The Chinese recycler and metal distributor China Armco (Ticker:CNAM) recently announced its results for the first quarter of the year. CNAM is another case in which ascertaining the enterprise value requires looking at more than the SEC-reported earnings, and snooping into the sources of reported income and expense.
CNAM's 1Q2010 revenues were up 59% from $5.4 million to $8.6 million compared to 1Q2009. Good, right? CNAM reports non-GAAP earnings of $670,000 or $0.06/sh, well ahead of its non-GAAP earnings of $185,000 or $0.02 per share in the year-ago quarter.
The GAAP earnings (the ones the SEC requires be reported) were only $53,000, or $0.01 per share, down from GAAP earnings of $0.03 per share in the year-ago quarter.
The difference is stark: up a third or down a third? And from how much?
So, what's behind this?
FAS 157.
When CNAM issued stock at $3 in a private offering in 2008 to raise funds to build its new recycling plant, it also issued warrants that could be exercised for shares at $5. As the price dropped in 2009, the value of the warrants under FAS 157 declined, and under GAAP, CNAM recognized "income" from the change in paper value of warrants that CNAM could not exit at a profit but seemed less likely to be exercised. As the price rose in the first quarter of 2010, CNAM was required by FAS 157 to book "losses" associated with value recovery in the same warrants. As CNAM went past $10, investors exercised at $5 and CNAM gained valuable capital with which to increase the size of its business deals.
What investors buy isn't the paper value of warrants a company can't exit, though. Investors buy a future income stream on a diluted-share basis. On that basis – the basis on which investors actually evaluate businesses – CNAM has shone. Net revenues increased 59% – in a quarter in which its recycling plant wasn't fully up and running. Net income (ignoring the warrants) increased 262% over the year-ago quarter. CNAM ended the quarter with over $4m cash, up from less than $750k in the year-ago quarter.
The best news? This growing income stream is in undervalued Chinese currency, the value of which will pop when prices normalize. CNAM is a buy at its current $4 because nobody is bothering to read the details.
Showing posts with label Ticker:CNAM. Show all posts
Showing posts with label Ticker:CNAM. Show all posts
Friday, May 21, 2010
Thursday, April 15, 2010
CNAM: The Year(s) Ahead
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.
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.
Tuesday, March 30, 2010
CNAM: Learn How Last Year Went
CNAM announced call-in (at (201) 689-8049) and web availability of its March 31 earnings conference call covering the year ended December 31, 2009.
The problem with this as "news" is that 2009 isn't what CNAM is all about. Investing in CNAM is about the stock reacting in 2010 as the company adds new recycling business, and the capacity of CNAM with its new capital infusion to dramatically increase its import and distribution capabilities.
The only "news" in the call will be discussion of the plant's 2010 capacity and the company's expected performance. Since I bought on the strength of the recycling plant, I'm particularly interested in surprise upside from capacity improvements in the old distribution business, that I'd basically written off as an unexciting offshoot likely only to reduce the company's acquisition and delivery overhead.
Stay tuned :-)
The problem with this as "news" is that 2009 isn't what CNAM is all about. Investing in CNAM is about the stock reacting in 2010 as the company adds new recycling business, and the capacity of CNAM with its new capital infusion to dramatically increase its import and distribution capabilities.
The only "news" in the call will be discussion of the plant's 2010 capacity and the company's expected performance. Since I bought on the strength of the recycling plant, I'm particularly interested in surprise upside from capacity improvements in the old distribution business, that I'd basically written off as an unexciting offshoot likely only to reduce the company's acquisition and delivery overhead.
Stay tuned :-)
Tuesday, March 23, 2010
CNAM: Doing More With More
Just yesterday, the Jaded Consumer recognized that CNAM's stock price had weathered admirably the slam of an additional couple million shares of stock overhanging the market following renewal of an expired registration of shares covered by warrants issued in connection with the private offering that funded CNAM's new recycling plant. The prediction made yesterday was that the selloff toward $7 would get reversed on the next contract announcement.
