greater China, the Company primarily provides, through Beijing Zhi Yuan Tian Xia Technology Co., Ltd. (ZYTX), a network portal through its industry Website, www.soobao.cn (Soobao), to insurance companies, agents and consumers for advertising, online inquiry, news circulation, online transactions, statistic analysis and software development. The company is also a licensed online motor vehicle, property and life insurance agent generating revenues through sales commissions. On October 28, 2008, the company acquired Guang Hua Insurance Agency Company Limited (GHIA).
China INSOnline Corp. reported their net income for the second quarter of fiscal 2010 jumped 33% to $1.16M. The company’s book value per common share jumped emphatically to $0.61/share, attributed to 23% growth in the company’s total assets, when compared to the prior quarter.
http://www.tradestationfundamental.com/Credit.asp?ticker=chio
Modest growth (3%) in revenues and superior margin growth during the quarter are credited with producing a greater bottom line. “[…] An array of high margin services to the insurance industry in China consistently delivers profits to our shareholders. We will continue to focus on high margin opportunities with our online platform and continue focus on creating greater shareholder value going forward," commented Ms. Betty Xu, the company’s CEO.
Earning $0.11/share, or $4.29 M in the six-month period ended December 31st, 2009, the company’s twelve month trailing Earnings-Per-Share (EPS) totals $0.25. Where the price-to-earnings (P/E) ratio is among the most common and reliable measures of value, the company is in my opinion undervalued. Given the recent market price, the company trades with a P/E ratio less than 2.5. If value investors are willing to pay for bargains at these prices, they are likely to find CHIO attractive at twice the current market price. For every other investor that could mean a large ROI. Especially with the hiring of veteran Mr. Han in January the company is ready to Rock and Roll again.
POSITION: LONG (ENTRY: $ 1.50)
Sunday, April 25, 2010
Agricultural companies have the future.
Why am I so interested in China agricultural companies? First of all, food is an essential commodity for life. The world's population is still growing and the demand for food in China is rising because a greater proportion is becoming affluent enough to eat well.
Thanks to growing incomes, the demand for better diets and more protein is just beginning. I believe that you've only seen the early stages of an agricultural boom, and that it will be one of the most profitable sectors the coming years you can invest in.
At the same time, the growing consumption of corn, sugar, and wheat to produce ethanol is essentially taking food out of hungry mouths.
And as is often the case for many of today's new hot investment trends, you need look no further than China to find some of the best investment opportunities.
Four Reasons to Jump on The Chinese Food Bandwagon ...
While China is known for rice farming, there are plenty of other attractive agriculture investment areas ...
I.
China has changed from being a net exporter to being a net importer of major agricultural crops. With 1.3 billion hungry mouths to feed, China can't produce enough food to meet its own demand, let alone other country's needs.
II.
Chinese agricultural companies are protected by the government and foreign competition is heavily regulated. There are two Great Walls in China; the physical Great Wall and the governmental "great wall" that protects Chinese companies against foreign competitors. Chinese agricultural companies enjoy a state-sanctioned monopoly.
III.
Recent droughts and extreme water pollution have negatively impacted China's food supply. Rapid industrialization has severely polluted China's water supply and made the current drought even more painful.
IV.
As more Chinese move from the rural interior to more affluent coastal cities, consumption of all food commodities have exploded. And this will only continue as more Chinese move into urban settings!
If you're interested in the Chinese agricultural companies, there is no shortage of investment options, many of which are traded on U.S. exchanges. Here is a partial list of companies that have piqued my interest:
Rodobo Int. (RDBO)
China Agri-Business (CHBU)
In both companies I have a small position. But there are also other companies worthy to take a look at and to investigate. At http://www.geoinvesting.com a lot is already researched.
American Dairy (ADY)
Emerald Dairy (EMDY)
Man Shing Agricultural (MSAH)
China Marine Food Group (CMFO)
Yongye International (YONG)
Skypeople Fruit Juice (SPU)
Yuhe International (YUII)
China Kangtai Cactus Bio (CKGT)
China Swine Genetics (CSWG)
Sino Agro Food (SIAF)
China Fruits Corp. (CHRF)
Of course this list is not completed because there are much more agricultural companies listed in the U.S. Do you know some? Reply so I can take a look.
