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Just for fun, two quizzes:
1) In two years, upon SIAF reporting full year 2013 results, how many shares will make a SIAF millionaire? And why?
2) What are the upcoming "exciting events" to be shared?
I listed several possible "exciting events" that I expect the company to announce in the future, not in the upcoming call.
Perhaps unclear, but my point is this:
Based on their business model, announced plans, and historic credibility, there will be "exciting events" announced on a regular basis for the next two years, when to be an SIAF millionaire you'll need own perhaps only 100,000 shares.
Perhaps Chad can clarify, but I think the company has certain "gray area" restrictions or feels limited in announcements because of the pending Form-10 review.
Perhaps they've scheduled the conference call to coincide with an updated Form-10 so that they feel free to announce "exciting events," that agree with what's lready filed, rather than issue a release about something that hasn't been filed.
Perhaps the main reason to have confidence in Sino's future is that because management and IR are pretty good about explaining the business models and metrics, there are so many possible -- indeed expected -- "exciting events" to come.
Here are a few:
1) Contracts for new fish farms
2) Low interest loans to finance:
a) new 100% SIAF owned farms, in conjunction with buy-in partner model
b) expedite HU flower planting
c) other expansion
3) Partial or full sale of HU business
4) Other spin off
5) Commencement of distribution and marketing business
6) Expedited/Expanded retail sales of dairy in Malaysia and/or China
7) More government grants for cattle or other business
8) Extension of tax free status
9) NASDAQ listing
10) Dual listing
11) Continued operational growth
12) Raised financial guidance
13) Something out of the blue
The short paragraph about NEP in ths SA article you reference had two relevant pieces of information And both were wrong.
The company was never de-listed. The earnings run rate calculates a p/e of 4.5.
Yes, there will be a call.
Very good sign, assuming there's Q & A.
Earnings release tomorrow after the close. The conference call is Wednesday morning @ 9:00.
Don't expect much on the new fields, because the deal hasn't closed yet.
I've thought that the flower division is the prime candidate to be spun out, because on any EBITDA multiple, it would bring in a huge chunk of change. Also, the business has been incubated; has reached a critical mass; yet, has plenty of growth left. In addition, SIAF could retain rights to market and distribute.
Problem is that the rains held back production significantly this year, so I wouldn't expect anything for another year.
Also, nothing along any spin off lines will happen before uplisting.
Also, probably prefer that the fish farm model is proven, and that contracts are in place for significant growth, so that earnings will be replaced and exceeded.
Basically, I view the deflated multiple valuation as both downside protection and upside potential.
Even if SIAF maintains a trailing p/e of 4, the stock will be 2 within a year, based on $.50 earnings. Even then, it will have increased cash or assets by another $25M+ that would not have been factored ii; it will have uplisted; and it will have registered another year of 60% - 100% growth -- if, of course, they execute to plan, as they pretty much have until now.
This seems like a low expectation, yet would be almost 50% gain from here.
Anything approaching a more "normal" valuation provides huge upside from there, as 2012 guidance will be close to $1.00 earnings; a multiple of 8 would still be cheap; and hopefully they will dual list.
I think that the dividend really helps SIAF avoid direct short attacks, and getting off the pinks can only help. But dual listing would be HUGE, imo, because it will take the company's universe of investors away from the rampant negative view of the space on the bulletin boards. An additional catalyst should occur naturally as the stock comes on the radar screen of credible international institutions and mutual funds, assuming stock price, new exchange, and market cap and revenue sizes and growth rates and prospects meet their criteria.
At some point perceptions of the space in the U.S. should shift, particularly if/when we see more big 4/10 auditors, mainstream investor conferences, more prevalent conference calls, and pr transparency.
One thing I'm sure of: the p/e won't get to 15 before it gets to 8. And I'm pretty sure it won't get to 8 until it truly proves the fish business, meaning fish sales and new contracts. But when it does, say one year from now, a forward multiple of just 6 still equals share appreciation of about 300%.
I can live with that.
GLTA
Your earnings numbers are in the ballpark, if SIAF continues to make business targets.
IMO, they "intended" to slightly beat 2010 guidance, and keep some 2010 flower production to sell in Q1 and perhaps Q2 2011 to smooth earnings, and to contribute to beating 2011 guidance of $.49.
Unfortunately, rains held back the yields. They will make 2010 numbers because other businesses compensated, but they won't have the fudge factor going into 2011.
