Earnings Previews, Part 4
posted by The Traveller on Sunday, March 28, 2010

The fourth and last part of my China Small Caps earnings preview for the next week:

RINO International (RINO) will release results on Wednesday, March 31, after the close. Analyst consensus for the Fourth Quarter is EPS $0.49 with Rodman & Renshaw setting the street high with $58.3 million and $0.60 in revenues and EPS. RINO is a player in the very interesting and high growth environmental protection industry and should deserve a P/E multiple of 15 or higher with an earnings beat. The stock is down 17% for the year and is trading at less than 10x projected 2010 earnings now. RINO was trading between $18 and $33 this year and it is likely that wild price swings will continue after earnings.

Sino Clean Energy (SCLX.OB) pre-announced FY2009 numbers with their Third Quarter report. The company is expecting at least $10 million in net income on at least $40 million in revenues. For FY2010 net income should grow by 50% to at least $15 million. There is some confusion about the new facility that began production as the company stated that this additional capacity should contribute $7 million net income this year. But SCLX loves to provide guidance so we should get some clarity with the final earnings report next week. Rumours say that the company is preparing for moving its stock to a senior exchange which would require doing a reverse split first, not a bad idea to bring down the high share count of more than 100 million anyway.

Sino Gas International (SGAS.OB) is set to report on March 31 after the close, followed by a conference call the next morning. The stock is very thinly traded and about flat for the year. Sino Gas is profitable and announced back in January that it secured additional bank loans and private capital to fund its future growth. I have no opinion on the stock at this time and will not take a position whatever might happen this Wednesday.

Songzai International (SGZH.OB) is one of those China Small Caps that leaves investors pretty much completely in the dark. If that would change the stock will likely take off or would at least have participated in the huge China coal stocks rally this winter. The stock is up 20% for the year but still the worst performer in the coal group and the only one that didn't see new highs in 2010. Fundamentally SGZH is cheap and I would call it a buy as soon as the company shows any interest in improving their investor relations and improving communication in general.

SinoHub (SIHI) will release its FY 2009 financial results on March 31 before the market open. I like that the company is actively trying to improve investor relations and telling their growth story by hiring an IR firm and communicating regularly with investors. I don't like that their share count is exploding and that I do not fully understand their business which keeps me from taking a position in SIHI.

Skystar Bio-Pharmaceutical (SKBI) is one of my favourite core holdings in the large group of China Small Caps. I believe this company is widely misunderstood and when (not if) that changes the stock will trade in the $20's. Misunderstood because Skystar is despite its name not a healthcare stock as it serves the agricultural and food industry. Misunderstood because the stock took a beating last winter for diversifying its business, positioning itself for higher growth in an additional market segment, at the price of pushing forward certain vaccine revenues by ONE quarter which resulted in lowering FY 2010 guidance. SKBI is flat for the year and analyst consensus for the Fourth Quarter are $10.6 million and $0.31 for revenues and EPS.

SORL Auto Parts (SORL) will report tomorrow, March 29, before the market opens. The company is expected to report Q4 revenues of $36.25 million and EPS of $0.19. The stock ran up nicely in the past few sessions and is now up 12% for the year, pretty much in line with the auto parts sector. For further upside I would want to see EPS guidance for 2010 coming closer to the $1 mark, right now the stock seems fairly valued with a forward P/E of about 14, but you never know with those auto parts stocks as apparently some analysts believe that peer CAAS deserves a multiple of 30.

SkyPeople Fruit Juice (SPU) pre-announced 2009 net income of $15-$16 million on revenues of $58-60 million. The company has already provided FY 2010 guidance for net income between $19 and $21 million, representing roughly 30% income growth. The stock is one of the big winners so far this year and is up 42% since January.

Sancon Resources Recovery (SRRY.OB) is a bit of a mystery to me. The company seems to have a very solid business, recycling of industrial and commercial waste like plastic, paper and glass, and selling the recycled materials to Chinese manufacturers. The business seems almost risk-free, the company is generating lots of cash, is solidly profitable for many quarters, yet the stock is completely off the radar and SRRY is barely trading 10,000 shares a day around $0.40 or 4x 2009 earnings. The last 10-Q filing is full of statements like "tremendous demand for recycled materials" , "we anticipate rapid growth" and "Sancon is uniquely position to benefits from these initiatives as an early mover in the industry and one of the few foreign companies being awarded a waste management license in China. Sancon has for the past years developed one of the largest collection and recovery network in China for commercial wastes and expects to expand into other areas of environmental services." (bit of Engrish here).

Telestone Technologies (TSTC) has repeatedly reaffirmed its 2009 revenue guidance of $70 million, I don't believe that actual results will differ much from that number. Unusual for a Nasdaq company, there is no announcement for the actual earnings release and conference call yet (unless I missed it). TSTC jumped on everyone's radar screen with very strong Third Quarter earnings and has been a member of the IBD 100 for most of the year. The stock is down 10% YTD and who knows, maybe Q4 earnings and guidance will refuel the rocket ship. I have no idea how the stock will react this time, but I would definitely put it on my watchlist for the coming week.

Tongxin International (TXIC) is by far my favourite of the Chinese auto parts stocks. The company pre-announced Q4 revenues of $29.5-$32.5 million (net income should be $4.8 to $5.0 million) and full year earnings of about $17 million (EPS $1.29) on $124 million revenue. For 2010 Tongxin expects revenue to grow about 25% to $150-$160 million. At the current price of $7.62 TXIC is by far the cheapest of the auto stocks with a trailing P/E of just 6. Compare that to SORL or CAAS and you see why I like it as a value play in this sector.

ZST Digital Networks (ZSTN) will be announcing Fourth Quarter and FY 2009 numbers on March 30 before the market opens, followed by a conference call mid-morning. The one analyst, Rodman & Renshaw, expects the company to report $28.1 million and $0.29 for revenues and EPS. The full year should come in at $98 million revenues with a fully diluted EPS of $0.91. And for 2010 the EPS number should rise about 28% to $1.17. The stock is currently flat for the year and trading range-bound with strong support at $8. ZSTN probably has to beat estimates by a nice margin in order to break out of this range and move back to January highs in the high $11's.

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