Thanks to growing incomes, the demand for better diets and more protein is just beginning. I believe that you've only seen the early stages of an agricultural boom, and that it will be one of the most profitable sectors the coming years you can invest in.
At the same time, the growing consumption of corn, sugar, and wheat to produce ethanol is essentially taking food out of hungry mouths.
And as is often the case for many of today's new hot investment trends, you need look no further than China to find some of the best investment opportunities.
Four Reasons to Jump on The Chinese Food Bandwagon ...
While China is known for rice farming, there are plenty of other attractive agriculture investment areas ...
I.
China has changed from being a net exporter to being a net importer of major agricultural crops. With 1.3 billion hungry mouths to feed, China can't produce enough food to meet its own demand, let alone other country's needs.
II.
Chinese agricultural companies are protected by the government and foreign competition is heavily regulated. There are two Great Walls in China; the physical Great Wall and the governmental "great wall" that protects Chinese companies against foreign competitors. Chinese agricultural companies enjoy a state-sanctioned monopoly.
III.
Recent droughts and extreme water pollution have negatively impacted China's food supply. Rapid industrialization has severely polluted China's water supply and made the current drought even more painful.
IV.
As more Chinese move from the rural interior to more affluent coastal cities, consumption of all food commodities have exploded. And this will only continue as more Chinese move into urban settings!
If you're interested in the Chinese agricultural companies, there is no shortage of investment options, many of which are traded on U.S. exchanges. Here is a partial list of companies that have piqued my interest:
Rodobo Int. (RDBO)
China Agri-Business (CHBU)
In both companies I have a small position. But there are also other companies worthy to take a look at and to investigate. At http://www.geoinvesting.com a lot is already researched.
American Dairy (ADY)
Emerald Dairy (EMDY)
Man Shing Agricultural (MSAH)
China Marine Food Group (CMFO)
Yongye International (YONG)
Skypeople Fruit Juice (SPU)
Yuhe International (YUII)
China Kangtai Cactus Bio (CKGT)
China Swine Genetics (CSWG)
Sino Agro Food (SIAF)
China Fruits Corp. (CHRF)
Of course this list is not completed because there are much more agricultural companies listed in the U.S. Do you know some? Reply so I can take a look.
Tuesday, April 20, 2010
Lotus (LTUS) Unloved but REAL
Lotus Pharmaceuticals (LTUS), is a growing developer and producer of drugs and a licensed national seller of pharmaceutical items in China. Lotus operates its business through its two controlled entities: Liang Fang Pharmaceutical, Ltd. and En Ze Jia Shi Pharmaceutical, Ltd. Lotus' current drug development is focused on the treatment of cerebro-cardiovascular disease, asthma, and diabetes. Liang Fang sells drugs directly and indirectly through its national sales channels to hospitals, clinics and drugs stores in 30 provinces.
The price is depressed like more Chinese pharmaceuticals despite the low valuation. EPS expectations for 2010 are $ 0.45 (2009: $ 0.33). Book value in the most recent quarter was $ 1.39. Lots of new drugs in the pipeline. Stock price around $ 1.20 .......can you believe it?
The sluggish world economy and ongoing health care reform policy impacted the development of China's pharmaceutical industry in 2009. This year however will see the continuation of the reform measures, as well as other developments and trends in the sector in the context of a recovering global economy.
Figures from the State Food and Drug Administration's (SFDA) Southern Medicine Economic Research Institute (SMERI) showed that medical insurance funds will be raised by RMB 400 billion ($58.57 billion) in 2010 which may lead to the expansion of the domestic drug market by RMB 200 billion ($29.28 billion).
According to the SMERI, the production value of China's pharmaceutical industry will grow 23 percent year-on-year in 2010. International pharmaceutical consultancy IMS Health Inc. estimates put China as the world's third largest pharmaceutical market by 2010.
