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Scrap metal: I can not see the graph?
Can you provide the link?
Thanks.
SAIC - State Administration of Industry and Commerce.
Recently, there is a lot of discussions regarding SAIC and financial reporting.
SAIC is primarily a bureau for business licenses and license enforcement. It has a few other responsibilities, all are derived from this core. Many ordinary Chinese become aware of SAIC when its inspectors, in police style uniform, parade into a busy market to confiscate the properties of unlicensed street peddlers, or inspect stores for counterfeited goods. SAIC also has joint responsibilities with other agencies on enforcing food safety law, and advertising law. Manufacturing and selling counterfeited goods and unsafe food, and as well as false advertisement are considered violating the spirit and terms of one's business license, and could result in fines, and even termination of the license.
SAIC, however, is not responsible for financial reporting. State Administration of Taxation is responsible for taxes, and State Security Regulatory Commission is responsible for financial reporting and compliances of publicly traded companies. State Administration of Statistics are responsible for macro economic reporting. Those three are different agencies from SAIC.
SAIC is not ran by accountant, and therefore does not check into the financial numbers of a company. However, companies file their numbers there to show they have a viable business so business license can be renewed. Since license requirement is pretty low, a lot of companies file some minimal, or a subset of their numbers, using independent filing agents in many cases. This has been common practices in China. This practice is not encouraged but is tolerated. In addition, a company's filing is not consolidated, nor does it need to, since each location needs its own license from local SAIC authority to operate.
I had one personal experience dealing with SAIC. Once I helped establishing a company in China. When registering for business license, we were required to report a "registering capital" of the new company to SAIC. Registering capital is basically another term for committed initial investment. It should be certifiable, for example, by checking into new company's bank account at the time of certification. Since it may takes months for SAIC administrator to visit the company, we decided to report a much smaller number (1/5 of the total investment) to SAIC. Reasons: 1) The smaller number is more than sufficient for the type of company we were registering, 2) SAIC administrator could come anytime to "certify" the capital, using the full amount means that we can not use or move money around, essentially freeze our cashflow for months, 3) Business license could be denied for insufficient "registering" fund but there is no harm when actual amount is larger.
Downside of this approach - Just imaging that the CEO of the company talks to a group of potential clients, and states that the company is financially viable because of the $xx millions of investment. A competitor raised its hand and said: "I checked into your SAIC number, your investment is just 1/5 of what you said. You would bankrupt in 8 months."
Geobargins
Maj, I used to be a vivid reader of your site and I have recommended your site to my friends. While I applaud your efforts to put more rigor on your research, the way you manage this exercise is less optimal.
In effect, you may have capitulated at the worst time. When the sector is at its bottom, you essentially told your readers that all Chinese bargains you wholeheartedly endorsed through a rather "rigorous" process were no longer bargains, but stocks with considerable downside due to unspecific accounting risks, and need to be re-vested.
Now the sector is crawling back up, some "bargains" which were longer become bargains again, only at a higher price.
The timing is very unfortunate.
No worry. Shanghai composite is very strong now. Also, the US indexes picked up since the house report. The strong market will add the fuel to CCME.
It is likely that swingers/shorts will turn positive if the US market remain strong for the rest of day today.
PS. They may have already since CCME is back up again as I am writing this note.
Swing traders. They normally come in groups.
HippyChick,
Thanks for the info. I thought you were joking two days ago when you said you shorted the stock.
On average you were probably doing OK on CCME if you shorted many times over last two months. For you own good, you should refrain from shorting it when Shanghai market is bouncing back big time. Shanghai market provided a psychological baseline for US listed Chinese stocks.
CNAM - real time 3.58.
Thanks for those who help blow through the 3.4x ceilings from CIN (and EDGX). The shorts and longs are battling over the direction for last five days now. The longs finally broke through the log jams.
Technically, the stock is in uptrend.
- Americanbulls.com : buy confirmed
http://americanbulls.com/StockPage.asp?CompanyTicker=CNAM&MarketTicker=AMEX&TYP=S
- Stock chart: shows slow upward buying pressure from large buyers (institution, see on balance vol), retail investors (accum/dist line), and MM (ChiOsc).
CHME and CHBT share repurchases
It is interesting to see that both stocks under-perform the markets (US and Shanghai) over the last week. Those two firms announced share purchase program about two weeks ago.
Does anyone have any information regarding the buy backs: IF and WHEN those repurchases would start?
CNAM - Real time 3.45.
