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Tuesday, September 14, 2010
A Bright and Shining Star in the IPO Market - KH
Kanghui Holdings (NYSE: KH) is a leading domestic developer, manufacturer and marketer of orthopedic implant products in China. They sell two primary lines of proprietary orthopedic implant products, trauma and spine, with more than 30 product series covering a wide array of orthopedic implants and associated instruments. Trauma products include nails, plates and screws used in bone fracture surgery. It also makes meshes and interbody cages, as well as fixation systems for spines.
According to Frost & Sullivan, the global orthopedic implant market is set to grow from US$12.9 billion in 2006 to US$27.7 billion by 2015, representing a CAGR of 8.1%. The Asia Pacific region is expected to become the most important geographic region for growth in the global orthopedic implant market in the coming years, and the rapid growth in the China and India markets is a principal factor for this overall growth. China’s orthopedic implant market grew from RMB4.4 billion in 2007 to RMB6.1 billion in 2009, representing a CAGR of 18.4%, and is expected to grow to RMB16.6 billion in 2015, representing a CAGR of 18.1% from 2009. Furthermore, China’s orthopedic implant market is estimated to move from the third largest in 2010 to the second largest in 2015, surpassing Japan.
With rapid domestic economic growth and rising per capita disposable income in China, medical treatment and products are becoming increasingly affordable. Notably, according to Frost & Sullivan, China’s per capita healthcare expenditure in 2007 was only US $112, compared to the United States’ per capita healthcare expenditure of US $7290. China’s overall healthcare expenditure represented only 4.8% of its GDP in 2007, compared to 16.0% of the GDP in the United States. Recently, the Chinese government unveiled a RMB 850 billion (approximately US $125 billion) three-year spending plan to improve the healthcare infrastructure and expand insurance coverage in China.
By 2011, healthcare reform is expected to enable more than 90% of Chinese citizens to obtain basic medical insurance. The reform will continue to expand the accessibility and affordability of Kanghui Holdings’s products beyond the top tier cities in China.
The domestic orthopedic implant market is also driven by the aging population. Elderly patients have an increased susceptibility to many conditions that require orthopedic surgery. For example, fractures by osteoporosis and degenerative diseases, more commonly seen in the elderly, are the primary reasons for patients to undergo trauma or spine surgeries using products developed by KH. The United Nations projects over 400 million, or nearly 35% of the Chinese population, are expected to be over 60 years old, while nearly 70 million people over 50 years old in China now have osteoporosis conditions in the year 2006. The growing and aging population and increased need for orthopedic care will drive the revenue growth of KH in the years ahead.
It is remarkable that the orthopedic implantation rates in China is 100 times lower relative to the rates in the United States. The low implantation rate in China leaves significant room for additional growth in the Chinese orthopedic implant market in the future.
On July 31, 2008, Kanghui Holdings acquired Beijing Libeier for the sum of RMB 182.7 million. This acquisition complemented Kanghui’s existing network of distributors, brought 83 new distributors and contributed to the net revenues. In China, health care manufacturers sell products to third-party distributors, who in turn sell those products directly to hospitals or through sub-distributors. As of June 30, 2010, KH had built a strong domestic network of 237 distributors for their products covering 30 of the 31 provinces, municipalities and autonomous regions in China. Kanghui Holdings (KH) has a global network of 27 distributors in 24 countries across Asia, Europe, South America and Africa. Moreover, Zero2IPO, the most prestigious integrated service provider in the field of VC and PE, selected Kanghui Holdings as No. 1 in the “Zero2IPO-Venture 50 Awards” in 2008. In 2009, Forbes released the “Potential of Enterprises in China 2009 Forbes List” and Kanghui Holdings was ranked No. 4 among 200 rapidly growing SMEs in China.
In the Chinese market, KH’s direct competitors include Shandong Weigao Group, Medical Polymer Company Limited (Weigao) and other leading international orthopedic implant manufacturers, such as Johnson & Johnson and Medtronic. Weigao (8199.HK) is listed in the Hong Kong Stock Market with a much higher P/E of ~50.