China's pharmaceutical companies will continue to review their operational and business structures in 2010 as companies realize they have to grow stronger to enhance their competitive advantage to make the most of market opportunities.
Further, the establishment of pharmaceutical distribution alliances over the past several years has set a good foundation for future mergers and acquisitions (M & A).
With this in mind I expect bright futures with significant gains for promosing Chinese health care stocks. Lotus is one of them.
POSITION: LONG (ENTRY: 1.20)
The price is depressed like more Chinese pharmaceuticals despite the low valuation. EPS expectations for 2010 are $ 0.45 (2009: $ 0.33). Book value in the most recent quarter was $ 1.39. Lots of new drugs in the pipeline. Stock price around $ 1.20 .......can you believe it?
The sluggish world economy and ongoing health care reform policy impacted the development of China's pharmaceutical industry in 2009. This year however will see the continuation of the reform measures, as well as other developments and trends in the sector in the context of a recovering global economy.
Figures from the State Food and Drug Administration's (SFDA) Southern Medicine Economic Research Institute (SMERI) showed that medical insurance funds will be raised by RMB 400 billion ($58.57 billion) in 2010 which may lead to the expansion of the domestic drug market by RMB 200 billion ($29.28 billion).
According to the SMERI, the production value of China's pharmaceutical industry will grow 23 percent year-on-year in 2010. International pharmaceutical consultancy IMS Health Inc. estimates put China as the world's third largest pharmaceutical market by 2010.
China's pharmaceutical companies will continue to review their operational and business structures in 2010 as companies realize they have to grow stronger to enhance their competitive advantage to make the most of market opportunities.
Further, the establishment of pharmaceutical distribution alliances over the past several years has set a good foundation for future mergers and acquisitions (M & A).
With this in mind I expect bright futures with significant gains for promosing Chinese health care stocks. Lotus is one of them.
POSITION: LONG (ENTRY: 1.20)
Monday, April 19, 2010
China Agri Business (CHBU) EPS 2009 $ 0.08
Last Friday April 15 they released their annual report.
http://idc.api.edgar-online.com/efx_dll/edgarpro.dll?FetchFilingConvPDF1?SessionID=pYQuH82U68RjWjS&ID=7187791
Earnings per share were $ 0.08 so they earned the last quarter $ 0.03 compared to the $ 0.05 (nine months). Book value per share was $ 0.79 while their cash position per share increased to $ 0.74.
Some other highlights from their Form 10-K:
As of December 31, 2009, the company had established 103 branded super chain stores. A majority of these stores are located in the Shaanxi and Hunan Provinces. In addition, they established 49 direct sales stores, which are controlled and managed directly by the company. The direct sales stores are located in the Shaanxi Province.
At some future time, we may seek to have our common stock or other securities quoted on a tier of a national securities exchange. In so doing, we will reevaluate the need to have independent directors on our board and on standing committees, in light of applicable corporate governance rules and corporate best practices. At the present time, our board of directors is collectively responsible for analyzing and evaluatingour financial statements and our internal controls and procedures for financial reporting, and for acting as our compensation and nominating
committee.
Especially the following Sales and Marketing part I found interesting:
We have traditionally sold our products through wholesale and retail distributors. In order to market our products, we advertise in newspapers, including national publications. We have also utilized a limited amount of television advertising, and distributed brochures, company profiles and promotional videos to farmers. We also offer free field trials to potential customers for the purpose of comparing plantings that have applied our products to plantings that have not. We believe that potential customers are more inclined to purchase our products after seeing the
comparison results. We have a marketing team comprised of approximately 57 people who demonstrate to our dealers and our direct customers the correct methods of using our products, and who help address issues that arise for our dealers and customers in using our products and collect feedback from them.