However, flower revenues YoY , 2011 vs. 2010 will be huge, assuming good weather.
The key to 2011+ years' earnings is indeed the fish farms, where profits can quadruple, vs organic growth of say 30% in the largest business segment, dairy.
We have no idea if they'll announce a single contract of four new farms tomorrow with a provincial government client/partner, or if single farm contracts will be announced in the second half. The later appears more likely, so earnings will be back loaded seasonally in 2011 as in the past.
Further out years' earnings growth will be largely dependent on continued outpaced expansion in the fish farm construction and fish sales; also, from the marketing and distribution network to be layered on top of everything else.
I guess the market calls the p/e multiple. I expect only a minor boost with listing to bulletin board., because the Chicom space is in such low esteem right now. Hopefully, this changes over time. A second uplisting to a more major exchange or a dual listing would help immeasurably, imo.
I do think it's pie in the sky to talk about multiples of 15 or 20 at this point.
Do the Swedes have the juice to get it done?
Sure hope you're right!
Also, sounds like the Swedes do have SIAF's ear, with respect to a dual listing.
Do you expect one shortly on the heels of US listing?
Snow,
By your logic the stock would be 18 now. I'm happy to wait a "few" years.
The whole space is so tainted by a few bad apples and general mistrust that most companies are selling at low-mid single digit p/e multiples despite gaudy growth rates.
As the bad apples are weeded out; more credible auditors hired, continued quarters of growth are recorded; pr firms are hired; road shows are attended; perhaps a multiple listing or a few, the multiples should move up.
I'd be absolutely delighted with a p/e of 8 in 2013 on earnings of $1.50. Let's see the space start getting any modicum of respect before even bringing up PEG ratios.
The fact of the matter is that the last company update was itself a release of substantive news, as well as forward looking statements. Before that, there was no public statement that earnings guidance could and would be met, even if rains diminished HU yield by 35%, Both pieces of information were new, and material. Both were issued after the Form-10 application.
I was delighted to see the release, as I never really bought the idea that SEC frowns upon press releases while applications are in process. Perhaps, direct or absolute financial forward looking statements are less likely. Frankly though, I see no reason for that either.
In fact, an argument can be made that the SEC would prefer to see transparency from new companies. Isn't it the lack of tranparency/honesty of a few companies that rankles both the SEC and investors in this space?
Chad, will a conference call accompany the earnings release, in a number of days or weeks, perhaps a month, unless extended two weeks, but not longer?
Okay, so what leads you to believe either of those possibilities will happen?
Quite relevantly, if they were to do either, why haven't they simply said one or the other is their plan?
The third possibility is they do nothing with American listed shares, effectively stealing the shares. American legal system having no collection recourse.
By saying nothing, this appears the most likely, no?
Glen,
If their plan is to dual list, why haven't they said so -- or said anything, for that matter? If they were to dual list, why delist? If they plan to list on Hong Kong after delisting here, do they have to do anything with US shares? How do you know they aren't going private, simply ignoring US shares (that is, stealing)?
This is what makes so little sense; and makes your hope for $15 way more than wide eyed.
Actually, that's not right, as "few" means not many, but more than one; therefore, can be a couple.
Sure you'd agree, it is very important that companies do what they say they'll do. So allowing leeway is sensible. So is language, and it is surely commonly accepted that "few" means considerably less than 10 -- especially when you're talking about a quarter's new data, and 10 weeks is almost a quarter.
If SIAF wanted to give the auditors all the time they needed -- and they should -- then saying a few weeks would be satisfied by releasing preliminary results; otherwise, don't say it.
Likewise, targeting 4 new fish farms for 2011 allows some leeway, but makes no sense to say without a high expectation that the target will be realized or exceeded.
With the exception of the timing to get the Form-10 prepared, SIAF has a fine record of doing what it says it will.
Longs are betting this will continue.
In the past, haven't they sometimes announced preliminary results before filing the K or Q? This is what I'd expect quite soon, based on Mr. Lee's comment of "a few weeks."
My unfounded hope is that they're waiting to cross the T's and dot the I's on a new fish farm contract to announce simultaneously.
In any case, we can be pretty sure of 2010 financial results: meeting guidance of $.29 per fully diluted share, despite a severe shortfall in the HU crop due to bad weather.