To compete with global companies, Kanghui Holdings has strong research and development capabilities that focuses on developing new proprietary products. Since 2008, nine new products (four trauma products and five spine products) have been released and seven more are expected to be released by the end of 2011. KH has also received government incentives and subsidies from time to time. The company has received numerous awards from central, state, and local governments, including more than RMB 100 million from the Innovation Fund of the National Ministry of Science and Technology in China. In addition to internal efforts, KH collaborates with the Institute of Metal Research of the Chinese Academy of Sciences to perform strategic research and product developments. A post-doctoral research program was also established at KH’s research and development center and graduates from top universities in China were recruited.
The company showed strong financial results for the quarter ended June 30, 2010.
· Net revenue increased by 29.4% to RMB58.1 million (US$8.6 million) in the second quarter of 2010 from RMB44.9 million in the second quarter of 2009.
· Gross profit increased by 25.6% to RMB38.8 million (US$5.6 million) in the second quarter of 2010 from RMB30.9 million in the second quarter of 2009.
· Net income was RMB27.7 million (US$4.1 million) in the second quarter of 2010, representing 47.7% of our net revenue, compared to RMB20.9 million in the second quarter of 2009, representing 46.5% of our net revenue.
· Net revenues grew from RMB139.6 million in 2008 to RMB184.3 million (USD $27.0 million) in 2009 at a CAGR of 32%. Net income grew from RMB60 million in 2008 to RMB75.0 million (US $11.0 million) in 2009 at a CAGR of 25%.
The company has launched its IPO and offered 5,340,000 ADSs on August 11, 2010. Each ADS represents six of its ordinary shares, so its P/E should be calculated ~13 compared to the industry average of 20. The joint bookrunners for KH are Morgan Stanley (MS) and Piper Jaffray (PJC). Once the reticent period ends, more analysts will begin to add coverage for this stock, and that will be an optimistic sign for KH. I believe KH will continue to generate value for shareholders due to the increasing portion of the people in China, who can afford high-quality orthopedic implants and the growing emphasis on health coverage from the Chinese government.
Monday, September 6, 2010
Six Reasons to Buy AMBO
Located in China, Ambow Education Holding Ltd. (NYSE: AMBO) is a leading national provider of educational and career enhancement services, offering high-quality, individualized services and products. Despite its weak performance in August, I believe AMBO is a well-undervalued stock for the following reasons:
1) China overtook Japan as the world’s second-largest economy during the second quarter of 2010 in terms of gross domestic product (GDP), and that is expected to grow to over $20 trillion by 2014. According to IDC, total spending in China’s education market was $236.3 billion in 2008 and is projected to grow by approximately $604.1 billion by 2013. Because of the growth in the rapid economy and disposable household income, people in China are increasingly willing to invest in higher and professional education as it may lead to better career opportunities and enhanced earning power.
2) AMBO started its business with a clear mindset on focusing on the education training market. In the past ten years, AMBO has adhered to its goals and addressed two critical demands in China’s education market: the desire for students to be admitted into top secondary and post-secondary schools (Better Schools) and the desire for graduates of those schools to obtain more attractive jobs (Better Jobs).
“Better Schools” refers to the K-12 programs and tutoring services with a standards-based curriculum that enables students to improve their academic results and educational opportunities. According to IDC and CCID, AMBO is the largest ZhongKao and GaoKao after-school tutoring provider in China both in 2008 and 2009. Both administered in China, “ZhongKao” refers to high school entrance exams while “GaoKao” refers to university entrance exams. Like graduates from Ivy League schools in the United States, graduates from top universities in China may have a better chance to obtain quality jobs.
“Better Jobs” refers to the career enhancement services programs that facilitate post-secondary students in obtaining more attractive employment. They are offered through AMBO’s career enhancement regional service hubs, which are strategically located in key economic centers across China.
According to IDC and CCD, AMBO was the largest IT career enhancement training provider in China both in 2008 and 2009. Some key partnerships include Cisco Systems, Inc., Skillsoft Asia Pacific and McGraw-Hill Education.
3) Perhaps the biggest competitor for AMBO in China is New Oriental (EDU). However, New Oriental only focuses on English and other foreign language training and providing consulting services to help students through the application and admission process for overseas educational institutions. Unlike New Oriental, AMBO focuses on targeted markets within the educational and career enhancement services market. Moreover, none of AMBO’s competitors can compete with its broad spectrum of programs, services and products.
