5 China Stocks on This Week's Watch List

1) News broke on Friday that the Chinese authorities will now curb the industrial use of corn to prevent soaring food prices. This will clearly affect ethanol producers, but how will it impact Shengtai Pharmaceutical (SGTI.OB), a company completely dependent on its use of corn to produce corn starch and glucose? And even if this doesn't apply to SGTI, isn't rapidly rising raw materials cost bad enough?

2) China TransInfo Technology (CTFO.OB) dropped a bomb last week by announcing that it will be restating its Q2 and Q3 figures as there appears to be a "decrease in the fair value of accrued warrant liabilities". The 8-K filing was short and cryptic, giving us little clue how this will affect CTFO's earnings. Is it any wonder that the company shares traded down over 13% on Friday?

3) China Natural Gas (CHNG.OB) is quickly moving ahead of Sinoenergy (SNEN.OB) in the battle to create a network of CNG (compressed natural gas) filling stations. CHNG just added two more this week, giving a total of 26, compared to SNEN's three. But SNEN has plans to open another 30 by June 2008, so who is going to win the race?

4) Gulf Resources (GFRE.OB) announced that it has secured a major contract to supply a subsidiary of China National Petroleum Corp (CNPC) with oil refining chemical additives. This is expected to amount to $20 million in revenues, which is huge compared to GFRE's FY2007 9-month revenues of $38.5 million. The question now is, how is this deal going to affect the company's previous revenues guidance of $87 million for FY2008?

5) With little news, Puda Coal's (PUDC.OB) share price jumped by over 25% on Friday, after hitting a 52-week low of $0.40 earlier last week. Is this finally the turning point for this beleaguered coal supplier, or is it just another temporary blip, something that its jaded investors have all seen before?

Comments

[BenHoldsworth]

In regard to GFRE.OB, the $20 million revenues from the letter of intent had been included in the previously issued guidance.

[BarryRobbins]

Regarding SNEN.ob, who said there is going to be 1 winner? I see both of these companies as very interesting. Natural gas use in polluted China just makes too much sense.

[Brennus]

Xinao had 72 stations by the middle of sep07. Towngas has about 12, I think. There are many, many others that own 10 or fewer station...evidence China Natural Gas' ability to acquire many of its first CNG stations. SNEN & CHNG are really mostly active in one city each. They are branching out a little but for the most part they are single-city CNG operators in a nation of single-city CNG operators.

Really, station count is a canard. Pent up demand is so large that both companies could double their projected station counts & probably still not have any one station in radio contact with the other's stations. The real question is whether or not they'll be able to get the gas contracts to meet demand. In both cases, the answer seems to be 'Yes!'.

Bottom line: SNEN is not in a race against CHNG. They are each racing the clock only.

Regarding china grain controls, 'industrial' in this case means 'ethanol'. A lot of SGTI's corn starch output is sold to food & beverage companies. Choking off starch to food and beverage companies in order to keep grain prices low sorta defeats the ultimate purpose, which is to keep the public passive.

Glucose, on the other hand, tends to trade at a pretty constant spread over the price of corn. Since SGTI doesn't operate in a vacuum (who is getting cheap corn prices these days?), expect glucose prices to respond to corn prices. The top line will change, the line right under the top line will change, the bottom line won't be affected much.

[User 145021]

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