Editor's note. This is the second part of a series. Here is Part 1.
By Zack Buckley and Glen Bradford
China Clean Energy
has a new plant ramping up to full capacity that will be used to produce biodiesel and specialty chemicals. China has been pouring billions of yuan into renewable energy; biodiesel prices should rise with gas prices. China Clean's capacity will expand at triple-digit rates, given full capacity.
China Shuangji Cement
has recently put itself in a position to uplist through hiring a U.S.-based CFO, a reputable auditor, and a New York-based legal firm. The recent dilution is justified as it adds shareholder value, and isn't that the point of raising capital anyway?
is in the midst of mine consolidation, increasing capacity and increasing profit margins thanks to the unquenchable thirst for coal on the other side of the world. This is one of the more obvious opportunities. It conservatively forecast the opportunities that it going to take advantage of, and investors are always "surprised" to see that they actually do what they say they are going to do. I'll tell you what. I'm not surprised.
China Growth Development
is a shopping center owner in western China. CGDI is not poised for huge growth in the future, but it is a steady grower trading at a forward P/E of 3. The risk perception in CGDI is mainly due to its low stock price and industry. Warren Buffett always said that he doesn't care about the size of the business, only whether or not he can understand it. We know that shopping malls are exploding in China, so we like the business.
SOKO Fitness & Spa Group
operates fitness clubs and spas in China. Its revenue growth in fiscal 2009 was 40.1% with net income growth of 49.5%. The trailing 12 months P/E is 8.8, which makes it undervalued for a company growing so fast. As China's disposable income grows, Chinese consumers will have a greater desire for luxury items. SOKO will grow organically through openings new fitness clubs in underserved areas. SOKO has a high net margin of 43%, and inside ownership of 41% with ROE of 34%. You can bet we'll be going to their spas when we get to China, lucky us.
is a distributor of iron ore that is expanding into the scrap metal recycling industry. It has just built a factory that is expected to generate $400 million in revenue, depending on the current price of scrap steel. With expected margins of 8% to 12%, we can conservatively estimate at full capacity CNAM's net income to be 32 million. With a market cap of 87 million, the forward P/E is 2.72. The main risk with CNAM is whether it is able to reach full capacity; if that occurs, this company is a gem.
is a quickly growing pork producer and distributor. It is currently trading at an adjusted P/E of 5. Just wait until it turns on the afterburners and increases the production, thanks to its recently added capacity. It's going to take a while for the average investor to sort through documents, but a couple 10-Q's will definitely relieve a lot of the downward pressure on this stock price.
China Kangtai Cactus Bio-Tech
is engaged in the production, R&D and sales and marketing of products derived from cacti. With a P/E of 8 and expanding production, this stock is very cheap. The most exciting prospect for the company is its cigarettes, which are made out of cacti. With 400 million smokers in China, the target market is huge. CKGT has a sustainable competitive advantage in that there are no companies that have the amount of cacti reserves they have. This stock is smokin'.
Songzai International Holding Group
is an undervalued coal company that is not strong in gaining investor awareness, which we believe to be one of the main reasons for its low stock price. Investors should be aware of the implications of the recent resignation of the CFO.
Weikang Bio-Technology Group
is a developer and manufacturer of traditional Chinese medicines based in Harbin. It has grown mroe than 100% in the past two years due to acquisitions, and is trading at a P/E of only 5. Again, the lack of an IR firm may be a primary reason for the low valuation in this company.
At the time of publication, Bradford and Buckley were long all stocks mentioned in this article
Buckley will be spending three months this year in China visiting companies that are exciting investment opportunities. Follow him on his blog, Uncoveringalpha.com, as he travels across China touring factories and interviewing management.