As of December 31, 2009, we have established relationships with approximately 90 wholesale distributors. Our products are sold in approximately 503 stores located in 12 provinces in the PRC. During 2008 we launched a new sales and marketing initiative “New Agriculture-Generator” designed to expand our distribution network
directly in the rural areas of China. The purpose of the campaign is to establish a closer relationship with farmers through agricultural cooperatives located throughout the rural areas of China. One component of this initiative is the “Super Chain Sales Partner Program.”
The “Super Chain Sales Partner Program” is an initiative whereby the Company agrees to provide a $3,000 advance payment to participating retailers in exchange for their commitment to purchase and sell approximately $14,000 worth of the Company’s products per year. Each participating retailer must also agree not to sell any competing products. As of December 31, 2009, approximately 61 retailers in Shaanxi
province and approximately 42 retailers in Hunan province have participated in the “Super Chain Sales Partner Program”.
Another component of this initiative is to establish, in conjunction with participating retailers, a membership system that would enable the Company to measure and monitor the use of its products by farmers and to improve the Company’s efforts to provide training and other support services to farmers.
In addition, the Company has established 49 direct sales stores which are controlled and managed directly by the Company. The direct sales stores are located in the Shaanxi Province. We anticipate continuing to focus our efforts on establishing direct sales stores in 2010. From the beginning of the year to March 31, 2010, we opened approximately 200 new direct sales stores in the Shaanxi and Hunan Provinces.
Despite the growth of these initiatives, there can be no assurance that the “New Agriculture-Generator” campaign, including the “Super Chain Sales Partner Program” or direct sales stores program, will be successful.
I really believe this company has set a clear growth path. My predictions of an EPS in 2010 of $ 0.12 are too conservative so I revise them to $ 0.15.
POSITION: LONG (ENTRY: $ 0.70)
http://idc.api.edgar-online.com/efx_dll/edgarpro.dll?FetchFilingConvPDF1?SessionID=pYQuH82U68RjWjS&ID=7187791
Earnings per share were $ 0.08 so they earned the last quarter $ 0.03 compared to the $ 0.05 (nine months). Book value per share was $ 0.79 while their cash position per share increased to $ 0.74.
Some other highlights from their Form 10-K:
As of December 31, 2009, the company had established 103 branded super chain stores. A majority of these stores are located in the Shaanxi and Hunan Provinces. In addition, they established 49 direct sales stores, which are controlled and managed directly by the company. The direct sales stores are located in the Shaanxi Province.
At some future time, we may seek to have our common stock or other securities quoted on a tier of a national securities exchange. In so doing, we will reevaluate the need to have independent directors on our board and on standing committees, in light of applicable corporate governance rules and corporate best practices. At the present time, our board of directors is collectively responsible for analyzing and evaluatingour financial statements and our internal controls and procedures for financial reporting, and for acting as our compensation and nominating
committee.
Especially the following Sales and Marketing part I found interesting:
We have traditionally sold our products through wholesale and retail distributors. In order to market our products, we advertise in newspapers, including national publications. We have also utilized a limited amount of television advertising, and distributed brochures, company profiles and promotional videos to farmers. We also offer free field trials to potential customers for the purpose of comparing plantings that have applied our products to plantings that have not. We believe that potential customers are more inclined to purchase our products after seeing the
comparison results. We have a marketing team comprised of approximately 57 people who demonstrate to our dealers and our direct customers the correct methods of using our products, and who help address issues that arise for our dealers and customers in using our products and collect feedback from them.
As of December 31, 2009, we have established relationships with approximately 90 wholesale distributors. Our products are sold in approximately 503 stores located in 12 provinces in the PRC. During 2008 we launched a new sales and marketing initiative “New Agriculture-Generator” designed to expand our distribution network
directly in the rural areas of China. The purpose of the campaign is to establish a closer relationship with farmers through agricultural cooperatives located throughout the rural areas of China. One component of this initiative is the “Super Chain Sales Partner Program.”
The “Super Chain Sales Partner Program” is an initiative whereby the Company agrees to provide a $3,000 advance payment to participating retailers in exchange for their commitment to purchase and sell approximately $14,000 worth of the Company’s products per year. Each participating retailer must also agree not to sell any competing products. As of December 31, 2009, approximately 61 retailers in Shaanxi
province and approximately 42 retailers in Hunan province have participated in the “Super Chain Sales Partner Program”.
