By Zack Buckley and Glen Bradford
is trading at an adjusted price-to-earnings ratio of 7. It recently took a big hit after the release of its 10-K, which allows investors to pick up shares of a great company on the cheap. China Medicine generated $17 million in 2009, and is only a $65 million company. China Medicine is waiting on government approval of its proprietary drug rADTZ which should substantially contribute to future revenue growth.
continues raising revenue guidance, with 2010 net income expected to increase between 60% to 72%, and has issued the expectation of 50% compounded annual revenue growth over the next three years. Its recent count of branded stores is 10,000, with the goal at year-end to be 20,000. There are discussions that by the end of the decade Yongye may have 100,000 branded stores.
New Energy Systems
has been reaffirming guidance at between $5.3 to $6 million. Since it has reaffirmed this number on three separate occasions we can assume it will be close to accurate. The company projects 2010 per-share earnings of 1.23, which makes a low P/E of only 6.1 times earnings, even though this incorporates a tripling of net income. With return on equity of 60% and profit margins at 26%, this company has high returns on capital and strong margins. Average return on equity in American business is 12% -- anything above 20% is spectacular.
is a rapidly growing company with a P/E of 8 in a great industry. It makes paper, it is very simple and understandable which we love. Orient Paper achieved a return on equity of 22%. It expects adjusted EPS of $1.21, which is about 16% growth for 2010.
is one of those companies that makes you proud. Take a look at its super 8-K issued last November and if you're perceptive you'll realize how truly innovative the company's structuring is. I firmly believe that more companies should go public in this manner. Basically, if the company performs, they get over $100 million through its warrants being cashed in; the warrants trade as CCLWF.
China Ceramics Tuesday reported results from the last year and beat my expectations. Again, I wish more companies went public this way. When you're running at full capacity with a backlog, getting $100 million to expand is always worthwhile.
( CCME) has issued incredible revenue guidance of 80% growth for 2010, which doesn't even include the expansion of its bus lines which will surely occur. With a P/E of just under 7, this company's valuation does not make any sense, considering it just uplisted to Amex. The markets will eventually realize their mistakes and investors will be strongly rewarded.
is very exciting as it is planning on uplisting directly from the pink sheets to Amex. Renhuang is a distributor for traditional Chinese medicines. With a trailing P/E of about 6 and revenue net income growth in the range of 25%, this company is very cheap.
China Electric Motor
makes micro motors that serve the consumer electronics, automobile, power tools, and household appliance industries in China. It is trading at a forward P/E of around 4 based on management's 2010 guidance. In addition, CELM is expecting to grow at more than 50% in 2010. CELM had 2009 return on equity of 40% and is servicing an extremely quickly growing market. Auto sales in China are exploding as China just recently surpassed the U.S. as the largest car market in the world.
China Infrastructure Construction
appointed a new independent member in February and in March made public its quest to raise cash in the public markets. Looking to uplist to
and being as cheap as it is while still being over $5 suggests that someone knows what he's doing over here. Mutual funds almost are going to be required to eat this up sometime in the near future.
is our speculative play for this article. This small company is trading at a P/E of 4 based on 2009 net income and 1.5 based on 2008 income. The economic recession hurt its business line in 2009, but Xinyinhai believes business will return to its former profitability. This claim is backed up by an increasing backlog. If this business is able to fully execute a turnaround, it will be trading at ridiculously cheap price. There is risk with this company, however, as it may not be able to recover.
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.