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CBPO will sell lots of products as H1N1 takes hold in China. And, unfortunately, as of this week it looks like H1N1 is really taking hold.
http://www.bizchina-update.com/content/view/2639/2/
China's total number of confirmed cases of the H1N1 Swine Flu cases has reached 10,000, "with 1,118 new cases confirmed in the past 48 hours," according to the Ministry of Health.
Over 11% of all reported cases have been reported in the last 48 hours. It's there and it's spreading. Get ready.
SGTI chart looks like
the time to buy will be after they report earnings, not before. And anyhow, seems like we can all buy all we want at $1.20!
http://stockcharts.com/h-sc/ui?s=SGTI&p=D&b=5&g=0&id=p79203973751
Yeah. That was for GU's reporting period ending 30jun09. That's the same reporting period that CCGY already had their conference call for.
This is the conference call I referenced earlier.
In that call they mentioned that their feedstock costs were down about 8% yoy, but depressed selling prices kept biodiesel margins down around 4%. GU is going to be buying as much feedstock in the region, so expect that to continue to help feedstock costs.
Meanwhile, biodiesel ASP went from 3608 RMB/ton in 1q09 to 3870 RMB/ton in 2q09. Looks like GU had a little higher average selling price due to their geographic diversity. Probably the price in CCGY's selling region is a little lower due the the GU/CBI/CCGY triumvirate. Guess that makes CBI the low cost producer...but only because they qualify for the tax break/refund. Hopefully CCGY will be able to achieve that same status soon.
In the meantime, CBI should be reporting sometime this week or next. It will be interesting to hear what they have to say. Based on the way that stock has been acting, people are expecting to hear good things.
Just want to mention CCGY
already had the same problem GU did. GU had to shut down diesel production in that province. So did CCGY. The only difference is that CCGY isn't a one trick pony. If CCGY can't sell diesel they can sell dimer acid. If they can't sell dimer acid they can sell hot melt adhesive. If they can't sell hot melt adhesive they can sell ink. Etc, etc.
CCGY have the flexibility to take advantage of the biodiesel market but they are not captive to that market alone.
Another source of confusion out there is the disservice that LPIH IR perpetrated on LPIH shareholders. Sounds like the presentation regarding that company's financing was not well presented. I think a ripple effect from that snafu has resulted in some of the confusion regarding CCGY's financing. So a couple more points regarding that:
1.) CCGY's financing was not a convertible. It was straight equity with a warrant kicker.
2.) CCGY adopted EITF 07-5 in January. So they are treating the warrants as indexed, level 3, and recording the warrant liability on the balance sheet and the change in warrant liability on the income statement. All that is included in the Q's already.
Not sure what LPIH IR told those poor investors...but unless there is some non-cash interest associated with LPIH financing, I don't know how you can predict what the warrant liability is going to do in coming quarters. The non-cash interest charges you can predict to a point...the warrant liability you can't.
But, then again, I wasn't there for the presentation. And I haven't seen the presentation, either.
1. Higher GDP could cause input costs to rise which led to a shutdown of biodiesel last year.
These are vague hypotheticals...I was just trying to update everybody on the specific facts regarding CCGY...not the macroeconomic conditions that may prevail in China in 2010. The primary facts in questions were:
1.) Is the construction of CCGY's new facility fully financed.
Answer: Yes. 100%.
2.) Are the working capital requirements for the new facility fully financed.
Answer: Yes. 100%.
Now, do I ignore input costs? No. Certainly not. But I can log on to the exchange any old day & check the cost of palm oil. And I can hop over to competitors and cross check against their input costs. If input costs get out of control we'll get caught by it just like you get run over by a snail...
You cite some huge estimates for the new plant
I just went through my posts. I don't think I cited or asserted any estimate for the new plant.