CIN has another ceiling at 3.48 with an ASK size of 30.3K. Let's see if the ceiling can be broken with the booming market today.
This stock had been trading in and out of red over the last two days. The shorts are still in control of the stock.
ONP - MW
It is really a stretch to call Muddy Waters top notch. No matter which parameters you are using to evaluate a financial research firm (or team), you will no associate Muddy Waters with "top notch". A Nevada mail box does not help that either.
Having said that, MW is EXTREMELY successful in exploring and fueling fear and uncertainty factors on the Chinese small cap sector, especially on ONP.
Hopefully, Chinese small caps will take this whole episode as a lesson learnt, and improving their financial control processes.
Why are you surprised, or getting dizzy?
A trader trades, and perspective changes depending on whether you are in or out of a stock.
It is as simple as that.
NFEC: -20% Summer diving.
Just noticed that NFEC dived into the bottom of the sea at $2 (-20%).
Somehow it could not take the heat in a red hot market today when Dow is up 2.12%, and Russell 2000 index is up 3.42%.
LTUS - LTUS had a really fantastic Q1. Nice revenue, earning, and EPS growth. Much better cash position relative to end of '09. The only negative was the tight cash flow due to the investment for its state of art headquarter.
Today's the PR says that company has sufficient working capital and growth capital to carry out the construction and outfitting of its new building complex in Beijing. I read this as a sign that the company is on its way resolving its cash flow issue.
At a reasonably optimistic scenario, the company will continue to execute over the next two quarters and fix its working capital issue. With a EPS of 0.4, a 12x multiple is highly probable due to its high growth and market position. We are looking at a target price of $4.8, a five bagger based on the PPS this morning.
Even a 6-multiple will give a target price of $2.4.
CNAM real time 3.49.
It is back to the ceiling set up by CIN (a market maker) after drifting down a bit. CIN has a ASK at 3.49 with a size of 40700 shares.
Baidu profit doubles in record quarter
While Google struggles with the Chinese market, local search giant Baidu is soaring to new heights. Baidu said Wednesday that its earnings doubled in the most recent quarter as its sales hit a record high.
Baidu reported net income of 837.4 million yuan ($123.6 million) for the quarter ended June 30, up 119% from a year earlier. Sales rose 74% to 1.9 billion yuan ($282.3 million).
Investors are taking note: Baidu now has a market capitalization of $25.5 billion -- comfortably ahead of Yahoo (YHOO, Fortune 500) and edging close to eBay (EBAY, Fortune 500).
http://money.cnn.com/2010/07/21/technology/baidu_earnings/index.htm?source=yahoo_quote
CNAM - AH.
Same thing happened yesterday. 10K at 3.30 (way above yesterday's close of 3.18).
Wonder if there is any significance?
You are correct. The AH trades have a total of 246.7K, accounts for 41% of the total shares exchanged hands.
If the big seller theory is true, then I should not count AH form T trades in the total. The big sellers' selling accounts for 70% of the total shares exchanged hands.
PS. Big seller theory: MM selling shares on behalf of one or a few big sellers during the regular hours, then the big sellers replenish the shares to MM after hour at a discount, with the discount being the fees for MM.
LOL,
Thanks for cancelling the short order, it now inched up a few cents.
You would also need to cancel your evil brother's order for this stock to move any higher.
CCME - I also added another 1K at 9.40. The ASK size of 100+100 is bottomless.
Accounting firms
"I think the best scenario is a U.S. based firm that has a strong China based presence."
Maj, I think they are called big four (or 6).
If an US based accounting firm is a big enough with a strongChina based presence, its org structure will have to be organized as local partnership in China or HK. The big four, BDO, and ALLLLLL large international accounting firms are organized this way in China (and across the globe.)
You seem to discount this structure in your checklist, sort of contradicting yourself here.
LLEN - vs. PUDA
Rato: I, like many people on this board, respect your opinion and I read most of your posts in detail. So it is dismay to me of your negative opinion wrt LLEN over multi messages.
If your concern is with the macro environment, you can certainly say so directly, and I would agree with you. Yes, Chinese stocks listed in US are in dog house right now. They were heavily shorted. As I am writing this message, many stocks are suffering another bloodbath in today's early morning trading. Over the last two months, every negative comments, no matter how outrages in the beginning, turned out be to more correct than otherwise. You can recall JoeN vs. you and others on CCME many days ago - Joe was right on the big down fall of CCME's PPS at the time.
