re liquid assets
From my reading, the liquid assets are largely tied up in what is China's equivalent of a certificate of deposit. On the other hand, China's recent movement toward entrepreneurship and approval of capital investment means China's banking and investment systems are pretty juvenile compared to the size of the economy (hence the coup GS scored in getting a license to do business there).
Sure, in heavily regulated systems such as China and India, you expect businesses to require permits that would never be imagined in a laid-back regulatory environment such as prevails in some jurisdictions (*cough*Texas*cough*). However, there was once a time you needed a "hops allowance" from the federal government to grow hops in the US. Even here, we cycle through different levels of regulatory intervention. In a recently-ex-command-economy, expect continued use of such permits.
ETLT's agricultural business (which I sense is being put on the backburner for more cutting edge opportunities) was surely driven in part by China's tax incentives: agricultural profit was tax-free. You can see why this would make someone interested in finding a way to profit in agriculture. ETLT acted as an embryo importer and made some money in it while the going was good, but its agricultural revenues now seem to derive from selling sheep meat and the like. Why? Such profits are worth more than other profits due to the tax holiday.
There's no evidence that ETLT has Party officials on the Board. Let's not discuss ETLT as if it's part of a Communist conspiracy. These are entrepreneurs looking to make a buck.
I think the discount comes from two concerns:
(1) Is the money for real? Communication with management and the distance to the assets for shareholder inspection are sufficiently challenging that answering this question has worried some people. Those people are giving us a fear-based discount.
(2) Do these guys have a strategy to make money, or will they burn it doing stupid things like we saw in the dot-bomb when that was on fire? China is hot and folks are afraid of nitwit fly-by-night artists who don't know how to make money. Allow me to demonstrate Exhibit A, the ETLT financial filings: they are indeed making money (but see #1, above). They are willing to expand to where the money looks like it's ripe to be made, too. ETLT could become a valuable holding company. The problem is that unlike Apple, ETLT hasn't got a "story" that people can make sense of. There's no easy viewing from the outside what the long-term plans are. It looks like an entrepreneurial management team cruising around with a fat wallet looking for good short-term opportunities. That scares the hell out of some folks. I, on the other hand, have met a number of Chinese. I understand that this isn't a character flaw, but a cultural trait: practicality. They don't know what'll be good in 10 years, but they can sniff out a deal. So long as management keeps sniffing out good short-term deals, returns will be good. At the moment, they sniff out that share undervaluing makes ETLT a good deal, which is pretty cool. We'll have to see how this plays out, but I'd like to see shares outstanding reduce over the next few quarters, proving they can do it.
I bought at .58 last time and sold at .67 or so, and I have a GTC buy order in but not yet executed. This stock is volatile enough that I regard it as a place to trade, even though its valuation makes it really an appropriate long-term investment. Unfortunately, since I can't find any derivatives traded on these shares, I don't want to sit on them while they oscillate in the 50s and 60s.
Take care,
--Tex.
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