4) AMBO has experienced substantial growth in net revenues and profitability in recent years. Its revenues grew from RMB 318.9 million in 2007 to RMB 902.0 million (USD $132.1 million) in 2009 at a CAGR of 68% over the last two years. Its net income grew from RMB 34.2 million in 2007 to RMB 138.0 million (US $20.2 million) in 2009 at a CAGR of 101% over last two years. In addition to organic growth, AMBO switched to new product sales in May 2008. Under this new business model, AMBO has no obligation to students or schools and has phased out its previous model of providing services to students of schools and centers that are not directly operated by AMBO. Under this new product sales model that alters sales to distributors, less net revenue per sale may be recognized, but higher gross margins are expected.
5) AMBO has built its Ambow brand and increased awareness of its products and services in a capital efficient way. AMBO has received numerous awards from notable organizations in China and is consistently ranked as one of China’s top ten education brands by industry leaders such as the China Daily Media Group, Tencent and Sohu.com. On August 11th, 2010, BusinessWeek announced its “50 Green Companies in China” award and AMBO was the only company from the education industry, while the other recipients included Intel (China), Coca-Cola (China), Shell (China), Ford Motor (China), Sony (China), etc. In my opinion it is remarkable to see that the education sector can also be green (i.e. low carbon). “We believe that Green has become one of the key concepts in the development of AMBO’s educational systems over the last three years. Our intelligent system, which combines the learning engine and robust content, along with the use of IT management system has proved to be a good way to improve the efficiency of our educational services and consistent with Low-Carbon Economy,” said Yisi Gu, AMBO’s Senior Vice President and Chief Technology Officer (CTO).
6) The joint bookrunners for AMBO are J.P. Morgan Securities Inc. and Goldman Sachs (Asia) L.L.C. There used to be a quiet period after IPOs, and a Chinese wall rule prevented analysts working at those firms from speaking or writing reports for twenty-five business days from the listing. Once the period ends, more analysts will begin to add coverage for this stock and that will be an optimistic sign for AMBO.
AMBO currently has a P/E ~ 27 and P/B ~ 2.1, compared to New Oriental (EDU)’s P/E ~51 and P/B ~ 8.9, which offers a very attractive investment opportunity. As a significant part of AMBO’s growth strategy, AMBO has completed a number of acquisitions, and I believe AMBO intends to continue making strategic acquisitions and investments to help fuel future growth.
1) China overtook Japan as the world’s second-largest economy during the second quarter of 2010 in terms of gross domestic product (GDP), and that is expected to grow to over $20 trillion by 2014. According to IDC, total spending in China’s education market was $236.3 billion in 2008 and is projected to grow by approximately $604.1 billion by 2013. Because of the growth in the rapid economy and disposable household income, people in China are increasingly willing to invest in higher and professional education as it may lead to better career opportunities and enhanced earning power.
2) AMBO started its business with a clear mindset on focusing on the education training market. In the past ten years, AMBO has adhered to its goals and addressed two critical demands in China’s education market: the desire for students to be admitted into top secondary and post-secondary schools (Better Schools) and the desire for graduates of those schools to obtain more attractive jobs (Better Jobs).
“Better Schools” refers to the K-12 programs and tutoring services with a standards-based curriculum that enables students to improve their academic results and educational opportunities. According to IDC and CCID, AMBO is the largest ZhongKao and GaoKao after-school tutoring provider in China both in 2008 and 2009. Both administered in China, “ZhongKao” refers to high school entrance exams while “GaoKao” refers to university entrance exams. Like graduates from Ivy League schools in the United States, graduates from top universities in China may have a better chance to obtain quality jobs.
“Better Jobs” refers to the career enhancement services programs that facilitate post-secondary students in obtaining more attractive employment. They are offered through AMBO’s career enhancement regional service hubs, which are strategically located in key economic centers across China.
According to IDC and CCD, AMBO was the largest IT career enhancement training provider in China both in 2008 and 2009. Some key partnerships include Cisco Systems, Inc., Skillsoft Asia Pacific and McGraw-Hill Education.