Another component of this initiative is to establish, in conjunction with participating retailers, a membership system that would enable the Company to measure and monitor the use of its products by farmers and to improve the Company’s efforts to provide training and other support services to farmers.
In addition, the Company has established 49 direct sales stores which are controlled and managed directly by the Company. The direct sales stores are located in the Shaanxi Province. We anticipate continuing to focus our efforts on establishing direct sales stores in 2010. From the beginning of the year to March 31, 2010, we opened approximately 200 new direct sales stores in the Shaanxi and Hunan Provinces.
Despite the growth of these initiatives, there can be no assurance that the “New Agriculture-Generator” campaign, including the “Super Chain Sales Partner Program” or direct sales stores program, will be successful.
I really believe this company has set a clear growth path. My predictions of an EPS in 2010 of $ 0.12 are too conservative so I revise them to $ 0.15.
POSITION: LONG (ENTRY: $ 0.70)
Tuesday, April 13, 2010
Rodobo (RDBO) recent acquisitions clever move
Rodobo International announced on February 5 the completion of the acquisition of three dairy companies in China through the mergers of Ewenkeqi Beixue Dairy Co, Ltd ("Ewenkeqi Beixue"), Hulunbeier Beixue Dairy Co., Ltd ("Hulunbeier Beixue"), and Hulunbeier Hailaer Beixue Dairy Factory ("Hulunbeier Hailaer Beixue"), hereinafter collectively referred to as "Beixue Group", into the their wholly owned subsidiary Tengshun Technology and Development Co., Ltd. ("Tengshun Tech"). After the acquisitions, Rodobo's daily processing capacity of raw milk is expected to increase by five folds, from the current 200 tons per day, to about 1,200 tons per day.
Pursuant to the Equity Transfer Agreements entered into on February 5, 2010, they paid RMB2,100,000 in cash and issued 10,600,000 shares of the Company's common stock (the "Common Stock") and 2,000,000 shares of Series A Preferred Stock in exchange for 100% of the equity interest in Beixue Group composed of Ewenkeqi Beixue, Hulunbeier Beixue and Hulunbeier Hailaer Beixue. Based on independent valuation reports issued by Beijing Haohai Tongfang Assets Appraisal Co., Ltd, dated as of February 4, 2010, Beixue Group has a total net asset value of over USD 30 million.
Today the details of the transactions are filed in a 8-K.
Pursuant to the Equity Transfer Agreements entered into on February 5, 2010, they paid RMB2,100,000 in cash and issued 10,600,000 shares of the Company's common stock (the "Common Stock") and 2,000,000 shares of Series A Preferred Stock in exchange for 100% of the equity interest in Beixue Group composed of Ewenkeqi Beixue, Hulunbeier Beixue and Hulunbeier Hailaer Beixue. Based on independent valuation reports issued by Beijing Haohai Tongfang Assets Appraisal Co., Ltd, dated as of February 4, 2010, Beixue Group has a total net asset value of over USD 30 million.
Today the details of the transactions are filed in a 8-K.
http://www.sec.gov/Archives/edgar/data/1177274/000107997310000456/rodobo_8ka.htm
A closer look to the figures. Assets more than doubled to $ 64.579.265. The book value increased from $ 1.32 to $ 1.83. They booked a gain on their purchases of $ 1.677.020. The gain on bargain purchase will be recorded as a separate component of revenues in the company's form 10-Q for the quarter ended March 31, 2010.
Pro forma combined earnings per share for the three months ended December 31, 2009 were $ 0.13 diluted. With all this in mind 2010 could be a very interesting year because efficiency measures could bring down expenses and lead to higher margins. In the beginning of this year I posted an article on seekingalpha were I talked about an EPS-growth of 30% and I accounted that it would leave us this year with an EPS of around $ 0.55. All these expectations were pre-acquisition.
