China Shuangji Cement (PINK:CSGJ)

The GeoTeam® has performed more due diligence regarding the China Shuangji Cement story and uncovered information that drastically changes our valuation assumptions for its stock.

Excerpt from 2009 second quarter 10Q

"On June 14, 2009, the Board of Directors of the Company authorized and approved the conversion of 20,250,000 preferred shares that were originally issued on August 9, 2008 to 20,250,000 common shares. As result of the conversion there will be 26,983,078 shares of the Company's Common Stock issued and outstanding."

This is quite perplexing as the company just completed a reverse split

This is a significantly dilutive event may seriously inhibit earnings per share growth potential. There may also be an effect on our original book value per share calculation.  We are removing the stock from the special situation list.  We will revisit the CSGJ story once again, if warranted.  There still may be elements to this event that are positive.  We have emailed management.

Source: SEC Filing 10Q (FOR THE QUARTERLY PERIOD ENDED June 30, 2009, page 8)

GeoSpecial, China Shuangji Cement reported its 2009 second quarter financial results after the close, via SEC Form 10Q.

• Revenues decreased to 12.8% to $13.6 million.
• GAAP earnings per share increased 31% to $0.17.
• Geo calculated Non-GAAP earning per share, was flat at $0.17.  We added back Amortization of deferred interest to net income for 2008 in the amount of $246,341.  We will ask management if this is an appropriate assumption.

Despite, the decrease in sales and flat non-GAAP eps growth, the GeoTeam® remains optimistic that the company can eventually grow sales and earnings.

Reasons to remain optimistic per comments from the second quarter 10Q, page10:

• We are currently building a new 1 million metric ton cement plant outside Zhaoyuan City to replace the old Zhaoyuan plant and will be completed in late third quarter 2009.
• On April 15, 2009, we acquired fifty-one percent of a joint venture that owns in a 300,000 metric ton plant in nearby Longkou, Shandong and plan to upgrade that capacity to 500,000 metric tons.
• China's cement output is forecast to grow 10% per annum between 2008 and 2010.
• Overall cement prices are expected to climb steadily upwards, due to factors such as supply-demand structure, and higher costs of coal and electricity.
• We foresee positive business sales in the fiscal third quarter and beyond due to a Chinese government decision to shut down a collection of small cement plants by the end of 2010 and from the recently announced 4 trillion RMB stimulus program by the PRC government. We expect that this program will result in increased demand for cement and may increase commodity price for cement.

At $1.40 the stock is selling at a significant discount to its book value per share of $4.91, which may turn out to be a gift,  if  China Shuangji can begin to exhibit even mediocre earnings per share growth.

We have requested an interview with management.