China Carbon Graphite Anticipates Positive Order Flow

| About: China Carbon (CHGI)

China Carbon Graphite (OTCPK:CHGI) reported 2009 second quarter results today:

  • Revenues decreased 53% to $ 3.7 million.
  • GAAP Earnings per share fell to 50% to $0.04.
  • Tax-adjusted non-GAAP Earnings per share fell 40% to $0.03.

While we didn't expect results to drastically recover from plant closure issues we discussed in our initial report, we were hoping for a slightly better financial showing. Furthermore, China Carbon did not revisit its financial guidance that stated top and bottom line growth of 15% to 20%.

Still, there was some encouraging information presented in China Carbon's press release that bodes well for long-term investors.

  • A resolution of a capitalization issue arising from the reverse merger transaction in December 2007 that called for the company to pay $4 million in fees.
  • China Carbon is now starting to see an increase in order flow. "The Company received purchase orders late in the second quarter that it expects will be filled in the third and fourth quarters of 2009." (Source: 2nd Qtr. Press Release.)
  • The company commented that it is pursuing acquisition opportunities.

Value investors can find solace in that the stock is still trading at a discount to its current book value per share of $2.61. China Carbon will likely have to relay a message that it can resume earnings per share growth in the near future in order to fully garner Wall Street's attention. The stock has already come a long way in a short period of time, mainly due to capital restructuring initiatives. Now it is time for China Carbon to show the street that it can grow its business. Completing an acquisition could accomplish this task.

Disclosure: Long CHGI.OB