Ignore the never ending stream of articles in the mainstream press about the upcoming China market crash. Yes, trading in domestically-listed issues has become quite speculative. However, many Chinese companies listed in the United States, especially Chinese microcaps, have reasonable valuations and dynamic growth opportunities. Chinese microcaps are already a prominent part of my microcap portfolio, and their weighting will likely increase in the coming months.
One Chinese microcap I am looking at is China 3C Group (OTC:CHCG-OLD). China 3C Group operates “stores within stores,” mini-electronic retailers located in some of China’s larger department stores. According to a a recent investor presentation, China 3C mini-stores already appear in Gome, Carrefour, Trustmart/Walmart, and Suning stores. In June it announced an expanded agreement with Best Buy (NYSE:BBY).
China 3C is a growth story. In the first quarter of 2007, sales grew to $84.5M versus $13.5M in the prior year quarter, an increase of over 500%. The company estimates $360-380M in sales for 2007, and $1 billion in sales by 2010. With approximately $52.7M in shares outstanding, the company has a market cap. of around $208M. The company projects that it will earn between $.50 and $.54/share in 2007.
CEO Zhenggang Wang stated:
We are also reiterating our previous guidance regarding store openings. We expect to open 1,200 stores by the end of 2007 and anticipate opening 4,000 total stores by the end of 2010, at which time we believe we will be realizing annual revenues of $1 billion. We will also be issuing first quarter 2007 comparable-store sales data under a separate release in the next few weeks. The company intends to be listed on a major U.S. exchange by the end of 2007.
This research is just preliminary, but I am intrigued enough to put China 3C on my short list of stocks to watch.
Disclosure: No position.