SkyPeople Fruit Juice (NASDAQ:SPU) was established in 2001 in Central China's Shaanxi Province. The company is a highly integrated producer and distributor of fruit juices, fruit juice concentrates and other fruit and vegetable products. I see at least 5 reasons to buy the stock currently.
1. The stock is trading below net cash
The company has cash and cash equivalents of $61.2 million as of December 31, 2011. SkyPeople has $6.4 million of short-term debt.
The company has 26,661,501 shares outstanding. That makes net cash of $2.05 per share.
2. The company's cash balances are independently verified
On April 20, 2012 the company issued a press release. In response to a Nasdaq cash verification request, the company's independent registered public accounting firm Paritz & Company, P.A., from January 5 to January 9, 2012, independently verified the company's cash balances held in financial institutions in China in which the company and its subsidiaries maintain bank accounts.
3. The company is highly profitable
Net income attributable to common shareholders and earnings per share for 2011 were $13.2 million and $0.50, respectively, compared to $21.2 million and $0.92, respectively, in 2010. With current share price that makes a P/E of less than 4.
4. The company had strong Q1 earnings last year
The company reported the Q1 results on May 16th last year.
The company had positive earnings of $0.2 per share for the quarter. The seasonalities are favorable for the first quarter earnings.
"We can only produce fruit juice concentrates during the squeezing season generally from July or August through April of the following year, while our fruit beverages can be produced year round."
5. The industry trends are favorable for the company
Both Global and Chinese industry trends look very promising.
The fruit juice processing industry is an emerging industry. Consumption of fruit beverages has grown and sales have increased rapidly in recent years due to the increasing health consciousness of consumers and the natural and healthy quality of fruit juice beverages. The demand and the price of concentrated fruit juice decreased in the international market in the second half of 2008 because of the negative effects from the worldwide economic crisis. However, according to Gary Hemphill, Senior Vice President of the Beverage Marketing Corporation, a leading industry consultancy, the U.S. liquid refreshment beverage category is starting to improve after two successive years of decline.
Global Industry Analysts, Inc. reported in the "Fruit & Vegetable Juices Market: A Global Strategic Business Report" that the global market for fruit and vegetable juice beverages is forecast to reach 64.46 billion liters by 2015. It is reported that the juice drinks segment is expected to witness increased demand in both value and volume as the market returns back to pre-crisis levels of growth.
According to the Fruit Juice Section of the PRC Food and Agriculture Export Association, the PRC (People Republic of China) exported approximately $1 billion in concentrated fruit juice to foreign countries every year in the past few years, which accounted for around 60% of the global output of concentrated fruit juice. It is reasonable to expect that such trend will continue.
The PRC has the world's largest population, but the consumption of fruit beverages is relatively low. According to the report "China Fruit Juice Beverages Business and Market Analysis" published by the PRC Food and Agriculture Export Association, the annual per capita consumption of fruit beverages in the PRC in 2009 was approximately 1 kilogram, which only accounted for 13% of the average world per capita consumption and 4% of the average per capita consumption in the industrialized countries. The Chinese fruit juice and fruit juice drink industry is developing rapidly and total production has more than doubled to 14.48 million tons in 2009, compared to 6.35 million tons in 2005. The growth rate of the revenue from fruit juice and fruit juice drink has ranked first compared with other food related industries. The company believes that the increasing health consciousness of consumers and the quality of living powered by the PRC's economic growth will continue to fuel the demand for fruit juice products.
I recommend buying the stock below the net cash of $2.05 per share. I believe a share price of $2.5 is possible before the earnings in May.
Disclosure: I am long SPU.