China Growth Stocks

[Brennus]

YUII: Game-changing acquisition

Here is the press release:

http://finance.yahoo.com/news/Yuhe-International-Inc-prnews-2610599629.html?x=0&.v=50

Basically, for 15.2MM up front and 2.5MM in capex expenditures YUII almost doubled the number of breeder farms they have. Now, that's not the same as saying they doubled their capacity...the purchased breeder farms housed 600,000 breeding pairs whereas YUII currently holds about 1.5MM breeding pairs.

The implied multiple is astounding, though. YUII can generate about 11MM in net profit using their existing asset base. If we apply that same rate of profitability to the purchased assets, YUII purchased the assets for less than 4x earning potential. And they had enough cash on the balance sheet to do it.

They guided to 150MM broilers sold in 2010. Depending on how fast this purchase ramps, it could add another 40MM to that total. That probably means a $12.50 stock at a very conservative 8x multiple. YUII is a very compelling value right now.