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LLEN 3QFY12 Update: Organic Production for 4QFY12 Forecasted to Show Sharp Improvement

The operating environment in 3QFY12 remained difficult as major accidents near its DaPuAn mine and the continued intermittent slowdown of its Ping Yi mine hurt coal production; 4QFY12 will see significant improvements from 3QFY12 as LLEN has apparently turned the corner with four out of five mines operating at or near their approved mining permits; upgraded from Speculative Buy to Buy on more visible growth ahead.

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On March 12, 2012, L & L Energy, Inc. (LLEN) announced its financial results for the third quarter ended January 31, 2012 (3QFY12), with revenue of $30.2 million and net income of $3.9 million. The 3QFY12 revenue figure represented a 54.2% decline from 3QFY11, while the net income figure was 69.3% below the figure in the corresponding year-ago period. The financial results for 3QFY12 were below our estimates, primarily due to a major accident in early 3QFY12 near its DaPuAn mine that caused this mine to suffer a 50% drop in production. Elsewhere, the continued idling of the Ping Yi mine since August 14, 2011 due to a fatal accident at the nearby Guohekou mine (not owned by LLEN) also hurt coal production. Lower coal production during 3QFY12 in turn reduced the coal washing, coal wholesaling and coal coking businesses of LLEN. Management also cited the two-week idling of nearly all businesses throughout China during the Chinese New Year holiday, which impacted the Company’s third-quarter revenue by approximately 15%, slightly higher than our estimate.