China Green Agriculture (NYSE:CGA)

Rodman and Renshaw on CGA                                  5/13/2011

F3Q11 Results Slightly Above Expectations; Maintain Market Perform

F3Q11 Results

China Green Agriculture (“China Green”, Ticker: CGA, Market Perform) reported F3Q11 results that were mostly above our expectations. Net revenue increased 232.2% YoY and reached $44.7 million, slightly above our estimate of $41.8 million. Gufeng subsidiary continued to be the company’s largest revenue contributor, providing $26.1 million, or 58.5% of the total sales. Jinong sales reached $16.2 million. Gross profit in the quarter came in at $17.0 million, up 110.1% YoY and above our estimate of $14.8 million. Gross margin was 38.2%%, higher than our expectation of 35.5%. G&A expenses were 3.3 million, above our estimate of $3.0 million. Management cited some Gufeng related G&A expenses, additional investor relations fees, and litigation related expenses as the major reasons for this higher than expected expense item. Selling expenses were $1.7 million, in-line with our estimate. Operating income in the quarter was $12.1 million, up 95.3% YoY and above our estimate of $10.1 million. Net income was $9.5 million, up 77.6% YoY, translating to $0.35 per diluted share, above our estimate of $8.1 million or $0.30 per diluted share. Net margin in the quarter was 21.2%, compared to our estimate of 19.3%. The company also reported that, as of March 31, 2011, it had $66.9 million of cash and cash equivalents.

Adjusting estimates and maintaining Market Perform rating

We have tweaked our financial model to reflect the F3Q11 performance. For F4Q11, we now expect the company will realize $43.0 million of revenue, $8.7 million of net income, and $0.32 of EPS. For full year F2011, we estimate total revenue of $162.5 million, net income of $32.2 million, and $1.21 EPS. Despite the stronger than expected F3Q11 results, we continue to take a conservative approach with regard to our view on the share price outlook. In light of the current market sentiment towards small Chinese RTO companies, we believe financial fundamentals are almost taking a backseat to investor sentiment and companies’ perceived corporate governance quality. In this regard, we believe China Green is still facing a number of uncertainties such as its pending litigation and auditor change. Thus we continue to take a wait and see approach and maintain our Market Perform/Speculative Risk rating on the shares of China Green.

Risks

Major risks include: 1) The seasonal variations and adverse weather conditions could impact agricultural production, which in turn could result in reduced demand for fertilizer products; 2) Delay or halt in the launch of new products or addition of new distributors could lead to stagnation or decline in revenue growth; 3) Highly competitive industry with numerous national and local players; 4) Decline in margins as the company ventures into more product areas; 5) Litigation risk; and 6) Political, regulatory, and economical risks related to operating in China.


Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Rodman on CGA                                   2/10/2011

Mixed F2Q11 Results; Maintain Market Perform 

Mixed F2Q11 results 

China Green Agriculture (“China Green”, Ticker: CGA, Market Perform) reported mixed F2Q11 results. Net revenue for the quarter reached $35.3 million, above the company’s previous guidance of $33.1-33.3 million as well as both Street consensus and our estimates of $33.3 million. The company’s Gufeng subsidiary was once again a major revenue contributor with $18.9 million, or 53.5% of the total sales. The Jinong unit contributed $14.3 million to the overall top line. Gross margin for the quarter was 34.9%. While it represented a significant drop from a year ago, largely due to a higher sales component of lower-margined granular fertilizer products, mostly from Gufeng, it was actually slightly better than our previous estimate of 33.2%. G&A expenses were 2.9 million, significantly above our estimate of $1.8 million. Management cited escalating litigation related expenses and higher stock based compensation as the major reasons for this higher than expected expense item. Selling expenses were $1.6 million, higher than our estimate of $1.2 million. F2Q11 operating income was $7.9 million, slightly below our estimate of $8.1 million. Net income was $6.2 million, translating to EPS of $0.24, below both respective Street consensus of $7.4 million and $0.28 and our Street-low estimates of $6.8 million and $0.26. They were also below the company’s own guidance of $7.76-7.86 million net income and $0.29 EPS.

Updated FY2011 guidance 

The company updated its FY2011 guidance, with total revenue between $155.0 and $165.0 million, net income between $31.5 and $33.2 million, and EPS between $1.17 and $1.24 (based on 26.9 million weighted average shares). For F3Q11, the company now expects to realize $41.8-43.6 million of revenue, $8.2-8.6 million of net income, and $0.31-0.32 of EPS (based on 26.9 million weighted average shares).

Adjusting estimates and maintain Market Perform rating 

In light of the F2Q11 performance and the company’s updated guidance, we have tweaked our financial model. For F3Q11, we now expect the company will realize $41.8 million of revenue, $8.1 million of net income, and $0.30 of EPS. For full year F2011, we estimate total revenue of $159.6 million, net income of $30.8 million, and $1.16 EPS. We are maintaining our Market Perform/Speculative Risk rating on the shares of China Green. We believe while the company could be a long term growth story, in the short term there are a number of uncertainties, such as its continued integration of the Gufeng unit and its potential engagement of a Big 4 auditor, that are keeping us on the sideline.

