Just read this...Greenberg's take at the bottom makes sense imo. http://www.cnbc.com/id/42106037

You referring to Harbin Electric (NASDAQ:HRBN)? No , I am not long this name..

Are you still long here? I noticed put volume is pretty high this month with earnings coming out.  Is it possible they're trying to sell a company, knowing its books are exaggerated?

The things metioned above pure belong to concoctive, does not  not consort with the facts.

Dear Shareholders: Rudy formed TXIC through AAAC (his own company). He worked five years before AAAC acquired HNTX. He was the one who raised the capital for the acquisition. He will not do anything to hurt the business. The business model for TXIC is to grow the company through organic growth or through acquisitions. HNTX local management are the ones managing the business. There are no wrong operation by Rudy. The operations are ran by HNTX local management. They pushback on implementing internal controls, repeatedly influence policy to favor their related parties by taking millions from the company. The only issue with the 2009 Form 20F is the related party transaction with Meihua Bus of $7.7M, how can any transactions take 6 months to figure out by forensic accountants? HNTX local management’s only intention currently is take control of the TXIC board so they can continue their doing and no one can stop them.

by Maj Soueidan, President GeoInvesting

Over the last couple of weeks I have written several articles regarding an attempt by ChinaHybrids to regain their lost glory. I have talked about how investment banks are finally beginning to perform proper due diligence. I have talked about companies beginning to enact shareholder friendly moves such as stock buyback programs and the release of EPS guidance. Finally, we witnessed instances of companies’ desires to potentially go private. The next logical step in the purification process is to realign company participants with shareholders' goals. This brings us to Tongxin Intl Ltd Com (PINK:TXIC).

Tongxin was at one time listed on the NASDAQ, but has now joined the graveyard of companies on the Pink Sheets. At a time when investors desire quality, the Pink Sheets is the wrong place for a ChinaHybrid firm to trade.  Since July 15, 2010, the company’s reputation has been tarnished by allegations that money has been inappropriately siphoned off to interests other than TXIC, and specifically to a company that has ties to TXIC China-based management.  The good news is that according to my sources this indiscretion has not jeopardized Tongxin’s future.  However, my source does assert that the future of the company’s shareholders are clearly in jeopardy due to an unwillingness of the majority of the current Board of Directors to take steps to bring TXIC back into the good graces of investors. My source has speculated that the current board is corrupt and content with treating TXIC as a private company. This means no more SEC filings, no improvement in internal controls, not addressing the related party transaction issue and an eventual lack of communication with investors.

Hope for Retribution does Exist

If you desire to remain a TXIC shareholder you do have an option to influence the future of the company. You must replace the current Board with individuals who may be better aligned with investors’ interests. As it stands now, I am told that the current board is not cooperating with attempts by  Jackie Chang, CFO and Rudy Wilson, CEO to take necessary steps to bring TXIC back into compliance with the SEC. Rumors have been circulating that the current Board is plotting an imminent attempt to oust Mr. Wilson and Ms. Chang from their positions within the company. In response to this rumored coup, Rudy Wilson has drafted a Shareholder Rights Resolution that would unseat current Board members and replace them with individuals who he feels would be more shareholder friendly. In order to pass the resolution, 51% of TXIC shareholders must approve it. Currently, my source told me that he has around 35% shares in favor of Rudy’s proposal. He also assured me that if the resolution is approved, TXIC would be led by a team who would:

• File a 2009 20F
• Stay current with SEC filings
• Discuss the declaration of a dividend
• Address related party transaction issues
• Improve internal controls
• Become Sarbanes-Oxley compliant
• Take steps to re-list TXIC on the NASDAQ 

Time is of the Essence

I have been told that the current Board will attempt to oust Jackie and Rudy any day now; before the Annual Shareholders meeting scheduled for December 16, 2010. As a TXIC shareholder, you have two choices

1. You can maintain your support for the current Board that has very little ownership stake in TXIC, or
2. Make a calculated gamble on a team of individuals that claims to have a clear vision on TXIC’s responsibility as a U.S. listed public company.

If you choose the latter of the options, you will also be sending a message to other companies in similar predicaments; the ultimate goal is to clean up the China Hybrid space. As a leader in the cause to bring transparency and trust back to the ChinaHybrid space, GeoInvesting encourages investors to immediately email Rudy Wilson to review a copy of the shareholder rights resolution. It estimated that investors have only 20 hours to proclaim their support of the resolution.  The quicker shareholders respond, the less chance there is for the current board to undermine Mr. Wilson’s initiatives.

    Mr. Rudy Wilson, CEO
    Tel:   +1-248-593-8330
    Email: rudy@txicint.com

Disclosure: No position in TXIC

Disclaimer:

You acknowledge that GeoInvesting is not registered as an exchange, broker-dealer or investment advisor under any federal or state securities laws, and that GeoInvesting has not provided you with any individualized investment advice or information. Nothing in the website should be construed to be an offer or sale of any security. You should consult your financial advisor before making any investment decision or engaging in any securities transaction as investing in any securities mentioned in the website may or may not be suitable to you or for your particular circumstances.  We have not expressed an opinion on the information provided to us in this article, nor have we verified the accuracy or existence of claims made by our "source." 

ChinaHybrids^TM and short-sellers have been in a heated battle throughout most of 2010. We can all agree that the shorts, with a little help from a fear driven market, won round one. Who will win round two? On November 2, 2010 I mentioned that,

“recent events have led investors and investment banks to perform deeper due diligence, resulting in aggressive funds flow across the board, a short-term dagger thrust into the portfolios of many pessimists.” (Limit Risk While You Invest in ChinaHybrids)

In addition to share buy-backs as well as attempts by firms to improve internal controls and 2011 EPS outlooks, the possibility of going private transactions could shove this dagger even deeper into the portfolios of blood thirsty short-investors.

Two companies have recently announced intent to possibly take their companies private.

Harbin Electric (NASDAQ:HRBN)

The company announced that its Board of Directors has received a proposal letter from its Chairman and Chief Executive Officer, Mr. Tianfu Yang and Baring Private Equity Asia Group Limited for Mr. Yang and an investment fund advised by Baring to acquire all of the outstanding shares of Common Stock of Harbin not currently owned by Mr. Yang and his affiliates in a going private transaction for $24.00 per share in cash, subject to certain conditions.

See more

Fushi Copperweld (NASDAQ:FSIN)

Fushi Copperweld, Inc. today announced that its Board of Directors has received a proposal letter from its Chairman and Chief Executive Officer, Mr. Li Fu ("Mr. Fu") and Abax Global Capital (Hong Kong) Limited on behalf of funds managed by it and its affiliates ("Abax") for Mr. Fu and Abax to acquire all of the outstanding shares of Common Stock of Fushi not currently owned by Mr. Fu and his affiliates in a going private transaction for $11.50 per share in cash, subject to certain conditions.

See more

A third company, Bmp Sunstone (NASDAQ:BJGP), announced that it actually received a takeover offer.

See more

If these transactions materialize, round two becomes very intriguing. The shorts could get slaughtered in what could become an irrational surge in ChinaHybrid stocks as investors speculate which company will be next to go private. This scenario becomes more venomous if stocks that the shorts have actually accused of being fraudulent go private. Their “rationale” will undoubtedly include, "well this does not prove anything since companies have already fooled investors and received the cash from equity offerings. They still lied and are frauds. "

But in a game of speculation does this really matter? Even if these firms are smaller than SEC filings indicated, current P/E multiples may make going private an attractive option. For example, if a company's P/E should be 10 as opposed to a 3 multiple based on SEC reported EPS, it could still attract suitors. Worse yet for the shorts, if tax fraud is the main elephant in the room then the probability of private buyouts heightens until P/E multiples rise.

Can we blame under loved companies for choosing this route and avoiding the legal hassle of being a U.S. listed company? Legitimate firms, whether or not supported by SEC flings, can at some point in their lifespan go private and re-IPO at higher multiples in China, where income tax fraud and “facilitation” fees are cultural. If equity growth capital has already been raised, the incentive to go private increases.

Although rising tides lifts all ships, investors who want to play this angle should look for the companies:

1. where investment banks have completed updated due diligence procedures
2. that have allowed investment banks to independently view bank statements
3. that are buying back stock
4. with healthy cash balances
5. with strong operating cash flow
6. that have already raised money sufficient for growth plans
7. with a positive cash ratio
8. with a positive current ratio
9. battling fraud allegations or financial statement problems
10. with high short interests

Before we get too excited, keep in mind that the HRBN and FSIN transactions still need to materialize. In fact some investors have already expressed doubts about the consummation of an HRBN transaction.  It will be interesting to observe if more firms consider going private before 2010 year end audits are completed.