But the Jaded Consumer, while silently thinking about the cash CNAM would collect in conjunction with the $5/sh warrant exercise, didn't take the additional step of speculating on its use to the company. Today, however, we have some news. CNAM's wholly-owned subsidiary entered a 16-month contract to take delivery of 749,000 metric tons of Brazilian manganese ore – enhancing CNAM's capacity to import and deliver ores, and ensuring CNAM stood in a position to supply ores to major customers seeking to make steel. While the press release mentions that CNAM stands to pull in over $10m/month over the contract, it's interesting to note that CNAM needs some capital to pull this off. Interestingly, CNAM's receipts from the warrant exercise should be a bit over $10m – plenty to capitalize the first shipment and offer security against the risk CNAM wants to take a little time to make the most favorable possible sales.
While this is more of an import/export business than an opportunity to leverage the new recycling plant, the fact that CNAM is in a position now to fund this kind of exercise shows that the company now enjoys a level of solvency that didn't exist a few years ago (the $5/sh CNAM just realized on warrant exercise exceeds the entire proceeds from the private placement that funded the recycling facility, which yielded $3/sh less fees; since the warrants were issued with the shares on a 1:1 basis, this exercise – which likely resulted in payment directly to the company and without middle-man fees – in theory yielded over 66% more than the earlier private offering). Growing the scale of CNAM's importation and distribution business will allow CNAM to leverage its per-deal overhead into much larger volumes, as accesses an increased ability to finance larger transactions unaided.
The future of CNAM won't look much like its past.
UPDATE: Although up over $1 this morning, CNAM is now just up 30¢ or so. As volatile as this name is, I'm suspicious that it will attract attention from folks running in and out as the price oscillates. Imagine what the covered-call premiums would be like if standard options were available ....
But the Jaded Consumer, while silently thinking about the cash CNAM would collect in conjunction with the $5/sh warrant exercise, didn't take the additional step of speculating on its use to the company. Today, however, we have some news. CNAM's wholly-owned subsidiary entered a 16-month contract to take delivery of 749,000 metric tons of Brazilian manganese ore – enhancing CNAM's capacity to import and deliver ores, and ensuring CNAM stood in a position to supply ores to major customers seeking to make steel. While the press release mentions that CNAM stands to pull in over $10m/month over the contract, it's interesting to note that CNAM needs some capital to pull this off. Interestingly, CNAM's receipts from the warrant exercise should be a bit over $10m – plenty to capitalize the first shipment and offer security against the risk CNAM wants to take a little time to make the most favorable possible sales.
While this is more of an import/export business than an opportunity to leverage the new recycling plant, the fact that CNAM is in a position now to fund this kind of exercise shows that the company now enjoys a level of solvency that didn't exist a few years ago (the $5/sh CNAM just realized on warrant exercise exceeds the entire proceeds from the private placement that funded the recycling facility, which yielded $3/sh less fees; since the warrants were issued with the shares on a 1:1 basis, this exercise – which likely resulted in payment directly to the company and without middle-man fees – in theory yielded over 66% more than the earlier private offering). Growing the scale of CNAM's importation and distribution business will allow CNAM to leverage its per-deal overhead into much larger volumes, as accesses an increased ability to finance larger transactions unaided.
The future of CNAM won't look much like its past.
UPDATE: Although up over $1 this morning, CNAM is now just up 30¢ or so. As volatile as this name is, I'm suspicious that it will attract attention from folks running in and out as the price oscillates. Imagine what the covered-call premiums would be like if standard options were available ....
Monday, March 22, 2010
CNAM: Standing Up To Pressure
Chinavesting, which is bullish on China Armco, mistakenly described the pressure on CNAM shares from over $10 back toward $7 as being "for no fundamental reason." The fundamental reason is that with an additional availability of nearly 2.5m shares, in which owners have a basis of $5 due to warrant exercises, the per-share metrics just took a plunge just as market mechanics were hammered by the exit of the shares' owners upon exercise.
CNAM, which had allowed the warrants' registration to lapse, re-registered the shares available under the warrants and owners exercised them. The fact that CNAM has maintained a price well over the $5 exercise price is a good sign for the market's psychology of CNAM. Comparing current prices to prior years' revenues, as Chinavesting does, is a disservice to potential investors. CNAM's future isn't about its old business, but about the new business CNAM just launched -- the business funded with the proceeds of the private offering that gave rise to the warrant exercise -- the new business that makes CNAM one of the largest metal recyclers in China. That CNAM has pre-sold the first three months of factory output with a $100m steel supply contract shows how different CNAM's new business is: in 2008, annual revenue was but $55m.