3) Perhaps the biggest competitor for AMBO in China is New Oriental (EDU). However, New Oriental only focuses on English and other foreign language training and providing consulting services to help students through the application and admission process for overseas educational institutions. Unlike New Oriental, AMBO focuses on targeted markets within the educational and career enhancement services market. Moreover, none of AMBO’s competitors can compete with its broad spectrum of programs, services and products.
4) AMBO has experienced substantial growth in net revenues and profitability in recent years. Its revenues grew from RMB 318.9 million in 2007 to RMB 902.0 million (USD $132.1 million) in 2009 at a CAGR of 68% over the last two years. Its net income grew from RMB 34.2 million in 2007 to RMB 138.0 million (US $20.2 million) in 2009 at a CAGR of 101% over last two years. In addition to organic growth, AMBO switched to new product sales in May 2008. Under this new business model, AMBO has no obligation to students or schools and has phased out its previous model of providing services to students of schools and centers that are not directly operated by AMBO. Under this new product sales model that alters sales to distributors, less net revenue per sale may be recognized, but higher gross margins are expected.
5) AMBO has built its Ambow brand and increased awareness of its products and services in a capital efficient way. AMBO has received numerous awards from notable organizations in China and is consistently ranked as one of China’s top ten education brands by industry leaders such as the China Daily Media Group, Tencent and Sohu.com. On August 11th, 2010, BusinessWeek announced its “50 Green Companies in China” award and AMBO was the only company from the education industry, while the other recipients included Intel (China), Coca-Cola (China), Shell (China), Ford Motor (China), Sony (China), etc. In my opinion it is remarkable to see that the education sector can also be green (i.e. low carbon). “We believe that Green has become one of the key concepts in the development of AMBO’s educational systems over the last three years. Our intelligent system, which combines the learning engine and robust content, along with the use of IT management system has proved to be a good way to improve the efficiency of our educational services and consistent with Low-Carbon Economy,” said Yisi Gu, AMBO’s Senior Vice President and Chief Technology Officer (CTO).
6) The joint bookrunners for AMBO are J.P. Morgan Securities Inc. and Goldman Sachs (Asia) L.L.C. There used to be a quiet period after IPOs, and a Chinese wall rule prevented analysts working at those firms from speaking or writing reports for twenty-five business days from the listing. Once the period ends, more analysts will begin to add coverage for this stock and that will be an optimistic sign for AMBO.
AMBO currently has a P/E ~ 27 and P/B ~ 2.1, compared to New Oriental (EDU)’s P/E ~51 and P/B ~ 8.9, which offers a very attractive investment opportunity. As a significant part of AMBO’s growth strategy, AMBO has completed a number of acquisitions, and I believe AMBO intends to continue making strategic acquisitions and investments to help fuel future growth.
Wednesday, September 1, 2010
When labor day approaches, will we see holiday effect again?
There are nine holidays each year during which the exchanges are closed. Empirical research suggests that stock prices often behave in a specific manner one day before these holidays. By being aware of this behavior, both long-term investors and short-term traders can benefit.
The general strategy for short-term traders is to purchase equities one day prior to a holiday and sell just after the holiday. The theory behind this effect is that traders, to avoid any unexpected bad news with market impact, try to unload their holdings before the holidays. Selling pressure drives prices down and makes most stocks become attractive when the holiday ends.
Based on the S&P 500 Index, the list below shows the results for this strategy over the last 20 years:
| Year | Buy one day before, sell right after Labor Day |
| 1990 | 0.16% |
| 1991 | -0.83% |
| 1992 | 0.46% |
| 1993 | -0.61% |
| 1994 | 0.18% |
| 1995 | 0.95% |
| 1996 | 0.42% |
| 1997 | 3.13% |
| 1998 | 5.09% |
| 1999 | -0.50% |
| 2000 | -0.90% |
| 2001 | -0.06% |
| 2002 | -4.15% |
| 2003 | 1.39% |
| 2004 | 0.69% |
| 2005 | 1.26% |
| 2006 | 0.17% |
| 2007 | 1.05% |
| 2008 | -0.41% |
| 2009 | 0.88% |
Thirteen out of twenty records show positive returns, and the probability of success in the past 20 years was 65 percent. As Labor Day approaches, will we see history repeat itself?
