Changda International Holdings, Inc (CIHD) is based in the Shandong province of China; its operations include production and distribution of chemical and microbial organic-inorganic compound fertilizer. The company has a multi-brand product portfolio with more than 10 product lines under the 2 brands - Changda and Fengtai Wosida - that cater to various consumer needs in the fertilizer market. With decreasing arable land and the resultant need for farmers to boost crop yields, there has been a growing demand for fertilizers, particularly organic/inorganic compound fertilizers that preserve soil fertility and increase yields.
Between 1998 and 2007, overall fertilizer consumption grew from 40.8mmt to 51.1mmt, with compound fertilizer consumption growing at a CAGR of 6.9% to reach 15mmt. The demand for fertilizer is expected to continue to increase further given the government’s objective of self-sufficiency and the limited area of arable land. According to industry sources, the fertilizer industry is estimated to have grown at 30% annually during 2005-2009. To capitalize on such strong growth opportunities, CIHI is seeking to double fertilizer production capacity from the current 200,000 tons to 400,000 tons by Sep-09. The company has already invested $4mn, with another $19.7mn earmarked towards the completion of this expansion. The company’s annual utilization rate presently stands at more than 100%, indicating the robust demand for fertilizer and related products. We believe that the company will continue to operate at maximum capacity utilization levels. The production capacity is well-supported by an extensive distribution network with 80,000 distribution centers across 18 cities in the Shandong province through an exclusive agreement with China Postal Logistics. The fertilizer industry in China is highly fragmented and provides consolidation opportunities in the future. CIHI is in the process of establishing a considerable presence in the industry and will likely look at strategic acquisitions in order to expand capacity further and establishing footholds in different regions.
We expect the company to report an EPS of $0.15 and $0.23 for FY09 and FY10, respectively. (pre-split)
The above company description and eps guidance are from Rodman & Renshaw, September 1, 2009.
Rodman & Renshaw initiated coverage on CIHD in September 2009, with a 12 month price target of $2.75/share. (prior to 1:3 reverse split made on 11/17/09)
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