Lihua International Inc fka LIWA

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Very bullish report out $20 target...link to report at bottom of post...

Highlights

In order to verify LIWA’s stated copper smelting capacity and utilization rates from both an input and output basis, we spent 24 hours at its facility observing operations as well as following its delivery trucks to clients’ facilities in order to verify customer and tonnage shipped. We arrived at LIWA’s facility in the morning on March 10, 2011, giving the company less than 24 hours notice prior to our arrival. During our time at Lihua’s facility, we witnessed the delivery and unloading of copper scrap, the pressing and bundling of scrap into rectangular blocks, loading of these blocks into the smelter, the actual smelting process and the extraction of melted copper into either rod or anode form. Being there for 24 hours allowed us to observe the whole operating cycle and to time the process in order to be able to true up Lihua’s daily smelting capacity, which can be extrapolated into an annual capacity. We have also followed three of Lihua’s trucks to the customers' facilities to verify the deliveries. Additionally, we approached and spoke with Lihua’s workers, truck drivers and people unloading trucks at customers' facilities.

We believe the recent pullback in share price offers an excellent entry point. Lihua’s share price has declined about 20% from the recent highs of ~$11.90 during the last week, while the company reported strong Q4 and FY2010 results, filed its 10-K without any glitches or delays, eliminated all material weaknesses from its annual report and became SOX compliant. In addition, during the last few weeks the company hosted a number of investor meetings and facility tours at its Danyang facility, all of which went very well (to our knowledge). We believe that the recent pullback in share price was attributable to the growing negative sentiment towards the overall US-listed China space, as well as the recent macroeconomic events and nothing related to company specific business or fundamentals. At yesterday’s closing price of $9.46, the stock is trading at only 3.3x FY2011 cash adjusted P/E basis (LIWA has ~$3.00 in net cash as of year-end 2010) and 2.4x FY2011 EV/EBITDA basis.

Several near-term catalysts should create value for investors.

· Awarding of the license for import of 100k MT of scrap copper in Q2 2011.

· Auditor upgrade to a Big 4 firm in Q2 or early Q3.

· Additional sell-side coverage.

· Doubling existing copper smelting capacity to 100k MT in 2H 2011.

· Announcement of further capex plans following the installation of the two new smelters.

Reiterate Buy and $20 price target. Our $20 price target is predicated on 10.3x FY2011 P/E and 6.4x EV/EBITDA multiples. In our opinion a target price of $20 is justified by Lihua’s impressive margins and profitability, strong operating cash flows, positive demand trends for copper consumption and pricing and the robust capital expenditure plans that are expected to double existing capacity by Q3 2011. Lihua also has a solid balance sheet with a net cash level of $88MM, (or almost $3 per share), a current ratio of 5.6x, a cash conversion cycle of under 40 days and has generated ttm ROE and ROA of 35% and 29%."

https://ghsecurities.bluematrix.com/docs/pdf/30725391-b672-4028-a78f-a6778264d5cd.pdf?co=Ghsecurities&id=[e-mail]&source=mail