XD Plastics and a Cheap Coal Stock
posted by The Traveller on Sunday, November 14, 2010

It's earnings season again and there are two stocks that caught my attention last week. I have added them to the China Model Portfolio at Friday's closing price.

China XD Plastics (CXDC) is currently trading at $5.62, down 29.84% for the year and down 23.54% from its April 23 high at $7.35. The Trading China Tracker Score is 10 (Buy).

China XD produces speciality plastics for the automotive industry. It is an established player with many multinational customers including Audi, Mazda and Volkswagen. The company reported very strong earnings for the third quarter, grew revenues more than 80% year over year, and beat analyst estimates by a wide margin. It is easily the cheapest of the U.S.-listed auto parts plays, yet the company doesn't get any respect. Rodman & Renshaw believes CDXC is a prime target for private equity at this price. It might be the next company to receive a going private proposal, following HRBN and FSIN.

U.S. China Mining Group (SGZH, formerly Songzai International Holding Group) is currently trading at $6.16, down 24.05% for the year and down 42.49% from its April 7 high at $10.71. The Trading China Tracker Score is 16 (Strong Buy).

This coal mining company posted strong numbers in a 10-Q filing on Friday. No press release has been issued yet, I would expect this to follow Monday. SGZH posted revenue growth of 92.7% and net income growth of 39.6% for the third quarter, net margins climbed to 21.5% in the period. The outlook for 2011 is fabulous. SGZH will resume production at its Xing An mine this month, production there was halted completely in February of 2010 for upgrades, and the company expects to be at full production by May of 2011.

For the next few quarters, SGZH will be able to post strong growth in both revenue and net income compared to the year ago period. I expect the company to generate FY 2011 earnings per share in the $1.30-1.50 range, which makes it easily the cheapest of the U.S.-listed Chinese coal stocks here. Remember that SGZH posted EPS of $1.63 and $1.73 for 2009 and 2008, respectively. And with the completed mine upgrades, intended to "increase efficiency, safety and boost production" at Xing An, it seems likely that the company will soon meet or exceed pre-closing production numbers.

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