- Strong growth: 2008 revenue was $110mm, 2009 revenue: $250mm, and 2010 revenue will probably come in greater than $500mm.
- Strong earnings growth: 2008 earnings were approximatey $6mm. 2009 earnings were approximately $9mm. Q1 2010 was $4mm and I expect 2010 earnings to be between $20-25mm.
- Low multiple - the company trades for approximately 9 times my projected 2010 earnings. As opposed to a company like Tiffany (TIF) at 17x with much slower growth.
- Large market: the total jewelry market in China is approximately $20bb in 2010, up from $16bb in 2009 and $10bb in 2003. Between 1993 and 2008 the jewelry market has grown by 400%.
- Large market, part 2: jewelry is the third largest consumption item in China after autos and housing.
- Kingold manages the risk in fluctuations in the price of gold by using just-in-time inventory controls, minimizing the time between a purchase order, the purchase of gold, and delivery of the final product to under five days according to their filings. I'm not a believer in market timing gold. In fact, I'd rather own a growing company with growing earnings and revenues than a piece of rock. But I am a believer in the luxury industry, which is already fully matured (perhaps too matured) in the US but only at the beginning stages in China. Kingold also keeps down their costs by directly buying the gold from the Shanghai Gold Exchange, where they are a member.
- They are not local but distribute to 15 different provinces within China according to their recent SEC filings.
Despite this, they have about 4.3% market share. With continued growth and consolidation in the industry they can grow their market share inside a growing market.
The best hedge against inflation is not a rock like gold, but a company that benefits from the growing globalization that reflation triggers as well as the enormously increasing Chinese middle class.
Disclosure: Will go long KGJI.OB today after article published