China Yingxia: A Cheap Stock for Its Potential

Company Description
China Yingxia (CYXI.OB) is engaged in the development and production of health food products, including soybean meals and drinks, cactus-based foods, rice products and beauty cosmetics, which are sold throughout China, Japan, India as well as Southeast Asia. The company recently launched its organic W3660 rice, the so-called diabetes rice, which is expected to grow from its present $1 million to $10 million in 2009. Another new product is soybean yogurt, which is also expected to see tremendous growth. The company currently obtains 45% of its revenues from cactus-based products, but this should represent a smaller and smaller proportion of overall sales going forward.

Current Price: $1.02

52-Week Range: $0.85-$3.38

Evaluation
This company has not grabbed my attention until now, and once I started looking at it, the more interesting it becomes. While we could place CYXI squarely in the traditional Chinese medicine [TCM] segment, many of its new products are anything but traditional. I have already mentioned the organic diabetes rice and the soybean yogurt, both of which are completely new to the Chinese consumer. There are no comparable products out there. The company has also intimated that it is eying several acquisition candidates, including a pharma company and a beverage business. In addition, unlike many TCM/nutriceuticals players, CYXI has a strategically compelling business model:

1) Quality control - the company controls the cultivation and production of all its proprietary products, ensuring quality. While the downside is that there is a seasonality to its revenues stream, the company has never had any issues with product launch or acceptance.

2) Scalable distribution - CYXI employs a 100% external distribution network that covers all of China and beyond. This ensures low overheads as well as quick scalability. There are currently over 850 independent distributors and it is growing fast.

3) Financially conservative management - CYXI has no debt and management has always been very conservative in managing their balance sheet as well as sharing their financial projections. Given the recent flap in problematic auditors, this is a refreshing change.

Auditors: Bagell Josephs Levine

Investor Relations: Joe Levinson

Valuation
This is a cheap stock for the potential it represents. I have been accumulating shares in my existing portfolio but CYXI is the first "new" stock I have bought in months. I believe this stock can easily double in a year.

Fully-Diluted EPS: (2007) $0.14 (2008) $0.20
P/E: (2007) 7.3 (2008) 5.1
PEG: 0.19

Investment Risk: Moderate.

My Position: Long.

Comments

[Rick S.:]

I think you should check Cabeza Howe's analysis of this stock and its funding patterns. As I recall, much as he saw huge potential in the new products you list, he was not as sanguine about the expansion financing adopted by the company. He thought they would create a private investor stock overhang that could hold down the price level for years.

But check out his comments directly. He says it best. Since he's a contributor to Seeking Alpha that shouldn't be difficult.

2008 Mar 06 10:59 AM

[dturgel:]

Do you happen to know what the return on equity for this stock was in '07?

2008 Mar 06 03:27 PM

[dragon52:]

Contrary to what China Player writes (Japan, India, Southeast Asia), this company has no sales outside China. This looks more like a retail franchising operation than anything else.

2008 May 04 08:27 AM