The next time we see a press release on a CNAM steel supply contract, the magic that drove CNAM from under $4 to over $10 is likely to revisit the shares as the company proves its success in the new business isn't a fluke, but the new normal. At $5, CNAM was trading at a P/E of 10 off trailing estimated earnings. With earnings likely to multiply with the dawn of CNAM's new recycling operation, so too should we expect to see share price multiply.
Of course it's easy for me to talk: my basis is in the realm of $3. Still, I'd like to see it fly. Based on recent performance – not just the stock price pops, but the landing of contracts – I think the flight plan is looking sound.
CNAM, which had allowed the warrants' registration to lapse, re-registered the shares available under the warrants and owners exercised them. The fact that CNAM has maintained a price well over the $5 exercise price is a good sign for the market's psychology of CNAM. Comparing current prices to prior years' revenues, as Chinavesting does, is a disservice to potential investors. CNAM's future isn't about its old business, but about the new business CNAM just launched -- the business funded with the proceeds of the private offering that gave rise to the warrant exercise -- the new business that makes CNAM one of the largest metal recyclers in China. That CNAM has pre-sold the first three months of factory output with a $100m steel supply contract shows how different CNAM's new business is: in 2008, annual revenue was but $55m.
The next time we see a press release on a CNAM steel supply contract, the magic that drove CNAM from under $4 to over $10 is likely to revisit the shares as the company proves its success in the new business isn't a fluke, but the new normal. At $5, CNAM was trading at a P/E of 10 off trailing estimated earnings. With earnings likely to multiply with the dawn of CNAM's new recycling operation, so too should we expect to see share price multiply.
Of course it's easy for me to talk: my basis is in the realm of $3. Still, I'd like to see it fly. Based on recent performance – not just the stock price pops, but the landing of contracts – I think the flight plan is looking sound.
Monday, March 8, 2010
Chinese Currency To Dump Dollar Peg?
China – whose "remminbi" (or "Chinese Yuan") has had its value under government rather than market control, most recently by an official policy pegging it to the U.S. dollar – seems to be signaling that it's currency's peg to the U.S. dollar has a definite lifespan. Zhou Xiaochuan, governor of the People's Bank of China, said of China's currency-valuation policies: "Sooner or later, we will exit the policies." He just didn't say when.
Since the dollar peg had kept Chinese currency undervalued relative to the value it would have if freely traded, the end of the peg promises to elevate the value of assets valued in Chinese currency, including the present value of Chinese-currency income streams. This means everything in China could pop, simply as a result of currency conversion rate rationalization.
So, what has the Jaded Consumer thought worthwhile in China?
First, China Armco (Amex:CNAM), which I first invested in just over $3 around the time CNAM had its private offering about a year and a half ago. This company has just launched a steel recycling plant, and its future income will dwarf prior income because it will be engaged in higher-margin business as a producer than it enjoyed as an importer/distributor before it raised the funds to launch its recycling operation. Increased value of growing income is bullish, especially in the face of an impending currency re-valuation. All those facilities just build with U.S. dollars, all being re-valued in an overnight currency conversion ... what excitement!