2. Your team is playing Chemicals for export, not biodiesel. And those results could be 6 months away.
The new plant is definitely going to give CCGY greater flexibility when selling into internation markets. That doesn't mean that they HAVE to do it, but they probably will. I don't know that it's going to take 6 months to develop that channel, but if it does I've got good news for you! THEY STARTED 6 MONTHS AGO! Ha! Take a look at 1h09 sales vs 1h08 sales:
Inter'l/Export sales:
1h09: 43% of sales were int'l
1h08: 17% of sales were int'l
In the most recent quarter, 49% of sales were international, so the trend has been going that way. Most likely because margins are so much better in the international market than the domestic. If that condition changes, CCGY will be able to sell more into the domestic market and less into international markets. If waste palm oil from indonesia is cheaper than domestically supplied waste oil, CCGY will have the flexibility to use that feedstock. If they get a good price on waste oil from Malyasia, they'll be able to use that feedstock. If selling diesel to ships provides healthy margins, CCGY will be able to do that.
It's not about being a captive to the export market. It's about having the flexibility to easily sell into that market. Since the new plant sits next to a deep water port, it provides CCGY a little more flexibility, that's all.
They have recorded the financings on the books. Like I said, read the June prospectus. It's spelled out in minute detail.
There is more text on the financing in the most recent 10q. All financing activities were complete by april of this year. So they are fully reflected in the quarterly filing.
Let me know if you have any other questions. I'll try to help.
SGTI is another fully financed capacity expansion story.
It's true that they doubled their capacity recently. A lot of folks missed the little tidbit from the latest 10q, though.
"We now have the production capacity of a total 192,000 tons (if necessary, can be easily expandable to a total of 222,000 tons)."
So SGTI have gone from 60,000 tons capacity to 120,000 tons capacity. Now they have pulled some strings and expanded that capacity to 192,000 tons. A 3.2x capacity expansion. Up & running...fully financed...pharmaceutical grade...and many other superlatives as well.
It's a sneak attack triple waiting to happen. All it needs is a little press release to set it off.
SGTI...don't make me say it.
The more I talk the less cheap shares will be available!
But I will say this...SGTI primary input cost is corn. Corn prices are headed down on the back of what's going to be a bumper crop. SGTI can sell a lot of starch. Starch is a primary input for making corn-based sweetners...a primary use in the China market. Corn-based sweetners are a stand-in for sugar. Go to google & type in 'sugar prices'.
Meanwhile, a primary focus of the Chinese stimulus is to make basic medical care more available to rural areas. Nothing is more primary in medical care than glucose.
http://blog.chinasecurities.com/category/china-stimulus/
"The bulk of the reform program focuses on improving rural medical access and building out the public health infrastructure, so those firms that provide the infrastructure products and services for this expansion are in line to receive immediate and direct benefit from the reform program."
So SGTI have good news coming and good news going. The next three quarters are probably going to be really good for SGTI. Don't know about the last quarter.
CCGY plant is 100% funded.
Just to reiterate, on the 2q09 CCGY conference call, during the question and answer, the 2nd question asked was about funding for the new plant. Is construction fully funded: Yes, 100%. Are working capital requirements fully funded: Yes, 100%.
If you read the prospectus CCGY filed on 10jun09, you'll see every little minute detail of how the project has been financed.
So the idea that further financing is required to construct CCGY's new plant is absolutely not supported by any fact or statement by CCGY management. In fact, all evidence points to the truth: the new plant is fully funded. No further financing is required for either construction or working capital.
Regarding China GDP trend:
1q09 GDP was 6.1%
http://www.chinadaily.com.cn/china/2009-04/16/content_7683625.htm
2q09 GDP was 7.9%
http://www.businessweek.com/globalbiz/blog/eyeonasia/archives/2009/07/chinas_gdp_grow.html
3q09 GDP is projected at 8.5% to 9.5%
http://www.cnbc.com/id/32501464
http://news.alibaba.com/article/detail/business-in-china/100139723-1-morgan-stanley-raises-2009-china.html
And that is an UP trending metric!
CCGY earnings trend...
Just some color on 2q09 earnings at CCGY for those who may not know the in's and out's of an income statement. I'll start with the bottom line at the top: CCGY earned about +0.011 cents per fully diluted share in 2q09.
Now the detail from the income statment that some overlooked. Effective 01jan09 CCGY adopted EITF 07-5. This requires them to recognize changes in the fair value of outstanding warrants on their income statement. Well, guess what? The fair value of those warrants in 2q09 resulted in a big negative charge that has zero, zip, zilch, nada to do with the operating business of the company.