Unfortunately, I do not expect updated 2011 guidance, due to the Form-10 review process. OTOH, the last update did add color to the 2010 guidance. Also, hope to hear progress within each business segment.
Profits from fish sales -- in any meaningful numbers -- are a VERY long way off. They don't start until July, and then from only one farm, and only proportionate to SIAF's equity interest, which I believe starts at 20% +/-.
Income from fish sales are hardly worth thinking about until 2013, imo.
However, if the business model is executed to target, sales will scale incredibly, as the number of farms will quadruple in 2011 (fish sale income 2012) and increase another 160% in 2012 (fish sale income in 2013). AND, the equity stake in each farm will triple +/- over time. So, 2013/2014 income from fish sales could be 20x 2011.
The real financial impact in 2011 and 2012 from new farms will come from the build outs. That model has been proven, and presumably the fish sale model as well, starting in July.
As with all subsidiaries, SIAF has stacked increasing revenue streams, each with a bit different starting and gestation periods. Dairy was first, and fish sales is last, lagging fish farm build out by a year +/-.
The beauty is that once proven, each business can be projected into reliable income growth.
So, the real announcement we're waiting for is new fish farm contracts. That is catalyst numero uno.
The marketing and distribution network will sit on top of all the subs.
Would like o hear updates on progress toward uplisting other than Form 10 review. Are all the other listing requirements in order; for instance, independent Board members?
Think the stock price will take care of itself, sufficient for uplist, when new fish farm contract(s) announced.
I agree that a spin off is at least a year away. But I also think Mr. Lee may be referring to a spin-off when he tied converting preferred to "extraordinary earnings."
One candidate is the flower business, as the model will have been proven in a year. They will have planted a majority of available acreage, with a majority of planted acreage having reached maturity. If the business could be sold at any decent EBIDTA multiple, could easily bring in half the total market cap in after tax cash. Could also negotiate that SIAF be the exclusive distributor.
Not sure what JFs rationale is for target price up to 4, but a trailing p/e of 7.5 does the trick; also a forward p/e of - - for a listed company growing revenues 50% + and income closer to 100%.
Will SIAF earn > $1.00 in 2012? Watch.
The flower business alone has the potential to produce $30M in net profit, when currently owned acreage is fully planted and fully mature. That's $.50 per fully diluted share, $.56 per basic share, which is actually the better measure.
Mr. Lee has promised that preferred share will be converted into common shares only at:
"such time when there will be sufficient and additional extra-ordinary income to compensate for the conversion without affecting the EPS derived from the Group's business operations. Let me repeat, these preferred shares will not be converted until such time that extra-ordinary income is available to counter any dilutive effect they might have on EPS, if and when they are ever exercised."
Well, hard to believe becoming available to a percent of institutions translates to (the same) price appreciation.
Funny thing is, I guess I'd have to say I'd be happy with 50% appreciation in 2011 (and 2012) -- how can one not be? -- but I expect more.
If SIAF does what they say they'll do -- and they always have -- 2011 will see:
1) four new fish farms, with 8 on the 2012 horizon
this is HUGE -- it would establish the fourth SIAF business as a 100%+ grower, outstripping the other three businesses, not to mention pocketing an incremental $.13+ in 2011 net profit, expected to grow to $.26 in 2012 from build out alone.
2) distribution network will be established, adding an entirely new business in 2012
3) HU flowers will have at least 50% growth in 2011, simply by meeting 2010 acreage yields, if there are no rains. Probably another 25% from more and more mature acreage
4) uplisting
5) possible dual listing
6) cattle and dairy growing at 50% +/-
7) finally, SIAF will have a cash horde, possibly $20M
8) forward p/e at pps 50% above today would still be only about two !!
9) Book value will be north of $2.5
10) etc., etc.
"since 60-90% of the shares that become available to institutions" doesn't mean the stock goes up 60% - 90%, and
paying a dividend of 8% of income is not an 8% dividend
But 60% - 90% appreciation from here seems well justified, when SIAF continues to meet targets.
Playing the Odds
Completely agree, Alan. No reason to sell here.
I am puzzled as to why Northern went dark, as well.
Have any shareholders talked to Mr. Shi or representatives after the initial, rather non-descript foray?
Keep in mind, it's capital intensive to drill. Those wells may cost $400,000 each, if contracted out. That's $40M for 100. They do have the option to augment their own drilling with outside contractors, and pay over 2 or 3 years.