NEWN: A Hidden Gem with Strong Foundations for Growth
As a value investor, I am always looking for companies with great fundamentals and growth potential. By running my daily screen, a long candidate has attracted my eyeballs.
It is New Energy Systems Group (Amex: NEWN). NEWN is a leading provider of lithium-ion batteries for portable electronic devices in China with headquarters in Shenzhen, Guangdong Province, which is China's first—and arguably one of the most successful—Special Economic Zones. This company has recently been uplisted to Amex from OTCBB and traded in the range of $6-7.
In recent years, the global output of lithium-ion batteries has soared more than 50% annually and the demand is expected maintain its upward momentum till 2018. At present, the global supply of Li-ion batteries is monopolized by three giants in Asia, i.e. China, Japan and South Korea, and all three have a total market share surpassing 95%.
The first use of lithium batteries was in laptops, but now they are widely used in cell phones, video machines, digital cameras, MP3 players, hybrid cars and other electronic products. The batteries are becoming more environment-friendly with a longer life, smaller size and lighter weight. Chinese Li-ion battery manufacturers are not only seizing market share for Li-ion batteries for portable products like 3G mobiles and laptops from South Korea and Japanese competitors, but also are actively developing the Li-ion battery market for electric cars and E-bicycles.
In China, the fastest-growing auto market in the world, the development of Li-ion batteries has become a core part of the development of hybrid cars. The Chinese government has recently handed out policy incentives to encourage more electric cars on the road and the demand for Li-ion batteries will increase. Investments into companies in the battery business will reward investors generously. In fact, this is already reflected in the Shanghai A-share market. Most Chinese battery companies listed in the A-share market have advanced more than 20% since August 1, 2010, with an incredible 100% net income increase in the first six months of 2010.
Products from NEWN now support iPhones, iPads, Blackberrys and all major-brand cell phones, laptops, digital cameras, MP3s, etc. Currently, NEWN only operates at around 50% of manufacturing capacity and has begun to expand internationally. On Aug. 26th, 2010, NEWN announced its plan to launch MeePower™, a new brand of advanced battery backup systems and expected them to be available to distributors in the U.S. beginning in the fall of 2010. MeePower generates 4–7 times more power than an original OEM battery’s capacity and can recharge the OEM battery more quickly and last longer.
In the past, the company only dealt in the low-margin battery shell & cap and battery-distribution businesses. But acquisitions in 2009 transformed NEWN into a rapidly-growing, high-margin, integrated manufacturer with an established brand name.
The first acquisition was of Anytone, a manufacturer and seller of lithium-ion battery finished products and was acquired by NEWN with both stock shares and cash payments. The acquisition not only enhances NEWN’s ability to rapidly innovate with quick-turn capabilities with over 30 patents and deep R&D capabilities, but also broadens product offering and allows NEWN to touch end-user customers.
Another acquisition was with NewPower, a China-based manufacturer of lithium-ion batteries. NewPower has extensive manufacturing expertise and capabilities. It only operates at 50% of production capacity and can triple its production with minimal additional capital expenditures. Both acquisitions are strategically important to vertical integration and increase profitability of the existing battery distribution business with added margin by internally sourcing lithium-ion batteries.
Although the company’s cash positions are influenced by its payments for the acquisitions, NEWN still shows strong second-quarter earnings. The company’s revenue has increased 335.2% to ~23.4 million and gross profit increased 280.1% to ~$6.1 million year over year. A final payment of $4.0 million is related to the Anytone acquisition and reduced account payable and accrued expenses on its balance sheet. Its adjusted EPS has increased 59.1% to $0.35 per diluted share and the company has affirmed its goal to earn at least $1.23 per diluted share in 2010. A conservative 10X P/E valuation gives an intrinsic value of $12.3 for NEWN, which is well beyond the current price level. Lastly, the company is still expanding and operating only at 50% of its capacity.
The latest 10-Q also shows that the stock value of NEWN paying for both acquisitions is ~6.4 dollars. NEWN has only 35,000 outstanding stock options with an exercise price of 6.19 and outstanding shares of ~11.86 million. The current price of $6.15 for NEWN is extremely cheap, with a trailing 12 month P/E of 5.6.