Second, I've still got China Direct Industries Inc. (NASDAQ:CDII), which seems to have converted its business from primarily helping Chinese companies access U.S. capital markets (for a fee and participation with options and equity) to primarily operating portfolio companies to offer magnesium and basic materials in China (with a consulting sideline advising U.S. companies whose primary businesses are Chinese operations). CDII's portfolio companies make it a major supplier of magnesium in China, and as the US-dollar value of magnesium sales priced in Chinese currency climbs with local currency's price rationalization, the value of this market position will grow. CDII has gone from taking several Chinese companies public in the US every year, and being priced as a financial, to mostly being priced as a magnesium distributor that is still losing money. However, with total liabilities and equity of $77,719,439 and shares outstanding of 27,381,946, the company's book value per share of $2.84 has a long way to go from its current position at $1.76. Moreover, its operational expertise has delivered an enormous reduction in loss compared to its performance in the prior year. Although CDII has a production capacity of approximately 42,000 metric tons of magnesium, the company sold and distributed fewer than 12,000 tons in the 2009 period it describes as "transitional". Since magnesium is the third most commonly used structural material, CDII's magnesium operations should be better able to utilize their capacity as China and the world regain a more normalized construction and consumption pattern. I initially liked this business because it was an opportunity to buy a diversified portfolio of Chinese operations – the portfolio companies – and make money providing financial services while I was at it. The business is now different, in that the financial services no longer appears to dominate the company's future and the primary driver seems to be its consolidating control over various China-situated magnesium facilities. Since I've got it, and the shares appear underpriced both against current book and especially against values following a rationally-priced Chinese yuan, I'm holding in the expectation of significant price improvement (operations, plus currency re-valuation). This business sort of reminds me of the description given of an old value-investor's targets: unsexy businesses that weren't dead yet, old cigar-ends with some puffs left in them, being sold below the value of their constituent tobacco – nothing to make the papers perhaps, but a good buy nonetheless (and perhaps as a consequence).
There's much more in China, but the Jaded Consumer will call it quits here for now and pick it up later. Happy hunting!
Since the dollar peg had kept Chinese currency undervalued relative to the value it would have if freely traded, the end of the peg promises to elevate the value of assets valued in Chinese currency, including the present value of Chinese-currency income streams. This means everything in China could pop, simply as a result of currency conversion rate rationalization.
So, what has the Jaded Consumer thought worthwhile in China?
First, China Armco (Amex:CNAM), which I first invested in just over $3 around the time CNAM had its private offering about a year and a half ago. This company has just launched a steel recycling plant, and its future income will dwarf prior income because it will be engaged in higher-margin business as a producer than it enjoyed as an importer/distributor before it raised the funds to launch its recycling operation. Increased value of growing income is bullish, especially in the face of an impending currency re-valuation. All those facilities just build with U.S. dollars, all being re-valued in an overnight currency conversion ... what excitement!
Second, I've still got China Direct Industries Inc. (NASDAQ:CDII), which seems to have converted its business from primarily helping Chinese companies access U.S. capital markets (for a fee and participation with options and equity) to primarily operating portfolio companies to offer magnesium and basic materials in China (with a consulting sideline advising U.S. companies whose primary businesses are Chinese operations). CDII's portfolio companies make it a major supplier of magnesium in China, and as the US-dollar value of magnesium sales priced in Chinese currency climbs with local currency's price rationalization, the value of this market position will grow. CDII has gone from taking several Chinese companies public in the US every year, and being priced as a financial, to mostly being priced as a magnesium distributor that is still losing money. However, with total liabilities and equity of $77,719,439 and shares outstanding of 27,381,946, the company's book value per share of $2.84 has a long way to go from its current position at $1.76. Moreover, its operational expertise has delivered an enormous reduction in loss compared to its performance in the prior year. Although CDII has a production capacity of approximately 42,000 metric tons of magnesium, the company sold and distributed fewer than 12,000 tons in the 2009 period it describes as "transitional". Since magnesium is the third most commonly used structural material, CDII's magnesium operations should be better able to utilize their capacity as China and the world regain a more normalized construction and consumption pattern. I initially liked this business because it was an opportunity to buy a diversified portfolio of Chinese operations – the portfolio companies – and make money providing financial services while I was at it. The business is now different, in that the financial services no longer appears to dominate the company's future and the primary driver seems to be its consolidating control over various China-situated magnesium facilities. Since I've got it, and the shares appear underpriced both against current book and especially against values following a rationally-priced Chinese yuan, I'm holding in the expectation of significant price improvement (operations, plus currency re-valuation). This business sort of reminds me of the description given of an old value-investor's targets: unsexy businesses that weren't dead yet, old cigar-ends with some puffs left in them, being sold below the value of their constituent tobacco – nothing to make the papers perhaps, but a good buy nonetheless (and perhaps as a consequence).
There's much more in China, but the Jaded Consumer will call it quits here for now and pick it up later. Happy hunting!