If you think PUDA is a better deal at this price point, I would partially agree with you. PUDA is a better deal based on fundamental numbers but I like LLEN's execution and communication better.
But fact remains that both are good stocks. Therefore there is no need to bash LLEN. If the Shanghai market stabilizes (it is choppy now) and US market goes up, both will go up and otherwise, both will go down. As a matter of fact, both LLEN and PUDA are in deep red now (down about 2.8% and 3.2% respectively.)
As an unwavering China bull, let me reiterate that 12.4x is a very reasonable multiple for well executed, high growth, and well communicated stocks such as LLEN (and CCME). It would not be today, or tomorrow. But when Shanghai bounce back from its choppy trades lately, and when the fear and uncertainty in US market subsidize, US listed Chinese stocks will surge with a vengeance.
BTW, I like the way you changed LLEN's target timeframe from 12 month to "Now":
My previous message was a response to this message of yours. You stated:
"LLEN - I have to say, I can't see how LLEN will go to 20 in the next year. A chinese coal stock with a 12.4 multiple? Pending a tight float SCOK herd situation, that's just not going to happen IMO, at least not unless the macro situation changes big time. "
Your message to my response:
"And if you truly want to pound the table that $20 is where LLEN "should" trade at in the current environment, then no problem, I'll gladly sell it to you for that price."
Thanks but no thanks. I bought LLEN on the market for way less than $10 and will sell when it is $20 or more.
LLEN -
I have difficulty understanding why a 12.4x is out of reach for a well executed, high growth, and well communicated stock such as LLEN?
I have both LLEN and PUDA (about same amount when buying), I like them both but I would say LLEN executes more smoothly than PUDA, and have better communication with shareholders.
Hopefully the latest carnage on Chinese stocks does not convert people on this board into shorts. Otherwise why bashing a quality stock with a 6x multiple.
Apollo project
I admire your diligence on the mining issue. However, i am not sure it is worth your effort - after all, CNAM is NOT an mine exploration company. It made a deal with a mining exploration company. So the focus should be on the deal itself: the deal structure, and the potential upside (huge) as well as the FINANCIAL risks (-USD$3m).
As for the resource estimate: I am no expert and know nothing specific about it. But I do have an engineering degree, so my guess: iron ore deposit is large in size (than gold) and continuous , one can determine the reserve by mapping the geologic formation below the surface using sonar like equipment, supplemented by some drilling at the center and at the periphery to confirm the size and depth, you will get the resource estimate.
CNAM - Apollo Investment
Wristshot - The questions you are raising are very good.
I have a sense that the investment is much less risky than you worried. Although I am no expert in mining and exploration, I did live near iron ore mine and coal mines for many years and had observed the production of their operations first hand. I believe that iron ore is similar to coal, the risk is much smaller than gold mine, and the reserve is easier to prove, and the cost to ramp up production is relatively lower.
Following is my reading per Apollo news release -
1) CNAM has conducted an extensive due diligence, including a site visit to Mount Oscar project - which should mean that the project is in later stage.
2) The project is only 20 miles away from a proven reserve. It should share the similar geographic composition.
3) The transportation infrastructure is ready (one of the biggest cost for iron/coal/oil fields)
4) CNAM's investment is for 19.9% interest of Apollo. It gives CNAM rights (option) maintain its 19.9% interests if Apollo shares dilutes, but not the obligation.
5) CNAM's main interest is not in the 19.9% shares of Apollo, but rather, its rights to 15% ore should stand - This is critical to CNAM's interests.
6) It seems to be a very good deal: Comparing to China Metallurgical Group (CMGC) investment of A$400m for 1500Mt project Cape Lambert, CNAM's A$4.2m for 19.9% interests in 500Mt project Mount Oscar is more moderate and much better deal. (Cost per ton is 1/6 of CMGC's investment, subject to further dilution though).
7) Your Aquila A$5.8B comparison - I googled the news: "The DFS recommended the stage-one construction of a 30-million ton a year mine, 282 km of new rail and a new deep-water port facility at Anketell Point port."
Yes, 282km of new railway and a new deep water port alone will probably cost A$5.8B. But this seems not to be in the card for Apollo's project, a much smaller operation. Per Apollo's news release: "Apollo's Mount Oscar project is located close to existing infrastructure."
Hope this helps.
NEWN - the company was conservative.
Also, there is a higher tax rate this year vs. last year. So it is prudent to be conservative.
With a low PE ratio of 4.7x based on current guidance, it is not necessary to raise guidance at all.
Joe - excellent job there.
