Moral of the story. I love China and you can love China too – but make sure to do your due diligence each and every time you look at a new possible investment.
Posted by GeorgeTsiolis
at 4:57 PM on Monday, September 21st, 2009
PYWMYMI (Pim-Wi-Mee) is the act of Putting Your Money Where Your Mouth Is. Individuals like Muhammad Ali used it to back up their talk – but very few organizations are willing or able to PYMWYMI in an effort to back up their products or services. Sure, I can think of a dozen commercials with beautiful spokespeople throwing canned responses at me “our customers come first” but can’t remember the last time they backed it up with their pocket book.
THE COMPANY – CITY TELECOM
City Telecom (CTEL:Nasdaq) is a company that practices PYMWYMI. Via it’s main operating entity – Hong Kong Broadband Network - CTEL now claims Hong Kong’s largest fibre network subscriber base and, amongst many other reasons, has accomplished this goal by providing customers with a bandwidth guarantee of 2x their money back.
This was one of the first hooks provided to me by John Marco at Elite IR, so I took a closer look. What I found is a Chinese small-cap company with business achievements and a corporate culture that make me want to become a long-term investor. Here are just some highlights, followed by an in-depth webcast interview with CFO, NiQ Lai, at the very end.
THE FACTS AND FIGURES
$167 Million in revenues for 2008 and $93 Million in revenue in H1 2009
A brand new fibre network that completely bypasses the incumbent’s inferior network
Cost per Mbps that blows away the incumbent
Peak CapEx is over
Positive free cash flow and dividends
Steadily increasing ARPU
Valuations (P/E and EBIDTA) that are well below industry averages
WHY WALL STREET IS STARTING TO PAY ATTENTION
The company just completed a roadshow that criss-crossed the United States over the last 2 weeks. With the company’s share price up nicely, I have to conclude that fund managers liked what they heard. Here are 3 key points to consider:
1. Verizon FiOS at 1/5 the cost
Essentially, CTEL’s competitive advantage comes from having built a Verizon FiOS-like Fibre Network in Hong Kong. Due to Hong Kong’s extreme density of 16,000 people per square mile versus 890 for the US, CTEL’s cost per home pass of ~US$200 is about 1/5th of Verizon FiOS’s cost of ~US$1,100 (data according to CTEL).
2. US$385 million gross investment cost is almost 2x current Market Capitalization
It has taken CTEL 10 years to build its Fibre Network at a gross book cost of US$385 million, almost 2x current market capitalization of US$200 million. The replacement cost for the network would be much higher today, due to the congested in-building conduits and time value. With the company now delivering financial success, the strategic value of the network should be recognized by the market over time.
3. Valuation
The stock market has yet to reflect CTEL’s true valuation. Comp’s are trading at significantly higher multiples on EBITDA and P/E basis.
THE GREAT MARKETING
What you can’t see on the financial statements is simply how cool this company is. This isn’t relative to other Chinese small and mid caps, this is relative to all companies I have ever seen. For example, even if you can’t speak Chinese, you can clearly see the genius behind these three TV ads and how they almost have a Mac vs. PC feel to them by pointing out the incumbent’s weakness. Take 90 seconds out to watch them: Ad1 … Ad2 … Ad3
THE CORPORATE CULTURE
Finally, despite its’ small-cap status, CTEL has publicly announced its Big, Hairy, Audacious Goal (BHAG) To Become Hong Kong’s Largest IP Service Provider By 2016. More than just lip service, the company expects to achieve this goal by benchmarking itself against the best corporations in the world for many different categories. For example,Toyota Production System for back end process, Disney for outdoor customer service, HSBC Premier Premium Banking for Personal Account Serving, China Light & Power for service reliability and safety.
City Telecom also took 47 Senior Managers on a Japan study mission earlier this year to learn best practices from Panasonic and Toyota. Some of their most important takeaways?
Continuous Change Is Essential – Species that adapt, survive
It Is The Duty Of The Manager To “Worry” – A good manager thinks and plans faster than subordinates
Raising The Number Of Charcoals – A charcoal is a manager that fuels growth. CTEL was founded with 2 – but needs 3,000+ to achieve its’ BHAG
THE INTERVIEW
I sat down with NiQ Lai to discuss my findings and the company even further. It’s an audio interview with 17 accompanying slides, so enjoy and good luck with whatever actions you decide to take with City Telecom.
Posted by GeorgeTsiolis
at 6:54 PM on Thursday, September 17th, 2009
If you’re a “C” Level Executive at a Chinese small-cap company and considering an online investor relations strategy, here is one more great reason to finally go ahead with it – your future Asian investors are spending more time online than anywhere else.