Global Hunter agrees:

"On a more macro scale, we would expect to see more LBOs/MBOs in the US listed China space in the near future, as more of the companies’ management teams get discouraged with public market valuations and private equity firms realize the potential value in these names."

Disclosure: Long HRBN

We will still continue our due diligence into the SAIC/SAT vs.SEC filings issue.  Many questions still remain open, but we intend to profit from the change in market sentiment for as long as we can.

Disclaimer

You agree that you shall not republish or redistribute in any medium any information on the GeoInvesting website without our express written authorization. You acknowledge that GeoInvesting is not registered as an exchange, broker-dealer or investment advisor under any federal or state securities laws, and that GeoInvesting has not provided you with any individualized investment advice or information. Nothing in the website should be construed to be an offer or sale of any security. You should consult your financial advisor before making any investment decision or engaging in any securities transaction as investing in any securities mentioned in the website may or may not be suitable to you or for your particular circumstances

Maj good article. I have broaden my horizon and I think China & Commodities are the bets for the coming years.

The last months I have been busy to look for undervalued mining companies on the TSX.  

Companies like

Goldgroup Mining, Impact Silver, Great Panther Resources, Genco Resources are on my list. Totally something different. But risk diversification is the most important issue nowadays.

Despite that I think Chinese companies have a bright future and I am still looking for bargains.

The end of December I go to visit my wife's family in Mexico so I plan to visit some of these silver/gold mines. All of the companies mentioned above have all their mining activities there.

Greetz,

Dutch Trader 

Johan

The Netherlands 

Thursday, November 4, 2010, 11:00 AM ET -

by Maj Soueidan, President GeoInvesting

It finally happened. The China Hybrids universe reached valuation levels that were able to convince investors to take a chance on a sector that has been priced to fail or as some say properly placed if companies are much smaller then they claim to be. Whatever the case, many investors are banking that it can't get much worse.  If you feel comfortable using SEC filings as a guide, from a pure valuation stance ChinaHybrids are cheaper than they have ever been, even after the recent rise.  One by one, deeply discounted stocks are beginning to make moves from their bottoms, ignoring bad news and pricing P/Es away from failure.

I will participate in this rally for as long as it lasts. Some of the direct strategies I have been employing include:

• Day trading "hot" IPO's on the day of the offering such as Chinacache Intl Adr (NASDAQ:CCIH), Mecox Lane Limited (NASDQ:MCOX) and Tal Education (NYSE:XRS).
• Establishing short-term positions in IPOs that have underperformed such as Tianli Agritech (NASDAQ:OINK) and Daqo New Energy Corp (NYSE:DQ)
• Look for underperforming stocks in outperforming sectors. We were looking at China Wind Systems Inc (NASDAQ:CWS), but a shelf filing has made us tepid.
• Identifying new companies that have not been found by wall street. I am looking at China Electronics (OTC BB:CEHD) Huifeng Bio-Pharma Tech (OTC BB:HFGB) and Eastern Environment Sols (OTC BB:EESC).
• Keeping tabs on new reverse mergers, especially when EPS targets are present as part of the deal. Sino Oriental (OTC BB:SMPN).
• Identifying companies that are addressing corporate governance concerns, such as Renhuang Pharmaceuticals (NYSE AMEX:CBP). The hope is that these stocks will experience P/E expansion once issues are resolved.
• Tracking firms that have received debt financing, based on the assumption that banks will perform extensive due diligence before loan approval. Telestone Technologies (NASDAQ:TSTC).
• Taking a look at fallen angle IPO's of the past that are attempting to reestablish an identity. Lj Intl (NASDAQ:JADE), Cdc Corp Cl A (NASDAQ:CHINA), China Techfaith Wireless Adr (NASDAQ:CNTF).
• Look for stocks where short interest is high. 
• Considering companies with attractive valuations compared to EPS growth, especially if they have been shareholder friendly such as China Mediaexpress Holdin (NASDAQ:CCME) and Deer Consumer Products (NASDAQ:DEER):
  
  • Have approved stock buy programs
  • Considering stocks where insider buying/institutional buying is significant
  • Considering stocks where EPS guidance exists 

Tier one stocks, CCME and DEER, have made impressive moves from this last category. Tier one stock New Energy Systems (NYSE AMEX:NEWN), has yet to stage a significant rally.

Riskier investors may want to devote a small portion of funds across a diversified list of names that have come under serious fire, especially if you choose to embrace SEC documents. This is where some of the biggest moves could occur, but it is risky. (I have not actively explored this plan, but call options may be a nice way to approach this strategy).

China-Biotics (NASDAQ:CHBT) - What happened to my retail operation.
Duoyuan Printing (NYSE:DYP)- Won't show the Quan.
China Sky One Medical (NASDAQ:CSKI)- PRC Govt. getting involved; Loses customers.
Fuqi Intl (NASDAQ:FUQI) - Aggressive accounting practices; Being investigated by the SEC.
China Green Agriculture (NYSE:CGA)- Won't disclose seller of recent acquisition.
China Yida Holdings (NASDAQ:CNYD) - Wants to become Sarbanes-Oxley compliant.
Tongxin Intl Ltd Com (PINK:TXIC)- Where did the money go?
Wonder Auto Tech (NASDAQ:WATG)- The shorts just found this one.
Orient Paper Inc (NYSE AMEX:ONP) - What is taking so long? Results of an investigation by the Audit Committee are around the corner.

On the same front, we will not fall in love with stocks in what should be an emotionless game. There is still risk in this space. Companies like CEHD still retain under loved auditors such as Kabani; this baffles me. You have basically begun digging your own grave. EESC must amend its past financial filings. In any event, the key to play this space is to find a way to participate in the universe without having its potential dissemination destroy portfolio returns.

Rules I am following to limit risk:

• Limiting my ChinaHybrid portfolio exposure to no more than 25.0% to 30.0%. I was easily close to 90% China in 2009, which certainly paid off. But I currently see ample opportunities in the U.S. market that I believe will help me achieve returns similar to if I was 100% in China. Since November 2009, I have mentioned my intent to reduce China portfolio exposure on numerous occasions.
• Limit risk by cycling into cheap stocks that have not yet moved, while lightening up on ones that have made aggressive moves. The more aggressive the move, the more likely that shorts will climb aboard.
• My positions in individual Chinese names are not as large as in the past.
• Establish a strict discipline on a portion of my holdings, such as selling when a stock has increased 20.0% from my entry point. Do this three and half times and you have doubled your money.

As quality is restored to the space, I will consider adding ChinaHybrid exposure to my portfolio. If you are a gun slinging cowboy, as I normally am, then a big bet on ChinaHybrids now could make you the talk of town, but recent events have humbled my ego.

To help investors with their due diligence, I have included a few screens with personalized thoughts.

-Stock Buy Back
-Companies with EPS guidance
-China stocks on our radar

Please see related article

Disclosures: Long at the time of this article; OINK, CWS, EESC, CBP, DEER, NEWN, HFGB, ONP calls

Disclaimer

You agree that you shall not republish or redistribute in any medium any information on the GeoInvesting website without our express written authorization. You acknowledge that GeoInvesting is not registered as an exchange, broker-dealer or investment advisor under any federal or state securities laws, and that GeoInvesting has not provided you with any individualized investment advice or information. Nothing in the website should be construed to be an offer or sale of any security. You should consult your financial advisor before making any investment decision or engaging in any securities transaction as investing in any securities mentioned in the website may or may not be suitable to you or for your particular circumstances.

Here are some U.S.companies we are actively tracking ahead of 2010 third quarter press releases. We believe they may have a good chance to eclipse analyst estimates or are about to experience an acceleration in EPS growth.

