Dragon International Group Corp (fka DRGG)

[drpenny]

Stock Ticker: DRGG (OTCBB)
Recent Price: $0.05
Shares Outstanding: 103 million
Public Float: 60 million
Market Cap: $5 million
Audited 2007 revenue: $15.3 million
Audited 2007 net loss: $0.8 million
2008 revenues (9 months): $33.3 million
2008 Net income (9 months): $2.3 million
2008 EPS (9 months); $0.02 per share
2009 Projected revenue: $50 million
2009 Projected net income: $4.8 million
2009 Projected EPS: $0.05 per share
Book Value: $0.11 per share
Stock Rating: Strong Buy
Target Price (12 months): $0.50 per share
Fiscal Year: June 30
Company Website: http://www.drgg.us


Investment Highlights

• Dragon ranks in the top 4% in revenues of all companies listed on the OTCBB.
• Dragon is one of a select group of companies (2%) on the OTCBB that has a history of earnings.
• Dragon is a leader in China (the world’s largest consumer market) in the manufacture and distribution of specialty paper and packaging products.
• Dragon is anticipating a 80% increase in revenues and a 175% increase in earnings in 2008 and 2009 compared to 2006 and 2007.
• Dragon intends to list on the NASDAQ in 2009.

Investment Opinion

We believe that Dragon International Group Corp. (OTCBB: DRGG) has all of the right ingredients in place to offer shareholders a unique investment opportunity. Dragon’s management team has been in place since 1997 and has demonstrated the ability to create substantial growth in revenue as well as profits. The company is a leader in China’s specialty paper and packaging products. They manufacture and distribute packaging products for high end utilization in the packaging of food, beverage, and pharmaceuticals, and tea industries. The Company and its subsidiaries have cultivated strategic relationships with several of the world’s largest paper and specialty packaging companies. They have had a longstanding relationship as a distributor of products for International Paper Company in China. The Company’s manufacturing plant is complemented with state of the art equipment, to insure the production of the highest quality products to their customers, at very competitive pricing.

The company expects substantial growth in 2009. Revenue for 2008 is projected to be about $40 million, representing an increase of approximately 160% over 2007. The anticipated growth is expected to come both internally as well as externally. Management has been studying various methods of consolidating their industry in China, and now that they have access to the U.S. capital markets, they will be implementing them in 2008 and 2009.

It is impossible to analyze Dragon without looking at what is taking place in the Chinese economy. The cover of the December 2nd issue of Business Week said it all “The three scariest words “THE CHINA PRICE”. For the last decade we have seen U.S. companies creating relationships with Chinese companies to tap into the world’s largest population base. What we are now witnessing is China going out in an unprecedented manner and buying into the world market. Billions of dollars, euros, and yen have been invested into companies on the mainland. Now Chinese companies flush with cash and in command of the world’s lowest cost manufacturing plants, are on a buying frenzy. Huizhou based TCL Corp. merged with France’s Thomson to create the world’s biggest television manufacturer including the RCA brand. Lenovo Group Ltd, China’s biggest computer maker has agreed to buy controlling interest in IBM’s PC operations. Shanghai Automotive announced it is buying a 48.9% stake in Korean truck maker Ssangyong, and their next target may be Rover. It is estimated that China’s outside investments may total $7 Billion in 2004 and could reach $14 billion in 2005.

China not only represents the world’s largest consumer market, it also has the potential of becoming the world’s largest exporter of a wide range of products. We believe that Dragon is well positioned to capitalize on this growth. The sector they are in should experience dynamic growth for the next decade, if not longer.

While all investments involve a degree of risk, and a great many of the stocks listed on the OTCBB involve a higher than normal risk level, we believe that is partially true due to the fact that many of them are start up companies. Dragon is a mature company, and we believe several companies we are covering that our becoming public out of China offer above normal profit potential. Dragon fits all of the criteria for us to make such a strong buy recommendation.

We view DRGG as an excellent growth company with exceptional potential for capital appreciation over both the short and long term. This is essentially investing in a rapidly growing company in the world's largest and fastest growing market. Bearing in mind that significant company developments will occur in the coming months, along with industry projections, leads us to believe that DRGG is an excellent investment opportunity. We see substantial appreciation potential of the stock price, both from earnings growth and increased recognition. This could be multiplied if investors come to realize that the company is going to be involved in high growth specialty packaging companies in China.

Over the next 6 to 12 months, we are projecting a target price of $0.50 per share for DRGG, about 10x its projected earnings in 2009, or 1x projected sales in 2009, based on 103 million shares outstanding. Over the next 12 to 18 months, we are projecting a target price of $1 per share for DRGG, about 20x projected earnings in 2009, or 2x projected revenues in 2009, based on 120 million outstanding shares.