If a picture is worth 1,000 words, this one will be worth a few thousand new investors if you’re wise enough to listen:
For a more in depth presentation on the power of online investor relations, please watch this 5-minute video (English and Chinese versions available).
Posted by GeorgeTsiolis
at 8:57 AM on Tuesday, September 15th, 2009
Congratualtions to City Telecom for being featured on TheStreet.com. This is a 1:45 minute overview of the company, so use it only to begin your due diligence. For your convenience, I’ve embedded the interview below
Nonetheless, the company is doing something right given it’s stock price advance as of late. We’ve tentatively booked an interview with Mr. Lai for this Friday, which will provide ChinaSecurities investors with even deeper information about the company.
Posted by JonathanMork
at 8:58 PM on Monday, September 7th, 2009
Click Here To See Our Other Solar Coverage
I would normally take the time to dissect an article and break it down – but this story out of DigiTimes is as concise as they get. Bottom line, if you own solar stocks, be prepared for a massive shakeout in 2010 due – in large part – to increased supply from China, which added an additional 1GW of capacity.
As a result, “The solar industry is at a critical stage and 50% of existing solar manufacturers may not survive 2010, according to The Information Network.”
Further support for this crisis comes from Solar panel manufacturers that have reported loses just in the past few weeks include Energy Conversion Devices, JA Solar, LDK Solar, Q-Cells, ReneSola, Solar Power, and Yingli Green Energy Holding.
1] The obvious reason – China is the fastest growing economy on the planet and nothing is going to slow down its ascent over the next 50 years and beyond. Investing in growth companies there just makes too much sense.
2] Great Results and Valuations - Many Small Cap Chinese Companies are listing in the US (OTCBB, NYSE Alternext and NASDAQ) with great financial results. Unlike many dubious US Small Cap Companies, Chinese Companies don’t seem to believe in losing money or failing to execute in a business plan. As such, 7-digit revenues and profits are very common.
From a valuation point of view, many Chinese companies became a victim of their own success in Q4 2008 and Q1 2009. Why? When the world needed to start liquidating, one of the first places they looked were China where most investors had significant gains to sell into. This resulted in the proverbial baby being thrown out with the bathwater and some great valuations.
China Agritech, Inc. is engaged in the development, manufacture and distribution of liquid and granular organic compound fertilizers and related products in China. The Company has developed proprietary formulas that provide a continuous supply of high-quality agricultural products while maintaining soil fertility. The Company sells its products to farmers located in 26 provinces of China.
On Augsut 17th, the company reported it’s Quarterly Revenues and Net Income for the Second Quarter of 2009.
Net revenue increased 56.9% year-over-year to $21 million
Gross profit increased 37.3% year-over-year to $8.9 million
Net income increased 91.2% year-over-year to $5.6 million
MY COMMENTS:
Anytime a company hits record revenue and income, you have to take a closer look and see if you’ve stumbled upon a company that is really hitting its growth cycle.
In this case China Agritech achieved earnings of $0.22/share for the quarter! Even if the company had no more earnings for the year, you’d have a decent P/E. However, in this case, we know the company has re-affirmed annual net income of $9.5 million, which should translate into approximately $0.38/share for the year. With the company trading in the $2.80 range, this translates into roughly an 7.5 P/E. I like that.
The story gets even better. With $16.5 million in cash, China Agritech has about $.80/share in cash. As such, if you strip that out of the share price, you are actually buying the business for $2.00 per share, which bring the true P/E down to about 5.25. The comany has no long-term debt and a current ratio of 5.4 : 1. This is an incredibly attractive opportunity.
As always, this is my view in a snapshot. It is intended to give you a running start into your research. Now, you have to do your own due diligence to make sure the valuation is not impaired by other factors including balance sheet items, lawsuits or any other negative events.
If you have any comments, I’d love to see them below.
YOUR RESEARCH STARTING POINTS FOR CHINESE SMALL CAP AND MID CAP COMPANIES
1. ChinaSecurities.com – ChinaSecurities.com tracks 250 of the best small cap and mid cap companies trading on North American exchanges. It provides you with the best of the best in two ways. First, the front page lists the best news of the day coming out of the space. It does so by giving you a text view of the best press releases by industry and via Chinese Stocks TV, a 5-minute broadcast every morning just after the open. Chinse Stocks TV is archived, so you can catch up on shows you missed.
Second, if you want to research each of the 250 companies to find candidates for your portfolio, it has a very intuitive directory that lets you quickly review each company on the master list, or parse it out by industry and exchange if you have a particular sector of interest. Cool stuff.
2. Right here on AGORACOM, you can refer to our China category for other featured Chinese Small-Cap Companies. As always, we will disclose any IR relationship with any public company. Given the sheer number of great Chinese Small-Cap Companies out there, you can expect us NOT to have an IR relationship with most of these companies.
