Leaving aside for the moment that China's currency – the operative currency of CNAM's business – may become more valuable as it is repriced, let's look at what the year ahead holds for CNAM and its shareholders on an assumption of steadily-valued renminbi.
The April 1, 2010 guidance offered by the Company shows an expectation of revenue growing from 86.9M to $220M and net income blooming from $5.1M to over $12M. If CNAM had less than 12M outstanding shares (based on current BusinessWeek stats), CNAM would be headed toward over $1/sh. However, CNAM recently issued shares under the exercise of warrants conveyed to buyers in a private offering conducted in 2008. The expected 2010 income per share hasn't been projected to reach $10 after this dilution, but north of $0.80. At a P/E of 10, this implies a valuation after publishing the 2010 numbers that should exceed $8. On the other hand, perhaps CNAM's growth rate will prove to justify a greater P/E than 10 ....
Considering CNAM's recent pull-back, and thinking on the fact eliminating the Chinese currency's 40% devaluation over the next four or five years will add approximately 50% to the value of whatever earnings or assets exist at that time, it seems CNAM is an attractive long-term buy. Leveraging its infrastructure expertise through the dramatic increase in the capital it is able to deploy will allow CNAM to earn much more than it used to earn on its traditional commodity delivery business, and the new steel recycling business appears on track to reach full capacity in a Chinese marketplace with a long term trend toward consuming increasingly large quantities of steel. CNAM's growing income in Chinese currency will increase in local currency even as the Chinese currency itself increases in value.
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