CYXI - an opportunity?
Posted: Saturday Jan 31 8:47:14AM 2009
Quick summary: Chinese nutritional foods and supplements company, surplus capacity, growing at about 50% per year, no debt, $.12/share cash, $.48/share working capital, positive cash flow from operations, guidance fully diluted 2008 EPS $.26/share (my calc: $.20/share fully taxable fully diluted guidance EPS) trading at $.33/share. China Yingxia International is a US-listed (OTCBB) Chinese company which was established in 1998 and went public in May 2006. It produces, distributes and sells nutritional food products, dietary supplements, raw cacti, cosmetics and personal care products in China. The company has recently purchased a soy milk/soy yogurt facility, which is only operating at 12% capacity, so there’s lots of room to grow. It also has established an Indian subsidiary and, in November 2008, started up a cactus powder production line with 10k tons of annual capacity. Its year end is December 31st. BTW, soy milk should be an important driver going forward. The company’s production equipment produces premium soy milk and many Asians are lactose intolerant. Also, the recent melamine-in-the-milk scandal will help promote this product. Annual figures from 2005 to 2007 are: Revenue: $6.18M, $8.40M and $15.9M Gross Margin: 51.4%, 54.4% and 57.4% Pre-tax Net Income: $2.7M, $2.3M and $6.1M FD EPS: n/a, n/m (just being capitalized), $.15 In terms of 2008 Q1-Q3 results, sales were up 54%, pre-tax income was up 56% and fd EPS was up 11% (15% before tax changes – the company is transitioning to being taxable). Something to keep in mind: Mid-2007 financings increased the share count, but the resultant cash infusion has led to expansions which have yet to be fully translated into earnings – see soymilk/soy yogurt and powder production lines info noted above). Additionally, one should expect the gross margin percentage to decrease as lower margin soy milk production ramps up and, in fact, Q1-Q3 gross margins were 60.9%, 55.6% and 52.8%. This is simply a product mix issue and not representative of an underlying problem. Guidance for 2008 is $25.9M revenue, $12.9M after-tax net income and $.26 fully diluted EPS. When I adjust to bring taxation to 25% (CYXI’s eventual tax rate), I get guidance fd EPS of just over $.20/share. The company is debt free, has $.12/share of cash in the bank, has working capital of $.48/share and has positive cash flow from operations. The price reached its peak about 18 months ago at approximately $3.30 and traded at about $1.35 a year ago. It’s trading between $.30-.35 now. Almost all of the OTCBB stocks have been badly beaten up. One thing to be aware of is that the company did a couple of private placement financings in mid 2007 totalling almost 10M shares at $1.00 with attached ½ warrants at $1.50/$2.00. At the time, the price of the stock was in the $2.20 to $2.40 range, which only goes to show how difficult it can be for these OTCBB stocks to raise money at reasonable prices. In this regard, the company has stated that it meets all AMEX listing requirements, except that the price has to be $2.00. Perhaps increase earnings and more buoyant markets will get them there eventually. In terms of p/e, (at a price of $.33 less $.12 cash) / .20 fd fully-taxable EPS 2008 guidance, I get a p/e of 1.05. Also, the company is trading below its working capital of $.48/share. Most of that working capital is cash, accounts receivable and inventory. I am not aware of any legal proceedings against the company. This seems dirt cheap to me. Here is the company’s investor presentation: http://chinayingxia.com/images/File/China%20Yingxia%20Corporate%20Presentation%20November%202008.pdf Here is a company fact sheet and corporate profile: http://chinayingxia.com/images/File/11-17-2008%20CYXI%20corporate%20profile.pdf