Earnings Previews, Part 3
posted by The Traveller on Sunday, March 28, 2010

GC China Turbine (GCHT.OB) has yet to post a profit or any meaningful revenue but there's a chance that at least the latter will be accomplished with Fourth Quarter earnings. The company posted a slew of positive press releases in the past weeks and said it is well on track with their ambitious plan of generating orders for their wind turbines with an estimated value of $1.1 billion from 2010-2015. However, the stock is down 20% for the year and almost 50% from its November high at $3.79. Highly speculative but possibly very rewarding with the next momentum driven rally.

China GrenTech (GRRF) will report Wednesday, March 31, after the close. The stock just turned positive for the year on Friday after the company announced to be the exclusive WLAN provider for the 2010 Shanghai World Expo. GRRF is expected to post a small profit for the Fourth Quarter, if all goes well in the same range as for Q3 ($3 million net income). Year-over-year comparables will look good as GrenTech was not profitable a year ago, but keep in mind that GRRF handily beat estimates in all of the past four quarters.

Huifeng Bio-Pharmaceutical (HFGB.OB) is very thinly traded and completely under the radar. The company is profitable, pre-announced a healthy net income of $2.8-$3.0 million for FY09 (80% to 93% year-over-year growth) and provided net income guidance between $4.5 million to $5.0 million for 2010. HFGB is in the pharmaceutical raw materials business and doesn't carry drug approval and acceptance risks that are common in the pharmaceutical industry. This should allow them to have a pretty good idea of how their business is progressing mid- to long-term.

Hong Kong Highpower (HPJ) is set to report earnings on March 30 before the open. Like most other Chinese battery stocks HPJ is down sharply for the year (-20%) and from its January high (-37%). Still valuation is one of the highest in the group and the company has to post very strong numbers to support the current short-term uptrend. The stock climbed 25% in the past five sessions probably in anticipation of the earnings report. Personally I would avoid the stock, but I have been wrong about HPJ in the past when it caught strong momentum and tripled in price from November until January.

Jade Art Group (JADA.OB) is sitting on one of the largest jade reserves in China but we do not know much about how the business is progressing. What we know is that the company had six sales contracts for raw jade in 2008, valued at $42 million and "did not acquire any new customers or enter into any new contracts with existing customers during the first nine months of 2009." There should be about $11 million revenue left to collect from those contracts or about as much as JADA reported for Q3/2009. The key here is to look out for new sales contracts and possibly new customer wins in the near future.

Lihua International (LIWA) is scheduled to report on March 31 before the start of trading. The company already pre-announced full-year 2009 revenue of $161.5 million and net income of $25.5 million (non-GAAP) representing 118% income growth over 2008. LIWA anticipates 2010 year-over-year growth of approximately 30-35% in gross profit and 35-40% in non-GAAP net income. The good performance of close peer Fushi Copperweld (FSIN) supports Lihua's high growth prospects. However, there are persistent rumours about possible accounting fraud at LIWA and the stock behaved very vulnerable to recent FUQI issues.

Lotus Pharmaceuticals (LTUS.OB) is another one of China's undervalued health care micro caps. The stock is up 12% for the year but at the current price of $1.43 it has given back most gains since the January high at 2 dollars. The Fourth Quarter 2008 has been Lotus' strongest so far and I do expect nothing less from next week's earnings report than a new record in quarterly net income, possibly more than $7 million. If Lotus delivers I call it an instant buy at current levels and it should be able to take out this year's highs pretty quickly.

China North East Petroleum (NEP) is now slightly down for the year after they had to restate several quarters and admitted to having made 'computational errors' and 'incorrect assumptions.' Plain numbers say the stock is undervalued here and should appreciate significantly this year. The company also announced record oil production for 2009 and drilling results exceeding their expectations. Watch out for the company confirming their 2010 guidance in the conference call and words about the possible impact of a revamped Chinese resource tax on FY2010 results.

New Energy Systems (NEWN.OB) is one of my favourite core holdings in the China Small Caps space as the company has improved in all areas: clever acquisitions, vastly improved investor relations and communications, actively pursuing Nasdaq listing in 2010. NEWN recently reaffirmed 2010 EPS guidance of $1.23, which makes the stock the cheapest one in the battery space. Fourth quarter results will be interesting as NEWN repeatedly held on to their low guidance and expectations are therefore pretty low. With a Nasdaq listing the stock should double from here ($7) and consolidated results including acquisitions will display favourably to 2009 numbers in the quarters to come.

NF Energy Saving (NFEC.OB) will file their 10-K next week. Preliminary 2009 results were announced late February with record revenues and EPS of $0.35. The company also said that an additional $3 million in revenue had to be moved to the First Quarter so those numbers should be not too bad either. I would watch out for proper 2010 guidance beyond the current fluffy note that the 'outlook appears favorable.' and some more details about an uplisting to a senior exchange. The market likes NFEC's industry as the performance of recently uplisted peer China Recycling (CREG) shows.

Orient Paper (ONP) reports Q4 and FY09 numbers on Tuesday, March 30, before the open. There shouldn't be many surprises as ONP has already pre-announced 2009 numbers with revenues up 57% to $102.1 million and EPS up 27% to $1.03. The stock is down 8% for the year and down sharply from its January high of $15.15. Orient Paper is targeting at least 45% net income growth for 2010 and as I pointed out in a previous article an expected revaluation of the Chinese currency should add significantly to ONP's bottom line.

Orsus Xelent Technologies (ORS) is a beaten down consumer electronics stock, trading 75% below book value. However, the company is still profitable, earned $0.20 per share for the first nine months of 2009, which compares favourably to the current share price of $0.48. There are many reasons for the depressed stock price: the company has almost no cash on its books, reported weak earnings, reduced margins, and a 53% drop in net income for the Third Quarter 2009, and pre-announced lower than anticipated full year sales in late December. The 2010 outlook in this last press release was cautiously optimistic, though. For the earnings report this week I would look only at liquidity problems, cash flow, and signs for a business turnaround in the second half of 2010. The company has multi-bagger potential if it can turnaround sales but currently it seems more likely that the stock is kicked out of NYSE Amex before any of this materializes.

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At April 04, 2010 3:41 am , Blogger aw said...

I guess this is the sixty-four-thousand-dollar question, but , how high do you think JADA can go? This spike has come before any real news on the stock's performance. Any idea what's caused the runup???

At April 04, 2010 1:19 pm , Blogger The Traveller said...

My guess is that the stock will collapse if the company doesn't report new customers or at least contract renewals in their upcoming 10-K. If they do then JADA has more room to run as it is barely trading above book value now. The stock has been recommended by at least two newsletters I know of (one of those in Europe) and the huge spike in volume possibly put JADA on the screen of many traders. You never know, though... the company is not communicating with shareholders and it is very hard to get any information about how the business is progressing. I can't rule out that some positive information that will be in the delayed 10-K has leaked already to some 'big pockets' and shares are actually accumulated for good here.

At April 04, 2010 10:24 pm , Blogger aw said...

That sounds logical. Hopefully, that's the reason, and it continues upwards a bit. Again, good stuff. Check your website pretty much daily.


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