Although Cramer does not know about CCME yet, he will know soon.
China says exports up 35 percent in June
"Data for June shows China's trade account continuing to defy gravity, with exports strong despite mounting evidence of a faltering global recovery, and imports strong despite expectations of slowing domestic investment growth," said a research note from Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates."
http://finance.yahoo.com/news/China-says-exports-up-35-apf-2234746520.html?x=0&sec=topStories&pos=main&asset=&ccode=
CNAM - Short covering?
A decent open today for CNAM. The running up lasted about 23min before CIN come out with a big ASK (w 15K shares) on level 2.
CNAM - Can anyone explain why the weakness of CNAM as market rally big time - both US and Shanghai markets are posting solid gains.
Muddy Waters and Mud
Re: "I found at least some of the MW's allegations are legitimate."
The whole point of their exercise is to throw enough mud so some sticks, at least to the surface. The ensuring panic is all they need.
One of the central damming evidence: Lack of trucks/traffic on the day they visit. The lack of traffic means that it is impossible for ONP to generate the volume needed to meet its stated annual revenue.
ONP countered that on the day of visit, the weather was bad. So
I Googled the weather reports on Jan 3,4, and 5.
I found that ONP's statement is true: Basically Beijing and Tianjing (ONP's customers) and Hebei (ONP's production base) were at standstill at the time due to the heavy snow.
What I do not understand is that Muddy waters knew of the horrible weather on Jan 5 (they were there) and did not even try to connect the dots. I would hope that Sean Regan, as an operations expert, to connect the dots between weather and transportation, and between new year holiday to the level of production (Jan 5 is just coming off the new year holiday, some customers may have longer holiday.) At least they should observe the company under a normal condition - they could do so by paying a second visit, and they did not.
Here were some weather reports:
Jan 3:
http://news.xinhuanet.com/english/2010-01/03/content_12749169.htm
"China's Central Meteorological Station (CMS) on Sunday evening issued the third orange alert since the first one on Saturday, extending the warning against a strong cold wave and strong wind."
11:09, January 04, 2010
"Heavy snowstorms hit Northern China
http://english.people.com.cn/90001/90782/90872/6858594.html
Northern China has started the new year with heavy snowfall. In Beijing, Tianjin, and areas of Hebei province, the snow has piled up on roads and has caused headaches for many drivers.
Experts are warning that Beijing may see its coldest winter in nearly 40 years. More than half of the planes at the city's airports have been delayed."
Jan 5:
Heavy snow hits north China, disrupting traffic, classes
http://www.ebeijing.gov.cn/BeijingInformation/BeijingNewsUpdate/t1098445.htm
Here is another report on Jan 5, the day of the visit:
http://news.xinhuanet.com/english/2010-01/05/content_12758794.htm
BEIJING, Jan. 5 (Xinhua) -- A cold wave across much of China since Saturday has brought heavy snow to major cities in the north, causing a surge in fuel demand and traffic chaos on roads and at airports.
PS:
Since I do not own ONP at this time, it is not my intent to defend ONP. ONP could be the biggest fraud since the sliced bread, for all I care. However, I am deeply troubled by the cavalier attitude Muddy Water exhibit when they make a major accusation. They dress up their accusation as an equity research report that could, and indeed did, cause major loss to thousands of retail investors over the last few days.
CKGT - Unfortunately another sloppy PR.
RMB 3,500,000, should be around USD $0.5M, not $5.1m.
ONP - Muddy Waters
Brad, It is interesting that you mentioned that positive people only look into the numbers. Here are something else to consider:
- Muddy Waters was form in June, the same month as its first equity report.
- Muddy Waters' first report is to "expose" ONP as a fraud, AFTER the company turned down its offer to write a paid research - presumably a positive one. I found that there is a major ethic issue here and it casts major doubt in any of MW's claims.
- Rick Pearson and Eric Jackson both visited the same facility, and both came out with glowing assessments exactly opposite of MW. Rick was at the same place, at the same time as MW (very strange coincidence, or there was some kind of coordination between them.)
- MW's home office is an address in HK, and it is registered in NV, and its two person team lives in Mainland China and they operate totally separate business. While I am all for a highly mobile workforce, and the needs for virtual office, i could not help but thinking that MW's existence is created purely to commit security fraud. HK, being neither mainland, nor US, is a perfect place to hide if ONP choose to take legal actions.
ONP -
It is disheartening that an unknown outfit with probably unsubstantiated allegation can move the stock price so dramatically. The FUD (fear, uncertainty, and doubt) factors overwhelm the common senses in a irrational market.
