CKGT 10Q/A
I read through the 10Q/A. I take it as good news--it means the company is one step closer to an uplisting as far as paperwork protocols are concerned.
I'm sure this has been rehashed ad nauseum, but I'll just summarize the content of the 10Q/A (which applies to most of chinese small caps that have sold warrants--CAGC, YONG, etc.):
In 2008, when CKGT share price was much lower than it is today, the company raised capital through the sale of convertible preferred stock and warrants.
As of 3Q 2009 the outstanding preferred stock and warrants were:
Series A Convertible Preferred Stock = 733,333
Warrants = 3,850,000
Consistent with GAAP accounting, the company is treating these instruments as liabilities and marking them to market. When CKGT share price goes up, as it has over the past year and quarter, the fair value of the instruments goes up as well. This registers as an increase liabilities on the balance sheet and a loss against earnings.
Obviously, the loss is not a real loss, just a quirk associated with GAAP accounting. A more accurate--and also more conservative--way to evaluate the earnings would be to add the outstanding warrants and the convertible preferred stock to the diluted shares (basically, assume that they have already been exercised, because eventually they will be), then recalculate the diluted EPS.
If you do that, you get about 24M outsanding shares. Granted, that doesn't account for the cash that CKGT will eventually get from the exercise of the warrants, but we can ignore that to be extra conservative.
Here is their quarterly net income for the past two years:
4Q09 - TBD / 3Q09 - $3M / 2Q09 - $1.42M / 1Q09 - $0.69M
4Q08 - $2.3M / 3Q08 - $1.77M / 2Q08 - $1.04M / 1Q08 - $0.61M
The YOY growth rate has been increasing at a higher rate every quarter of this year. If you assume the same YOY growth rate for 4Q as for 3Q (69%), you get a 4Q net income of $3.89M, an annual net income of $9M, and an annual EPS (using 24M shares) of .375. That's a P/E of 6.9 using today's closing price.
If you assume no growth from 3Q to 4Q, you get an annual net income of $8.11M and an annual EPS (using 24M shares) of .337. That's a P/E of 7.69.
Given the rapid growth (in excess of 50%), the stock is underpriced, even for a chinese small cap.
Either way, all of the information above has been readily available and well known for more than a year. Personally, I thought the pullback was kneejerk, not well thought out, so I used it as a chance to get back on the CKGT train, given that I had missed it in the last few weeks.
GLTA
AI
