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Good question, pre market down 20%! Maj, pls respond, thx.

has there been a response from geo regarding VALV press release?

I think we'd be remiss to count on either a buyback or a negotiation with warrant holders from VALV. The management has made it very clear that they don't care what shareholders think and that they will manage the company how they want to with no influence from outside input. 

The cash on the balance sheet will likely be used for operating flexibility going into a tough environment and to finance any further expansions via additional machinery and additional facilities. It may appear as if the company has a large cash balance, but I hear financing in China is hard to find nowadays and it would make sense for them to hold surplus cash if this is true. 

If the company we're to seriously consider doing a share buy back, it'd be in their best interest just to take the whole company private again so they didn't have to concern themselves with American shareholders, fraud drama, and etc. Plus, doing their offerings between $5-8 per share and buying the shares back at $2 wouldn't be a bad deal. 

Given the supposed tough loan environment, coupled with their new announcement of lower-than-expected revenues for 1Q2012, I wouldn't bet on a share repurchase anytime in the near future. That being said...it is likely that all of the warrants issued to the executives and employees over the last year or two will expire worthless which should help some. 

Walrus.  Here is a quote from our original Shengkai Innovations (NASDAQ:VALV) piece:

At this point we are willing to conservatively price VALV’s shares using a P/E of 3 to 5 on analyst estimates.

• Worst Case Valuation Scenario Based on 2011 June EPS estimate of $0.93: $2.79 to $4.65

• Worst Case Valuation Scenario Based on 2012 June EPS estimate of 1.23: $3.69 to $6.15

end quote

The top end of the target will depend on whether or not the company can get through dilution from warrants at $3.50. The company should strike a deal with warrant holders or buy back stock to counter dilution.  A buy back with verbiage indicating that part of the reason for the buy back is to prepare for such dilution might be an interesting approach that could be viewed positively by the market.  Mitigating warrant risk could also increase the probability that Shengkai Innovations (NASDAQ:VALV) could receive some going private proposals.

I believe we do have some more DD on Shengkai Innovations (NASDAQ:VALV) from our team.  The challenge will be the verification of margins, since price points of their products varies widely.  However, the fact that their net income is ranked high in the geographic region they operate helps us surmise that margins are high.

The high end target will also depend on whether the company passes its fiscal 2011 audit and whether it upgrades auditor for the future.

White tiger ..It sure seems with a little more DD ,you certainly could make a ton of money if Valv is on the up and up..Since you have done most of the work so far go ahead and dig some more...Its trading at a crazy low price..shouldnt this be about a 6 dollar stock???

Zach...

Looks you are right, Here is a passage from 10K.. (remember that Shengkai Innovations (NASDAQ:VALV) is a VIE)

•  
• Technology Service Agreement
•  
• The Technology Service Agreement, among SK WFOE, Shengkai, and all of the shareholders of Shengkai, provides that SK WFOE will provide technology services, including the selection and maintenance of Shengkai’s computer hardware and software systems and training of Shengkai employees in the use of those systems. SK WFOE will also provide research and development into new formulations of ceramics and methods that will increase the toughness and machinability of ceramics, raise manufacturing ceramic materials burn rate and lower sintering temperature, and lower production costs. The agreement also provides that SK WFOE will train Shengkai’s staff to increase productive use of the new equipments and increase Shengkai’s overall production capacity.
•  
• As consideration for such services, Shengkai will pay a technology service fee to SK WFOE equal to 1% of Shengkai’s annual revenue. The technology service fee for each year is due by January 31 of the following year. The term of the agreement is until SK WFOE acquires all of the equity or assets of Shengkai.

So the 1% looks like it would end up in SGA.. But we still get an idea of how much money would be available for R&D.  We will check the WOFE filings to see if they jive with this statement. 

More statements form 10K

We believe that Shengkai is the one of the few ceramic valve manufacturers in the world with research and development, engineering, and production capacity for structural ceramics and is the only valve manufacturer in China who is able to produce large-sized ceramic valves with calibers of 150mm or mor

Anthony Davian ("The Davian Letter") posted on July 20th 2011 some comments about VALV:
  http://davianletter.com/blog/2011/7/20/s1-fun-valv

He defines this company a "complete mess" but according your report it's a very promising firm.

The most interesting sections are "Winner Winner Chicken Dinner recipe" and "No Research and Development Expense?".

I'd like to hear your opinions about the Davian's post. Thanks!