1] The obvious reason – China is the fastest growing economy on the planet and nothing is going to slow down its ascent over the next 50 years and beyond. Investing in growth companies there just makes too much sense.
2] Great Results and Valuations - Many Small Cap Chinese Companies are listing in the US (OTCBB, NYSE Alternext and NASDAQ) with great financial results. Unlike many dubious US Small Cap Companies, Chinese Companies don’t seem to believe in losing money or failing to execute in a business plan. As such, 7-digit revenues and profits are very common.
From a valuation point of view, many Chinese companies became a victim of their own success in Q4 2008 and Q1 2009. Why? When the world needed to start liquidating, one of the first places they looked were China where most investors had significant gains to sell into. This resulted in the proverbial baby being thrown out with the bathwater and some great valuations.
China Wind Systems supplies forged rolled rings to the wind power and other industries and industrial equipment to the textile and energy industries in China. With its newly finished state-of-the-art production facility, the Company plans to increase its production and shipment of high-precision rolled rings and other essential components primarily to the wind power and other industries.
On August 17th, the company reported Strong Financial Results for the Second Quarter of 2009.
Net revenues increased 21.5% year-over-year to $13.6 million
Net income increased 26.2% year over year to $1.8 million, or $0.03 per diluted share
MY COMMENTS:
If you extrapolate the company’s $0.03/share earnings over the year, you could have a company with $0.12/share in profit for the year. With the company trading at approximately $1.30, you have an opportunity to buy into a Chinese wind company at just a little more than 10x earnings. I have seen better valuations out there – but if you like the wind energy business, this has a lot of appeal.
In addition, the company has announced a 1:3 reverse stock split, which is no doubt intended to help the company list on a more senior exchange. Typically, reverse split are bad for shareholders – unless they are done for an advantageous purpose and this definitely appears to be one.
As always, this is my view in a snapshot. It is intended to give you a running start into your research. Now, you have to do your own due diligence to make sure the valuation is not impaired by other factors including balance sheet items, lawsuits or any other negative events.
If you have any comments, I’d love to see them below.
YOUR RESEARCH STARTING POINTS FOR CHINESE SMALL CAP AND MID CAP COMPANIES
1. ChinaSecurities.com – ChinaSecurities.com tracks 250 of the best small cap and mid cap companies trading on North American exchanges. It provides you with the best of the best in two ways. First, the front page lists the best news of the day coming out of the space. It does so by giving you a text view of the best press releases by industry and via Chinese Stocks TV, a 5-minute broadcast every morning just after the open. Chinse Stocks TV is archived, so you can catch up on shows you missed.
Second, if you want to research each of the 250 companies to find candidates for your portfolio, it has a very intuitive directory that lets you quickly review each company on the master list, or parse it out by industry and exchange if you have a particular sector of interest. Cool stuff.
2. Right here on AGORACOM, you can refer to our China category for other featured Chinese Small-Cap Companies. As always, we will disclose any IR relationship with any public company. Given the sheer number of great Chinese Small-Cap Companies out there, you can expect us NOT to have an IR relationship with most of these companies.
1] The obvious reason – China is the fastest growing economy on the planet and nothing is going to slow down its ascent over the next 50 years and beyond. Investing in growth companies there just makes too much sense.
2] Great Results and Valuations - Many Small Cap Chinese Companies are listing in the US (OTCBB, NYSE Alternext and NASDAQ) with great financial results. Unlike many dubious US Small Cap Companies, Chinese Companies don’t seem to believe in losing money or failing to execute in a business plan. As such, 7-digit revenues and profits are very common.
From a valuation point of view, many Chinese companies became a victim of their own success in Q4 2008 and Q1 2009. Why? When the world needed to start liquidating, one of the first places they looked were China where most investors had significant gains to sell into. This resulted in the proverbial baby being thrown out with the bathwater and some great valuations.
China Kangtai Cactus Biotech, Inc. is a leading grower, developer, producer, and marketer of cactus-derived products, including nutraceuticals, nutritious food, health and energy drinks, beer, wine and liquor, extracts and powders, and animal feed.
On Augsut 13th, the company announced Record Results for the Second Quarter of 2009.
Second quarter revenue increased 30% to $6.5 million from $5.0 million in Q2 2008
Gross profit increased 80% to $2.7 million from $1.5 million in Q2 2008
Net income increased 37% to $1.4 million from $1.0 million in Q2 2008
MY COMMENTS:
The pace of Kangtai’s revenue growth accelerated in the second quarter with a year-over-year increase of 30% and a sequential increase of 96%. Anytime I see that kind of sequential growth, I pay attention and I’ll watch for the next Q to see if this was an extraordinary event or not. The 30% Y-O-Y growth isn’t anything to sneeze at either.