Look at the trend in Chinese GDP:
1q09: 6.1%
2q09: 7.9%
3q09: 8.5% to 9.5% (projected)
CCGY turned in positive earnings during 2q09, probably one of the three worst GDP quarters for China in recent history. Next quarter GDP is going to rebound in a big way. Meanwhile, car sales in China have gone bonkers, stoking aggregate demand for refined product.
Throw into this the fact that CCGY are about to finish construction on a plant that will increase capacity >5x. That construction is fully funded. Working capital to ramp the plant is fully funded. Demand is recovering in a big way. GDP is recovering in a big way.
And I hate to say it, but the same chintzy accounting mechanism that tanked 2q09 earnings is set to have a big POSITIVE impact on 3q09 earnings. Go figger.
CCGY new plant is fully funded now.
Just a quick note to help point folks in the true direction. The 2nd question on the 2q09 CCGY conference call was about working capital and capex financing for the new plant. Management's answer was as follows:
1.) The construction of the plant is 100% funded, now, at the time of this call.
2.) No further financing is required to fund the working capital of the plant.
3.) There are no other capital requirements needed to fund the plant.
I'd say that just about covers it! The plant is fully funded...no further funding is required...and they have 100% of the funding they need. Yes...I'd say that's all the angles.
More positives for CHGS:
Further bolstering point #2, August steel production in China was a record:
http://www.bloomberg.com/apps/news?pid=20601089&sid=anRuHGXkgY1I
"Sept. 9 (Bloomberg) -- China, the world’s largest steelmaker, increased output to a record in August as government spending spurred building and manufacturing demand, according to industry publication Umetal.
Output was 51.7 million metric tons last month, Umetal analyst Hu Yanping said today, citing data from the China Iron & Steel Association. The country produced 50.7 million tons in July, according to the National Bureau of Statistics, which will announce official August output this week."
That's high cotton for CHGS. It's going to be a good 2h09.
There are a couple of forces at work to help CCGY sell product from the new plant.
One is the plant's location. It's much closer to port access...this is by design because the original intent was to import feed stock. Feed stock was originally going to be waste palm oil from Indonesia/Malaysia. Don't know if that's still the case with Gushan out of the picture...maybe more local waste oil is available for processing.
Anyhow, the location of the plant make exports of specialty chemicals more attractive as well. If you listen to what CCGY mgmt tells us, exports are an important part of the capacity expansion. In the past, they've received export requests that far exceeded their capacity...maybe now they can play in that market.
In terms of biodiesel, it is true that capacity seemed underutilized the past few quarters. However, this may be illusory. Margins weren't favorable so production was curtailed. In the past, CCGY could load up the truck with diesel, drive down the street, pull into the first gas station they came to and try to market all the diesel they could...drive down the street a little further and do the same...the trucks never made it more than 50 miles from the plant before all the product was marketed. So during good economic times with positive biodiesel margins the demand for product was definitely there.
Well, good economic times have returned to China. See recent talk of +9.5% GDP in 2h09. If biodiesel demand returns to historic levels CCGY won't have a problem selling product.
Great news for CHGS!! Times two!
Great news NUMBER ONE:
First Solar is going to build a huge solar array in Inner Mongolia.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aHkwySMQijs0
Here's the key observation:
" “China is suggesting the solar market will be up to 20,000 megawatts by 2020, but the scale of this project suggests these estimates are far too conservative.”"
CHGS are just now ramping up their precision abrasives production. Precision abrasives will be their highest ASP, highest margin product. One of the primary markets for this product is the solar industry. To the extent that domestic use of solar is targeted to increase, CHGS will be a major beneficiary.
A classic case of correct place, correct time. It's not clear is CHGS are lucky or good, but the profit line won't know the difference.
Great news NUMBER TWO:
http://www.bloomberg.com/apps/news?pid=20601089&sid=aqqspSwPwMRo
Based on recent economic data Chinese GDP estimates are being revised up to 9.5%. Get it? They were scraping along at 5% to 6% in 1h09 and now they're chugging a long at 9.5%. That means 2h09 is going to be smoking.
