China Ceramics Co. Ltd. (CCLTF)

[soulstealer]

Ah, you're right. I can't read english looks like :). I emailed PR, they replied they are looking into it and will let me know soon.

[redman_2014]

The way I read it the PR they mention will probably be reporting the actual earnings instead of when the earnings release will be.


-Adam

[soulstealer]

:)..only info I could find says before end of march, but also says they will have a PR out before. wierd, nothing out yet.

http://finance.yahoo.com/news/China-Ceramics-Co-Ltd-prnews-1794471604.html?x=0&.v=62

The Company expects to hold a conference call to discuss audited results for the fourth quarter and fiscal year 2009 at the end of March 2010. Prior to the call the Company will issue an earnings press release and provide dial in information for investors wishing to participate on the call.

[redman_2014]

I think I must have dreamt that earnings were today because I was the one who posted about it but cannot for the life of me find where I read it. Sorry for the 'possible' misinformation, but I'm still holding out that I did read it somewhere otherwise I may be going crazy ;0

Doesn't matter a lot anyways since it will be by Wednesday at the latest.


-Adam

[soulstealer]

Is the earnings release after market today? Cannot find info anywhere. Thx.

[stocktrader2222]

That's fine, to each their own, but your concerns aren't happening overnight and this isnt a long term investment...they can announce the intention of a redemption any day. Good luck to you though! We are both going to be very happy with CCLWF I think!

[redman_2014]

I wasn't considering the cashless redemption when determining the breakeven point. Using that redemption method I do see how it's possible to get a cost basis below $4.

So then the decision is whether you believe they will use a cashless redemption or a $5 redemption when they make the warrants effective.

I personally will still stay on the sidelines because of my initial reasons of not liking the business model and also the inherent risk of being at the whim of casino management. My major concern is that AERCF will start to do well and the casinos take notice and either ask for a larger cut, or create their own departments and stop outsourcing to AERCF. Gamblers can be greedy and I just can't put it past them that some of the casinos won't attempt an oust in the foreseeable future. They may not, but I'm not about to risk my hard-earned money fighting the nature of the beast and since I consider this a possibility it's impossible for me to discern the future cash flow potential of AERCF.


I'm sure you will do well with this investment, it's just not for me.


-Adam

[viking86]

Thanks for clarifying the cashless option. It would be great for warrant holders to convert w/o paying anything extra at a cost basis of max 3.92! In this case, the "half" diluted O/S will be approx.:

12.5M + (14.6M/2) = 19.8 M shares (instead of fully diluted= 27.1M shares)

and the 2010 eps at earnout will be:

36.8 / 19.8 = $1.86 (instead of $1.36)

Assuming a share price of $15, the adj. PE will be:

15/1.86= 8 (cashless option)

For comparison, a PE of 8 in the fully diluted case (warrants redeemed for $5/sh) would yield a share price of only $13.6. Thus cashless means faster price appreciation since the diluted eps will be comparatively greater. Now I see why you said Mgmt may prefer the cashless option since they dont really need the extra cash.

[stocktrader2222]

On #2....no that isn't the case...because if they reedeem and you get your warrants converted over...your cost basis per share is less...

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=48275896

So, let's assume possible cashless exercise and the best scenario for the company, that would mean the minimal dilution. That would be when common are traded at around $8.50 for the last 3 days before redemption.

Then, the formula for calculating the common shares all warrant holders will receive when exercising would be as following:

N [warrants] = N * (current_common_price - exercise_price) / current_common_price [shares]

10k warrants = 10k * (8.50 - 5.00) / 8.50 = 4,117 shares

So, your 10k warrants get exchanged for 4,117 shares without any cash from you, assuming the price of common is at 8.50 at a time of redemption call. The higher the price, the more shares you will receive.


Company doesn't get any cash for it, but the dilution is minimal. With normal redemption, they would get cash ($5 for each warrant), but all 10k will be added to O/S.

If the common stays at 9.50, then for your 10k warrants you get 10k * (9.50 - 5.00) / 9.50 = 4,736 shares.


Again, the formula depends only on common_price prior to redemption and exercise price.

-------------------------------------
So let's say you bought 10k at $1.65 that's $16,500 cash outlay
Now after the conversion let's say you get 4200 shares that means to break even your cost basis is $3.92 for the common...

You see what I'm saying now? The risk/reward is fantastic IMO especially since they got to that 20 day above $8.50 requirement already.