Asbury Automotive (NYSE:ABG) (see alerts) *Price: ABG $14.78

• The Industry leader
• Expected to achieve three quarters of 30% + growth of EPS.
• Revenue growth will only average about 11% in 2011
• EPS growth begins trailing off in second quarter 2011
• With revenues of ~$4 billion dollars it is outside our wheelhouse
• We are curious to see if this automobile retailer will surprise the street as economy improves 
• Our fair value target if estimates are achieved- $17 to $26

Addvantage Techs Group (NASDAQ:AEY) (see alerts) *Price: $3.25

• Two back-to-back quarters of strong sales and EPS growth
• Still holding short term trading position
• Company has had sporadic EPS history
• Benefiting from cable companies initiatives to upgrade their equipment to provide HD programming. Do not know how long trend will continue.
• Weak economic conditions have caused many customers to delay plant expansions. This is a short term negative that could turn into a positive surprise as economy improves.
• Selling below book value of $3.18

Alpha Natural Resources (NYSE:ANR) (see alerts) *Price: $44.50 (Coded as a GeoSpecial @ $42.99)

• Expected to achieve  six consecutive good quarters of 70% + EPS growth
• Revenue growth will average about 11%
• With revenue of ~ $4 billion dollars it is outside our wheelhouse
• We like to track this company because it has indirect exposure to China

A T Cross A (NASDAQ:ATX)  *Price: $5.98

• Mundane industry
• Revenue growth will be meager at 5% for next several quarters
• Selling below book value of $6.36
• Recently raised guidance
• Buying back a significant amount of stock. Analyst estimates probably do not account for this, which could lead to upside EPS surprise.
• EPS estimates for 2011 are calling for 28% growth

Axt (NASDAQ:AXTI) (see alerts)  *Price: $6.54 (Coded as a  GeoSpecial @ $5.20)

• EPS growth of at least 50% for next three quarters
• Only one quarter of next six is sub par. Second quarter of 2011 is flat
• Has history of exceeding estimates
• Products are a direct beneficiary of smart phone craze.
• Outlook is strong
• Targeting high growth areas in technology sector: Wireless, fiber optic and solar industries
• Paying very little taxes
• Believe it is close to short-term fairly valued on a fully taxed basis. Long-term target $9.00

Nanometrics (NASDAQ:NANO) (see alerts) *Price: $13.01  (Coded as GeoSpecial @ $12.07)

• Has pulled back after a steady rise from when coded as a GeoSpecial at $12.07
• Products are a direct beneficiary of smart phone craze
• After third quarter, only two above average growth quarters left. Will need to report a spectacular quarter to gain momentum.
• Second quarter conference call was extremely bullish
• Agressive target- $17.00

Blonder Tongue Labs (NYSE AMEX:BDR) (see alerts) *Price: $2.35 (Coded as GeoSpecial @ $1.84)

• Company is benefiting from a transition in its business plan, where it is switching its product offering from analog to digital.
• Second quarter was break out quarter
• Momentum is expected to continue through the rest of year
• Stock is selling below book value of $3.37
• Company is not paying taxes
• Minimum short-term target of $6.00

Intest (NASDAQ:INTT) (see alerts) *Price: $3.07

• Major customers are semiconductor companies. This can lead to volatile quarters.
• After 11 straight quarters of losses the company has put together three consecutive sequentially profitable quarters in a row.
• Comments suggest that semiconductor cycle is in an uptrend.
• 2010 second quarter was a dramatic quarter. We were unable to gauge if these levels will be maintained.
• Conference call was bullish, but tempered.
• Guidance for the 2010 third quarter is wide, but still implies strong comps.
• Any talk of sustained optimism could send this stock to much higher levels.
• Not taxed
• Agressive short-term target if EPS targets are met- $6.40

Magic Software Entrs (NASDAQ:MGIC) (see alerts) *Price: $2.59

• Cloud computing
• Has experienced three consecutive quarters of dramatic EPS growth.
• No guidance
• Fourth quarter will be a tough comp.

Amtech Systems (NASDAQ:ASYS) (see alerts) *Price: $17.35  (GeoSpecial @ 11.27)

• Has pulled back after a steady rise from when coded as a GeoSpecial at $11.27.
• Second quarter was extremely bullish
• Contract backlog is at record high, given us some confidence that estimates can be exceeded.
• Three of the next 5 quarters are expected to show impressive growth. A lull is expected to occur in the second quarter of its fiscal 2011 second quarter.
• Fiscal third quarter conference call was extremely bullish.

Orbit Intl (NASDAQ:ORBT) (see alerts) *Price: $3.29

• We are still waiting for ORBT to turn the corner. Which could still be one quarter away.
• Could be a nice sleeper stock once it turns this corner

Whx Corporation (NASDAQ:WXCO) *Price: $10.37

• New on our radar due to a huge 2010 second quarter.
• We are not sure if the quarter is repeatable, since no guidance was provided and securing an interview has been difficult.
• Eager to see if 2009 third quarter financials will continue trend 
• No analyst coverage

*Prices are as of business close on Friday, October 22, 2010

You agree that you shall not republish or redistribute in any medium any information on the GeoInvesting website without our express written authorization. You acknowledge that GeoInvesting is not registered as an exchange, broker-dealer or investment advisor under any federal or state securities laws, and that GeoInvesting has not provided you with any individualized investment advice or information. Nothing in the website should be construed to be an offer or sale of any security. You should consult your financial advisor before making any investment decision or engaging in any securities transaction as investing in any securities mentioned in the website may or may not be suitable to you or for your particular circumstances.

by Maj Soueidan, President GeoInvesting

I wasn't sure what to expect at the Rodman conference this year. In September 2009, I approached this event with an uncontrollable urge to find reasons to put all my chips in the ChinaHybrid sector. This September, my focus was on finding which companies, if any, to place my chips in. A good majority of the attendees I spoke with were on a mission to assess the risk position of their portfolios, rather than to beef up their China holdings. This was evident by numerous conversations I had with investors regarding the relevance of SAIC filings, probing into which company's filings I have pulled and cliff notes from Zack Buckley's trip to China.

Overall, I was once again impressed by management's ability to articulate their "growth strategies," but unimpressed with their of lack of attention to address or understand the issues surrounding the current financial integrity debate and unwillingness to use internal funds to fund growth. Since the conference, the ChinaHybrid space has firmed up, maybe in response to companies and investment banks improving their efforts to address investor concerns.

My take a ways from the meeting:

1. Investors, fund managers and Investment banks were still unclear or unaware of the relevance of SIAC fillings and corporate structure issues.
2. Equally, management of many companies are still unaware of the recent financial integrity issues that are taking place in the sector.
3. I spoke to a few companies that acknowledged that SIAC filings should match. But admitted that differences often occur to shield companies from tax payments. Not doing so, they inferred, can put them at a competitive disadvantage.
4. Under reporting income is cultural in China.
5. In general, these firms may still raise money at below average multiples, something to be aware of as prices rise.

I have included the first batch of GeoTeam notes from the meeting. (Please understand that we are not offering an investment opinion based on the following interviews and do not attest to the accuracy of company comments).

China Jo-Jo Drugstores (NASDAQ:CJJD)

• Believes SEC filings match local PRC filings. (We are in the process of verifying).
• Hope to have 49 stores by end of October and on pace to have 60 stores by end of fiscal 2011.
• Plans to issue guidance in the near future.
• Possible 10% to 15% dilution, over time, from employee compensation plan.
• Margins are roughly 22%, but temporarily declined to around 17% due to going public expenses.

China Marketng Media (OTC BB:CMKM)

• Professional magazine specifically targeted to sales and marketing professionals. Was publishing one edition per month, but now doing three.
• Demand for print media still exists in professional magazines.
• Also operates an online retail portal.
• Advertising in magazines drives traffic to site for online sales of electronics, cosmetics and apparel. Will be adding additional product lines.
• Also advertises via credit card statements through agreements with banks.
• Margins on online sales are thin, but CMKM makes money on magazine advertising. Gross margin for online sales are 10 to 13%, advertising margin 70%.
• CFO has been with company for two months.

China Armco Metals (NYSE AMEX:CNAM)

• Recycling operations will be disrupted due to electricity restrictions. The restrictions could run up to 30 days (or even longer?). Product not produced in QIII won't be available for sale in QIV. Quarterly results may remain lumpy.
• Testing and adjustments played a part in the recent slow down in recycling shredder in past quarter.
• Slow down the in September will effect 3rd and 4th quarter
• The downgrade in guidance was worst case scenario
• Next 12 months should see significant impact from new facility
• Awaiting drilling results of Australian mine venture. Should be known by end of year.
• With respect to SAIC, SAT and SEC reporting, explained possible differences between US and Chinese GAAP, impact of VAT accrued and paid and intercompany transactions; but didn't know if there was a problem reconciling the filings or not. They understood this is an issue that has to be dealt with.
• 1.5 million warrants with exercise price of 5.00
• 1.5 million warrants with exercise price of 7.50

GeoInvesting Question:

Please address the fact that, as referenced in the below excerpt from your filings, you require funds to complete recycling expansion. How are you going to pay for this?

"We need additional financing to fund expansion of our recycling facility and working capital for our metal ore business which we may not be able to obtain on acceptable terms. We need to raise additional capital to carry out our plans to expand the capacity of our recycling facility and increase the volume of our purchases of the metal ore we resell."

