China Stocks News and Analysis from Seeking Alpha

Asian Tech Stock Weekly Review (July 19 – 25), Part II: China

IRG — Thu, 29 Jul 2010 14:12:24 -0400

<< Return to Asian Tech Stock Weekly Review Part I

China

Internet

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Radient Reveals New Divestiture Plan for China Subsidiary

ChinaBio Today — Thu, 29 Jul 2010 11:10:18 -0400

ChinaBio Today submits:

Radient Pharmaceuticals Corporation (AMEX: RPC) announced a new plan to sell its China subsidiary, Jade Pharmaceuticals Inc. Jade has signed a letter of intent to merge with Shanxi BaoTai Pharmaceutical Co., a privately owned company located in Taiyuan China. When the transaction is closed, Jade plans to merge the combined entity with an unnamed public company, and the public company will move its listing to the NYSE Amex.

Both Jade and BaoTai produce drugs for the cancer market. At one point, Radient placed a $20 million value on Jade, though no financial details of the transaction were disclosed. Radient said it would offer bridge financing to facilitate the merger of Jade-BaoTai with the public company.

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Gulf Resources Q2 Revenue Preview: An Opportunity to Beat Consensus

Jason Nevader — Thu, 29 Jul 2010 10:05:03 -0400

Jason Nevader submits:

Gulf Resources (GFRE) will be reporting second quarter results in a little less than two weeks and the consensus analyst estimate of $36.97 million in revenues does not take into consideration Gulf's seasonal sales trends and bromine price increases. By my estimate, revenues could be $46.0 million in the quarter. Gulf's revenues are broken down into bromine, crude salt, and specialty chemical sales. Bromine reserves are found mainly in the U.S., in the Dead Sea and in China, which account for 96% of the world's total bromine production. Gulf Resources is the largest bromine producer in China and one of a few companies with a bromine exploration license in China. The bromine demand in China is larger than the domestic supply, which has led to significant price increases. The Company has $56 million in cash ($1.60 per share in cash) and no debt.

Bromine Sales

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AsiaInfo-Linkage,Inc. Q2 2010 Earnings Call Transcript

Thu, 29 Jul 2010 07:48:12 -0400

AsiaInfo-Linkage,Inc. (ASIA)

Q2 2010 Earnings Call

July 28, 2010 8:00 PM ET

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3 U.S. and 3 China Commodity Plays

Stone Fox Capital — Thu, 29 Jul 2010 07:48:07 -0400

Stone Fox Capital submits:

As we've been writing for the last month, the Chinese economy and hence the local markets continue to rule the world. See China Market Rules the World on June 30th. Wednesday night, the Shanghai market surged over 2% and made a very impressive jump off the 50EMA showing signs of more gains coming in August.

Copper has also been surging and met coal prices remain steady so the commodity stocks such as Massey Energy (MEE), Alpha Natural Resources (ANR) and Freeport-McMoran (FCX) continue to be our favorite domestic stocks to play this theme.

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Searching for Value in China? Consider UTA

Ryan Vanzo — Thu, 29 Jul 2010 05:39:29 -0400

Ryan Vanzo submits:

At the end of my previous article (3 Chinese Growth Stocks in Value Territory), I asked readers if they would like me to cover a specific company mentioned in further detail. Suffice to say, there was a large audience that were curious about one company in particular: Universal Travel Group (UTA).

Universal Travel Group appears to be a bargain on the surface, however, its long-term future is dependent on things out of its control (or at least recently out of its control). Here's a quick look at what the company does and where its priced:

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Chinese Banks at Risk (Part II)

Patrick Chovanec — Thu, 29 Jul 2010 03:07:44 -0400

Patrick Chovanec submits:

<<Read Part 1

Two quick follow-ups pulled from the news, which reinforce the points I made yesterday, before moving on to the topic of structural reform in Chinese banks:

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VisionChina Media Inc. Q2 2010 Earnings Call Transcript

Wed, 28 Jul 2010 21:57:12 -0400

VisionChina Media Inc. (VISN)

Q2 2010 Earnings Call

July 28, 2010 8:00 pm ET

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USANA Health Sciences, Inc. Q2 2010 Earnings Call Transcript

Wed, 28 Jul 2010 17:00:39 -0400

USANA Health Sciences, Inc.

Q2 2010 Earnings Call

July 28, 2010 11:00 am ET

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Charm Communications Inc. Q2 2010 Earnings Call Transcript

Wed, 28 Jul 2010 16:49:12 -0400

Charm Communications Inc. (CHRM)

Q2 2010 Earnings Call

July 28, 2010 08:00 am ET

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China-Biotics: An Exciting Transformation Has Arrived

Jason Nevader — Wed, 28 Jul 2010 16:38:39 -0400

Jason Nevader submits:

China-Biotics (CHBT) gets it. It is all about becoming the dominant supplier of bulk probiotics to the Chinese functional food industry. After that, it can take on the world.