[redman_2014]

AERCF - Redemption

1) Probably is the right word and you may be right, I just have trouble getting my mind around the business model. To many uncertainties for me. But again that's me, you may know things I don't which justifies this investment. You are right you may be able to sell the warrants before conversion but everyone else might be thinking the same thing which will dampen the warrant price, so you may never see $3.

2) If you spend $1.65 for the warrant and $5 for the conversion, it will cost you $6.65 in total cash outlay, so breakeven is $6.65. You may be buying more value than that but the total cash contribution will be $6.65/per common.

1) Huh? If the company announces they wish to reedeem, the warrants will probably jump past $3 and you can sell the warrants before any conversion.

2) Furthermore, if you do hold your basis price would not be $6.65 edj on the other board figured it out, I think its something like the cost basis would be in the high $3's...so I wouldn't worry about it.


-Adam

[stocktrader2222]

Furthermore if you look at slide 20 of the investor presentation for AERCF

http://sec.gov/Archives/edgar/data/1417754/000114420410012989/v177042_ex99-1.htm

You will see that they have incentive shares for 2009 at 16mill-19million in net income..most of these SPAC's have incentive shares at levels they find to be very obtainable...they've made 9million so far in 2009 and the last quarter earnings comes out late April early May, I'm now assuming that quarter will be somewhere between 6-9 million in net income.

Furthermore you will see in 2010 they have incentive shares between 36-40million in net income...I dont like how there may be a ton of shares added through incentives..but even so if they hit $38million in net income for 2010 they will have about 28million O/S I believe not including the warrants for treasury method EPS of $1.35

With that type of net income growth from 2009-2010 (these are obviously assumptions from their slides) the growth would be near or over 100% in net income YOY and you think the market will assign a crappy P/E for that?

I think the stock could very well be in the $7.50-$10.00 range for a while based on valuation, and that puts the warrants with no redemption at $2.50-$5...currently they are $1.65

[stocktrader2222]

"There is the risk that the common will tank after redemption to below the $6.65 breakeven point and then your only course of action will be to hold the common longer-term and hope for an upswing, or sell out at a loss."


Huh? If the company announces they wish to reedeem, the warrants will probably jump past $3 and you can sell the warrants before any conversion.

Furthermore, if you do hold your basis price would not be $6.65 edj on the other board figured it out, I think its something like the cost basis would be in the high $3's...so I wouldn't worry about it.

Plus what's so hard to figure out about the commons, they are going to be making probably around $1EPS for 2009 using the treasury method and they are growing. Call up IR or email them the guy will respond to you.

Who is going to be kicking them out of china like some others on here are concerned about, that's a pretty ridicolous argument in my opinion. They also need like no working capital, they don't need the cash really, that's why I think they will do cashless redemption if they do.

My point about it needing to be above $6.65 by end of 2013 was that its relatively low risk to hold these warrants because even if they don't get reedemed (which shoots warrants past $3 imo) you can safely hold onto the warrants and have 3 yrs to break even at $6.65

http://sec.gov/Archives/edgar/data/1417754/000114420410012989/v177042_ex99-1.htm

Also they are getting stuff started in south korea, who cares that they dont own anything? They need hardly any cash and they have no debt.

[redman_2014]

Since I am unable to value the common effectively I don't know what the warrants potential value is. There is the risk that the common will tank after redemption to below the $6.65 breakeven point and then your only course of action will be to hold the common longer-term and hope for an upswing, or sell out at a loss.

I don't consider a warrant investment unless I am 100% confident in the business and it's prospects. That allows a much higher chance of success because my time horizon can be considerably longer.

I may be(and probably are)wrong with AERCF, so take this as my personal decision to avoid the obvious disconnect in value between the warrants and common.

As for China Ceramics I am quite certain both the common and the warrants will eventually be worth more than they are now, and will be happy to hold the common after redemption since I believe the value will still be compelling.


-Adam

[viking86]

There is a chinese saying: " the most dangerous place is also the safest place to hide out" hehe... But I fully agree with your take. I am not considering this as a LT holding. But the warrants seem indeed to be a good play for a quick double, don't you think? Also, they seem to have plenty of revenue momentum right now as per latest PR.

[redman_2014]

AERCF

I personally don't like the nature of the business. They own nothing, have no exclusive agreements, and revenue/profit fluctuates a great deal. Who says some of those casinos don't boot them out and start up their own promotion departments? Unlikely to happen in a majority of their locations I know, but the potential risk is greater than I wish to take, at any price.

The value may be there but I will sit on the sidelines for now.


-Adam

[viking86]

so even if the warrants are called now, one can keep the warrants until Oct 2013? I thought it is a forced redemption, after 30 days of the call they become worthless.