Thursday, March 4, 2010
Living Well on Scraps: China Armco Metals
Earlier touted on the Jaded Consumer as a buy because its fortunes were being mis-assessed on the basis of prior-year operations as a metal distributor despite its preparation to enter higher-margin business as a steel recycler, and because its new AMEX listing would make it a higher-profile, more followed, more liquid investment, China Armco Metals Inc. (AMEX:CNAM) saw its stock leap over 40% in the pre-market on news of its first scrap metal contract to put into use its new recycling facility.
Kexuan Yao, the company's Chairman and CEO, described the $100,000,000 contract as having "essentially pre-sold the first several months of production from our newly opened facility as we ramp up capacity over the coming quarters." The contract calls for the company to supply 230,000 tons of steel to a major Chinese steel producer over a 10-month period beginning in March, 2010.
Shortly after its AMEX listing, CNAM rose over $4 then rushed past $5. After closing yesterday at $5.30, pre-market bid and ask were in the neighborhood of $7.50, though current prices are a little closer to $7. Assuming the company doesn't announce unhappy surprises, its future is looking good as it pursues more of the same business over the year.
Getting a mispriced business is nice, eh? Now, if only prices would rationalize over at American Capital ....
UPDATE: Okay, close at $8.50 the day of this post, up over 50%.
Kexuan Yao, the company's Chairman and CEO, described the $100,000,000 contract as having "essentially pre-sold the first several months of production from our newly opened facility as we ramp up capacity over the coming quarters." The contract calls for the company to supply 230,000 tons of steel to a major Chinese steel producer over a 10-month period beginning in March, 2010.
Shortly after its AMEX listing, CNAM rose over $4 then rushed past $5. After closing yesterday at $5.30, pre-market bid and ask were in the neighborhood of $7.50, though current prices are a little closer to $7. Assuming the company doesn't announce unhappy surprises, its future is looking good as it pursues more of the same business over the year.Getting a mispriced business is nice, eh? Now, if only prices would rationalize over at American Capital ....
UPDATE: Okay, close at $8.50 the day of this post, up over 50%.
Monday, March 1, 2010
Asian Uptick
In a post titled "Asian Beauties" the Jaded Consumer recently discussed China Armco Metals Inc. (Ticker:CNAM) as a just-listed-on-the-AMEX story involving a new business model and an impending return on recent capital investment.
The stock went from just over $4 to about $5.30.
If the Jaded Consumer has the power to move stocks with posts, then blame must be accepted for the collapse of ACAS from nearly $50 to well under $2. So, no claim of credit here. However, as AMEX listing brings CNAM into view of more analysts, the things that are going right at CNAM will become more broadly evident. Now that CNAM isn't a pink-sheet stock, folks who would have feared to invest for fear of being able to sell (low-volume pink-sheet shares can become impossible to exit because of wide spreads and lack of volume ... trust me, it's lousy) will be able to see both regular volume and a respectable listing. CNAM's story will have an audience, and that audience is apparently beginning to grow already.
Assuming CNAM doesn't issue an earnings warning soon, the company will have traded at about 10x trailing earnings in the face of both globally improving business conditions and margins improvements having to do with the transition from a basic materials broker into a source of recycled steel. I wouldn't want to make bets based on particular numbers, but the future looks bright for CNAM.
Update (March3, 2010): the action on CNAM wasn't a one-day thing, though it's been volatile. CNAM will present at a Beijing investment conference, and optimism continues in heavy trading:
The stock went from just over $4 to about $5.30.
If the Jaded Consumer has the power to move stocks with posts, then blame must be accepted for the collapse of ACAS from nearly $50 to well under $2. So, no claim of credit here. However, as AMEX listing brings CNAM into view of more analysts, the things that are going right at CNAM will become more broadly evident. Now that CNAM isn't a pink-sheet stock, folks who would have feared to invest for fear of being able to sell (low-volume pink-sheet shares can become impossible to exit because of wide spreads and lack of volume ... trust me, it's lousy) will be able to see both regular volume and a respectable listing. CNAM's story will have an audience, and that audience is apparently beginning to grow already.
Assuming CNAM doesn't issue an earnings warning soon, the company will have traded at about 10x trailing earnings in the face of both globally improving business conditions and margins improvements having to do with the transition from a basic materials broker into a source of recycled steel. I wouldn't want to make bets based on particular numbers, but the future looks bright for CNAM.