SEC should definitely step in with an official investigation in this case. Either a security fraud is committed by ONP or there is an illegal manipulation by Muddy Waters (and its backer in street.com.)
Note - I do not own ONP, although I traded it extensively last year.
LPIH - Jim Crane resigned as CFO.
From latest 8K:
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS, APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.
On June 16, 2010, James Crane resigned from his position as the Chief Financial Officer of Longwei Petroleum Investment Holding Limited
LLEN - RedChip Visibility Issues Research Update on L&L Energy
Redchip's independently "paid" research: target revised upward from $13 to $19.
R2000 addition this coming Friday, and then this research. Pity for those who sold this morning at 9.36. I picked up a few shares at 9.5 this morning.
"LLEN made three acquisitons in the third quarter of fiscal 2010 and announced what could potentially be its largest acquisition to date. With excellent yearover-year growth and favorable industry dynamics to drive profi ts going forward we are raising our rating from Buy to Strong Buy and revising our price target upwards from $13 to $19.50."
http://www.redchip.com/files/redchipReports/LLEN_20100623_3QFY10_Update.pdf
Fernando,
Those who subscribe to fundamental analysis and value investing would agree with you 100%.
There are, however, a big chunk of traders who subscribe to technical analysis, or trading by momentum. To those people, CCME's lower PPS does not necessarily mean better risk/reward, but increased risk and reduced reward.
I would say that there are more people of second type than first type on this board.
YONG - Gary, I agree with you that the PR does not do a good job of explaining a major spending by the company. The focusing on customer list (should be a short list) totally distorts the picture.
I can not speak for YONG but normally a franchise operation involves territory rights at multiple levels(at provincial level, regions within a province, and at county levels.) So control over distribution channel is divided between the company/distributors.
YONG - CCG's reply.
I sent a quick email over to CCG, YONG's IR. The following is a reply:
----
RE: YONG's PR at June 21, 2010
From: Crocker Coulson <Crocker.Coulson@CCGIR.com>
We tried to make it very clear in the press release that this get them control over the distribution channel in their most important current province. Relative to the expected net income contribution and growth rate of the business the company felt that it was more advantageous to purchase it now. The move takes them closer to their end customers and it also removes the customer concentration risk of having one large distributor account for such a large portion of the sales.
There was no related party aspect to this transaction.
Thanks for your interest and let us know if there are other points we can help to clarify.
Best regards,
Crocker Coulson
President
CCG Investor Relations
YONG - Business Model.
It probably makes sense to look into YONG's business model. I recalled that YONG has a franchise type of business model, so YONG can not legally sell their product online without being sued by its distributors.
It is a good question to ask the IR: Although the PR used the term customer list, the money (cash+stock) seems for the territory rights.
Why companies raise capital
Over the last few months, there are a lot of Chinese small caps raised cash in the capital market, either through a PIPE, or a secondary public offering.
The fundamental reason is that company needs cash. But there are various business drivers leading a company to the capital market. Here I am trying to categorize the primary business driver:
Growth oriented: a company sees major growth opportunities, and need cash to facilitate the growth
Category 1: Add new capacity to meet demands
Example: LPIH was raising cash for its new guojiao facility,
Category 2: Add new business lines
ONP was raising cash to purchase new printers for a new business line, and CNAM built a new recycling business.
Category 3. Acquisitions
UTA was raising cash for new acquisitions. Four acquistions in pipeline and maybe more to come.
PUDA: is a mine consolidator. Need cash to buy new coal mines and upgrade the acquired mines to meet safety standards.
Growth but cash poor: company is growing in both top line (revenue) and bottom line (net income), but is cash poor.
Category 4. Need cash due to high account receivable or long DSO
TSTC is a prime example. It has fantastic growth (over 80% yoy) but have trouble to collect the cash (AR) from its customers. Its DSO is as much as 500days.
CSR: Need cash to expand AND to finance the long AR.
Category 5. investment - need cash due to over extended capital investment
LTUS: Great top line and bottom line. Nice operating cash. But simultaneous investments in a new facility and a new headquarter make it cash poor.
Major business issues:
Category 6. the business is in decline mode, and needs injection of cash to survive.
I can not think of an example in CGS space. PALM was such an example.
Fraud:
Category 7. The company is a pure fraud, and is raising cash while it can.
There is a small possibility that the real reason for raising cash is to transfer to someone's swiss account.
Example?