[viking86]

why do you think they would do the cashless option? The warrants if converted not only bring them lots of cash but also substantially improve the liquidity of the stock. That would help a lot with a future uplist I would think.

[stocktrader2222]

They already met the 20 days out of 30 requirement above $8.50

There is no guarentee the company will call in the warrants, but that's what I'm shooting for, they will probably do the cashless option if they do call them in.

They need to register the warrants with the SEC first, but they can PR their intention to redeem the warrants, at that point I believe warrants will trade above $3 for 100% gain with relatively little risk, given that you have till october 2013 at $1.65 for the common to be trading at $6.65 or above..

[viking86]

AERCF: Just did a quick DD here. Yes, warrants seem indeed pretty undervalued here although redemption seems imminent. As of yesterday's closing, commons traded at 9.75, higher than redemption value at 8.5. With a strike of $5 (?), current intrinsic value is 4.75 but warrants closed at 1.65.

If I see it correctly, with 14.6M warrants at $5 strike, the redemption cash is 73M or C= $2.69/share based on 27.1M diluted shares. Minimum earnout target for 2010 is 36.8M, so on a fully diluted basis:

2010 eps = E = 36.8/ 27.1 = $1.36

2010 forward PE= (P-C)/E = (9.75-2.69)/1.36 = 5.19

Pretty low compared to the earning growth rate of past 4 years, 39% in 2007, 53% in 2008, 41% averaged 2008-2010E which includes a negative growth for recession year 2009. If we slap a modest forward PE of 7 to 8 on the stock , I get a 2010 target of $12.2 to $13.6 for the stock price. Good thing is the common is already trading much above redemption value of 8.5, meaning warrants should trade pretty soon at least $3.5. Anybody?

[viking86]

thanks Adam.

[stocktrader2222]

Looks like some dummy must have sold at market with no limit set to push this down to $1.48

[redman_2014]

2010 Projections for CCLWF warrants

I got bored so decided to do the 2010 projections aswell.

Share price: $8.90
Shares o/s: 10.16M
Warrant price: $1.60
Warrant strike price: $7.50
Warrants o/s: 15.55M(will raise $116.5M when converted)

The projections include the cash and use 25.7M o/s(includes the warrants) and are based on expected 2010 numbers:

2010E Net Income = $31.40M($1.22 eps using 25.7M o/s)
$8.90(share price) - $4.57(cash) = $4.33 adjusted share price.
$4.33/$1.22(Expected 2010 eps) = PE of 3.55

Projections(using 2010E eps of $1.22):

PE of 5 = $10.67(intrinsic value of warrants = $3.17)
PE of 6 = $11.89(intrinsic value of warrants = $4.39)
PE of 7 = $13.11(intrinsic value of warrants = $5.61)
PE of 8 = $14.33(intrinsic value of warrants = $6.83)


Warrant potential:

Share price of $11 = $3.50(119% upside)
Share price of $12 = $4.50(181% upside)
Share price of $13 = $5.50(244% upside)
Share price of $14.25 = $6.75(322% upside)


Notes:

In their investor presentation they mentioned that sales volume for Q4 2009 was +20.8% year over year from Q4 2008, and their preliminary results for Q1 2010 show a 36% increase compared to Q1 2009, so it looks as though they are accelerating growth going into 2010. Mr. Jia Dong Huang, Chairman of China Ceramics "Our outlook for 2010 remains positive and our backlog of orders for delivery in the first quarter stands at approximately $35.5 million, representing an underlying annual growth rate of 36% compared to the first quarter of last year."


Summary:

It only requires a forward PE of 8 to make it to the $14.25 redemption price for the warrants. The annual report next week and the Q1 report in a month or two will provide a great deal of clarity as to whether the $31.4M earnout target for 2010 is achievable.


-Adam

[stocktrader2222]

AERCF is the common, AERLF are the warrants

[viking86]

what's the exact symbol of AERLF ?

[bUrRpPPP!]

Nice work redman!

