China Growth Stocks

[Rames]

SGZH vs PUDA

According to the presentation today, using PUDA's own estimates, the stock is currently trading at a 2011e P/E right below 7, and that is neither expensive nor cheap in the current market. I find their estimates for coal prices pretty aggressive, though. Also hard to predict an average 2012 coal price right here and now.

I think the offering at $12 was fair, though, about 10-15% below what I would consider fair value for the stock. Today was bad timing with commodities going down broadly, but I wouldn't be surprised if this trades up to the $13-14 range in the next few days.

SGZH deserves lower multiples than PUDA, though. Smaller player, more execution risk, not a good track record over the past few years. I think your 2011 estimates are too aggressive. I've raised mine from $1.30 to a less conservative $1.60 EPS for 2011.

If I assign PUDA a fair value PE-range of 7-9, I would reduce this to 5-7 for SGZH, and I would call fair value in the $9-10 range. There are many possible catalysts for SGZH that could lead to a higher valuation, for now I would use these estimates, though.