The acquisitions have increased distribution channels and production capacity so my expectation is that EPS between $ 0.70 -$ 0.80 is a possibility. If they would be uplisted to a mayor exchange and retain a P/E of around 10 that would mean that there is still a lot of upside potential this year.
POSITION: LONG (ENTRY $ 2.40)
Thursday, April 8, 2010
China Agri Business (CHBU) attains IR firm
They attained an IR firm for the first time in their history.
http://idc.api.edgar-online.com/efx_dll/edgarpro.dll?FetchFilingConvPDF1?SessionID=pYQuH82U68RjWjS&ID=7176957
A good sign that can increase shareholder's attention.
http://idc.api.edgar-online.com/efx_dll/edgarpro.dll?FetchFilingConvPDF1?SessionID=pYQuH82U68RjWjS&ID=7176957
A good sign that can increase shareholder's attention.
Monday, April 5, 2010
Xinyinhai Technology (XNYH) ready for a comeback
Xinyinhai Technology, Ltd. (XNYH) is a holding company that has two subsidiaries. Xinyinhai Technology owns 100% of the registered capital of Winner Sea Group Limited ("Winner Sea"), which owns 90% of the registered capital of Harbin Golden Sea Technology Printing Co., Ltd. ("Harbin Golden Sea").
Winner Sea is a business company organized under the laws of the British Virgin Islands in 2006. It has conducted no business. It is a holding company whose only asset is shares in Harbin Golden Sea that represent 90% of the registered capital of that company. The remaining 10% of Harbin Golden Sea is owned by Xie Guihong. Ms. Xie is a member of the Board of Directors of Xinyinhai Technology.
Harbin Golden Sea Technology Printing Co., Ltd. is a private company located in Harbin, China. Founded in 1998, Harbin Golden Sea has developed into a leading participant in China's financial notes printing industry. Harbin Golden Sea is a company to which the Chinese government has issued the Special Industry Operating Permit and the Government Securities and Documents Duplicating Permit, which are the licenses required in order to be engaged in printing bank vouchers in China.
The company has in recent years developed a prestigious clientele, and its share of the market for financial notes printing in China is growing. The three primary factors responsible for Harbin Golden Sea's growth have been:
The company provides printing services whose quality equals the highest standards worldwide. Harbin Golden Sea imports state-of-the-art printing equipment from Germany, and installs on its advanced software systems, such as anti-falsification software. The company's investment in technology means that few competitors can offer China's financial industry the level of service that Harbin Golden Sea offers.
Harbin Golden Sea's focus on providing high quality service has distinguished it from its competition. In 2000 Harbin Golden Sea received Certification of Compliance with the ISO 9000 International Standard. In 2003, Harbin Golden Sea's quality management system was accredited under ISO 9001-2000, recognition that Harbin Golden Sea's business practices meet the world's highest standards. In 2006 Harbin Golden Sea achieved GB/T28001 Certification of Occupational Health and Security Management System as well as ISO14001 Environment Management System certification. Harbin Golden Sea has been awarded "Best Performance" and named "Most Creditworthy and Reliable" enterprise by the Chinese government every year since 2001.
The company's marketing acumen has brought it into exclusive relationships with many of China's largest financial institutions and government agencies, including Bank of China, Agricultural Bank of China, and the Postal Savings Bank of China.
Harbin Golden Sea also earns a portion of its revenue (approximately 13% in 2009; 32%in 2008) from its position as a distributor of plasma arc cutting machinery and consumable parts manufactured by Hypertherm, Inc. of New Hampshire, U.S.A. Hypertherm's plasma arc cutting systems are designed to provide metal workers with clean cuts for metal work that permits little tolerance for error, and are well-known worldwide.