The company generated EPS of $0.07 this quarter, which translated into sequential growth of 105% and about 15% Y-O-Y. My suspicion is that we have a company that is back on track after suffering from the global issues in Q1.
Now, given the fact the company is trading around $1.00 and we know they’ve generated about $0.10 EPS in the first half of the year, we can probably safely guess a year-end EPS of $.20 on the low-end and $.25 on the high-end. I prefer to work with the low-end, which still gives the company an extremely attractive P/E of about 4.5 given the fact the stock is trading around $.90.
My only caveat here is that I can’t wrap my head around the Cactus business. It obviously has some legs in China but my lack of our experience with it here in North America means you have some research to do. This isn’t necessarily a negative. In fact, we may have stumbled onto a great business that the majority of North American investors are unaware of.
As always, this is my view in a snapshot. It is intended to give you a running start into your research. Now, you have to do your own due diligence to make sure the valuation is not impaired by other factors including balance sheet items, lawsuits or any other negative events.
If you have any comments, I’d love to see them below.
YOUR RESEARCH STARTING POINTS FOR CHINESE SMALL CAP AND MID CAP COMPANIES
1. ChinaSecurities.com – ChinaSecurities.com tracks 250 of the best small cap and mid cap companies trading on North American exchanges. It provides you with the best of the best in two ways. First, the front page lists the best news of the day coming out of the space. It does so by giving you a text view of the best press releases by industry and via Chinese Stocks TV, a 5-minute broadcast every morning just after the open. Chinse Stocks TV is archived, so you can catch up on shows you missed.
Second, if you want to research each of the 250 companies to find candidates for your portfolio, it has a very intuitive directory that lets you quickly review each company on the master list, or parse it out by industry and exchange if you have a particular sector of interest. Cool stuff.
2. Right here on AGORACOM, you can refer to our China category for other featured Chinese Small-Cap Companies. As always, we will disclose any IR relationship with any public company. Given the sheer number of great Chinese Small-Cap Companies out there, you can expect us NOT to have an IR relationship with most of these companies.
Posted by GeorgeTsiolis
at 9:33 AM on Thursday, August 6th, 2009
Congratulations to our friends over at ROTH Capital on completing yet another great transaction. I’ve seen a steadily increasing frequency of these announcements coming out of ROTH, which tells me that things are getting much better. Adding to this, a prominent attorney recently told me that M&A and Financing work has significantly increased over the last 3 months.
With respect to this deal, Harbin Electric sounds like yet another excellent Chinese company. You can read the details below but here is the excerpt I liked:
Through its U.S. and China-based subsidiaries, the Company operates three manufacturing facilities in China located in Harbin, Weihai, and Shanghai with a total of approximately 1,800 employees.
Transaction Information
On July 30th, Harbin Electric, Inc. announced an underwritten public offering of 6,250,000 shares of its common stock for a per share price of $16.00. The offering of the shares was made pursuant to a registration statement previously filed with the Securities and Exchange Commission. ROTH Capital Partners acted as the sole manager of the offering. Harbin Electric has granted a 30-day over-allotment option to ROTH Capital Partners for 937,500 shares at the public offering price.
Client Information
Harbin Electric (HRBN), headquartered in Harbin, China, is a leading developer and manufacturer of a wide array of electric motors with a focus on innovative, customized and value-added products. Its major product lines include linear motors, automobile specialty micro-motors, and industrial rotary motors. The Company’s products are purchased by a broad range of domestic and international customers, including those involved in oil services, factory automation, food processing, packaging, transportation, automobile, medical devices, machinery and tool manufacturing, petrochemical, as well as in the metallurgical and mining industries.
Harbin Electric has built a strong research and development capability by recruiting talent worldwide and through collaborations with top scientific institutions. The Company owns numerous patents in China and has developed award-winning products for its customers. Through its U.S. and China-based subsidiaries, the Company operates three manufacturing facilities in China located in Harbin, Weihai, and Shanghai with a total of approximately 1,800 employees. Each of the three manufacturing facilities is dedicated to a specific product line and is equipped with state-of-the-art production equipment and quality control systems.
As China continues to grow its industrial base, Harbin Electric aspires to be a pioneer in leading the industrialization and technology transformation of the Chinese manufacturing sector. To learn more about Harbin Electric, visit http://www.harbinelectric.com or visit the Company’s HUB here at ChinaSecurites.
Posted by Brett Goetschius
at 12:04 PM on Thursday, July 23rd, 2009
PIPEWire
July 14, 2009 2:41PST
The World Bank completed a PIPE investment in Suntech Power Holdings on Friday, providing the Chinese maker of solar panels with $50 million to refinance debt and switch to a higher-quality solar technology. Full Story