NEP has been pretty responsible financially (as opposed to past IR and internal control sins). They maintain healthy cash balances and cash flows. I doubt they'll let cash balances slip much, if any.
Note that they've said purchase cash and development cost would be $24M to $30M. Even so, cash balances will actually rise during development, as cash flow should maintain +$10M per quarter.
I suspect they'll use a similar philosophy, balancing capital expenditure with projected cash flow.
They will maintain cash for further possible acquisitions.
However, the math on 30 barrel a day $400,000 wells is phenomenal. So whatever number of wells they drill in the first full year, if the production is anywhere near 30 barrels, they will be able to afford 50% to 100% more the second year, and still grow cash -- not to mention, with huge jumps in income.
NEP is now a better value than anytime since the 2s.
The Tian deal immediately raised income 50% - 100%, and afforded tremendous flexibility. The stock was at $4.70 at the time of that deal. Only now are they beginning to fully capitalize, as I seriously doubt that the Durimu deal could have been consummated without the drilling capacity.
And the new reserves erases the two previous fundamental questions about NEP:
1) sufficient reserves
2) royalty bump
Took a quarter to realize TIAN's impact. In March, we'll get much more color on the IM fields, road map and timing of income, and potential.
Now, once they demonstrate restored investor communication, the numbers will speak for themselves.
They can still make $1.20 in 2011, and conservatively, $1.80 in 2012, and $2.40 in 2013, with consistently better cash flow and cash balances.
There is every reason to believe that the worst is behind NEP. Q4 will be about their worst in terms of earnings; yet, as Viking points out, they are still selling a the undervalued p/e of 5, based on an annual run rate of that worst quarter. The p/e drops to 3, if you strip out cash.
They've stated that oil production increased every month on Q4; therefore, it will be significantly higher in Q1. An additional 30,000 barrels adds about $.03 per share. Big plus. Price of oil will add another $.03 all by itself.
On top of this drilling revenue will be higher:
"Tiancheng has experienced a resumption of regular drilling activity in January."
So Q1 income will be north of $.30, adding another $10M to cash coffers.
If NEP announces monthly oil production and drilling activity, these numbers will be validated very soon.
In any case, NEP has indeed reestablished investor communication, making two MAJOR announcements since trading was reestablished; namely, the 100 well Inner Mongolia contract, and the new field acquisition, which will be the real game changer.
They've also returned to publishing preliminary oil production numbers, and may start revealing monthly. They'll also reestablish quarterly conference calls, and elucidate plans for the new Durimu fields.
Great time to buy.
Totally support Alan's comments.
If the three large shareholders, at least one of whom has spoken with ENHD, have or have not acquiesced to what amounts to Mr. Shi's fleecing our shares, would be very helpful to hear a post.
Nothern was frequently vocal supporting this company as a solid, even conservative investment. He said it was his largest holding representing 20% of portfolio, and then inexplicably said, "no big deal." Yet now we hear nothing.
Did those who talked to the company have legal representation or advice? Why wouldn't they?
Perhaps they have discovered that we have no recourse. If so, would like to hear that as well.
Rodman & Renshaw took a conservative view of the new oil fields, just as NEP itself has, with respect to future income. Of course, there are uncertainties, because oil exploration is involved, but ...
1) NEP removed the single major long term negative weighing on prospects; that being, limited and diminishing production capacity
2) Reserves are now dramatically improved; how much will become clear over time, but some hints were provided:
a) 24 year lease, renewable, at favorable rpyalty
b) 3 current exploratory wells averaging 30 barrels per day
c) potential for 2,000 wells!!!
The intermediate and long term prospects for NEP are now stunningly better than before the announcement. It is not unreasonable to extrapolate that post testing, NEP may well drill 100 wells per year, adding $1.00 per share to earnings EVERY year.
Is there work to be done? Sure. Will it take some time? Sure. Is it worth the investment? By every indication now and by how TIAN worked out, it's a complete no brainer, figuring to pay back at least 50% ROI in the first year of production, and 100% in the second.
In the meantime, income will not drop as much as presented here; possibly none, as oil stays above $90. The p/e is pretty darn low anyway; cash balances will remain high and get higher, probably $2.00 per FD share before new production; and now there is the likelihood of dramatic earnings growth and rapidly growing reserves post exploration phase.
Makes no sense to me that this acquisition is not well regarded in stock price, even if viewed in a worst case light, as the base case figures to be so very profitable 1 to 1 1/2 years forward.