Update (March3, 2010): the action on CNAM wasn't a one-day thing, though it's been volatile. CNAM will present at a Beijing investment conference, and optimism continues in heavy trading:
Thursday, February 25, 2010
Asian Beauties
While watching the Olympics' figure skating competitions, I realized I had seen some very nice Asian figures that I ought to have mentioned here.
The first are from China Armco Metals, the metal broker whose recent steel recycling plant investment will make it one of the top ten metal recyclers in China. Located within 3km of a deep-water port, and close to a major hub for automotive production (both a potential customer and a potential source of scrap, as local law requires auto manufacturers to recover and recycle abandoned vehicles), China Armco's facility seems well sited to take advantage of the steel industry as China begins firing on all cylinders during the worldwide economic recovery. Heck, why wait for the world? China needs steel now, has a large population with a growing middle class, and is consuming steel at a regular and growing pace.
China Armco's recent numbers include improvement, but don't show what investors need to know: those numbers are based on its old non-ferrous metals brokerage business. Although China Armco is growing its distribution business, that's not the company's future. And the future is bright: the company has gone from trimming 2009 revenue projections in its distribution business to announcing post-2008 recovery and predicting record revenues and projecting $0.45 or so profit per share in the full year of 2009.
The fact that China Armco will be earning these revenues in China offers an interesting hedge against the value of U.S. currency. Yet, these past earnings are not the reason China Armco is interesting. The company's future is in higher-margin production. The company's prospects have been discussed favorably from time to time online, but now that the company is listed on the Americal Stock Exchange under the symbol CNAM, it'll get more attention from analysts and will get noticed by folks who'd have shuddered to consider buying on the pink sheets.
CNAM currently trades 10x the earnings it projected for 2009, while offering a steady business in a currency that is deliberately kept mispriced and which could explode once China's government becomes unable to maintain the currency's artificially low value. It offers a chance to buy productive assets at a discount (being bought with underpriced Yuan), take a share of a business yielding an income stream in a non-US currency from a country lacking a banking or inflation crisis, and get a piece of China's expected national growth. It might not be getting in on the ground floor, but it's hard to get closer and be on a major exchange.
There are a few other Asian figures worth discussing, but it's late here in Houston. Good night!
The first are from China Armco Metals, the metal broker whose recent steel recycling plant investment will make it one of the top ten metal recyclers in China. Located within 3km of a deep-water port, and close to a major hub for automotive production (both a potential customer and a potential source of scrap, as local law requires auto manufacturers to recover and recycle abandoned vehicles), China Armco's facility seems well sited to take advantage of the steel industry as China begins firing on all cylinders during the worldwide economic recovery. Heck, why wait for the world? China needs steel now, has a large population with a growing middle class, and is consuming steel at a regular and growing pace.
China Armco's recent numbers include improvement, but don't show what investors need to know: those numbers are based on its old non-ferrous metals brokerage business. Although China Armco is growing its distribution business, that's not the company's future. And the future is bright: the company has gone from trimming 2009 revenue projections in its distribution business to announcing post-2008 recovery and predicting record revenues and projecting $0.45 or so profit per share in the full year of 2009.
The fact that China Armco will be earning these revenues in China offers an interesting hedge against the value of U.S. currency. Yet, these past earnings are not the reason China Armco is interesting. The company's future is in higher-margin production. The company's prospects have been discussed favorably from time to time online, but now that the company is listed on the Americal Stock Exchange under the symbol CNAM, it'll get more attention from analysts and will get noticed by folks who'd have shuddered to consider buying on the pink sheets.
CNAM currently trades 10x the earnings it projected for 2009, while offering a steady business in a currency that is deliberately kept mispriced and which could explode once China's government becomes unable to maintain the currency's artificially low value. It offers a chance to buy productive assets at a discount (being bought with underpriced Yuan), take a share of a business yielding an income stream in a non-US currency from a country lacking a banking or inflation crisis, and get a piece of China's expected national growth. It might not be getting in on the ground floor, but it's hard to get closer and be on a major exchange.
There are a few other Asian figures worth discussing, but it's late here in Houston. Good night!
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