Over two years ago, the China-Biotics strategy was to increase the number of its retail stores from 60 in April 2008 to 300 stores by April 2009. As of March 31, 2010, the Company had 111 retail stores to sell its Shining branded probiotics supplements, which is an increase of 1 store from its 110 retail stores as of September 30, 2008. Sales from its 111 retail stores only accounted for 14% of last year's sales. What happened to the additional 189 stores? The Bulk Probiotics Opportunity is Much Bigger.

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The PBoC Can't Easily Raise Interest Rates

Michael Pettis — Wed, 28 Jul 2010 15:29:08 -0400

Michael Pettis submits:

A lot of people have asked me to write about the recently “leaked” CBRC report on dodgy local government debt. Here is what the article in Monday’s Bloomberg had to say about it (and note especially that delicious second paragraph):

Mainland banks may struggle to recoup about 23 per cent of the 7.7 trillion yuan (HK$8.81 trillion) they have loaned to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.

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U.S. Market Investors Needlessly Obsessed With 'Fat Tail' Risk

Sean Maher — Wed, 28 Jul 2010 14:33:06 -0400

Sean Maher submits:

Investors have recently been obsessed with discounting 'Fat Tail' risks i.e. extreme economic outcomes like deflation and hyperinflation. PIMCO among others has been chasing the investment fashion du jour with a fund protecting investors from a 15% plus downside move. In fact, efforts to protect against another disaster, which helped drive up the relative costs of the most bearish credit derivatives to the highest in two years, look like an incipient bubble to me. One which is being fully taken advantage of by Wall Street. The Taleb 'Black Swan' thesis hasn't just gone mainstream, it's become a cliche. And that's a classic example of behavioral finance in action; earthquake insurance sales soared after the 1994 San Francisco event.

Leverage is the common 'facilitator' for these cascading crises within a closely coupled system. While it remains systemically high, it is now gradually reducing in the private sector and recent central bank actions have created effective 'firewalls' between institutions. There are plenty of low probability but investment game changing events to be aware of, from the ongoing Iranian nuclear saga escalating to a North Korean regime implosion. But the acute fear of a rerun of the 2008/9 market slump reflects more the psychological scars inflicted on investors than a strictly objective assessment of the outlook and long-term expected returns.

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Chinese Business Is Under New Management

Peter Fuhrman — Wed, 28 Jul 2010 09:30:36 -0400

Peter Fuhrman submits:

Five years ago, all I had to worry about was producing enough to earn a small profit. Now I spend time dealing with employment issues, environmental regulations, tax policies, trying to increase market share and staying ahead of competitors. The pressure is much worse.

Welcome to the suddenly changed and increasingly pressured world of Chinese corporate management.

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Why the Surprise Over Chinese Disinterest in Western Exports?

Joel West — Wed, 28 Jul 2010 04:14:14 -0400

Joel West submits:

Earlier this month, GE CEO Jeff Immelt expressed disappointment that the Chinese government is not all that interested in buying Western imports. As Gomer Pyle would say, “surprise, surprise, surprise!”

One man who’s not surprised is former LA Times China correspondent Jim Mann. Since leaving journalism, Mann seems to have made a career of writing books telling Americans that what they see in China is just their imagination.

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China's Banks at Risk

Patrick Chovanec — Wed, 28 Jul 2010 02:42:56 -0400

Patrick Chovanec submits:

A couple of weeks ago, I published a column outlining my doubts about the health of China’s banking system in the lead-up to the Agricultural Bank of China (AgBank)’s IPO. Given the lackluster performance of that share launch – despite the considerable political capital Beijing mobilized behind making it a success – it seems I was hardly alone in my concerns.

Now some concrete data is starting to emerge regarding the potential size of the problems that may be lurking on China’s bank balance sheets — in particular, the losses that may be incurred from risky stimulus loans made to development entities (known by some as LGFVs, or Local Government Financial Vehicles) sponsored and supposedly guaranteed by provincial and local governments. Earlier this year, China’s central government nullified those guarantees, noting that local authorities often lacked the financial wherewithal to stand behind them. The China Banking Regulatory Commission (CBRC), which had previously been touting such loans as safer-than-safe, launched an internal study to get some handle on just how big a problem they have on their hands.

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Chinese Energy Cleans Up Its Act

Brian Rezny — Tue, 27 Jul 2010 15:24:18 -0400

Brian Rezny submits:

Ten years ago, China's energy consumption was just half that of the U.S. But a lot can change in a decade, and a financial crisis can shift the global balance of energy needs.