"GM, the biggest overseas automaker in China, says the nation’s vehicle sales may reach 12 million, surpassing the U.S. as the world’s No. 1 market."
China is the largest car market in the world right now. In fact, even with cash for clunkers, it's not even close.
"Industrial production, due for release on Sept. 11, rose at an 11.8 percent annual rate in August, after a 10.8 percent increase in July, according to the median of 15 estimates in a Bloomberg survey."
All that means steel production and that is CHGS major product lines. CHGS make & install refractories...the protective lining inside furnaces that melt metals and the massive ladels that pour molten metal. Refractories are a consumable...the more metal you melt & pour, the more refractory material gets consumed.
Here is what CHGS guided for 2h09:
Refractory revenue: 23MM
Proppant revenue: 7.8MM
Abrasives revenue: 10.2MM
That's just for 2h09, mind you...not full year numbers. If you apply conservative margins for each of those product lines, that works out to FDEPS of around 33 cents per share. And that's without their abrasives manufacturing line ramped to full capacity for the half year.
And my guess is the economy in China is turning out a lot better than CHGS expected.
Basically, CHGS is trading right at a 2 PE. Oh, ho-hum. ANOTHER 2 PE stock? Yeah, another one...
CBPO is certainly set up to be a big winner from any H1N1 epidemic. It may not be obvious to the layman, but it is true. One of CBPO's biggest products is intra-venous immunoglobulin...or IVIG. It's not a mainstream treatment for H1N1, but it is widely used as a prophylactic treatment for patients with compromised immune systems that have been exposed to viral diseases.
There are a LOT of people in China. That market is VERY undersupplied with IVIG. So even though the patient base might be a small percent, it's a LOT of people that will need to use a VERY LITTLE amount of product. The result will be very high utilization for CBPO and increased average selling prices for their products. They are able to redeploy this excess margin into their donor base to increase donations...trust me, they could easily double their production if they expand their donor base.
Don't believe it? Well, examine their results from last quarter. IVIG prices and volumes were well up on the back of a Hand, Foot and Mouth disease outbreak in China. H1N1 could make Hand, Foot & Mouth look like the common cold.
By the way, check out the US sponsor of this stock. It's Pinnacle....sponsor of other US major exchange listed China stocks like HOGS, CGA, CPBY, & CTFO. The stocks they sponsor make it to major markets. CBPO has not made it to a major market yet...but they qualify for a major market in all respects. Seems like it's just a matter of time before they get uplisted.
CBPO has fantastic margins, a great moat, INSANE cash flow, and a strong balance sheet. No accounts receivable issues in sight here. And it's a medical company. That type of China Stock will sport at least a 12x PE on a major exchange. CBPO earned 32 cents last quarter....and their business isn't very seasonal. This really is a $15 stock. The market just hasn't realized it yet.
Longwei will definitely be a beneficiary of higher diesel/gasoline prices. They are restricted by law to a certain profit margin band, so the benefit will only last as long as their stored inventory does...after that the major refiners will be selling product at a higher price that Longwei will be buying and distributing to retail customers at a higher price, so it's a wash.
Longwei turns their inventory (historically) about once every six months. So they ought to see at LEAST a quarter of improved gross margin.
Medium term, though, that company's fortunes are going to rest on their new tank farm. Which will, if I recall, increase their storage capacity by a whopping 140%. Again, since Longwei have margins fixed by law, it's kind of a low risk operation. I like to think of it as a hydrocarbon toll booth. 7%, please!
CCGY: diesel price hike this Thursday
When the 'rumor' starts to emanate from w/in China, it's really not a rumor anymore. It's a fact that hasn't had official confirmation yet.
http://www.marketwatch.com/story/china-may-hike-gasoline-diesel-prices-thursday-report-2009-08-25
"China may raise gasoline and diesel prices by CNY500 a metric (ton) effective Thursday in response to gains in crude oil prices, domestic energy information portal C1 Energy reported Wednesday, quoting unnamed officials with the nation's major refiners."
Note that CCGY average selling price for biodiesel in the 2q09 was 3870/ton. So 500 CNY is material.