This is the message that the company needs to do a better job communicating. Hoping a March conference call presents the less conservative view.
Bunky,
Did you get any hints about preliminary production numbers being release? Or, will there be any income before the second phase? For instance, I can't understand why the three current wells won't produce income?
The base case for the new fields has so much potential it's difficult for me to see how it can not be regarded in the stock, considering its current valuation.
Of course, they must do a better job of shareholder communication. I've been assured we'll see improvement.
But the proof's in the actuality.
Please report back. If he does indeed call, and if he does indeed answer your questions to the best of his ability, that would mark real communication progress.
Might also ask if/when preliminary Q4 production numbers will be reported.
Secret to success in reaching management:
Persistence and/or timing.
They clearly said that communication would be better, and I think investors should both hold them to this and test it. I expect to see production numbers before Q4 financials.
Chao Jiang, Senior VP Corp Finance
I finally spoke to an senior officer at NEP.
I will have several posts on what was said. First, a simple summary. The discussion centered around two issues; communication and the recent acquisition.
NEP is anxious to put the problems of the past behind them. They believe they've gone a long way in that direction, having passed the forensic accounting audit and resumed trading. On top of this, they've hired Ernst and Young, and are well on their way toward fully compliant Sarbanes Oxley internal controls.
More importantly, they will reestablish much of the shareholder communications they conducted before the trading halt. This includes a preliminary production release within a couple weeks, and conference calls with each quarterly financial release. They will improve information flow and ensure that U.S. IR representatives are more available and forthcoming.
In addition, they will update progress on the new fields, as material information from the initial phase becomes available, and milestones are met.
These include:
1) closing the transaction,
2) initiating the seismic testing,
3) results of initial seismic testing,
4) plan of exploration and test drilling,
5) results of test drilling,
6) frequent updates on Inner Mongolia progress and development, etc, and
7) may provide update projections on phase two drilling plan.
One residual effect of the past sins, is that they are taking a conservative approach to characterizing prospects, now.
Suffice it to say, they are VERY excited about the new acquisition, as they've positioned themselves for mega growth far into the future. They will (currently plan) invest $14M - $20M (or more, only if necessary) in the initial phase of the new fields, keeping plenty of cash on hand.
This was a transformational acquisition.
They project aggressive production drilling once the new field tests and exploratory wells are completed. Phase two production drilling will produce oil revenues never approached in the past.
More details to follow ... stay tuned, as this is a company with clear road map toward super performance.
Perhaps the chance is nil. But I don't recall reading any good reason. Companies uplist from bulletin board, and are better regarded.
I agree about the BARDA contract being a binary event.
Don't think the stock price is signaling "if," (by which I guess you mean CBLI won't be awarded the grant) anymore than the rising stock price last week was signaling "when," (meaning CBLI will be awarded the BARDA grant, and relatively soon).
Only human studies needed for are safety trials. 502 has been tested in 1,000 primates.
Agree that as order is needed to justify a much higher market cap. A huge BARDA order to further development through FDA approval should provide a whole lot of validation.
From all indications, this is a question of when, not if. And the when appears soon.
Winning an RFP for $100M+ of product is game over; won't be able to buy the stock anywhere near current levels. This is more of a speculation, but one with a dramatically favorable risk reward profile.
Agree?
I don't think they'll "lose" any income in 2012. First of all, the royalty kicks up to 40% in May or June of 2012. If Jilin is producing 150,000 barrels per quarter at that time, their gross revenues from Jilin will decrease about $2M per quarter, starting in Q3 of 2012.
The press release was ambiguous about when income will commence from the new acquisition, but I think the worst case would have it kicking in right about when the Jilin royalty doubles. Afterall, that starts 18 months from now, after NEP has invested $50M in the new fields.
Also, it is not clear to me that new revenues won't start much sooner. How can they spend so much money without drilling? How can drilling not create revenues?
It is unclear when income from the new acquisition will commence. But when it does, NEP can add $1 per share to earnings, every year!
Put a p/e of just 4 on those earnings, and you get a 70% return for years, buying the company at $5.65.
back of envelop round figures:
$30M cap ex = 100 wells = production of (100 * $68 net oil ($80 less Chinese tax) * 22.5 net barrels/day (30 barrels less 25% royalty) * 360 days) all less 20% ongoing production cost =
$44M net profit before tax.