Company Response:

With regards to the financing, the company did a Guaranty Cooperation Agreement with a steel company to free up its balance sheet to help deal with receivable and trade financing credit lines. See June 17, 2010 8k

China Pediatric Pharmaceutical (OTC BB:CPDU)

• Has 16 OTC pediatric products targeting 1-14 year old children. 300 million children in China.
• estimated 11.3% CAGR for pediatric medicine growth in China between 2010 and 2015
• profit margin 60% gross and 20% net
• 10 years in marketplace, have core brands
• Up-listing to NASDAQ is a near term goal.
• Don't feel current market conditions are favorable to issue equity. Also, might complicate up-listing efforts.
• Potential use of proceeds would include strong advertising and promotion initiatives to build brand identification with consumers. Also, to fund R&D for new product development programs.

Skypeople Fruit Juice (NASDAQ:SPU)

• New pear fructose production line began operating in September. Will produce up to 10,000 tons @ $800 or $8 million revenue potential with 35%-45% margins.
• Will double apple processing capacity from 10,000 to 20,000 tons @ $1,000 or $10 million incremental revenue with 20%-28% margins.
• Growth strategy also focused on beverages, with a longer term target for beverages to account for 50% of revenues. Beverage revenues will make the overall business less seasonal.
• Five new series of beverage products to hit market in 4^th quarter.
• Pear fructose should double in revenue in 2011, adding about $6 million in revenue. Apple products could add $10 million to revenue this year and possibly $25 million next year.
• Only company in China that can produce concentrated kiwi juice at large scale to meet production needs. 45% to 55% margin on kiwi products.
• Have enough working capital for next two years.

When discussing SAIC, SAT and SEC filings, CFO said SPU's chairman observed that you can tell a good Chinese company by official government certifications, government financial support and the ability to get bank loans. "We have all of these."

GeoTeam Observations:

• Investors should exclude income from government subsidies when applying valuation models.
• We are still perplexed that SPU completed an offering after essentially implying that they wanted to wait for market conditions to improve and believed that the stock was undervalued. They offered stock near where they did about year ago. Balance sheet and cash position are strong. Why not do a combo of equity and internal cash or some debt to put forth a respectable growth plan?

Company Response:

SPU is in a highly competitive business. SPU needs to have an aggressive growth strategy to keep its position in the industry. The loans from banks are only for working purposes, and it is difficult to obtain loans for capital purpose. SPU's total capital expenditures are expected to be in the range of $60 million for 2010 and 2011, and it plans to get its expansion projects ready for the squeezing season of 2011, so that they can contribute to the revenue and net income of 2011. The timing of the offering is very crucial for the Company. The Company has postponed its offering twice due to the market conditions. If the Company postponed the offering a third time, it may miss the good opportunities that the Company currently has.

TPI Tianyin Pharmaceuticals (NYSE AMEX:TPI)

• Has 56 products with a combination of patented medicine, modernized Chinese medicine, branded generics and other pharmaceuticals. Products are successful because of their efficacy in treating high-incidence healthcare indications in China and little side effects. TPI is the sole manufacturer of several revenue-driving products and most of which are eligible for government reimbursement.
• Introduces 7 to10 new products each year
• Usually takes new products about 3 years to reach maturity
• Revenue expectation for new products is $500,000 - $1 million revenues for the first year and gradually increasing, possibly to several million dollars in the following 3 to 5 years.
• 70% of the revenue was contributed by prescription medicines in Tianyin's portfolio; more than 30% of the revenue was contributed by the patented biopharmaceutical.
• China health care sector is growing about 15-19% annually
• current tax rate 18%
• No acquisitions in works
• Will be working to call in warrants. Have around 9.0 million outstanding including 3.8 million at $1.60, another 4.3 million at $2.5 and the rest at $3.25 to $4.50.
• CFO, CBDO and Director, James Jiayuan Tong, formerly with Rodman & Renshaw and has been tracking the progress of the company since its U.S. listing in early 2008.Joined company in April 2010. Recruiting him into the company was a more than two year process so he knew exactly what he was signing up for. He is a PhD and MD. Very impressive individual.

Weikang Bio-Tech Group (OTC BB:WKBT)

• Growth coming from new product lines. Should have 7 new products begin by the end of first quarter 2011
• There are three phases to launch a new product. Phase one is getting approval of product. Phase two is applying and getting license for product. Phase 3 is product launch.
• Time frame to get a product from phase 1 to 3 varies, but usually takes several years.
• New products reach maturity within 2 to 3 years. Most products have a 5 to 7 year life span. When demand slows we lower price to increase demand.
• May look to raise capital to fund our growth needs, mainly for acquisitions and remove debt from its balance sheet that originated from addressing capital funding requirements dealing with its reverse merger. (The GeoTeam had originally surmised that no near term funding arrangement would be on the horizon).
• Weather disruption in the second quarter of 2010 which effected top and bottom line growth for the quarter. It was a one time event, which effected most businesses in the area. We had delays in shipping which effected revenue for the quarter. However, the orders were filled and should be reflected in the third quarter.
• Main risk factor is our competition. Our research and development team and our founder is what separate us from our competitors. He is very well respected in the industry.
• We sell through 6 major distributors in 5 different provinces. We also have 60 smaller city distributors.

ZSTN Zhengzhou Shenyang Technology Co., Ltd. (NASDAQ:ZSTN)

• Management had targeted GPS to contribute 20% of revenue by year end. They are already there.
• GPS generates revenues from hardware sales, installation and the service center. GPS will provide recurring revenues and drive margin expansion.
• Growth area is in GPS division
• GPS to be 20% of revenue by end of year
• Too early to determine how fast and how much GPS could grow. (was very bullish)
• Cap ex and cost of revenues one in the same. Manufacturing all outsourced to OEM suppliers.
• Strong commitment to internal controls. Management working with BDO to achieve full SOX compliance, although they are not yet required to do so.
• CFO stated he is aware of SAIC, SAT and SEC filings issues and that companies should be cognizant of this issue. He said the companies that get in trouble with local filings do so because they are being too aggressive limiting their liabilities.

Excerpt 1:

"Based on an evaluation carried out as of the end of the period covered by this quarterly report, under the supervision and with the participation of our management, including our CEO and CFO, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective as of June 30, 2010."

This seems like a downgrade from just one qtr ago, when controls were effective. What happened?

Company Response:

Internal Control: We have retained UHY as our internal control consultant and we look to be SOX compliant by year-end. The original assessment was based on our previous auditor's recommendation. However, we do not believe it would be reasonable for us to make the same assessment while retaining a SOX consultant to improve our internal control policies at the same time. Therefore, we are actively communicating to investors our continued effort to be as transparent as possible to the highest standard required by a Nasdaq listed company.

Excerpt 2:

"The cash and cash equivalents is enough to meet our day-to-day requirements at current operating level. We may need to seek for external financing resources to supplement operating cash flows if we successfully expand our GPS related business rapidly

Is there a reason to be concerned with respect to above statement?

Company Response:

The language is for disclosure purpose. The management currently do not have plan to access the capital market for a equity financing

Disclosure: Long CMKM, CNAM warrants, WKBT

Disclaimer

You agree that you shall not republish or redistribute in any medium any information on the GeoInvesting website without our express written authorization. You acknowledge that GeoInvesting is not registered as an exchange, broker-dealer or investment advisor under any federal or state securities laws, and that GeoInvesting has not provided you with any individualized investment advice or information. Nothing in the website should be construed to be an offer or sale of any security. You should consult your financial advisor before making any investment decision or engaging in any securities transaction as investing in any securities mentioned in the website may or may not be suitable to you or for your particular circumstances.

So far, a good deal of ChinaHybrid stocks have either reported strong June 2010 financial results, exceeded analysts estimates or issued positive business outlooks. Unfortunately, prices have not really responded, held back by weak market sentiment and rumor mongering on the China front.

EPS growth for our tier one stocks was strong:

All three stocks in our tier one list came through with stellar results. China Mediaexpress Holding (NASDAQ:CCME) and Deer Consumer Products (NASDAQ:DEER) smashed estimates, while China Digital Communications (NYSE AMEX:NEWN) also reported strong financial results.

Thus far, these stocks have had a muted reaction since results were announced.

We are suspecting that some trepidation in DEER shares may have resulted from:

• Trade growth data released by China that, although still strong, missed expectations.
• Negative operating cash flow.

We published a transcript of the conference call notes which conveyed bullish sentiment. We could not get our hands on the Q&A session.

Regarding CCME weakness, It could be possible that investors were hoping that the company would raise guidance. The high end of the company’s current adjusted net income guidance of $85.0 million would imply EPS of $1.08 for the last half of 2010 compared to $1.05 in the comparable 2009 period. We had a similar concern after the 2010 first quarter's performance, but the company squelched this fear. Hopefully, the next two quarters will do the same.