What worries most investors of small cap Chinese companies is dilution, especially when the companies are eager to raise capital with a secondary offering. However, as NEWN has just completed two acquisitions with a healthy balance sheet, the chance of a secondary offering is very slim.
NEWN has now completed its acquisitions and integrated its business lines. The company has transformed into a fully-integrated manufacturer with a brand name and is focused on growing its business in both China and overseas markets. The company will continue to introduce new products to meet changing market demand and increase higher margin direct sales to OEM customers and retail partners. NEWN is on its way to expand into large, higher-margin international markets such as North America, Europe and Japan. The management teams of NEWN have accumulated abundant knowledge about the battery industry and built a strong distribution network for years.
I believe that NEWN will continue to experience organic growth in the years ahead and will generate value for shareholders while maintaining high corporate governance standards.
It is New Energy Systems Group (Amex: NEWN). NEWN is a leading provider of lithium-ion batteries for portable electronic devices in China with headquarters in Shenzhen, Guangdong Province, which is China's first—and arguably one of the most successful—Special Economic Zones. This company has recently been uplisted to Amex from OTCBB and traded in the range of $6-7.
In recent years, the global output of lithium-ion batteries has soared more than 50% annually and the demand is expected maintain its upward momentum till 2018. At present, the global supply of Li-ion batteries is monopolized by three giants in Asia, i.e. China, Japan and South Korea, and all three have a total market share surpassing 95%.
The first use of lithium batteries was in laptops, but now they are widely used in cell phones, video machines, digital cameras, MP3 players, hybrid cars and other electronic products. The batteries are becoming more environment-friendly with a longer life, smaller size and lighter weight. Chinese Li-ion battery manufacturers are not only seizing market share for Li-ion batteries for portable products like 3G mobiles and laptops from South Korea and Japanese competitors, but also are actively developing the Li-ion battery market for electric cars and E-bicycles.
In China, the fastest-growing auto market in the world, the development of Li-ion batteries has become a core part of the development of hybrid cars. The Chinese government has recently handed out policy incentives to encourage more electric cars on the road and the demand for Li-ion batteries will increase. Investments into companies in the battery business will reward investors generously. In fact, this is already reflected in the Shanghai A-share market. Most Chinese battery companies listed in the A-share market have advanced more than 20% since August 1, 2010, with an incredible 100% net income increase in the first six months of 2010.
Products from NEWN now support iPhones, iPads, Blackberrys and all major-brand cell phones, laptops, digital cameras, MP3s, etc. Currently, NEWN only operates at around 50% of manufacturing capacity and has begun to expand internationally. On Aug. 26th, 2010, NEWN announced its plan to launch MeePower™, a new brand of advanced battery backup systems and expected them to be available to distributors in the U.S. beginning in the fall of 2010. MeePower generates 4–7 times more power than an original OEM battery’s capacity and can recharge the OEM battery more quickly and last longer.
In the past, the company only dealt in the low-margin battery shell & cap and battery-distribution businesses. But acquisitions in 2009 transformed NEWN into a rapidly-growing, high-margin, integrated manufacturer with an established brand name.
The first acquisition was of Anytone, a manufacturer and seller of lithium-ion battery finished products and was acquired by NEWN with both stock shares and cash payments. The acquisition not only enhances NEWN’s ability to rapidly innovate with quick-turn capabilities with over 30 patents and deep R&D capabilities, but also broadens product offering and allows NEWN to touch end-user customers.
Another acquisition was with NewPower, a China-based manufacturer of lithium-ion batteries. NewPower has extensive manufacturing expertise and capabilities. It only operates at 50% of production capacity and can triple its production with minimal additional capital expenditures. Both acquisitions are strategically important to vertical integration and increase profitability of the existing battery distribution business with added margin by internally sourcing lithium-ion batteries.
Although the company’s cash positions are influenced by its payments for the acquisitions, NEWN still shows strong second-quarter earnings. The company’s revenue has increased 335.2% to ~23.4 million and gross profit increased 280.1% to ~$6.1 million year over year. A final payment of $4.0 million is related to the Anytone acquisition and reduced account payable and accrued expenses on its balance sheet. Its adjusted EPS has increased 59.1% to $0.35 per diluted share and the company has affirmed its goal to earn at least $1.23 per diluted share in 2010. A conservative 10X P/E valuation gives an intrinsic value of $12.3 for NEWN, which is well beyond the current price level. Lastly, the company is still expanding and operating only at 50% of its capacity.
