Replies to post #62444 on China Growth Stocks

[2morrowsGains]

SGZH...BTW, the Liujiaqu Coal Mine acquisition is still on the table...

From the Q3 10Q...
"On May 19, 2010, the Company entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") to acquire the Erdos City Dongsheng District Liujiaqu Coal Mine ("Liujiaqu Coal Mine") located in the Inner Mongolia region of the PRC. The transaction of the acquisition of Liujiaqu Coal Mine had not been completed on September 30, 2010. The parties are reviewing the potential impact on the transaction of new municipal policy and requirements of Erdos City and have not scheduled a date for completion of the transaction."

Here are the terms of the acquisition...
Songzai International Holding Group Announces Entry Into Agreement to Acquire Liujiaqu Coal Mine in Inner Mongolia
8-k Filing
SGZH's share price at the time was approx $7 and notice there was actually a cap on dilution. (SGZH also now has approx $20M more in cash than they did back when the announcement of the acquisition was released).

Whether it's the Liujiaqu acquisition or another acquisition, something is DEFINITLEY brewing which could help boost profits also...

"We are also expanding our efforts to pursue other mining properties and short term production opportunities which could be revenue contributors for us in the 2011 fiscal year."
http://ih.advfn.com/p.php?pid=nmona&article=45475320

We'll see what happens.

[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.