Gifts from China
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Posted: Monday Nov 19 6:04:59AM 2007
Bobwins et al: Here is a posting I just did on the SH CAGC forum re taxation in 2008 and beyond. My understanding is that the new tax structure applies to all Chinese companies, whether foreign or domestic in origin. Enjoy...
CAGC has been recording corporate income tax at an average rate of 36% this year. As of 2008, new Chinese tax laws will come into effect specifying an overall tax rate of 25%.
Based on the new tax regime, my understanding is that the company will attract the following rates:
1. Older factories will be taxed at 25% starting in January 2008.
2. Newer factories, built before 2008, will be taxed at 0% for 2 years, then 16.5% for three years, then 25% going forward.
3. Factories built after 2008 will be taxed at 25%.
4. The 25% rate includes local taxes, which were previously added to the rate.
The new tax regime will have a material effect on CAGC’s earnings. Without considering point #2 above, each dollar of pre-tax earnings will net 75 cents in after-tax earnings, instead of 64 cents. This is a 17.2% increase all by itself. Since CAGC will have factories qualifying for point #2 above, it will gain even more.
I hope this helps everyone with their forward earnings projections for CAGC.
Posted: Monday Nov 12 7:24:11PM 2007
Re SDTH. The good thing about the qtr was that they sold more NPCC at higher gross margins. NPCC is more of a proprietary product than DME or Methanol. They have a niche and are going to expand capacity more. They announced several more tire companies are new customers. This is important because there are 43 tire companies in China and last report they only had 1 as a customer. This should lead to significantly increased production down the road.
Posted: Friday Sep 28 10:20:57AM 2007
Thanks Bobwins for your suggestions. It looks like we both own CAGC (which I erroneously referred to as CGAC) and SDTH. I also follow NOEC and CHNG, but don’t own any at this point.
Some people won’t be able to hold OTC stocks because they’re ineligible for RRSPs.
I agree that diversification is essential for the reasons you stated. China is a bit like the Wild West, but we should remember that so is North America. I regularly receive comments about lead paint in Chinese-produced toys and various other problems, so I have to remind people that we’ve had our share of issues in North America too. We’ve had e.coli on spinach/bean sprouts, BSE and Walkerton. We’ve had Worldcom, Enron, subprime mortgages, savings & loan disasters and numerous accounting scandals. Anyone remember VSM and Bre-x? I owned Doral Financial, which, for a 10 year period, was in the top 2% of companies listed on the prestigious New York Stock Exchange in terms of revenue and earnings growth. As it turns out, they were cooking the books for the last four of those years. It took a while, but the price eventually went from almost $50 to just a dollar, then they did a 1:20 consolidation. I’m sure each of us could add two or three companies to this list.
We seem to be able to deal with our own dirty laundry, but get all huffy when we see the other guy’s.
Yes, it is harder to unearth data on Chinese companies but, if they’re listed on US exchanges, EDGAR does contain a great deal of information. Additionally, I’ve found that the IR reps are about as helpful/unhelpful as they are for Canadian companies.
So, diversification is good and China does entail risk, but I think that you and I would nevertheless agree that it’s a good place to be invested right now.