JUNAN COUNTY, Shandong Province, China ( TheStreet) -- American Lorain ( ALN) is a China-based food manufacturer with three primary segments: chestnut-based snack foods, convenience foods such as heat-and-eat meals and frozen foods.

Alan Jin, the company's chief financial officer, recently sat down with The Street to discuss the company's history and prospects.


TheStreet: Can you provide us with some history about American Lorain?

Jin: American Lorain has been in existence for 15 years, has five factories and is the largest chestnut products producer in China. The chestnut business composed 60% of our revenue in 2009. We have established over 40 sales offices across the country, and our distribution network in China covers 26 provinces and administrative regions. In the meantime we work with over 300 distributors to help us access new market places, and are planning on expanding this number to 1,000 by the end of 2010. Hopefully, this will extend our products points from the current 5,000 to 8,000. We are well on our way, as we recently signed a contract to sell products in 550 7-Eleven stores in Guangdong province.

Can you discuss your various business segments?

We have three primary segments: chestnut products, convenience food products and frozen food products. The chestnut segment is our largest, and we expect growth in the range of 15%-20% in the segment in long term. Our convenience food products segment is our second largest and the fastest growing, and we are looking for growth of at least 50% in the next three years for this line. Finally, our cold food line has become our smallest line; we will be phasing out the products until they will eventually disappear since we see higher margins in the other two lines and thus they are worth more focus.

Who are your biggest competitors?

Both the chestnut and the convenience food markets are very fragmented in China. There are many players in the chestnut industry but none competes with us head to head. The second largest chestnut player in China only has half the capacity we have, and they do not have close to the same size distribution network that we have. In terms of the convenience food segment, the sector is very young in China. Most companies are still conducting R&D trying to determine consumer preferences. There are only two players in the lunch box product market at country level. They are both large food corporations with hundreds of products, with lunchboxes not being one of their primary focuses.

If you had a golden bullet that you could put in the head of one of your competitors, who would it be?

The main competitor in the chestnut business that has about half the capacity that American Lorain has would be considered our closest competitor.

Where do you see the company in five to 10 years?

A large packaged-food company. The market for chestnut products is only around $1 billion, while the convenience food segment in China is about $400 billion. This is why American Lorain is transitioning away from the cold food product line into the packaged-food market. While the Chestnut business is stable and continues to do well, the real growth lies in the packaged-food business. American Lorain should be able to utilize its wide distribution network to promote its packaged-food business.

Why have we not seen positive free cash flow?

This past year we have been building out the factory lines for the expansion into the convenience food segment.

What Chinese entrepreneur do you respect most?

Mr. Shi Yuzhu, who founded Giant Interactive ( GA). The other one is FocusMedia's ( FMCN) Jason Jiang.

What Chinese company do you respect most?

China Automotive Systems ( CAAS) has been around in the U.S. capital markets for many years. It has the highest earnings multiple because people like the company.

Zack Buckley is general partner for Buckley Capital Partners Hedge Fund and manages his blog at Uncoveringalpha.com. He developed his investing methodology by synthesizing the ideas from the best investors of all time: Warren Buffett, Peter Lynch, Seth Klarman and Benjamin Graham. Using a value approach, he researched thousands of companies in order to pursue the most undervalued companies, which led primarily to companies in China. 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.

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