Earnings Previews, Part 2
posted by The Traveller on Saturday, March 27, 2010
Another bunch of China Small Caps that are set to report next week. Part 3 and 4 of this post will be up tomorrow.
China Medicine (CHME.OB) will report Monday, March 29, before the open. CHME is trading in the $4 range for most of the year and positive news on Monday could propel it above its 52-week-high at $4.89 which had been reached in January. The company has already applied to list on Nasdaq, it is nicely profitable and reported $3.36m net income for the Third Quarter 2009. Keep an eye on the share count which should increase significantly with the $69.6m private placement that was announced in January.
Changda International (CIHD.OB) is also set to report next week. The stock clearly underperformed in its sector and is currently trading at its year low (down 35% since January). All metrics for CIHD are negative but there is some hope for a surprise quarter as the company is heavily in the snow melt agent business and the hard winter seems to have paid off for Changda as the company announced in January that orders in this segment have more than doubled in 2009. Watch out for liquidity issues.
China Industrial Waste (CIWT.OB) is a player in a very interesting industry that is set for explosive growth. CIWT has yet to prove that their business model works as growth in 2009 has been weak so far. I have no opinion on what Fourth Quarter numbers might look like, but watch out for bullish guidance especially for their sludge processing business.
China Kangtai Cactus (CKGT.OB) has already announced preliminary FY09 numbers in early March. The company is looking at revenues of $25.8 million for 2009 and is targeting 35% revenue growth for 2010. The market has been clearly disappointed by this guidance and the stock suffered to lose more than 22% for the year. However, CKGT is dirt cheap at current levels with a P/E ratio of less than 4.
China Armco Metals (CNAM) is one of the best performing stocks YTD in the China Small Caps sector with a gain of 171%. But the stock is still not expensive here and with a FY 2010 guidance in the $1 range CNAM has plenty of room to appreciate further. Most people are still not fully aware of the earnings potential that lies in the new scrap metal recycling business. China Armco announced a conference call for March 31 after the close, so expect a press release to hit the wires next Wednesday.
China Organic Agriculture (CNOA.OB) is a stock where I never know what to expect. The company is profitable, trades at book value and looks cheap at current levels. But their business model seems flawed with a crude mix of segments and recently a move into blueberry drinks and blueberry health care products(?!). I would not take a position here before earnings and watch the behaviour of the stock closely when numbers are out. CNOA has a history of making wild swings to both ends of the scale with earnings, there is always a chance of making money either way if it keeps this tradition.
China Power Equipment (CPQQ.OB) is in an interesting industry (energy saving, smart grid), has good growth prospects and seems prepared for an uplisting to Nasdaq now with the appointment of independent directors in mid-March. The stock is down slightly for the year and seems to have fallen under the radar, although it has been slowly creeping up over the past few weeks. Watch out for an uptick in volume with a break of the $4 level which the stock hasn't seen since January. It could be a potentially very rewarding investment.
China Ritar Power (CRTP), another laggard in the CSC space, will report FY09 numbers after the close on March 31. Growth prospects for the lead-acid battery industry are in the 25% range for 2010 as COO Zeng Jianjun indicated yesterday. Just like most other battery makers CRTP is down for the year and trading close to its lows. Analysts are expecting the company to report Q4/09 EPS between $0.08 and $0.15 (FY09 EPS $0.37 - $0.44) with a median revenue estimate of $33.3 million.
China Shuangji Cement (CSGJ.OB) is currently up 36% for the year and the stock roughly doubled in the past four weeks on a bullish press release the company issued on March 4. CSGJ is still trading below book value and the company earned $2.75 million in the first nine months of 2009, up 8.7% from 2008 levels despite a decrease in revenues. I would focus on revenue guidance for 2010 and some more clarity about production capacity for the new Longkou Cement plant.
China Valves Technology (CVVT) is scheduled to report earnings on March 29 before the market opens. The performance of the stock 2010 YTD has been excellent as CVVT is up more than 46% from December levels. Two weeks ago the company announced net income guidance of $23 million for 2009 and $40 million for 2010 which represents a healthy growth rate of 74%. Those numbers call for an outstanding Fourth Quarter and we will see early Monday morning if CVVT can deliver on the promise.
China Wind Systems (CWS) also preannounced 2009 numbers already. Non-GAAP net income for the year should come in at $0.34 per diluted share on revenues of $53.6 million, representing an estimated 26-33% growth. Nothing to get too excited about. Performance of the stock has been disappointing, despite big catalysts as the Nasdaq listing the stock is down for the year and down a whopping 40% from its January high at $8.20. I would look for any signs of accelerating growth, especially in the wind energy components business, to find a reason for the stock to trade at higher multiples than 10-12.
China Yongxin Pharmaceuticals (CYXN.OB) could be very interesting here. The company is currently in transition but preannounced higher net income ($5.4 million, +35%) on lower revenues ($46.1 million, -22%) for FY 2009. The company is moving away from the wholesale sector into direct retail and medical facilities. Yongxin is also actively working on uplisting to a senior exchange. CYXN is down 15% for the year but with confirmation of the 2009 guidance next week the stock could start to move with big upside. The Fourth Quarter has to be exceptionally strong for Yongxin to reach their guidance of EPS $0.16 for FY09 and at the current share price of just $0.55 this would mean the stock is currently valued with a ridiculously low trailing P/E of 3.47.