The latest 10-Q also shows that the stock value of NEWN paying for both acquisitions is ~6.4 dollars. NEWN has only 35,000 outstanding stock options with an exercise price of 6.19 and outstanding shares of ~11.86 million. The current price of $6.15 for NEWN is extremely cheap, with a trailing 12 month P/E of 5.6.
What worries most investors of small cap Chinese companies is dilution, especially when the companies are eager to raise capital with a secondary offering. However, as NEWN has just completed two acquisitions with a healthy balance sheet, the chance of a secondary offering is very slim.
NEWN has now completed its acquisitions and integrated its business lines. The company has transformed into a fully-integrated manufacturer with a brand name and is focused on growing its business in both China and overseas markets. The company will continue to introduce new products to meet changing market demand and increase higher margin direct sales to OEM customers and retail partners. NEWN is on its way to expand into large, higher-margin international markets such as North America, Europe and Japan. The management teams of NEWN have accumulated abundant knowledge about the battery industry and built a strong distribution network for years.
I believe that NEWN will continue to experience organic growth in the years ahead and will generate value for shareholders while maintaining high corporate governance standards.
Write your puts to let market against you!
It is well- known that options are like double-edged swords. If you use them well, they will earn much higher profits than your investments in stocks. If you are clueless about how to use them, you lose your money and a margin call might be in front of you.
What I want to discuss today is how to let the market fight against you instead of you fighting against market.
Be thankful for the options and their liquidity provided by day-to-day market-makers (MM).
The option traders try to hedge their risks through delta and gamma. These two terms are first mathematical in nature and second, derivatives of the underlying stock prices. We don't need to discuss them in a quant manner, but what you need to remember is that option traders always hedge their positions.
What does this mean? When they buy some options, they short underlying stocks according to some calculated numbers. When they short options, they long their stocks.
It's clear to see that when short-squeezing happens, option traders find it difficult to do an "exact hedge" and the option prices may simply go in one direction only.
This is what I did last Friday after I received a flash alert to buy SCOK from a subscription.
SinoCoking Coal & Coke Chemical Industries, Inc. (SCOK) produces and markets coal products, including coke, raw and washed coal and chemical byproducts in the People's Republic of China.
This company was oversold in the middle of August, 2010 and people overreacted to the bad news.
After carefully examining the fundamentals and speaking with some analysts, I am ready to enter with a catalyst. Ten minutes before the market closed on August 20th,2010, I received a flash alert urging people to buy SCOK, and that really drove the price up by 10% during the last five minutes. To profit from this rally and limit my risks, I sold some 10 Sep 2010 Puts at 1.6$. I begin to sell the options right after rally, as it is rare for the stock to drop below 10. By writing the options, I earn both time decay and value depreciations at the same time. (When you write options, you receive fees upfront and expect to receive all of them when it runs out of money.)
On August 23rd, 2010, I closed all of my Put positions by buying them back at about $1.05$. Because of uncertainties, it is not recommended to hold your option positions for too long. This made me a quick return of more than 30%; compare this to the 15% one can expect when fully invested in stocks.
Other successful examples are selling 9 Aug 2010 Puts for RINO and 10 Aug 2010 Puts for CAGC. Both of these are companies with good fundamentals that I like very much. Their values are hard to beat below those levels.
Small-cap companies' stocks are very volatile, so their OTM options may always bear more premiums compared to their large-cap peers. (Option theory tells us that this is called volatility smile, but that is beyond the scope of our current discussion.) Because of this, selling deep OTM options for companies with good fundamentals is an effective way to earn high yields each month.
What I want to discuss today is how to let the market fight against you instead of you fighting against market.
Be thankful for the options and their liquidity provided by day-to-day market-makers (MM).
The option traders try to hedge their risks through delta and gamma. These two terms are first mathematical in nature and second, derivatives of the underlying stock prices. We don't need to discuss them in a quant manner, but what you need to remember is that option traders always hedge their positions.
