China Green Agriculture: A Green Pearl?

Recently, China Green Agriculture Inc. (CGA) completed a $28.8 million common stock offering. The Company intends to use all of the net proceeds to expand its existing research and development facilities through the construction of new intelligent green-houses, research and training centers. The Company estimates that these new facilities will require an aggregate investment of approximately $38.6 million over the course of two years.

Beyond Trading recommended to its subscribers to use the event, stock offering, as an excellent buying opportunity in the range $7-8.

"Our new greenhouse facilities will further equip our research and development team to introduce new products to meet the growing demand for green foods while bringing our products to the market quickly," stated Mr. Tao Li, Chairman and CEO of China Green Agriculture. "Our proprietary R&D platform coupled with our strong marketing and after sales support have allowed us to promptly generate revenue as we continue to expand our market share over the next 3-5 years."

The company is a leading producer and distributor of humic acid ("HA") based liquid compound fertilizer through its wholly owned subsidiary, Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. and today announced it is expecting to exceed the high end of its previously announced revenue guidance of $32.8 million to $33.3 million due to strong sales from its green fertilizer products in the fiscal fourth quarter of 2009.

The Company now expects revenues in excess of $34 million for fiscal year 2009; a record for the company. Fiscal year 2009 and fourth quarter financial results will be reported in mid-September 2009.

As an organic fertilizer supplier, China Green Agriculture is expected to benefit from China's push toward green technologies. China announced a $586 billion domestic stimulus package. The company is based in the world’s fastest growing economy.

China Green Agriculture currently markets its fertilizer products to private wholesalers and retailers of agricultural farm products in 27 provinces in the PRC.

Positive Aspects

1. Fundamentals (at the time of recommended purchase):
   P/E: 12 (quite low)
   PEG Ratio (5-year): 0.32
   Profit Margin: 36% (very good)
2. Insiders
   CEO owns more than 1/3 of the company (good indicator)
3. No institutional coverage yet (good indicator)

Negative Aspects

1. Too early to call it a long term winner
2. Very high volatility, the stock abruptly fell off a cliff around $25 per share
3. Increased float (stock offering), this will damper the possibility for very large gains short term.

Beyond Trading has given the following targets on China Green Agriculture Inc.:

• Potential target max. short term: $12.5
• Maximum target not for short term and solely in case the company executes well its strategic plan: $17

Disclosure: No position on the stock; recommended to its subscribers as an excellent buying opportunity in the range $7-8, average size: 15,000 shares.

Comments

[China Expert:]

This Chinese Fertilizer company is cheaper value and growing faster than CGA.

Yongye Intl (YGII $5) - Yonge is engaged in the sales of fulvic acid based liquid and powder nutrient compounds for plant and animal feed used in the agriculture industry. Yongye revised its previously announced revenue guidance for fiscal year 2009 from $66 million to $82 to $84 million, and its previously announced net income guidance from $15.8 million to $23 to $24 million. Assuming 35.7M shares EPS would be $.67 or a PE 7.5x. Post the recent deal, YGII has $9.5M of cash and no debt.

1) Positives: PE 7.5x real cheap
2) Gross Margin 52%
3) No institutional coverage yet (good indicator)
4) New CFO - Speaks Mandarin and English and graduated with MBA from Stanford
5) Upgraded auditor - KPMG
6) PEG ratio .23
7) With stock over $4 now, NASDAQ listing highly probable

Jul 29 04:42 PM

[Alan Young:]

This article appeared on SA after CGA closed at 10.73, having had 5 big run-up days. It was a good call at $7-8, for sure.

Jul 30 02:49 AM

[Beyond Trading:]

Our subscribers cashed at $11.5 for the day, you had time to profit from the stock even if it was $10.73 today, it went to $11.7


On Jul 30 02:49 AM Alan Young wrote:

> This article appeared on SA after CGA closed at 10.73, having had
> 5 big run-up days. It was a good call at $7-8, for sure.

Jul 30 11:13 AM

[D7:]

CGA is overdone. Explain to me exactly what makes CGA's management worthy of a p/e of 18 while CAGC.OB has done effectively the same thing and has *considerably* better fundamentals. Look out! CAGC.OB is working a 4:1 reverse stock split and looking to uplist.

I've heard talk of CGA's execution. Phooey. They had a small liquid fertilizer outfit, sold a bunch of stock at higher prices, built a factory and are now ***planning*** (note this hasn't happened yet) to sell it.

It has also been said that they are clever. They sell the plants that they grow while testing their products. They're so good at this, in fact, that they just dilluted my (former) stock holdings by $25M.

Jul 31 12:56 AM

[CramerNot:]

Thank you BT for DWA, CGA and ISRG. They were perfect :)


On Jul 30 11:13 AM Beyond Trading wrote:

> Our subscribers cashed at $11.5 for the day, you had time to profit
> from the stock even if it was $10.73 today, it went to $11.7

Jul 31 10:17 AM

[China Expert:]

CAGC is doing a reverse because of all the shares it has issued via its PIPES (private offerings) to fund its working capital. I've lost track of the number of raises this company has done. CAGC is an investment bankers dream company since ever year or so they need to raise more money. The PE is meaningless since accounts receivables are growing faster than revenues. Revenues are only growing because the company continues to lend its own money to uits customers. CAGS needs to get its receivables under control. With receivables growing so fast, CAGC has turned into a "bank" for its customers. After CAGC does a reverse, it will raise more money through private offerings (at a discount) and then need to do a reverse split again someday in the future. Its a vicious circle. In summary, CAGC has a poor business model and things do not appear as they seem. Now you know why this stock trades like a DOG !

