Yongye Intl (NASDAQ:YONG)

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Yongye International produces and markets two lines of organic nutrient products: a liquid nutrient product which is sprayed on plants and a powder nutrient product which is added to animal feed. Shares of Yongye have been on the upswing following Morgan Stanley’s Asian private equity arm’s $50 million investment in the chemi- cal manufacturer.

"We believe this transaction will not only provide us with the financial resources to expand our operations to meet the growing demand for our Shengmingsu agricultural nutrient products but also will further enhance our corporate governance," Yongye’s Chairman and CEO Zishen Wu said in a statement. Last month the company said that first quarter revenues more than doubled year-on-year due to an expanded distribution network, deeper penetration in existing market and the significantly enhanced market recognition of its products.

On the surface, YONG’s significant surge in revenues appears amazing. The issue is that a people don’t trust the earnings following Absaroka Capital Management’s scathing review of YONG. Yongye instantaneously respond- ed calling the allegations a "faux report". To Yongye’s credit, their rebuttal addressed every allegation set forth by Absaroka.

Yongye believes that Absaroka’s analysts and or the parties that have hired or are affiliated with them have en- gaged in reckless attempts to negatively influence trading in Yongye’s securities for their financial benefit. Given the number of ill-founded assertions in these articles we will confine our comments to those issues that are most egregious.

Morningstar on YONG (April 15, 2011)

We are putting our fair value estimate for Yongye YONG under review while we reassess our valuation methodology. We acknowledge the market sentiment against Yongye and similar reverse-merger micro-cap Chinese companies has grown markedly negative since our update in March, particularly after a few Chinese companies were becoming prime targets for short-sellers on the ground of potential fraudulent activities in their financial reporting and/or operations. We are evaluating our valuation methodology for Yongye, and are planning to incorporate addition weights on downside probability analysis in our methodology. Although Yongye has become free cash flow positive since 2010, its management's silence on the particular negative market sentiments and the lack of decisive responses (like announcing a stock buyback plan similarly executed by China Gerui CHOP, or initiating a concrete dividend plan after meeting stated earnings criteria) have not helped the market alleviate these concerns. While we plan to adjust our fair value estimate, we think the current share price reflects an ongoing wariness about the risk/reward mix of the company.

Rodman on YONG

Termination of Coverage Effective immediately, we are terminating coverage of Yongye International Inc. (“Yongye”) to allocate resources more efficiently within our coverage universe. Upon termination of coverage, any of our prior financial projections on Yongye should not be considered reliable.

Rating Yongye was last rated Market Outperform with Speculative Risk.

Company Description Headquartered in Beijing, Yongye International is a Chinese manufacturer and distributor of fulvic acid based liquid and powder compound nutrients for plants and animals. The company conducts its main production operations in the city of Hohhot, Inner Mongolia and sells its products under the brand name of “Shengmingsu.” The company was first listed on the OTCBB market in April 2008 and is currently trading on the Nasdaq Global Select Market under the ticker symbol of YONG.

Recent Financials On March 14, 2011, Yongye announced its 4Q10 financial results. Revenue for the quarter was $28.0 million. Gross profit came in at $14.9 million. Non-GAAP net income was $7.4 million, representing diluted EPS of $0.15. At the end of 2010, the company had $42.0 million of cash and restricted cash, against $0.4 million of long-term debt.

On April 11, 2011, Yongye announced it had realized $50.2 million of preliminary revenue for 1Q11. It also indicated that it had 26,006 independently-owned branded stores in its network as of March 31, 2011. For full year 2011, the company continued to expect revenue to be between $315 million and $325 million and non-GAAP net income to be between $80 million and $82 million. It had a year-end target of at least 30,000 independently-owned, branded stores selling its Shengmingsu products.

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.

Reasons for significant Roth Downgrade:  

• Sales weakness in the channel
• concerns on its intensive working capital needs
• uncertainty around the coal mine project.

