Yongye International "is engaged in the manufacturing, research and development and sale of fulvic acid-based liquid and powder nutrient compounds used in the agriculture industry in the People's Republic of China (PRC)." This suggestion came to me with the information that China is making domestic food production a top priority as China demands more food.
Price/Earnings (TTM) . . . . 7.82x
Price/Sales (TTM) . . . . . . 1.98x
Price/Book (MRQ) . . . . . . 1.84x
Price/Cash Flow (TTM) . . . 7.74x
Ratings
Benjamim . . . . 3.6
Saxon . . . . . . 3.2
While Yong is specialized in fulvic acid-based fertilizers it competes in the same space as Dupont, Dow, and other major chemical companies. It's a one trick pony that stays in business because it does it's trick very efficiently. What is that trick? If you take an organic (decomposed or decomposing) substance such as peat, coal, etc you can extract a strongly basic continuous liquid full of solid particles (like blood or paint) called a Sol. If you add hydrochloric acid to this Humic Acids precipitate out (fall out of solution as a sort of sediment) leaving Fulvic acid, which is soluble independent of pH. That can then be used as a spray fertilizer or dehydrated and sold as a water soluble fertilizer. It can also be mixed with animal feed.
That's what YONG sells, a chemical it extracts from organic compounds. There are many uses for organic compounds which can serve as a base for this extraction, items such as coal and oil obviously are used as energy sources. This makes the price of the product heavily dependent on the market fluctuations of items of value to the market and an increase in those prices or the prices of energy will affect production and sales.
Still, they're highly solvent with little price volatility and able to maintain growth of return on invested capital. . . at least according to their own accounting, which can doubtless be trusted. It is after all a Chinese company with virtually no accounting oversight and a strong incentive to take foreign capital and report excellent earnings.
To set my mind at ease, they are audited by KPMG International, a Swiss auditing company. Still Chinese financials always worry me.
I'm not sure that I buy the idea that the Chinese will need a lot more food going forward, but they will need more crops. That is because crops can be used for both food & fuel and China currently imports much of it's food. While it's population isn't growing out of control anymore China would rather meet domestic demand with a domestic product. A very sound financial plan, but limited. The Chinese don't trust food stuffs from China, imported food is almost unilaterally regarded as safer and people with money tend to buy that. But much like the American poor, when funds are limited you buy and eat whatever is available. So the reputation of Chinese food will have to improve if they intend to process it and achieve wide distribution. This could be accomplished by increased regulation and improved labeling, and will likely be necessary for China to begin exporting food stuffs (where I believe the real money for them will be). They can reduce their external dependence on food stuffs, but I don't see food production being a real money maker rather simply a national security issue.
So what good will fertilizers do them? Well even though I don't like the food play, and it's certainly there, they could turn to industrial production of fuels and organics not for human consumption. I don't think they have the technology for that, but it's potentially an option.
Another real benefit Yongye has going for it is it's marketing campaign. Selling the plant's is the Farmer's problem, and Yongye's advertising simply shows that you can grow more and bigger plants using their product.
It's CFO Sam Yu has an MBA from Stanford, and surely is routinely coming up with ways to siphon off as much money as possible from the populous. Still the CEO doesn't own common shares, so wouldn't be hurt by share dilution. And they both should do some work to shorten their collection cycle (sell products in summer, collect on that debt in winter).
In the end, I don't think this suggestion is investment grade. It is trade grade however, and buying this thinly traded stock at around 7.50 (or less) and selling it around $12-18 would be a great move . . . but investors will have to get a lot of confidence in the stock for that to happen. Since it's recently been hyped, I expect it to float around eight for a bit, but wouldn't be surprised by a year end sell off. If that happens, I'd allocate 1-2% of my portfolio to them if I could get a price around $7.30. And I'm putting my limit order in right now, I won't be surprised if I don't get it.
Price/Earnings (TTM) . . . . 7.82x
Price/Sales (TTM) . . . . . . 1.98x
Price/Book (MRQ) . . . . . . 1.84x
Price/Cash Flow (TTM) . . . 7.74x
Ratings
Benjamim . . . . 3.6
Saxon . . . . . . 3.2
While Yong is specialized in fulvic acid-based fertilizers it competes in the same space as Dupont, Dow, and other major chemical companies. It's a one trick pony that stays in business because it does it's trick very efficiently. What is that trick? If you take an organic (decomposed or decomposing) substance such as peat, coal, etc you can extract a strongly basic continuous liquid full of solid particles (like blood or paint) called a Sol. If you add hydrochloric acid to this Humic Acids precipitate out (fall out of solution as a sort of sediment) leaving Fulvic acid, which is soluble independent of pH. That can then be used as a spray fertilizer or dehydrated and sold as a water soluble fertilizer. It can also be mixed with animal feed.
That's what YONG sells, a chemical it extracts from organic compounds. There are many uses for organic compounds which can serve as a base for this extraction, items such as coal and oil obviously are used as energy sources. This makes the price of the product heavily dependent on the market fluctuations of items of value to the market and an increase in those prices or the prices of energy will affect production and sales.
Still, they're highly solvent with little price volatility and able to maintain growth of return on invested capital. . . at least according to their own accounting, which can doubtless be trusted. It is after all a Chinese company with virtually no accounting oversight and a strong incentive to take foreign capital and report excellent earnings.
To set my mind at ease, they are audited by KPMG International, a Swiss auditing company. Still Chinese financials always worry me.
I'm not sure that I buy the idea that the Chinese will need a lot more food going forward, but they will need more crops. That is because crops can be used for both food & fuel and China currently imports much of it's food. While it's population isn't growing out of control anymore China would rather meet domestic demand with a domestic product. A very sound financial plan, but limited. The Chinese don't trust food stuffs from China, imported food is almost unilaterally regarded as safer and people with money tend to buy that. But much like the American poor, when funds are limited you buy and eat whatever is available. So the reputation of Chinese food will have to improve if they intend to process it and achieve wide distribution. This could be accomplished by increased regulation and improved labeling, and will likely be necessary for China to begin exporting food stuffs (where I believe the real money for them will be). They can reduce their external dependence on food stuffs, but I don't see food production being a real money maker rather simply a national security issue.
So what good will fertilizers do them? Well even though I don't like the food play, and it's certainly there, they could turn to industrial production of fuels and organics not for human consumption. I don't think they have the technology for that, but it's potentially an option.
Another real benefit Yongye has going for it is it's marketing campaign. Selling the plant's is the Farmer's problem, and Yongye's advertising simply shows that you can grow more and bigger plants using their product.
It's CFO Sam Yu has an MBA from Stanford, and surely is routinely coming up with ways to siphon off as much money as possible from the populous. Still the CEO doesn't own common shares, so wouldn't be hurt by share dilution. And they both should do some work to shorten their collection cycle (sell products in summer, collect on that debt in winter).
In the end, I don't think this suggestion is investment grade. It is trade grade however, and buying this thinly traded stock at around 7.50 (or less) and selling it around $12-18 would be a great move . . . but investors will have to get a lot of confidence in the stock for that to happen. Since it's recently been hyped, I expect it to float around eight for a bit, but wouldn't be surprised by a year end sell off. If that happens, I'd allocate 1-2% of my portfolio to them if I could get a price around $7.30. And I'm putting my limit order in right now, I won't be surprised if I don't get it.
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