Puda Coal: Dirt Cheap and Making a Comeback

Apr.19.07 | About: Puda Coal, (PUDA)

Puda Coal (PUDC.OB) has had a really rough last year as it dropped from a high near $6/share to a recent low of just $.75/share last month. Nevertheless, Puda looks to be making a strong comeback; their last two quarters reported were profitable on increased sales and they posted income of .16eps for FY 2006.

2006 Highlights from PR on Tuesday April 17th:

Fourth Quarter 2006 Highlights

  • Fourth quarter revenue reached a record $ 43.4 million, up 110% from the fourth quarter of 2005
  • Operating income totaled $7.1 million, up 78% increase from the fourth quarter of 2005
  • Net income rose to $6.0 million, or $0.07 per fully diluted share
  • Adjusted net income totaled $4.0 million, or $0.05 per diluted share, up 60% from adjusted net income of $2.5 million in the fourth quarter of 2005
  • Sales of cleaned coal totaled 548,000 metric tons [MT], up 105% from the fourth quarter of 2005
  • Average selling price of cleaned coal was $78 per ton, compared to $77 per ton in the fourth quarter of 2005
  • 2006 Full Year Highlights

  • Revenue climbed to $137.8 million, up 166% from 2005
  • Operating income rose to $22.8 million, up 148% from 2005
  • Net income was $1.4 million, up 40% from 2005
  • Adjusted net income totaled $12.5 million, or $0.16 per fully diluted share, up 123% from adjusted net income of $5.6 million, or $0.07 per diluted share, in 2005
  • Sales of cleaned coal reached 1.8 million metric tons, up 165% from 2005
  • Average selling price of cleaned coal was $78 per ton, up from $77 per ton in 2005
  • Opened Zhong Yang coal washing plant, adding 1.2 million MT in total annual capacity
  • Added Xuanhua Steel Group and Gengyang Coal as new customers
  • Comparing Puda Coal to the industry, it looks very undervalued and shares are cheap at these prices, though I don’t think they will be this cheap for long. Puda is a very small company at just $120m cap, compared to the industry average of 2 billion. The price to earnings ratio as of yesterday's closing price for Puda is just 9.37x, compared to the industry's 22.3x, and price to earnings is very low at just .88x, compared to the industry's 2.5x. Looking at these ratios, as well as considering Pudas income growth, we can see that Puda looks dirt cheap at these prices of 1.50/share from a P/E and P/S comparison perspective. Puda gave guidance of FY 07’ revenues at $165m-172m and operating income of $27m-29m.

    CEO Comments:

    As we enter 2007, we are optimistic about our near-term, as well as long-term, opportunities to grow Puda Coal into a leading provider of high grade, metallurgical coking coal, while delivering strong top- and bottom-line results to our shareholders,'' said Zhao Ming, Chairman and Chief executive officer. ''The continued robust demand for our products from the steel industry, efficient operations, and long term supply agreements for coal all provide us confidence that these goals are achievable.

    Short term I think Puda Coal could be trading near $3/share in the next few months. I currently have a position in PUDC.OB at 1.20 purchased April 18th.

    Disclosure: Author has a position in PUDC.OB

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