An Exodus Of U.S.-Listed China Stocks Is Inevitable

by: Dutch Trader

I wrote several articles about the fact that going private deals in the U.S.-listed China space were going to flood the market. From my last article regarding this subject two deals are just announced.

American Lorain (NYSEMKT:ALN) and Yongye International (YONG) have the intention to go private. With both companies the CEO is willing to acquire all of the outstanding ordinary shares of the company.

"Pure luck with your picks," an investor told me. My answer: "No, of course not."

Chinese CEOs are fed up with the U.S. capital markets and the way they are treated by the SEC and U.S.-investors. As I already stated in my former article:

The United States is no longer the perfect honeymoon for Chinese companies that want to connect with Westerners. Going private seems to be the only solution for many US-listed China companies. The enormous compliance costs associated with being listed in America are a heavy burden for these companies, especially if a listing doesn't give anything back. Trading and liquidity for many smaller companies is low, and the legal environment is quite different than in mainland China.

We will see more and more companies leaving the United States. Companies that could be the next target are:

Guanwei Recycling (NASDAQ:GPRC)

Guanwei Recycling Corp. is China's largest manufacturer of recycled low density polyethylene (LDPE). Adhering to the highest "green" standards, it has generated rapid growth producing LDPE from plastic waste procured mostly in Europe for sales to more than 300 customers in more than 10 different industries in China. Guanwei Recycling Corp. is one of the few plastic recyclers in China that has been issued a Compliance Certificate by Umweltagentur Erftstadt, which issues certificates of approval for certain plastics manufacturers that meet strict environmental standards in Germany. This enables the company to procure high quality plastic waste directly from Germany and other European countries (Spain and Holland), with no middlemen, and permits highly economic production of the highest grades of LDPE.

Management owns 57.6% of the shares and with a P/E ratio below 2 and a book value that is around $2, the stock price of $0.70 doesn't reflect the true nature of the company.

SkyPeople Fruit Juice (NASDAQ:SPU)

SkyPeople Fruit Juice, Inc., is engaged in the production and sales of fruit juice concentrates, fruit beverages, and other fruit related products in China and overseas markets. Its fruit juice concentrates are sold to domestic customers and exported directly or via distributors. Fruit juice concentrates are used as a basic ingredient component in the food industry. Its brands, "Hedetang" and "SkyPeople," which are registered trademarks in China, are positioned as high quality, healthy and nutritious end-use juice beverages.

On August 29, the company forecast its revenue to be in the range of $90 million to $110 million and net income to be in the range of $16.2 million to $22.0 million. EPS would be in the range of $0.61 to $0.83, leaving us with a P/E below 3. With $2.85 in cash per share, management could bring it home.

Past short seller attacks have left the company in the graveyard.

Management owns also around 52% of the company.

China TechFaith Wireless Communication Technology Ltd. (NASDAQ:CNTF)

The company has three primary businesses. Under the TechFaith umbrella, the company is a leading global mobile solutions provider for the global mobile handsets market. Under its TecFace brand, the company is a leading developer of specialized mobile phones for differentiated market segments, including the rapidly growing smartphone market targeting wireless mobile phone network operators and end users; the company also serves sports enthusiasts with a tailored line under the Jungle brand and the teen market under licensed brands. Under the company's 17VEE brand, the company has built a leading intellectual property based motion gaming business ranging from Bluetooth-enabled motion gaming controllers and software to a planned proprietary set-top motion game box.

Communication with investors has been very poor and revenue has been declining due to continued weakness in the company's ODP (Original Developed Product) and branded mobile phone business. No need for the company to be listed in the U.S. anymore. With a cash position of more than $4 management could be eager to take the company private.

Final Note

Years ago Chinese companies that were unable to raise money on China's two exchanges in Shanghai and Shenzhen started selling shares in the U.S. stock markets. These companies were able to raise billions from U.S. investors that wanted a piece of China's thriving economy. Now they are leaving.

Some of the Chinese companies that are withdrawing from U.S. markets feel that the low share prices in the U.S. do not reflect the strength of their business. Of course they are right with their thesis, especially if the company is legitimate.

Disclosure: I am long GPRC, CNTF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.