[GorillaGorilla]

Thanks for laying that out... eom

rich

[redman_2014]

Projections for CCLWF warrants

Share price: $8.90
Warrant price: $1.60
Warrant strike price: $7.50

Here are some projections including the cash and using 25.7M o/s and using expected 2009 numbers:

2009E Net Income = $23.77($0.93 eps using 25.7M o/s)
$8.90(share price) - $4.57(cash) = $4.33 adjusted share price.
$4.33/$0.93(Expected 2009 eps using 25.7M o/s) = PE of 4.65

Projections(using 2009E eps):

PE of 5 = 9.22(intrinsic value of warrants = $1.72)
PE of 6 = 10.15(intrinsic value of warrants = $2.65)
PE of 7 = 11.08(intrinsic value of warrants = $3.58)
PE of 8 = 12.01(intrinsic value of warrants = $4.51)
PE of 10.41 = 14.25 conversion price (warrants = $6.75)

Warrant potential:

Share price of $10 = $2.50(56% upside)
Share price of $11 = $3.50(119% upside)
Share price of $12 = $4.50(181% upside)
Share price of $14.25 = $6.75(322% upside)


Downside risk:

Housing industry has disruptions. They are expecting 20-30% growth in 2010 so that provides a cushion if the bottom falls out of the industry(They already have orders for $33.5M for Q1 which is 30%+ higher than Q1 2009). Right now they are producing at 100%+ capacity and have to outsource to fill orders. They will be able to shift that overflow to the new factory.


Summary:

I don't consider the common real compelling at present levels, but the warrants I believe will eventually be worth north of $4.00 which allows for a 150%+ appreciation from today's price of $1.60. The 10-K should help CCLTF become a little less unknown. I don't think it's a far stretch to expect the common to trade in the $11-13 range within the next few months.

Note: I only used 2009 numbers. The story is much more compelling if you use 2010 numbers.


-Adam

[viking86]

if you dont count the 116M warrant conversion cash, then don't count warrants as full shares in the O/S. Either use the treasury stock method or the "substract cash" method: P/E= (P-C)/E:

http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=tm&bn=101349&tid=564&mid=571&tof=1&rt=2&frt=2&off=1

[redman_2014]

You're right, the earnout shares will be granted in 2010 and will bring o/s to 10.18M.


-Adam

[viking86]

ok, the difference is the 1.2M earnout shares for 2009. I dont think we can include that for 2009 eps calculation since those shares have not been issued as of Dec31, 2009.

[redman_2014]

It's still unknown.

The pps will move eventually. Plus many investors don't know how to value a company that has a lot of outstanding warrants. I didn't either until a couple months ago. The earnings release and the 10-K should help bring some attention to our little tile company.

Give it time and I think we will be rewarded :)


-Adam

[tilong22]

Adam:

The warrant dilution will suck in 116MM capital. Is that too much capital involved keeping temporary lid on upside of PPS of both warrants and stocks?

Thanks

[redman_2014]

March 29th is earnings.

I glanced at AERCF but haven't had a chance to fully dd it yet.


Thanks also for the discussion.


-Adam

[stocktrader2222]

Makes sense to me, thank you for the rational discussion with me. Can't wait for earnings, has there been any set date in March yet?

You might want to look at AERLF by the way, I like that one a lot given the warrants can already be redeemed since its held over $8.50 for the 20 out of 30 day policy...the commons (AERCF) priced too high probably right now, but the intrinsic gap is still huge

[redman_2014]

I didn't imply the $116.5M would be raised in time to pay the capex, I said 'if' they had that cash it 'could' be beneficially used for that purpose. I know the terms of the warrants and you are right about $14.25 being the level required in order to make them callable.

'So they don't have $100million in cash on the books.'And they also don't have an extra 15.5M shares outstanding. But if the 15.5M do become outstanding the company will have $100M+ in the bank. You cannot mention the one without the other, therefore I don't think it's right to fully dilute your estimations(using 25.7M o/s) without somehow accounting for the cash. The treasury method tries to account for it, but the cash method I mentioned also does(thanks Fernando for showing an alternative method to treasury). An average of the two is probably the best course of action. The March presentation has a slide for the treasury method valuations using $6 $10 and $14.25 price points.


-Adam

[stocktrader2222]

Yeah but you are also implying that the $116.5million will be raised from the warrant conversion to pay for the $40million CAPEX...but they cant redeem all the warrants unless common is over I think $14.25 for 20 out of 30 trading days.

So they dont have $100million in cash on the books...

[redman_2014]

They will raise $116.5M from the warrant conversion. That's $4.57 per share that needs to be considered. The warrants become enticing once you take that into account. I don't consider the common a good investment right now since the upside is limited to (my guess) $11-13 in 2010.

If you take your fully diluted range of $6.48 to $7.36 and add back in the $4.57 cash/per share, you get $11.05 to $11.93. For 2010 your range was $8.00 to $9.12. That becomes $12.57 to $13.69 with the $4.57 in cash added back in.