What does this mean? When they buy some options, they short underlying stocks according to some calculated numbers. When they short options, they long their stocks.
It's clear to see that when short-squeezing happens, option traders find it difficult to do an "exact hedge" and the option prices may simply go in one direction only.
This is what I did last Friday after I received a flash alert to buy SCOK from a subscription.
SinoCoking Coal & Coke Chemical Industries, Inc. (SCOK) produces and markets coal products, including coke, raw and washed coal and chemical byproducts in the People's Republic of China.
This company was oversold in the middle of August, 2010 and people overreacted to the bad news.
After carefully examining the fundamentals and speaking with some analysts, I am ready to enter with a catalyst. Ten minutes before the market closed on August 20th,2010, I received a flash alert urging people to buy SCOK, and that really drove the price up by 10% during the last five minutes. To profit from this rally and limit my risks, I sold some 10 Sep 2010 Puts at 1.6$. I begin to sell the options right after rally, as it is rare for the stock to drop below 10. By writing the options, I earn both time decay and value depreciations at the same time. (When you write options, you receive fees upfront and expect to receive all of them when it runs out of money.)
On August 23rd, 2010, I closed all of my Put positions by buying them back at about $1.05$. Because of uncertainties, it is not recommended to hold your option positions for too long. This made me a quick return of more than 30%; compare this to the 15% one can expect when fully invested in stocks.
Other successful examples are selling 9 Aug 2010 Puts for RINO and 10 Aug 2010 Puts for CAGC. Both of these are companies with good fundamentals that I like very much. Their values are hard to beat below those levels.
Small-cap companies' stocks are very volatile, so their OTM options may always bear more premiums compared to their large-cap peers. (Option theory tells us that this is called volatility smile, but that is beyond the scope of our current discussion.) Because of this, selling deep OTM options for companies with good fundamentals is an effective way to earn high yields each month.
Hedge your small-cap portfolio with ETF!
2009 has proved to be a good year for most hedge funds dealing with fundamentals and I would expect the trend continues.
A fundamentalist take a closer a look at the firms with healthy balance sheet, attending the conference call and doing due deligence to understand the companies' business modes.
This has helped me to pay special attention to Chinese Small-Cap companies.
Most Small-Cap Chinese firms are ignored by investors because culture and disbelief of growth in China.
In my opinion, these firms are really good investment candidates with healthy balance sheet and almost zero debts. They are growing companies with Revenue growth >100% year over year, low p/E around 6-7 and high profit margin, >30%.
Although people may surpass these companies by tellling that "Chinese are liars and they cook the books", I regarded them to be good candidates and did my own research to identify the good ones.
The efforts always pay back and the good news is that it's easy to hedge the risks of these small-cap stocks by shorting the ETF.
For example, one ETF (HAO) is created for China Small Cap companies.
A regression of CBPO agansit HAO gives a R2 >50%, which is pretty good for the model. A more caeful work has been performed for GFRE, YONG, etc and all suggest that the movements of these stocks are closely related to the index.
When you are not sure and worrying about your holdings of Chinese Small Cap companies, don't sell them immediately but short the index to hedge!
A fundamentalist take a closer a look at the firms with healthy balance sheet, attending the conference call and doing due deligence to understand the companies' business modes.
This has helped me to pay special attention to Chinese Small-Cap companies.
Most Small-Cap Chinese firms are ignored by investors because culture and disbelief of growth in China.
In my opinion, these firms are really good investment candidates with healthy balance sheet and almost zero debts. They are growing companies with Revenue growth >100% year over year, low p/E around 6-7 and high profit margin, >30%.
Although people may surpass these companies by tellling that "Chinese are liars and they cook the books", I regarded them to be good candidates and did my own research to identify the good ones.
The efforts always pay back and the good news is that it's easy to hedge the risks of these small-cap stocks by shorting the ETF.
For example, one ETF (HAO) is created for China Small Cap companies.
A regression of CBPO agansit HAO gives a R2 >50%, which is pretty good for the model. A more caeful work has been performed for GFRE, YONG, etc and all suggest that the movements of these stocks are closely related to the index.
When you are not sure and worrying about your holdings of Chinese Small Cap companies, don't sell them immediately but short the index to hedge!
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