Good for CCGY: more price increases!
Rumor is there will be another 6% to 8% in the PRC guidance price for diesel this week. That's the fourth price increase this year. Good news for CCGY that prices are rising just as their new capacity comes on line.
I would add this regarding CCGY's 2q09 results: there were some non-cash charges to GAAP net income, primarily related to valuation of warrants. This non-cash charge has absolutely nothing to do with CCGY operating activities....
Without the non-cash charges, CCGY earned 1.5 cents per share in 2q09. So even now CCGY are trading at less than 10x annualized 2q09 earnings. This is a huge positive when you consider the following:
1.) 2q09 economic conditions were very, very bad. CCGY were able to generate positive cash flow and positive earnings during a horrible economy.
2.) Some time next month they will finish construction of a plant that will increase their capacity by over 5x.
3.) CBI.L were granted tax breaks on their biodiesel facilities earlier this year...ostensibly, CCGY have the same type of facilities in the same tax jurisdiction. CCGY are also pursuing certification for this tax break. If this comes through it will be a huge boost to margins. If not...well like I said, less than 10x multiple on economically depressed results.
In short, it seems that all the negatives are behind this company and all of the positive lie ahead. It seems like a slam dunk that they'll be earning at a 38 to 40 cent annualized rate this time next year.
CHGS monster 2h09, then uplisting...
They basically have three business segments: refractories, proppants, and precision abrasives.
Their refractories segments is running two shifts at 100%.
On the 2q09 conference call, management guided full year proppant revenue to 11.7MM USD. 1h09 proppant revenue was a little less than 4MM. So 2h09 proppant revenue is expected to be 7.8MM. Almost double.
On the 2q09 conference call, management guided precision abrasives full year revenue to 10.2MM USD. CHGS started trial runs at their abrasives plant earlier this year and will launch commercially some time in fall 2h09. So 1h09 revenue from this segment was zilch. This will be their highest margin segment.
2h09 profit contribution from refractories will be about 2x 2q09 contribution. At an 11.7MM USD run rate for proppants, capacity utilization will be fairly high...meaning profit margin will likely return to a more historic level. Based on revenue guidance, profit after tax and minority interest will be in the 7.9MM range.
That's about 33 cents per share. For half a year. For a stock that's trading at $1.45. Just another of many China Stox values.
Plus, at the Roth conference in February of this year, they said they were working hard for a Nasdaq listing. Two things are keeping them off the nasdaq:
1.) Number of shareholders
2.) Share price
Expect a reverse split toward the end of 2009 and uplisting after that.
Have been out of SGTI for a while but recently dusted off my SGTI stuff for two reasons:
1.) They're dirt cheap. They could easily earn 35 cents annually in a normalized economic environment...even at very depressed operating levels.
2.) Global sugar prices have soared...meaning alternative sweetners will be major beneficiaries. You can't make corn based sweetners without starch. Starch is one of SGTI's two major product lines.
Although starch is a lower margin product, SGTI can turn their starch inventory much faster than their glucose inventory. So on a cash basis a strong starch market can really make things happen for SGTI.
So as glucose capacity utilization creeps up to the high 70% range, starch production & sales should serve as a powerful stop gap.
Seeking Alpha article:
http://seekingalpha.com/article/56105-shengtai-pharmaceutical-attractive-at-current-levels
Shengtai Pharmaceutical (SGTI.OB) is the largest domestic producer of pharmaceutical grade glucose in China. In 2006 SGTI began the process of bringing production of their primary raw material, corn starch, 'in house' by building a cornstarch manufacturing facility. This serves to increase margins & provide a steady supply of quality raw material required to reliably expand glucose production. SGTI are expanding existing glucose production by 50% to 90000 tons/year by mid 2007. They are also building a new glucose production facility that will have annual capacity of 150000 tons per year. SGTI have make good clauses in place related to a private placement that call for 2007 FDEPS of 0.33 & 2008 FDEPS of 0.43. However, based on their last calendar quarter ASP & margin along with projected capacity expansion they will probably earn 60 cents per share or more over the next 4 quarters. At a modest 10x multiple, that represents >100% total return given the stock's current price of $3.30