Possible additional reasons:

• Some investors have been questioning the accuracy of CCME financial results.  
• Selling pressure from a recently filed registration statement.

Please be aware that we are still awaiting a response from management on "the need to obtain an advertising license for certian services and for certain jurisdictions."

In general, we feel that uncertainty regarding quality issues in the ChinaHybrid Space is leading to investor confusion and trepidation.

Please see some of our initial due diligence findings.

NEWN just had its shares up-listed to the NYSE-AMEX which investors are hoping will increase exposure and trigger upward price momentum. Comments were bullish.

GeoBargain Yuhe Intl (NASDAQ:YUII) beat 2010 second quarter analyst estimates by a penny, reporting a 46.2% increase in EPS to $0.19. The company is on track to meet its financial guidance and is experiencing positive pricing trends. Shares have shown some weakness, possibly an over reaction to news that the company will experience a slight delay in the commencement of its new hatchery.

June quarter financial results for tier two companies have been mixed:

Telestone Technologies (NASDAQ:TSTC)  and China Armco Metals (NYSE AMEX:CNAM) delivered subpar second quarter EPS results. Recent updates on GeoInvesting highlighted this possibility.

We had commented on TSTC's history of sporadic quarters. On top of this:

• TSTC’s accounts receivable position has not improved.
• A negative article surfaced questioning the accounts receivable standing.

On the bright side:

• It appears that the company invested funds in preparation for the remainder of the year.
• The company has maintained previous net income guidance which implies that it will report EPS of about $1.85 for the last half of the 2010 year. TSTC reported EPS of $0.91 in the back half of 2009

It would be helpful if TSTC could issue third and fourth quarter guidance to ensure investors that it can grow quarterly EPS consistently. A recent interview with Zack Buckley, who has traveled to China on GeoInvesting's behalf We also need to be aware that the company has recently filed a prospectus allowing it to raise capital in the future.

As we expected, CNAM could not keep pace with its 2009 second quarter. Results were dismal. In addition, the company reduced its guidance for 2010 due to a delayed ramp up of its new recycling venture. However, the new 2010 guidance of $10.0 million implies adjusted EPS of $0.79 on about $11.0 million in net income for the remainder of 2010 compared to adjusted EPS of $0.27 in the 2009 comparable period (most of which came in the fourth quarter).

Will fear create opportunity?

How do you play these two stocks? Because guidance still implies rapid EPS growth for the reminder of 2010, we will continue to track CNAM and TSTC as tier two stocks. Those who monitor CNAM should keep a close eye on scrap metal prices which could impact guidance. If prices hold up, CNAM could have some impressive third and fourth quarter EPS numbers.  For TSTC, the decision is not as easy. The potential for lumpy quarters throws a wrinkle into its story, as does the continual attack by short investors. From a cursory glance, it appears that TSTC has never put together more than two strong quarterly EPS performances in a row. 

China-Biotics (NASDAQ:CHBT) had a delayed reaction to its earnings report issued on August 9, 2010. It looks like the company is well on its way to diffusing one of our roadblocks regarding concerns over short-term EPS growth. Analysts have already raised estimates, indicating that CHBT will experience 30%+ EPS growth in five of the next seven quarters.

China Valves Tech (NASDAQ:CVVT) also came through with a nice surprise, exceeding analyst estimates by ten cents  by growing 2010 second quarter EPS 56.0%.  The stock has been in a tight range since its earnings release. The Street may have taken a tepid view on shares, as the company did not increase guidance.

The Company reiterates its net income guidance of $40 million for fiscal year 2010. (This implies about $20.0 million in adjusted net income or EPS of about $0.57. The company reported adjusted net income of $13.7 million and EPS of $0.44 in the second half of 2009).

"Although we passed the midpoint of our guidance six months into the year and have a solid backlog, we choose to remain conservative at this time and will continue to provide regular updates to investors on our business," concluded Mr. Fang.

China Marine Food (NYSE AMEX:CMFO) crushed estimates, helping its shares gradually rise past $6.00 for a period if time. Recall that CMFO is battling issues over questionable comparisons between its SAIC and SEC filings.

Yongye Intl (NASDAQ:YONG) reported EPS in line with analyst estimates.

Points to ponder regarding YONG:

• Operating cash flow is negative.
  
• In the original release YONG commented that it had issued net income and EPS guidance. However, no EPS guidance was provided. The company has since retracted this statement. Some investors may wonder why a company that just claimed it would have sufficient cash resources to finance the remaining phases of the two vertical integration initiatives could not issue EPS guidance. Still the company was clear about focusing on EPS growth:

"We are committed to continuing to maximize shareholder value not just through increased sales and net income, but also through further increases in our per share earnings performance."

It is good to see that IR firms and companies are beginning to listen to our pleas to emphasize EPS growth.

Here is a response from a YONG supporter (GeoInvesting user name Ratobranco), regarding the negative cash flow position.

I don't like the A/R, but I accept it as part of their business model. It happens every 2Q, their A/R position blows up as they sell to the farmers, then get paid after the harvest. They didn't have any problem collecting in 2009, so I'm not worried about 2010. With the huge problems in the domestic Chinese and global food markets, I think YONG's customers are going to do just fine in terms of profitability.

To be honest, I think the dilutive offering we saw last year was a result of the fact that they lacked the cash flow to fund the lignite project internally. They had big investment plans with big future returns, and they needed funding. Equity markets exist for exactly that kind of situation. So, I don't see the offering as a knock on their commitment to shareholder value, nor do I think it will be a continuing trend.

Despite the A/R disadvantages associated with the business model, I'm long on YONG because (1) I'm impressed with their CFO and CEO, (2) they have a strong brand name and market position in a crucial Chinese growth industry, (3) with KPMG as the auditor, they qualify as what I would consider to be a high class equity. I can go to sleep at night knowing that they aren't a fraud, and so can fund managers, which means that when the bull market in China hybrids eventually comes to pass, they will be among the first that get to participate.

We Recently coded Eastern Envtl Solutions Corp (OTC BB:EESC) as a GeoBargain. Recall, that we have been tracking this story since March 10, 2010.  In its March 2010 first quarter the company reported net income of 1.2 million or $0.07 ($0.06 taxed). While not overly undervalued at the time, we thought  the company might be able to exceed its $4 million 2010 net income run rate and report sequentially higher EPS for its 2010 second quarter, aided by capacity expansion and a resumption of operations that were temporarily inactive. see full note

EESC is also an ideal up-listing candidate.

Last week,  the company filed its 2010 second quarter 10Q which highlighted the results of  what could be a break out quarter:

• Revenue increased 1071% to $5.2 million.
  
• Gross profit increased 706% to $2.9 million Income from operations increased 1173% to $2.8 million.
  
• Operating margin increased 385 basis points to 53.3% from 49.5%.
  
• Net income increased to $2.4 million from $180,511.
  
• $7.2 million of working capital.
  
• shareholders' equity of $16.7 million.

See more on EESC.

We are eagerly awaiting the release of financial results for Soko Fitness & Spa (OTC BB:SOKF).  According to Zack Buckley’s interview notes from the July Global Hunter conference, SOKF expects to continue to report solid EPS growth. 

To see a comprehensive list of strong ChinaHybrid EPS results, including Zst Digital Networks (NASDAQ:ZSTN) and Harbin Electric (NASDAQ:HRBN). See our full earnings recap.

On the U.S. side, GeoBargains Cpi Aerostructures (NYSE AMEX:CVU),  Electronics Corp (NYSE AMEX:IEC) and GeoSpecial Lgl Group (NYSE AMEX:LGL) reported strong quarterly results.

CVU exceeded estimates by two cents:

Second Quarter 2010 vs. 2009

• Revenue increased 10% to $12,544,625 from $11,437,691.
  
• Gross margin was 26.7% compared to 24.8%.
  
• Pre-tax income increased 31% to $1,826,254, compared to $1,389,489.
  
• Net income increased 33% to $1,205,254 or $0.18 per diluted share, compared to $903,489, or $0.14 per diluted share. Diluted earnings per share were calculated on 8.7% more shares in 2010 second quarter vs. 2009 second quarter.

But EPS growth is struggling to achieve the GeoBargain 30% requirement on a consistent basis and probably will not for the remainder of the year. However, analysts have EPS pegged to balloon to over 90.0% in 2011 and over 70.0% in each 2011 quarter. Furthermore, management has done an excellent job communicating with investors and attaining its goals. For these two reasons, we will keep CVU coded as a GeoBargain, with the understanding that short-term investors may not take to this story until 2011 rolls around.

On July 19, 2010, IEC reported financial results in line with its expectations and maintained guidance.

• Revenue of $26.1 million compared to revenue of $17.3 million.
  