Slashes

• 2011 EPS estimate to $1.20 from $1.65 vs. 2010 EPS of $1.20.
• 2012 EPS estimate to $1.47 from $2.33
• Price target from $15.00 to $5.80
  

Rodman and Renshaw on YONG                                                3/15/2011

Strong 4Q10 Earning Results

4Q10 results

Yongye International (“Yongye”, Ticker: YONG, Market Outperform) reported its 4Q10 results that were across-the-board higher than our previous estimates. During this seasonally light quarter, revenue was $28.0 million, up 177.0% YoY and well above our estimate of $18.2 million, set based on the company’s guidance at the end of Q3. An increase in quantity sold in the company’s traditional and new markets and higher sales prices in Hebei province were the major contributors for this increase in revenue. Gross profit reached $14.9 million, up 176.1% YoY and above our estimate of $10.7 million. Non-GAAP net income for the quarter was $7.4 million, also above our estimate of $4.2 million. Diluted non-GAAP EPS for the quarter was $0.15, higher than our expectation of $0.09.

On the margin front, actual gross margin was 53.2%, while flat from a year ago, was well below our estimate of 58.8%. Management cited a $0.7 million non-cash expense item related to the amortization of the acquired Hebei customer list as a reason for the lower gross margin. However, even when we added back this item to the calculation, the resulting gross margin of 55.6% would still be below our estimate. Because of this, we are taking a somewhat more conservative approach in forecasting the company’s gross margin for 2011. Operating expenses, which were a major issue during the previous quarter, were again high. Selling expenses during the quarter were $4.0 million, slightly above out estimate of $3.5 million. G&A excluding stock compensation expenses were $2.7 million, considerably higher than our estimate of $1.6 million. Only the relatively minor R&D expenses of $0.3 million came in below our estimate of $0.4 million. The company did receive $1.3 million of government subsidy during the quarter however, which helped it achieve a non-GAAP net margin of 26.5%.

At the end of 2010, Yongye had $42.0 million of cash and restricted cash as well as $0.4 million of long-term debt.

Full year 2011 guidance issued

Management issued its 2011 financial guidance. The company expects to realize $315-$325 million of revenue and $80-$82 million of non-GAAP net income. It also has a year-end 2011 target of 30,000 independently-owned, branded stores selling its Shengmingsu products.

Maintaining Market Outperform rating and $16 price target

We are by and large satisfied with Yongye’s 4Q10 performance and expect the company will continue to deliver strong earnings for the upcoming quarters. Thus we are maintaining our Market Outperform rating and $16 price target on the shares of Yongye. We now expect the company will report 2011 revenues, gross profit, and diluted non-GAAP EPS of $324.0 million, $185.9 million, and $1.64, respectively. Our $16 price target is based on the shares of Yongye trading at 10x our estimate 2011 EPS, representing a PEG of 0.2.

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 YONG                 1/05/2011

Positive Cash Flow Announcement Implies Above-Expectation 4Q10 Performance 

Yongye International (“Yongye”, Ticker: YONG, Market Outperform) announced this morning that the company achieved positive cash flow from operations for 4Q10 as well as accounts receivable improvement as of year-end 2010. For 4Q10, Yongye collected a total of $77.0 million in cash, and at the end of the year, the company had $25.7 million in accounts receivable, down significantly from the $75.6 million accounts receivable at the end of 3Q10.

We are encouraged by this announcement as we believe it will address some of the ongoing Street mumbling regarding the company’s cash flow. Perhaps more interestingly, the announcement implies that the company realized between $26 to $27 million of revenue for 4Q10, which is significantly higher than Street consensus of $17.9 million as well as our estimate of $18.2 million, which were set based on the company’s guidance at the end of Q3.

We reiterate our Market Outperform rating and $16 price target on the shares of Yongye. Our $16 price target is based on the shares of Yongye trading at 10x our estimate 2011 EPS, representing a PEG of 0.7.

Major risks to our rating and valuation include the company's dependency on a limited number of raw material suppliers, risk of new competitors having greater access to resources, frequent interventions by the government in the fertilizer market, potential adverse weather conditions, as well as political 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 yong

3Q10 results above expectations 

Yongye International (“Yongye”, Ticker: YONG, Market Outperform) reported its 3Q10 quarterly earnings results that were above both our estimates and Street consensus. Sales revenue for the quarter was $71.8 million, up 145.1% YoY and well above Street consensus of $55.3 million and our Street-high estimate of $57.1 million. Gross profit was $42.1 million, up 165.8% YoY and above our estimate of $32.0 million. Non-GAAP net income for the quarter was $18.3 million, slightly below our Street-high estimate of $18.9 million, but higher than the consensus of $17.0 million. Diluted non-GAAP EPS for the quarter was $0.39, in-line with our expectation, but above the $0.35 consensus. 

