China Yida Holdings (NASDAQ:CNYD)

Correction: Yesterday, our original third quarter note highlighted nine months results. We have corrected the information to include the third quarter results. The correction results in an even more bullish CNDH story.

China Yida Holding reported strong 2009 third quarter results, experiencing strong growth in both its tourism and media marketing divisions. We are speculating that momentum will continue to build as the Company soon realizes benefits from two new tourism ventures.  We do need to be mindful to the possibility of an increase in shares outstanding in the future:

"Over the course of the next few years, we intend to grow and expand our businesses in China’s tourism, media, entertainment and other related industries. We expect to acquire additional tourist areas that will enhance our reputation as a world-class company that develops and manages tourist attractions. These acquisitions will be financed either by our revenues or by funds raised from sales of our stock or other securities. With respect to the mass media business, we expect to grow by acquiring another operating television network."

The GAAP EPS growth of 42.9% is no doubt impressive.  However, astute investors should key in on the fully taxed adjusted EPS growth of 81.8%.  The GeoTeam® prefers to observe apples to apples comparisons.

^aFor valuation purposes, The GeoTeam® prefers to adjust EPS to reflect a standard United Chinese tax rate of 25%.(Previously we had used a U.S. tax rate of 36%)

The GeoTeam® is taking a closer look at China Yida Holding Co. ($9.01)

The Company:

• China Yida first division is contracted to provide managerial and media services to three tourist destinations in China.
• The Company's second division receives advertising revenue by providing programming through one TV channel and Railroad-on-board program-infomercial programming.

Positive Points to Ponder

• Industry growth rates of both company divisions have been experiencing growth well on excess of 10%.
• The China advertising sector is becoming a "hot" sector on Wall Street.
• New tourist revenue source on the horizon: CNDH has been only receiving revenue from its Great Golden Lake resort venture, one of its three contracted tourist destination agreements. CNDH helped increase visitors to this resort to 320 thousand in 2008, from 30 thousand in 2001. This track record bodes well for its two other tourist ventures. Beginning in the third quarter of 2009, the Company began receiving revenue from a second agreement (Hua'an Tulou destination). The third destination (Yunding) is slated to contribute to revenues in the second quarter of 2010.
• Revenues have grown from 10.2 million in 2006 to $30.6 million in 2008 with a commensurate growth in net-income.
• Pre-Tax profit margin is around 66%.
• Under 10% total debt to equity.

What investors need to know

• How many railroad lines are in China Yida's target market? It currently has arrangements with 31 railroad lines.
• Can CNDH maintain above average margins?
• Current ratio is under 2 to 1. Is the Company comfortable with this statistic?
• What are time line terms of contracts in both divisions?
• Is there is a need for equity capital? Although China Yida has experienced a robust net income growth of 42% year to date, EPS has been flat due to dilution. Comments from the company's 2009 second quarter 10Q shed some light on this issue and may be encouraging for investors:

"We currently generate our cash flow through operations which we believe will be sufficient to sustain current level operations for at least the next twelve months. In addition, in February 2008, we completed a $14 million financing and we intend to use the proceeds to expand our operations and improve the “Great Golden Lake” and increase the number of visitors we can attract to the destination. In 2009, we intend to continue to work to expand our tourism services and mass media outlets, including the acquisition of a provincial-level education TV station."

The GeoTeam® is speculating that revenues will get an immediate boost from its new tourist ventures. We are therefore coding CNDH as a GeoSpecial. If we can verify that dilution won't be a factor going forward, then this story becomes more appealing and we would likely qualify the Company as a GeoBargain. At a P/E of only 9.40 times GeoCalculated tax adjusted trailing twelve month EPS of $0.93, value investors may find the stock appealing. Also, the company has recently affected a 1 for 4 reverse split, a common precursor to an exchange uplisting.

Please be aware that CNDH has a wide bid ask spread