You may disagree but a company with $100M+ in cash on the books(which after conversion will be half their market cap at current price levels) is a lot more enticing than a company without that hoard of cash; and shareholders will also know they are safe from the threat of a capital raise in the foreseable future, especially since China Ceramics has stated they have planned capex of $40M for the next couple years to add production lines in their new factory.


-Adam

[stocktrader2222]

Yes but SPAC investors always look at the fully diluted total, which will be 25.7million

If they hit their 23.8million target (I'd imagine they would they put out this presentation in March...FY 2009 should have already been known to them)

then you have 23.8/25.7 = .92 EPS keep in mind many of these SPAC's trade a 7-8x P/E = $6.48 to $7.36 on a fully diluted basis

Also many of these SPAC's have 0 debt, this has almost 11 million


For 2010:

31.4 million net income target, fully diluted including warrants would be 27.5, EPS = $1.14 EPS

$1.14EPSx 7-8= $8-$9.12

Currently CCLTF is at $8.90

I own shares here and not here to bash, just playing devils advocate.

[redman_2014]

Here is the breakdown:

8.95M outstanding common
15.55M warrants
1.2M potential 2009 earnout
25.7M fully diluted total

2010 - 1.8M earnout if they hit 31.4M net income
2011 - 2.18M earnout if they hit 43.5M net income

Keep in mind that 2009 eps should be $2.65 or higher since it will be calculated using a maximum of 8.95M shares. That is based on $23.77M net income for 2009 which was recently provided by management. Earnings come out March 29th.


-Adam

[viking86]

For clarification: how many warrants are there ? I think it's 15.5M. Plus 8.95M commons, that should give us a fully diluted share count of 24.45M, right?

[viking86]

The warrant's ticker is CCLWF.OB.

[redman_2014]

Sorry about replying unnecessarily. I was answering mail and didn't look at the board beforehand. Oops :)


-Adam

[redman_2014]

The warrant symbol is CCLWF.


-Adam

[lmcat]

That works but how do you find the symbol? I use SOGO and E*Trade.
Thanks,
lmcat

[GorillaGorilla]

cclwf - try this

[lmcat]

I own CCLTF but would like to know more about the warrants. How do you find the symbol and how do you buy them? I tried CCLTFW but that gave me "no symbol found".
Thanks
lmcat

[saltvine_00]

Good point about the cash from the warrants I was to focused on the dilution!.. thanks adam

- saltvine

[redman_2014]

The cash from the warrants has to be included in the estimations otherwise they will be too skewed towards the negative. The warrant redemption would raise $116.5M or $4.57/share(using 25.5M shares), and for comparison the entire market cap of the company as of today is only $80M(using 8.9M shares).

Valuation estimation including the cash and using 25.5M o/s:

$8.90(share price) - $4.57(cash) = $4.33

$4.33/$0.93(Expected 2009 eps using 25.5M o/s)

Trailing PE = 4.65

Projections(using expected 2009 trailing eps)

PE of 5 = 9.22(intrinsic value of warrants = $1.72)
PE of 6 = 10.15(intrinsic value of warrants = $2.65)
PE of 7 = 11.08(intrinsic value of warrants = $3.58)

They are expecting 20-30% growth in 2010 so that would dramatically change the potential value of the warrants. The common is not real compelling at present levels, but the warrants I believe will eventually be worth north of $4.00 once CCLTF is discovered. The 10-K should do wonders for that. I don't think it's a far stretch to expect the common to trade in the $11-13 range within the next few months.



-Adam

[saltvine_00]

I am looking at the warrants, risk reward seems quite decent at this stage but the common seems to have a heavy ceiling on it.

so lets say we get to $14.50 this year, that would put us at around 25.5 million shares outstanding with net income of 23.8 million. or around .93 per share for 2010

give that a pe of 10-15 and price is $9.30-13.95

going forward to 2011, 29.6 mil shares and net income 31.4 around 1.06 eps, pe of 10-15 is $10.6-$15.9

is this a reasonable expectation? I guess the real upside would come if people gave this a pe of 20 etc, but the shares dilute out the upside pretty well once warrants are redeemed and shares are released

It makes perfect sense to me to buy the warrants for $1.60 and sell them for $4.0-5 when this is in the 12-13 range.

Any thoughts?

[stocktrader2222]

Thanks for your response, seems very reasonable to me. I suggest you may want to look at AERLF.OB as they have met the 20 out of 30 day requirement to call in the warrants...the strike is only $5 they expire in late 2013, the warrants priced at $1.70 with common at $10....clearly common wont stay at $10...but your risk level with the warrants is a 3 yr time period for common to be at least above $6.70

In reality the gap is way too big here, these warrants should be $3+