The earnings per share in 2009 were $ 0.05 compared to $ 0.15 in 2008, which means that in the last quarter they had a very small profit. The global recession in 2009 has reduced demand for capital goods in China. During last year, this situation had a negative impact on both of the company's business segments. Overall, the revenue during 2009 decreased by 37% to $8,627,306 from $13,686,332 achieved during 2008. The decrease was most dramatic in the equipment distribution business, where revenues declined by 74% to $1,147,696 during 2009 from $4,397,281 during 2008. The decline in equipment distribution reflected delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that the company had experienced in 2008, and returned this business segment to a 13% contribution to our overall revenue during 2009, a level similar to their experience in 2007 and 2006. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China.
Revenue from the printing business fell by 19% to $7,479,610 during 2009, compared to $9,289,051 during 2008. The decline occurred, in part, due to the weakening of the Chinese banking industry, as many of the customers are conserving cash pending stabilization of the international credit markets. The decline also occurred because the company moved their entire production operation to a larger facility at the end of 2008, which interfered with the printing business. Today, however, the new facility is fully operational, and they expect the traditional growth of their printing business to be renewed.
Over the longer term, the continued revenue growth in the printing services business will require further capital investment. As China's banking industry rapidly modernizes, customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S. The ability to meet that demand will determine the long term growth of the business. Immediately, the development of these new products will require substantial capital investment. For that purpose, the company secured a $2.9 million collateralized loan during the third quarter of 2009, and applied $748,379 to improvements in plant and equipment during the second half of the year. At March 24, 2010 they had $2,213,667 in backlog of firm orders, all of which is for delivery during 2010. At March 17, 2009 they had $1,147,761 in backlog. A sign of improving.
The 32% gross margin realized by their subsidiary, Harbin Golden Sea, on sales in 2009 was lower than the 37% gross margin realized in 2008. Although, as has always occurred, the gross margin on printing operations in 2009 (33%) was significantly better than the gross margin on equipment distribution operations (21%), the primary reason for the overall decline in gross profitability was a reduction in the profitability of printing operations. The companies business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business. During 2009, however, three factors caused margins from printing operations to fall below that standard:
- the disruption in the Chinese banking industry forced to price products more aggressively;
- The move at the end of 2008 to a larger manufacturing facility with upgraded equipment increased annual depreciation expense by 52%and the reduction in sales volume led to inefficient use of the new larger facility.
As the Chinese banking industry is moving towards stabilization, the company expectation is that it will be able to revive their sales growth and return their printing operations to the levels of profitability that they sustained prior to the international credit crisis.
The book value of Xinyinhai Tech Ltd (XNYH) is $ 0.75 and the stock is trading around $ 0.20. The problem is that it is thinly traded. I expect earnings per share this year to be around $ 0.10 (2008: $ 0.15). At these price levels this stock could be interesting for the long term investor and a price of $ 0.50 at the end of the year could be a real possibility.
POSITION: LONG (ENTRY $ 0.34)
Winner Sea is a business company organized under the laws of the British Virgin Islands in 2006. It has conducted no business. It is a holding company whose only asset is shares in Harbin Golden Sea that represent 90% of the registered capital of that company. The remaining 10% of Harbin Golden Sea is owned by Xie Guihong. Ms. Xie is a member of the Board of Directors of Xinyinhai Technology.
Harbin Golden Sea Technology Printing Co., Ltd. is a private company located in Harbin, China. Founded in 1998, Harbin Golden Sea has developed into a leading participant in China's financial notes printing industry. Harbin Golden Sea is a company to which the Chinese government has issued the Special Industry Operating Permit and the Government Securities and Documents Duplicating Permit, which are the licenses required in order to be engaged in printing bank vouchers in China.
The company has in recent years developed a prestigious clientele, and its share of the market for financial notes printing in China is growing. The three primary factors responsible for Harbin Golden Sea's growth have been:
The company provides printing services whose quality equals the highest standards worldwide. Harbin Golden Sea imports state-of-the-art printing equipment from Germany, and installs on its advanced software systems, such as anti-falsification software. The company's investment in technology means that few competitors can offer China's financial industry the level of service that Harbin Golden Sea offers.