 On the margin side, gross margin increased 460bps YoY to 58.7%, above our estimate of 56.0%, and was primarily a result of increasing economies of scale and gross margin improvement in Hebei following the company’s distributor acquisition. (For more details of the acquisition, please see our note published on June 22.) Operating margin however, came in at 29.0%, clearly below our 40.8% projection. The lower than expected operating margin was largely due to a whopping $15.6 million selling expenses item that included $6.5 million of advertising expenses related to running ads on China’s national television network and $4.7 million of training expenses for branded store owners, distributors, and staff education, according to the company. As a result, non-GAAP net margin was 25.5%, below our estimate of 33.1%. 

At the end of the quarter, Yongye had $25.0 million of cash and $0.4 million of long-term debt. DSO was 82 days during the quarter. Operating cash burn was 0.2 million. However it was an improvement from a negative operating cash flow of $1.1 million a year ago.

Full year 2010 guidance increased 

Considering that Yongye has achieved its previous full year guidance of $180-$185 million of revenue and $48-$50 million (raised from $42-$45 million) of adjusted net income during the first three quarters, it was no surprise that the company increased its full year 2010 guidance. It now expects revenue for the year will be between $200 million and $205 million; adjusted net income will be within the range of $50 million to $52 million; and diluted EPS will reach between $1.07 and $1.12. Management also increased its year-end target number of independently owned, Yongye-branded stores to 24,000 from the previous guidance of 23,000. In addition, the company continues to expect to achieve at least a 50% annual revenue growth in 2011 and 2012.

3Q10 results above expectations 

Yongye International (“Yongye”, Ticker: YONG, Market Outperform) reported its 3Q10 quarterly earnings results that were above both our estimates and Street consensus. Sales revenue for the quarter was $71.8 million, up 145.1% YoY and well above Street consensus of $55.3 million and our Street-high estimate of $57.1 million. Gross profit was $42.1 million, up 165.8% YoY and above our estimate of $32.0 million. Non-GAAP net income for the quarter was $18.3 million, slightly below our Street-high estimate of $18.9 million, but higher than the consensus of $17.0 million. Diluted non-GAAP EPS for the quarter was $0.39, in-line with our expectation, but above the $0.35 consensus.

On the margin side, gross margin increased 460bps YoY to 58.7%, above our estimate of 56.0%, and was primarily a result of increasing economies of scale and gross margin improvement in Hebei following the company’s distributor acquisition. (For more details of the acquisition, please see our note published on June 22.) Operating margin however, came in at 29.0%, clearly below our 40.8% projection. The lower than expected operating margin was largely due to a whopping $15.6 million selling expenses item that included $6.5 million of advertising expenses related to running ads on China’s national television network and $4.7 million of training expenses for branded store owners, distributors, and staff education, according to the company. As a result, non-GAAP net margin was 25.5%, below our estimate of 33.1%.

At the end of the quarter, Yongye had $25.0 million of cash and $0.4 million of long-term debt. DSO was 82 days during the quarter. Operating cash burn was 0.2 million. However it was an improvement from a negative operating cash flow of $1.1 million a year ago.

Full year 2010 guidance increased 

Considering that Yongye has achieved its previous full year guidance of $180-$185 million of revenue and $48-$50 million (raised from $42-$45 million) of adjusted net income during the first three quarters, it was no surprise that the company increased its full year 2010 guidance. It now expects revenue for the year will be between $200 million and $205 million; adjusted net income will be within the range of $50 million to $52 million; and diluted EPS will reach between $1.07 and $1.12. Management also increased its year-end target number of independently owned, Yongye-branded stores to 24,000 from the previous guidance of 23,000. In addition, the company continues to expect to achieve at least a 50% annual revenue growth in 2011 and 2012.

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.

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.