• Operating profit of $2.3 million compared to operating profit of $1.3 million.
  
• Net income of $1.2 million or $0.13 per share compared to net income of $903,000 or $0.10 per share for the quarter ended June 26, 2009.

We do not believe investors will aggressively flock to IEC shares until it issues Fiscal September ending 2011 guidance.

LGL announced a monster 2010 second quarter , reporting EPS of $0.94 ($0.60 tax adjusted) and easily on its way to exceeding our high end EPS expectation of $1.77 ($1.17 tax adjusted). The company continues to build on its:

• Margin expansion initiatives
• Product expansion
• Expansion into Asia

The conference call was very bullish.

We have removed Ricks Cabaret Intl (NASDAQ:RICK) from the GeoBargain list. We just do not see how the company will meet its 2010 September guidance due the moderation of economic growth. We had originally coded RICK as GeoBargain on August 13, 2009 at $9.05. The stock reached a high of $16.05 during the first quarter of 2010 and currently trades below $7.00 per share.

Also see notes on: ANR, CTIB, SMTX, ISSI,

See notes on new GeoSpecials AEIS, BDR, SGMA and Article on ASYS, AXTI and NANO)

Stocks in danger of being removed from the GeoSpecial list:

G Willi-Food Intl (NASDAQ:WILC): dilution may hamper consistent EPS growth.
Career Education (NASDAQ:CECO): One of our worst performing stocks since the inception of GeoInvesting. Industry wide regulation and lower estimates do not bode well for this company in the near term.
Unilens Vision Inc (OTC BB:UVIC): EPS growth does not seem to be in the cards. However, we believe there is a good chance that the company goes private at some point.

Long Disclosure: YUII NEWN SOKF EESC CVU IEC LGL ANR CTIB SMTX ISSI AEIS BDR SGMA ASYS AXTI NANO

We were retained and compensated by China America Holdings (OTC BB:CAAH)  to prepare an industry/market analysis and offer suggestions on how to maximize shareholder value. We were not retained to express an investment opinion on CAAH. Our intention is to educate investors, who may have an interest in CAAH, on the opportunities and potential road blocks.   

Through its 56.08% ownership in AoHong, CAAH:

• Repackages bulk quantities of liquid coolants into smaller packaging for resale and distribution. (Approximately 45.6% of its net revenues)
• Custom mixes various raw materials in accordance with customer specifications into a new product. (Approximately 16.9% of net revenues)
• Distributes bulk quantities of liquid coolants directly to customers who in turn resell the product. (Approximately 37.5% of its net revenues)

CAAH sells to industries that directly benefit from China's long-term growth outlook.

a distributor of assorted liquid coolants which are utilized in a variety of applications, primarily as refrigerants in air conditioning systems for automobiles, residential and commercial air conditioning systems, and a manufacturer of steel non-refillable cylinders.

Revenues increased 40.2% in the company's December fiscal 2010 first quarter . After a string of quarterly losses, the company was able to offer a glimmer of hope and turn a slight profit, after adjusting for non-operating items.

**(Company recently changed its fiscal year to Sept.)

Comments are bullish:

2010 First Quarter Filing:

Our increase in net revenues of approximately 40.1% for the three months ended December 31, 2009 over the same period of fiscal 2008 is indicative of the current economic recovery. Our outlook is to continue our cost savings efforts and increased efficiency in our operations during this volatile economy. Our revenues have historically increased during our peak season, which is from March through July. Due to the seasonality associated with our business, we expect the trend of increasing revenues to continue through the second quarter of fiscal 2010.

January 14, 2010 Release:

Mr. Shaoyin Wang, CEO of China America Holdings, stated, "The 2009 transition period was a very challenging time for our business as we experienced increased competitive pressures due to the global downturn. Management responded by taking immediate decisive actions through reduced pricing in an effort to maintain our existing clients and attract additional customers to accelerate our business as conditions in China and the world continue to improve. With a number of competitors having exited the business and our company remaining in a relatively strong financial condition, we believe that we have successfully navigated through this difficult period in China and the worst of the global recession. We are confident that we now emerge from this period as one of the leaders in our industry, poised for a strong re-acceleration of growth with improved market conditions. We look forward to realizing rewards for the difficult measures taken in this past year which we believe will help to create significant positive momentum in fiscal 2010 and beyond.

Long-term Strategic moves that the company expects will drive revenues:

1. On July 28, 2010 CAAH purchased land use rights that will enable it to construct a new refrigerant repackaging, mixing, and distribution facility capable of processing up to 20,000 metric tons of environmentally friendly refrigerants annually. When completed, the facility is expected to add $50.0 million in annual revenues. The company plans to utilize debt for the transaction.

2. The company is considering purchasing the remaining 44.0% of its interest in AoHong.

Points to ponder:

• Margins are small.
• The company has 170 million shares outstanding and 60 million warrants with exercise prices ranging from $0.10 to $0.55, giving it limited ability to raise equity capital.
• CAAH would be an ideal reverse split candidate and we will suggest this to management.
• Will China's monetary/fiscal tightening policy negatively impact business?
• The market sentiment has drastically turned negative for the China space, which could create serious head winds for penny stocks.
• CAAH has to satisfy various debt obligations.
• CAAH debt to controlling equity is 106%, or 44.1% including non-controlling equity.
• Phase one of the new facility will not be operational until the fourth quarter of 2011.
• With a share count of 170 million, how will the company purchase its interest in AoHong without diluting shareholder interests?
• After a attaining profitability in the 2010 first quarter, the company's operations reverted back to a loss in its second quarter despite a 36.7% increase in revenues to $8.56 million.
• Investors may deem CAAH to have a favorable risk/reward opportunity only if the company can put together a string of profitable quarters and significantly improve its capital structure.

We have laid out a road map for the company to follow to improve its capital structure, but we can not guarantee management's willingness to adhere to our suggestions. We believe that if CAAH does not address our concerns its stock will continut to face long-term challenges. See the outlook and liquidity section of question and answer session that supplements this article to gain an understanding of some of the hurdles that CAAH faces.

Please see our:

• Q&A with management, where CAAH issued revenue guidance of $50 million for 2010; $75 million for 2011; $90 million for 2012.
• An Industry analysis report

Earnings season is upon us. During earnings season the GeoTeam peruses through hundreds of press release to identify clues about company economic outlooks. So far on the U.S. front, the results for the companies we track have been impressive. We are intrigued that the commentaries in press releases and conference calls have not echoed the gloom and doom portrayed in many of the economic statistics. This type of dichotomy is not the easiest to navigate and the decisions you make mostly depend on who you choose to believe.

Let’s look at a few companies that have issued amazingly strong financial results and positive guidance over the past two weeks.

Teradyne (NYSE:TER)

We like to monitor industry leaders. TER is the leading "supplier of Automatic Test Equipment used to test complex electronics used in the consumer electronics, automotive, computing, telecommunications, and aerospace and defense industries."

On July 28, 2010 TER announced earnings that blew away analyst estimates.

2010 second quarter results:

• Revenues increased 37.97% to $455 million.
• On a non-GAAP basis, second quarter EPS was $0.69 vs. $0.33 for the first quarter of 2010, a loss of $0.21 for the same quarter last year. and an analyst estimate of $0.47.

Guidance for the third quarter of 2010:

• Revenue of $490 million to $520 million vs. $262 million in the previous year.
• Non-GAAP net income per diluted share of $0.75 to $0.83 vs. $0.04 last year and analyst estimates of $0.46 at the time of the release.

Press release Comments were remarkably bullish:

"We delivered our highest earnings in a decade in the second quarter driven by continued revenue and order growth in Semiconductor Test, and are poised to surpass that mark in the third quarter," said Mike Bradley, Teradyne president and CEO. “We’ve reached new order highs for all of our System-on-a-Chip (SOC) test products, continuing our market share gains of the last few years."

The 2011 challenge: Despite this performance, 2011 estimates show the company’s EPS growth declining 6.8% to $2.20.

Important observation: You need to go all the way back to 1999 to discover revenues that matched the company's 2010 $1.7 billion revenue expectations. The year 1999 was near a peak cycle of economic activity!! We can all agree that the current economic activity has not peaked.

Nanometrics (NASDAQ:NANO),

NANO's high-performance process control metrology systems are used primarily in the fabrication of semiconductors, high-brightness LEDs, data storage devices and solar photovoltaics.

With 2010 second quarter non-GAAP EPS of $0.60, NANO crushed analyst EPS estimates of $0.27, when it reported its best quarter in 35 years and fifth quarter of sequential margin improvement.

