LJ International (JADE)

[momentum74]

link JADE 3.89 DD pasted from a yahoo poster Research Note
I saw this on the yahoo board.


21-Nov-10 07:10 pm I received a research note from a private fund manager. It might be published soon.

LJ International, Inc. – Stock Symbol: JADE

ENZO Retail Business Model

The recent third quarter financial report demonstrates Mr. Yih’s long term vision: mine-to-markets business model for maximizing profit margin. Mr. Yih is LJ International’s founder, Chairman, and CEO of the company.

According to the mine-to-markets model, the key is expanding the retail business. The ENZO store count is 124 currently, and will increase to 140 by the end of this year and 200 by the end of year 2011. The ENZO Division will be expanded to 1,000 stores afterwards and is financed through a planned IPO in Hong Kong in 2012 – 2013. The ENZO IPO valuation in Hong Kong will be at least $300 million.

ENZO average annual revenue per store is estimated about $700K in 2010, $805K in 2011, and $925K in 2012. The retail revenue will reach $1 billion milestone when the store count increases to 1,000 in 2013-2015, while the gross profit will be over 50% of retail revenues (or over $500 million) since its retail gross profit was 51% of retail revenues in 3Q 2010. JADE’s market valuation could be about $2 billion to $3 billion then.

To reach 1,000 stores, LJ International mainly uses the fund raised from Hong Kong IPO to buy other retail companies, as it is actively identifying and searching for the target companies in China.

JADE Valuation

Using our model, the estimated revenue and EPS in 2010 are $139,002 million and $0.42 (excluding one-time gain of $0.06), which are 26% and 180% increases from $110,523 million and $0.15 in 2009 respectively. The estimated revenue and EPS in 2011 are $181,753 million and $0.87, which are 31% and 107% increases from 2010 respectively. The estimated revenue and EPS in 2012 are $245.130 million and $1.40, which are 35% and 61% increases from 2011 respectively.

JADE market valuation will growth from current under $130 million to over $400 million in 2011, and over $1 billion after 2012 by considering that ENZO’s PE multiple in Hong Kong will be around 30 - 35 and that LJ International is a majority share-holder of ENZO business. JADE will reach multi-billions in 2013-2015 in parallel with ENZO’s success in China market.

JADE Target Price:

$7.00 in 2010 as the store count increases to 140 and PE=14.5;
$14.00 in 2011 as the store count increases to 200 and PE=16;
$25.00 in 2012 as it benefits from the planned Hong Kong IPO and PE=18;
$30-$50 in 2013-2015 as it benefits from 1,000 store count.

LJ International as One of Successful Chinese Companies

China’s economy has averaged 10% growth every year since 1980. In 2009, amid the worst global economic crisis of our lifetime, China posted an impressive 8.7% growth in GDP. Some successful Chinese companies have already surpassed the western counterpart companies. Pick right Chinese companies to invest is the key for success. We believe that JADE is one of them. With the higher profit business model: mine-to-markets, LJ International will become one of the largest jeweler companies.

Disclosure: Long JADE


Disclaimer

This report is based on public information that we assume to be true and correct. The investment may not be suitable for all investors. Consult with your financial advisor before making any investments.


Sentiment : Strong Buy
Rating :
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