Xinyinhai Tech (OTC BB:XNYH)

Re-pricing of risk premium

Via a 10Q filing Today, Xinyinhai Tech Ltd reported dismal 2009 third quarter results. Sales declined 38.7% to $1.9 million and EPS fell 66.7% to $0.01.  There was weakness in both of its product lines.

Equipment distribution business

"The current global recession has reduced demand for capital goods in China. Our revenue during the three months ended September 30, 2009 decreased by 39% to $1,921,858 from $3,143,423 achieved during the three months ended September 30, 2008. The decrease was most dramatic in our equipment distribution business, where revenues declined from $857,892 during the third quarter of 2008 to $224,422 during the third quarter of 2009.

The decline in equipment distribution reflected delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The future of this business segment will depend, in part, on the success of the recent economic stimulus initiated by the Government of China."

Printing business

"During the three months ended September 30, 2009, the revenue from our printing business decreased by 26% to $1,697,436, compared to $2,285,531 during the same period of 2008. The decline occurred, in part, due to the weakening of the Chinese banking industry, as many of our customers are conserving cash pending stabilization of the international credit markets. The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008, which interfered with our printing business."

There are two glimmers of hope

1. Xinyinhai Tech anticipates an improvement in the outlook of its print business which has higher margins than its equipment distribution business:

"Today, however, our new facility is fully operational, and we expect the traditional growth of our printing business to be renewed."

 2. The 10Q also shed light on its expansion plans:

"Our business plan calls for significant investment during the next twelve months. We plan to purchase new equipment for our new production facility. We also plan to invest in the development of additional product lines. To accomplish those goals, during the third quarter of 2009, we obtained a $2.9 million bank loan collateralized by our real property. We will utilize the borrowed funds to implement the capital improvements necessary for our growth."

Due to the stock selling under its book value per share of $0.59 and its receipt of financing, we will still code XNYH as a GeoSpecial, albeit not with the greatest degree of confidence. At these prices it seems worth hanging on to for a quarter or two as the China stimulus plan is still in full force.

Note: We are concerned that the Company has yet to respond to our multiple interview requests.