This was Nanometric's first $50 million quarter, exceeding its prior record revenue quarter by over 30%. Also notable were its pre-tax margins of 25%, a level we rarely observe in U.S. firms.

The earnings press release did not provide specific details on management’s future business outlook. Consequently, we listened to the earnings conference call to determine if management would give investors a glimpse of what could be in store for the next few quarters and its view on economic activity.

Echoing the sentiment of other companies that participate in the technology semiconductor sector and contrary to economic statistics, NANO expressed extreme optimism in the growth outlook of its markets.

• Driven by global demand, the information technology, electronic device and digital content markets are strong, leading to huge growth in chip demand.
• Leading chip companies are aggressively investing to meet this demand.
• Order flow from its two largest customers, Intel and Samsung, is strong.
• New customer activity from second tier companies is coming online.
• North America and South Korea markets are particularly strong.

We were very impressed at management’s ability to communicate and exceed its growth objectives set in 2009. We also found it significant that customer lead times are shortening up, meaning they want the product faster.

One thing investors need to be aware of is that a majority of NANO's sales come from two customers, although the company did mention that it is making positive inroads to diversify its customer base.

In a June 8, 2010 press release, the company reaffirmed its business outlook:

I believe the current business environment is extremely healthy, and the positioning of our Company’s products is the strongest in Nanometrics’ history,” commented Dr. Timothy Stultz, Nanometrics’ president and chief executive officer. “Our business outlook is strong, both in the near term and in the longer term, and is continuing to improve. The technical capabilities and expected fan-out of business for our Atlas® thin film/optical critical dimension (OCD) platform with key customer accounts are tracking nicely and in fact are exceeding prior forecasts, leading us to reaffirm our strong business outlook for 2010 and 2011.

As far as future outlook, NANO was not specific, but commented that the second half of 2010 will be stronger that the first half (where it reported non-GAAP EPS of 0.69) and barring external economic events, also sees growth continuing in 2011. This should ensure that the company will beat its 2009 second half non-GAAP EPS performance of $0.23. Please note that the stock has risen sharply since the release of its financial results.

The 2011 challenge: At $1.69, 2011 analyst estimates translate to EPS zero growth. Although, EPS for each of the next three quarters are expected to grow significantly.

Axt (NASDAQ:AXTI)

AXTI manufactures and distributes compound semiconductor substrates to companies involved in sectors such as the wireless devices, LEDs and photovoltaic markets.

AXTI reeled in a strong 2010 second quarter:

• Revenue for the second quarter of 2010 was $23.2 million, compared with $18.6 million in the first quarter of 2010, and $13.1 million in the second quarter of 2009.
• Non-GAAP EPS was $0.13 per diluted share compared with $0.08 per diluted share in the first quarter of 2010, and with a loss of $0.05 per diluted share in the second quarter of 2009.

Analysts had been expecting the company to report EPS of $0.08. This is the second quarter in a row in which AXT has easily exceeded analyst estimates. The company will aim to make it three in a row and has guided for 2010 EPS of $0.12 to $0.14.

Per the conference call, the company:

• Is benefitting from an explosion in the smart phone and the ramp up of LED technology.
• Will benefit from the continual and often upgrades in smart phone technology for LED TVs, signage, display and general illumination.
• Will benefit from the major evolution on how data is managed and consumed.
• Believes demand trends driving its business model are long term and significant.
• Supplies to virtually all major smart phone companies through its broad base of customers. 
• Has the ability to add capacity quickly.

The 2011 challenge: 2011 analyst estimates have the company’s EPS growing only 12.0% to $0.56. Although, EPS for each of the next three quarters are expected to grow significantly.

Important Observation: We don’t believe that analysts have factored in new product contributions that could impact the second half of its 2011 fiscal year.

Amtech Systems (NASDAQ:ASYS)

ASYS is engaged in the manufacture of several items of capital equipment used by customers in the manufacture of semiconductors.

ASYS handily exceeded fiscal 2010 3rd EPS qtr estimates $0.28 when it reported EPS of $0.42, reversing a prior year loss and easily surpassing its three year high of $0.17 reported in the 4th quarter of 2007!

Revenues increased 243.8% to $43.0 million, almost eclipsing the entire fiscal 2009 number of $52.9 million. Pre-tax margins were 14.4%. On it’s conference call, the company stated that is experiencing strong order trends from solar and semiconductor customers and confirmed the improving trend in the technology sector, a sentiment that other companies have shared. Furthermore, visibility has improved, leading the company to assert that demand is promising well into 2011. The company also gave us a peak into the health of the Chinese economy as over 90% of its revenues are derived from China.

The 2011 challenge: While fiscal year ending September 2011 estimates have EPS pegged to grow 62.2% to $1.33, the back half of 2011 is expected to show weak growth. Although, EPS for each of the next three quarters are expected to grow significantly.

Important observation: We don't believe that analysts have factored in new product contributions that could impact the second half of Amtech's 2011 fiscal year.

We have also begun to track Micronetics (NASDAQ:NOIZ) and Magic Software Entrs (NASDAQ:MGIC) due to recent strong EPS outings. Both companies have had inconsistent growth stories and will require interviews to determine if growth is ready to take on a new level. Blonder Tongue Labs (NYSE AMEX:BDR) is also a promising non-tech firm, with an inconsistent past, we are currently tracking right. (see conference call summary).

EPS growth in 2010 is benefiting from easy 2009 comparisons. The challenge in many of the above scenarios is that EPS growth will be hard to come by based on 2011 analyst estimates. This can cause investors to approach an equity investment on a quarter by quarter basis as opposed to making a longer term decision. This is one reason why we find ChinaHybrids an exciting option as they have the ability to sprout consistent EPS growth, as long as dilution from fund raising activities does not get in the way. Due to mixed economic signals, it is understandable that many analysts are likely being conservative on their economic growth assumptions by not including new customer/product trends in their estimates. One can only imagine the success many of these companies can attain if we experience any uptick in economic activity. Overall, we think analysts will continue to play catch-up with regards to U.S. companies, especially in the tech sector as the economic recovery sparked by the smart revolution gains steam. We are actually wondering if there a mini type dot com undercurrent building.

Despite some of the EPS growth hurdles that analysts hint many U.S firms may face in 2011, the outlook for many ChinaHybrids tells a different story. As 2011 rolls around the EPS growth is set to gain steam after a lull in 2010 caused by dilution. As the market usually proceeds events 6 months in advance, is now the time to begin seeking these opportunities?  Ideally, we would like to identify firms that will show positive growth in both 2010 and 2011. Many firms may have laid out clues that the near-term outlook remains strong. So far, a good deal of ChinaHybrids have issued bullish 2010 second quarter financial results, which we will publish details on shortly. We will also publish details on our SAIC due diligence.

Disclosure: Long TER, ASYS, NANO, AXTI, NOIZ, MGIC, BDR

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By Zack Buckley

On July 12, 2010, I attended the Global Hunter securities conference in San Francisco representing the GEO Team. Maj Soueidan, President of Geoinvesting.com, provided me with several questions covering topics of EPS growth, dilution risk and expansion goals. It was interesting to see so many companies present in such a rapid fire time frame. Even more interesting was being able to sit down with company management teams and discuss some of the issues and questions we had with individual companies.

China Green Material Tech (OTC BB:CAGM) manufactures and sells starch-based biodegradable, disposable containers, tableware and packaging materials.

Q - Why the recent raise?

A - China Green Mat had $13.4 million in cash at the end of Q1. That cash is largely earmarked for the capacity expansion occurring in the second half of the year, and for general working capital. The $2.8 million raise will be used for marketing and general working capital.

Q - When can we expect 30% EPS growth?

A - The Company has only provided revenue guidance: 25-30% growth in 2010. They have also said they expect to maintain strong gross margins in the mid to upper 40% range. Now that the new CFO has been appointed, he will assist management with planning and forecasting. They expect to provide earnings guidance in the future when the new CFO gets ramped up.

Q - Anymore raises in the near future?

A - No future raises planned. The capacity expansion will support anticipated growth through 2011.

China Armco Metals (NYSE AMEX:CNAM) began operating a scrap metal recycling facility this year and is also an iron ore distributor.

Q - How are earnings looking for the rest of the year.

A - 2nd quarter - no response; 3rd quarter - should be strong; 4th quarter - should be stronger than third quarter

I was able to talk with the CNAM representative after the conference on the first day, and he explained that CNAM would be changing several things with their company in the next year, including the auditors. He also pointed out to me that the only potential issues with the new scrap metal recycling factory is not the demand for the metal, but actually the supply of metal for the factory. I was worried that the demand would not be there for the factory, but he said demand is very high, so they are focusing on supplying scrap metal, which is more difficult.