Risks 

Major risks include: 1) The seasonal variations and adverse weather conditions could impact agricultural production, which in turn could result in reduced demand for fertilizer products; 2) Delay or halt in the launch of new products or addition of new distributors could lead to stagnation or decline in revenue growth; 3) Highly competitive industry with numerous national and local players; 4) Decline in margins as the company ventures into more product areas; 5) Litigation risk; and 6) Political, regulatory, and economical risks related to operating in China.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on CGA

F1Q10 results: Maintain Market Perform Rating 

China Green Agriculture (“China Green”, Ticker: CGA, Market Perform) reported its F1Q11 results that were more or less in-line with expectations. Net revenue grew 250% YoY to $39.5 million, beating both Street consensus and our estimate of $38.4 million. The newly acquired Gufeng subsidiary was the major revenue contributor with $21.8 million, or 55.2% of the total revenue. The Jinong subsidiary contributed $16.6 million, or 42% of the total revenue. The Jintai unit, which produced agricultural products, registered a flat YoY sales performance, generating $1.1 million of revenue. The Yuxing unit had no revenue for the past quarter. Gross margin for F1Q10 declined YoY to 33.3%, below our estimate of 37.3%. A higher sales component of lower-margined granular fertilizer products, mostly from Gufeng, was a major reason for the decline in gross margin. Operating income for the quarter was $9.6 million, up 55% YoY and higher than our expectation of $9.1 million. Net income was $7.8 million, up 48% YoY and in-line with our estimate, but a touch shy of the $7.9 million Street consensus. Diluted EPS for F1Q10 was $0.30, a shade above our estimate of $0.29 but in-line with the Street consensus. At the end of September, the company had $53.9 million of cash and cash equivalent.

FY2011 guidance maintained 

The company maintained its FY2011 guidance, with total revenue of $150.5-$152.8 million, net income of $36.2-$36.8 million, and EPS of $1.35-$1.37 (based on 26.8 million weighted average shares). For the next quarter (F2Q11), the company expects to realize $33.1-33.3 million of revenue, $7.76-7.86 million of net income, and $0.29 of EPS (based on 26.9 million weighted average shares).

Adjusting estimates and maintain Market Perform rating 

We have tweaked our financial model in accordance with the F1Q11 performance. For F2Q11, we now expect the company will realize $33.3 million of revenue, $6.8 million of net income, and $0.26 of EPS. For full year F2011, we estimate total revenue of $151.8 million, net income of $32.8 million, and $1.25 of EPS. We are maintaining our Market Perform/Speculative Risk rating on the shares of China Green. While the past quarter's financial performance was overall in-line with expectations, we believe uncertainties remain with regard to the company's integration of Gufeng and slower organic growth. In addition, while we had anticipated significant margin compression due to increased sales of lower-margin granular fertilizers, the actual F1Q11 gross margin figure was 400bps below our already lowered estimate. Thus we will keep a close eye on the company's margin trend during the upcoming quarters. We continue to like the company's long term growth potential; however in the short term we are taking a more conservative approach, both in our financial projections and our rating.


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on CGA:

F4Q10 results overview: China Green Agriculture (“China Green”, Ticker: CGA, Market Perform) reported its F4Q10 results that on balance exceeded our expectations. Total revenue grew 54.5% YoY to $16.2 million, beating our estimate of $14.8 million and Street consensus of $15.1 million. The growth was primarily driven by Jinong branded fertilizer products, which grew 61.4% YoY to $15.3 million and accounted for 94.2% of total sales. This strong performance of Jinong was in turn mainly attributable to larger sales volume which soared 119.5% YoY to 9,315 tons. ASP, on the other hand, decreased to $1,638/ton (derived from sales volume and revenue) from ASP of $2,098/ton in Q3. We believe this was mostly due to the company’s increased sales of powder and granular fertilizer products that commanded lower prices. Gross profit increased 42.8% YoY to $9.1 million. However Q4 gross margin of 56.3% was lower than the 60.9% in F4Q09 and 60.3% in F3Q10. Increased sales of lower margin granular fertilizers again contributed to the lower gross margin, in our opinion. Net income increased 35.5% YoY to $6.0 million, or $0.24 per diluted share, slightly better than our estimate of $5.7 million, or $0.23 per diluted share, but in-line with Street consensus. For the full fiscal 2010, total revenue came in at $52.1 million, exceeding the company’s previous guidance of $50.6 - $51.2 million. Net income reached $21.3 million, or $0.91 per diluted share, within the guidance range of $21.1-$21.4 million, or EPS of $0.90-$0.91. 

FY2011 guidance lower than our expectations: China Green provided its FY2011 guidance with total revenue of $150.5-$152.8 million, net income of $36.2-$36.8 million, and EPS of $1.35-$1.37. The guidance takes into consideration of the revenue and net income contributions of $88.4 million and $10.6 million from Beijing Gufeng Chemical Products Co. (“Gufeng”) it acquired in July. (Please refer to our report published on July 7, 2010 for more details.) We note that this guidance is lower than our previous expectations of $158.6 million of revenue, $39.0 million of net income, and $1.46 EPS. Excluding the revenue and net income contribution from Gufeng, it appears that management expects top-line organic growth will be in the range of 19.2%-23.6% and bottom-line organic growth will be between 20.2% and 23.1%. Both are significantly lower than the YoY 48.0% revenue growth and 40.9% net income growth in F2010. With regard to the Gufeng acquisition, while we believe it can prove to be attractive both financially and strategically for China Green, we await realized benefits from the integration, upgrade of Gufeng’s current chemical fertilizer production facility to organic humic acid-based fertilizer production lines, and capacity utilization ramp-up. We also believe the increased sales of granular fertilizers will significantly compress gross margin in the near term. 

Adjusting estimates and maintaining Market Perform rating: We are maintaining our Market Perform rating on the shares of China Green in light of slower organic growth, margin compression, and uncertainties related to the integration of Gufeng. We have adjusted our estimates in accordance with management’s guidance. For FY2011, we now expect total revenue of $152.5 million, net income of $35.8 million, and $1.33 EPS. Our respective estimates for F1Q11 are $38.4 million, $7.8 million, and $0.29.

 This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.