Jul 31 04:39 PM

[D7:]

Just for the record, I hear what you are saying. Management has stated that they plan to get AR under control in the second half of 09. I think the worldwide financial crisis has given them a wakeup call and will make them more focused on this issue and the debtors more understanding (albeit not entirely happy) about lowering them. This is at least my take on the issue with a CAGC p/e of 5.7 and a CGA p/e of 19.1. Both have substantial new revenue streams coming in the next year. CAGC is reverse splitting, planning to uplist, will have considerably higher revenues next year, and may acquire a company or two. This, while not solving the AR problem, will make it look less significant as the compani will have higher revenues and balance sheet as well as (hopefully) a higher stock price. Again...at 5.7 p/e who am I to argue with them?

Jul 31 08:00 PM

[China Expert:]

Management at CAGC has said for a while that they will control A/R. The facts are that A/R has gotten worse over the last few quarters and the possibility of a "charge against receivables" looms. I repeat, the low PE is meaningless since earnings are "not real" when considering that revenues are creaed by "lending" money to its customers. This company does not generate "cash" ... working capital consumes it. While revenues for Q1 were flat y/y, A/R increased from $28.7M to $36M ......DSO's for the last quarter now exceed a whopping 400 days. This has to be a record ! CAGC could be a "trade" but is clearly not a longer term investment for anyone who understands the major accounting fiasco pending this companies future. I would not want to own this stock when the music stops !

Aug 01 11:34 AM

[Beyond Trading:]

Thank you for your comment; anyone could have profited from them; obviously our subscribers more than others but any who read it in due time could have made an excellent profit. At the time of article cga was 10.7, it is now 12.5, that gives a min of $8000 net profit for a small investor

On Jul 31 10:17 AM CramerNot wrote:

> Thank you BT for DWA, CGA and ISRG. They were perfect :)

Aug 03 12:35 PM

[Beyond Trading:]

" I would not want to own this stock when the music stops ! "
you've just missed a near 100% return; it's because of crowd like you the stock has done so well, most of the crowd was out of the stock, when the crowd is in it's then time to sell


On Aug 01 11:34 AM China Expert wrote:

> Management at CAGC has said for a while that they will control A/R.
> The facts are that A/R has gotten worse over the last few quarters
> and the possibility of a "charge against receivables" looms. I repeat,
> the low PE is meaningless since earnings are "not real" when considering
> that revenues are creaed by "lending" money to its customers. This
> company does not generate "cash" ... working capital consumes it.
> While revenues for Q1 were flat y/y, A/R increased from $28.7M to
> $36M ......DSO's for the last quarter now exceed a whopping 400 days.
> This has to be a record ! CAGC could be a "trade" but is clearly
> not a longer term investment for anyone who understands the major
> accounting fiasco pending this companies future. I would not want
> to own this stock when the music stops !

Aug 12 11:54 AM

[CramerNot:]

You have made a great job BT. I'm following you


On Aug 12 11:54 AM Beyond Trading wrote:

> " I would not want to own this stock when the music stops ! "
> you've just missed a near 100% return; it's because of crowd like
> you the stock has done so well, most of the crowd was out of the
> stock, when the crowd is in it's then time to sell

Aug 13 08:40 AM

[Beyond Trading:]

thank you, (CGA) momentum out of the stock after Beyond Trading recommended to sell the stock above $14


On Aug 13 08:40 AM CramerNot wrote:

> You have made a great job BT. I'm following you

Aug 28 11:28 AM

[CatDog:]

CGA still going to do quite well even after late Aug. pullback to $11.

However, as China Expert noted above, YGII (which just got an upgraded listing to NASDAQ on Sep. 3rd with new symbol YONG) is more profitable and better P/E than CGA and has not yet hit its full potential. YONG has more room to run than CGA and is 50% cheaper PPS right now.

Sep 03 02:15 PM

[D7:]

Let me think here. I got 3 thumbs down for my comments on July 3 regarding redeploying my CGA investment to CAGC. You guys keep red thumbing and I'll keep making more than double the returns (and counting) I'd have made with CGA. CGA looks to have appreciated 60% while CAGC is 140% andf counting.

BTW, as of latest 10Q management has lowered the A/R cycle from 1 year to 6 months.

Do I hear more red thumbs?


On Jul 31 12:56 AM D7 wrote:

> CGA is overdone. Explain to me exactly what makes CGA's management
> worthy of a p/e of 18 while CAGC.OB has done effectively the same
> thing and has *considerably* better fundamentals. Look out! CAGC.OB
> is working a 4:1 reverse stock split and looking to uplist.
>
> I've heard talk of CGA's execution. Phooey. They had a small liquid
> fertilizer outfit, sold a bunch of stock at higher prices, built
> a factory and are now ***planning*** (note this hasn't happened yet)
> to sell it.
>
> It has also been said that they are clever. They sell the plants
> that they grow while testing their products. They're so good at this,
> in fact, that they just dilluted my (former) stock holdings by $25M.

Oct 11 09:36 PM