Last week, the International Energy Agency reported that China has surpassed the U.S. as the world's largest energy consumer. But that's no surprise. According to the report, China's energy consumption has doubled since 2000. And last year, China consumed 2.25 billion tons of oil equivalent…4% more than the U.S. And Saudi Arabia (the world's largest oil exporter) now exports more oil to China than to the U.S., according to The Wall Street Journal.

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Why the U.S. Must Get Its Financial House in Order Before China Does

Larry MacDonald — Tue, 27 Jul 2010 13:00:44 -0400

Larry MacDonald submits:

Many analysts have warned that China’s position as a major lender to the U.S. Government means America’s standard of living and freedom to set its own course is dependent on another country. If China were to dump its vast holdings of U.S. Treasuries abd dollars, it would send U.S. interest rates shooting upward and the U.S. dollar tumbling downward.

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Is Gold Losing Its Luster?

Brian Rezny — Tue, 27 Jul 2010 06:11:02 -0400

Brian Rezny submits:

Over the course of human history, some 5.3 billion ounces of gold have been mined. And gold has been many things over time. It is currency, jewelry, industrial metal, a store of value, an investment. And yet, China doesn't seem to like it all that much. SAFE (the State Administration of Foreign Exchange) announced recently that China won't be buying too much gold in the future. And considering that China is the world's second largest gold market, that matters.

Gold prices are too volatile, and the size of the market is too limited, so as far as SAFE is concerned "it cannot become a main channel for investing our foreign exchange reserves" (which total $2.45 trillion). Besides, purchasing more gold wouldn't really diversify the country's reserves all that much…doubling gold holdings (currently 1,054 tons) would increase gold's portfolio weight by 1 or 2%.

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The Only Gold Stock I'm Buying

James Altucher — Tue, 27 Jul 2010 05:06:21 -0400

James Altucher submits:

I admit it: I hate gold / GLD as an investment. But there is a gold stock I've been buying and I'm excited about it because it plays on several tidal-wave-sized demographic trends. First off, gold is primarily a "fear metal". And it went up to recent highs simply because of the fears that the sovereign debt "contagion" was going to spread to the US. But a trillion dollar bailout and a bunch of wimpy EU stress tests have basically resolved that fear. Nor do I think gold is a hedge against inflation. The correlation between gold and CPI in the past 50 years has been a measly 0.14. Meaning, there's no correlation at all. So why like a gold stock? First off, it's not a mining stock like Newmont Mining (NEM), NovaGold Resources (NG), or Barrick Gold (ABX), all three of which do well when gold goes up but not as well when it goes down. I want a stock that will do well in either environment.

One of the biggest demographic trends that will be occurring over the next ten years is the rising middle class in China. The Chinese middle class is growing by approximately 50mm people a year and represents 25% of the population now, up from less than 5% of the population a decade ago. That means, for instance, that China has gone from being the 20th country ranked by oil consumption to the 2nd country and is now number one in terms of total energy consumption. It also means the demand for luxuries by this nouveau middle class is now insatiable, growing, and cannot easily be satisfied due to lack of supply. Catering to this middle class are companies like Baidu (BIDU), Sohu.com (SOHU), Ctrip.com International (CTRP), but these companies have had their run.

Kingold (KGJI.OB), the leading designer and manufacturer of 24 karat gold jewelry in China has all the characteristics I look for in a potential ten-bagger:

Strong growth: 2008 revenue was $110mm, 2009 revenue: $250mm, and 2010 revenue will probably come in greater than $500mm.
Strong earnings growth: 2008 earnings were approximatey $6mm. 2009 earnings were approximately $9mm. Q1 2010 was $4mm and I expect 2010 earnings to be between $20-25mm.
Low multiple - the company trades for approximately 9 times my projected 2010 earnings. As opposed to a company like Tiffany (TIF) at 17x with much slower growth.
Large market: the total jewelry market in China is approximately $20bb in 2010, up from $16bb in 2009 and $10bb in 2003. Between 1993 and 2008 the jewelry market has grown by 400%.
Large market, part 2: jewelry is the third largest consumption item in China after autos and housing.
Kingold manages the risk in fluctuations in the price of gold by using just-in-time inventory controls, minimizing the time between a purchase order, the purchase of gold, and delivery of the final product to under five days according to their filings. I'm not a believer in market timing gold. In fact, I'd rather own a growing company with growing earnings and revenues than a piece of rock. But I am a believer in the luxury industry, which is already fully matured (perhaps too matured) in the US but only at the beginning stages in China. Kingold also keeps down their costs by directly buying the gold from the Shanghai Gold Exchange, where they are a member.
They are not local but distribute to 15 different provinces within China according to their recent SEC filings.

Despite this, they have about 4.3% market share. With continued growth and consolidation in the industry they can grow their market share inside a growing market.

The best hedge against inflation is not a rock like gold, but a company that benefits from the growing globalization that reflation triggers as well as the enormously increasing Chinese middle class.

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