Yongye Intl (NASDAQ:YONG) is a manufacturer and distributor of a fulvic acid plant nutrient.

Q - What will happen with operating cash flows going forward?

A - Management was not specific.

China Mediaexpress Holdin (NASDAQ:CCME) operates the television advertising network on inter-city express buses in China

Q - Why no acquisition yet?

A - There are a few which we announced previously. We acquired operating rights but not the entire companies.

Q - Will you need an acquisition to attain greater than 30% EPS growth?

A - No

Q - Would you consider buying back stock?

A - We will consider it.

Man Shing Agricultural (OTC BB:MSAH) is involved in the production, distribution, and sale of ginger.

Q - Will the weather ever be an issue during your growing season?

A - The weather should not be an issue and the fact that they only have one product also is not an issue. There are very few places in China that can grow ginger well, and Man Shing happens to have that land, so in that sense the company has a monopoly. Man Shing has been growing ginger there for a very long time, much longer than the company has been in existence, and there are very little weather problems.

Yuhe Intl (NASDAQ:YUII) is a supplier of day-old chickens raised for meat production.

Q - YUII Just filed a Shelf. We wanted to find out how they would allocate the funds?

A - The company is going to do some acquisitions to purchase breeder farms in cities outside Shandong Province. The management believes that by this means, Yuhe can duplicate its successful business model and expand its geographic presence.

Q - When will Yuhe do a raise?

A - Yuhe do not have a specific time line for the raise yet since the market condition is not very favorable. The company will provide updates once it decides to do a raise.

Harbin Electric (NASDAQ:HRBN) develops, manufactures, and supplies a range of electric motors.

Q - HRBN just Filed a shelf. What will they most likely use funds for?

A - As the Company becomes larger, it is prudent to have a longer term plan. In general, the capital needs will be in the areas of capital expenditure including capacity expansion, technology upgrade, as well as working capital, research and development and other general corporate purposes.

New Energy Systems Group (OTC BB:NEWN) manufactures components for batteries used in mobile phones and other digital devices.

Q -Are they seeing weakness in the international markets?

A - We are not as effected by international markets since most of our sales are in China. As we expand internationally, we see that as a largely untapped market, so it's really just a question of how fast we grow.

Q - Discuss currency risk?

A - We are not very concerned with currency risk.

Q - Guidance still intact?

A - Yes

Q - Would you consider buying back stock?

A - Regarding a buy-back, it is always a possibility, but something we have not commented on publicly.

The presentation for NEWN was interesting, they passed out portable iPhone and iPod chargers that work very well, I am still using mine.

Huifeng Bio-Pharma Tech (OTC BB:HFGB) develops and produces plant extracts and pharmaceutical raw materials for use in pharmaceutical, nutraceutical and food production.

Q - Does guidance include a raise assumption?

A - The company said it needs to raise capital for their Spanish project. The cost of getting listed in the US was higher than they anticipated.

Q - Will you make guidance and 30%+ EPS growth?

A - They reaffirmed their $0.22 guidance.

Soko Fitness & Spa (OTC BB:SOKF) is a leading operator of fitness clubs and spas in Northeast China.

Q - When will they make an acquisition?

A - Soon, not specified.

Q - Will short term EPS growth be challenging?

A - No, should maintain a healthy growth rate.

China Marine Food (NYSE AMEX:CMFO) was on of the most interesting presentations, given the recent short interest. I sat down with Marco Ku, CFO of CMFO to discuss the future prospects of the company. CMFO believes they will see 30% CAGR in their seafood business and 60% CAGR in their soft drink business over the next 5 years. In addition, they plan on building a cold storage facility which should have an approximately 5 year payback period, which will also generate an additional 4 million in annual net income.

In the breakout session for CMFO, we were able to see some of the marketing materials for the new Hi Power drink, as well as the actual can, which looks extremely similar to Coca Cola cans. In addition, we were able to try the seafood jerky, which was quite good.

Disclosure:

Profile

GeoTeam Contributor Zack Buckley is CEO of Uncoveringalpha.com and a research analyst at Geoinvesting.com. He developed his investing methodology by synthesizing the ideas from the best investors of all time, based on their track record. This led him to closely follow Warren Buffett, Peter Lynch, Seth Klarman and Benjamin Graham. Using a value approach, he pursued the most undervalued companies he could find, which led primarily to companies in China. Buckley will be spending three months this year in China visiting companies that are exciting investment opportunities.

****Follow him on his blog, Uncoveringalpha.com, as he travels across China touring factories and interviewing management.***

This is a reprint that was temporarily lost...

RICS:Commercial Property Prices to Rise Further in Hong Kong and Mainland China
 
2010-07-28 16:21
 
RICS Global Commercial Property Survey Q2 2010

HONG KONG, July 28 /PRNewswire-Asia/ -- The property market in Hong Kong and mainland China has continued to strengthen further into Q3 says the RICS Global Property Survey published today.

Occupier demand is rising in Hong Kong while mainland China rose at a faster pace for the fifth consecutive quarter.  Significantly, surveyors are optimistic on rental increases in Hong Kong with rental expectations to rise at a slightly faster pace for the fourth consecutive quarter.  Interestingly, having stabilized in investment market in Q1, growth in transaction activity moved higher again in Hong Kong and at the fastest pace in 9 months. Looking forward into the third quarter of 2010, sentiment towards capital values is strong in both Hong Kong and mainland China albeit at a slower pace into Q3 in the former.

RICS member Francis C W Li, Head of Investment, North Asia of DTZ said:

"The Hong Kong property market in general is very tight in terms of new supply and benefited from an early recovery of the Chinese economy. The high liquidity and low interest rate environment favour investments into real estate to hedge against up-coming inflation."

Indicators for occupier demand, rental expectations and the number of investment bidders per property in mainland China still remain strong despite measures introduced by the Chinese government to address the property boom.  Not being threatened by the recent government tightening measures, surveyors continue to expect price rises in commercial property in mainland China into Q3 and at a similar pace to the previous quarter.

Rental expectations increased at a slightly faster pace than Q1 which moving from +21 to +26. Interestingly, capital values increased at a marginally faster pace, improving to +59 from +55 although expected capital values moderated a touch to +38 in Q2.

Elsewhere in Asia, latest figures from Singapore indicate rental expectations turned positive for the first time in 2 years as actual rents rose modestly in a strengthened lettings activity.  Thailand was one of the few markets in the Asia where sentiment has waned in the most recent quarter.

From a global perspective, property markets in the more dynamic economies of South America, Asia and Eastern Europe are outperforming those in the UK and Eurozone. On the occupier side, Brazil recorded the most positive net balance with 85 percent more surveyors indicating a rise in demand for space.  Brazil also came out on top regard to rental expectations, with a net balance of 74, followed by Hong Kong, India and Peru.  The outlook for capital values broadly mirrors the rental trends with Brazil and Peru leading the country rankings.  Significantly, France is bucking the negative Eurozone trend with more material signs of an upturn in sentiment towards real estate reflecting, in part, the relatively resilient performance from the domestic economy.

RICS chief economist Simon Rubinsohn said:

"The real estate world continues to be split broadly speaking between the emerging and developed economies. Strong growth in many of the former, including the likes of Brazil, Hong Kong and India, is continuing to boost demand for new space from occupiers as well as encouraging investment activity. Meanwhile in many of the latter, fiscal retrenchment allied to bank deleveraging continues to place significant obstacles in the way of a meaningful recovery in the commercial property market."

Notes to Editors:

RICS’ Global Commercial Property Survey is a quarterly guide to the developing trends in the commercial property investment and occupier market.  This edition details market conditions for the 2nd quarter of 2010 based on information collected from leading international real estate organisations and local firms.

About RICS & RICS Asia

RICS (Royal Institution of Chartered Surveyors) is the mark of property professionalism worldwide. It covers all aspects of property, construction and associated environmental issues. RICS has 140,000 members globally and represents, regulates and promotes the work of property professionals throughout 122 countries.

The RICS Asia supports a network of over 11,000 individual professionals across the Asia Pacific region with an objective to help develop the property and construction markets in these countries, by introducing professional standards, best practice and international experience. It promotes RICS and its members as the natural advisors on all property matters. It also ensures that services and career development opportunities are provided to members.

The RICS Asia region covers national associations and local groups locating in Brunei, Malaysia, Singapore, Thailand, The People’s Republic of China and the SAR Hong Kong. It also has members working across the region such as Bangladesh, Bhutan, Burma/Myanmar, Cambodia, Indonesia, Japan, Kiribati, Laos PDR, Macao, Mongolia, Nepal, North Korea, South Korea, Taiwan, The Maldives, The Philippines, Timor East and Vietnam.