Harbin Golden Sea's focus on providing high quality service has distinguished it from its competition. In 2000 Harbin Golden Sea received Certification of Compliance with the ISO 9000 International Standard. In 2003, Harbin Golden Sea's quality management system was accredited under ISO 9001-2000, recognition that Harbin Golden Sea's business practices meet the world's highest standards. In 2006 Harbin Golden Sea achieved GB/T28001 Certification of Occupational Health and Security Management System as well as ISO14001 Environment Management System certification. Harbin Golden Sea has been awarded "Best Performance" and named "Most Creditworthy and Reliable" enterprise by the Chinese government every year since 2001.
The company's marketing acumen has brought it into exclusive relationships with many of China's largest financial institutions and government agencies, including Bank of China, Agricultural Bank of China, and the Postal Savings Bank of China.
Harbin Golden Sea also earns a portion of its revenue (approximately 13% in 2009; 32%in 2008) from its position as a distributor of plasma arc cutting machinery and consumable parts manufactured by Hypertherm, Inc. of New Hampshire, U.S.A. Hypertherm's plasma arc cutting systems are designed to provide metal workers with clean cuts for metal work that permits little tolerance for error, and are well-known worldwide.
The earnings per share in 2009 were $ 0.05 compared to $ 0.15 in 2008, which means that in the last quarter they had a very small profit. The global recession in 2009 has reduced demand for capital goods in China. During last year, this situation had a negative impact on both of the company's business segments. Overall, the revenue during 2009 decreased by 37% to $8,627,306 from $13,686,332 achieved during 2008. The decrease was most dramatic in the equipment distribution business, where revenues declined by 74% to $1,147,696 during 2009 from $4,397,281 during 2008. The decline in equipment distribution reflected delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that the company had experienced in 2008, and returned this business segment to a 13% contribution to our overall revenue during 2009, a level similar to their experience in 2007 and 2006. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China.
Revenue from the printing business fell by 19% to $7,479,610 during 2009, compared to $9,289,051 during 2008. The decline occurred, in part, due to the weakening of the Chinese banking industry, as many of the customers are conserving cash pending stabilization of the international credit markets. The decline also occurred because the company moved their entire production operation to a larger facility at the end of 2008, which interfered with the printing business. Today, however, the new facility is fully operational, and they expect the traditional growth of their printing business to be renewed.
Over the longer term, the continued revenue growth in the printing services business will require further capital investment. As China's banking industry rapidly modernizes, customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S. The ability to meet that demand will determine the long term growth of the business. Immediately, the development of these new products will require substantial capital investment. For that purpose, the company secured a $2.9 million collateralized loan during the third quarter of 2009, and applied $748,379 to improvements in plant and equipment during the second half of the year. At March 24, 2010 they had $2,213,667 in backlog of firm orders, all of which is for delivery during 2010. At March 17, 2009 they had $1,147,761 in backlog. A sign of improving.
The 32% gross margin realized by their subsidiary, Harbin Golden Sea, on sales in 2009 was lower than the 37% gross margin realized in 2008. Although, as has always occurred, the gross margin on printing operations in 2009 (33%) was significantly better than the gross margin on equipment distribution operations (21%), the primary reason for the overall decline in gross profitability was a reduction in the profitability of printing operations. The companies business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business. During 2009, however, three factors caused margins from printing operations to fall below that standard:
- the disruption in the Chinese banking industry forced to price products more aggressively;
- The move at the end of 2008 to a larger manufacturing facility with upgraded equipment increased annual depreciation expense by 52%and the reduction in sales volume led to inefficient use of the new larger facility.
As the Chinese banking industry is moving towards stabilization, the company expectation is that it will be able to revive their sales growth and return their printing operations to the levels of profitability that they sustained prior to the international credit crisis.
The book value of Xinyinhai Tech Ltd (XNYH) is $ 0.75 and the stock is trading around $ 0.20. The problem is that it is thinly traded. I expect earnings per share this year to be around $ 0.10 (2008: $ 0.15). At these price levels this stock could be interesting for the long term investor and a price of $ 0.50 at the end of the year could be a real possibility.
POSITION: LONG (ENTRY $ 0.34)
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