Atticvs Research

Three Compelling Chinese Stocks

GSI Balance Sheet - yes this does need investor attention. In the note I assumed the company would issue 6 million new shares, being 4 million in H2 2009 (ave 2m for 2009 EPS calcs) and a further 2m in early 2010. The EPS numbers I cited were inclusive of new issuances.

Separately, GSI had a number of large credit facilities maturing in Q2 - by now these have already been rolled-over and we must await issuance of June 30'09 10Q to learn of the new maturity dates. Credit has been easing in China so let's see what the company says in August.

GSI did a $60m shelf filing in January 2009. Since that time the Chinese steel industry has experienced an upturn that has been stronger and swifter than almost all commentators expected. Steel prices in China have now, Jul 27, risen about 25% since April this year. It is becoming clear that profitability in Q3 will be very substantially higher than brokers had estimated, and I now believe they will be higher than I had estimated in my own note. The point about this being as follows: Bearing in mind that GSI's profitability will stem from the $216million investment that GSI completed in Q1 2009 (i.e. already paid for), and bearing in mind that customers pay GSI partially in advance for purchases, GSI will generate much stronger positive cash-flows each quarter than Net Income. And since we are now pretty sure that GSI will generate strong profits during the remainder of 2009 - unless steel prices crash, which is unlikely in the face of the huge stimulus program - then we can take some assurances that GSI will also generate strong positive cashflow during 2009. This, allied to the issuance of say 6 million new shares I mentioned above, ought to alleviate the liquidity tightness evident on GSI's Q1'09 Balance Sheet. Do also recall that even after the issuance of 6m new shares GSI should earn somewhere between 1.00 to $1.50 per share next year, or possibly more.

In essence I do agree that investors need to keep an eye on GSI's Balance Sheet. However, I also now believe that the earnings estimates used in the Seeking Alpha note were conservative, possibly too conservative, and that GSI will generate both strong profits and stronger cashflows during Q3 and Q4 2009 that will alleviate Balance Sheet gearing and ratio concerns.

Bottom line is that existing Balance Sheet concerns are already over-reflected in GSI's stock price, very much so.

Three Compelling Chinese Stocks

CHLN, yes agreed about recent selling price per Sq M being lower than I used in the note. I based the $850 per SqM on company expectations for JunJing 11 phase 2 as stated in 10Q; company expects to sell 112.556 SqM for total of $94.1 million = about $836 / Sq M, I used $850 considering riverside views etc. I agree with all the sentiments you expressed about CHLN & Xi'an, very positive situation.

Hugh Hendry on China – The Emperor Has No Clothes

If you know Hugh Hendry you will know that he is almost completely unable to offer views that are anything but extreme. Accuracy and well balanced arguments are not part of his makeup. He is truly a most dreadful attention seeker, at all cost. I'm not about to defend the ills of China or other countries, nor am I about to sing the praises of the many good things that exist there. But I would urge taking Hugh Hendry's utterances with a good fistfull of salt.

China North East Petroleum Catapults to the Next Level

Well done Nawar. NEP is a terrific little company, very undervalued, has great potential and an exemplary management group. Whilst the stock price has fallen back this past couple of days I have no doubt it will be well into double digits early 2010. Keep up the good work.

Lower Your Solar Electricity Costs with First Solar

Michael,

First Solar does not do the residential market at all.

They only do big commercial systems where the relatively high labor cost of setting up the panels etc is allocated over a large number of panels and thus the overall installed system cost for the customer, on a per watt basis, is compellingly low.... sometimes so low that even without any subsidies the installed system may be capable of achieving grid parity.

Further Thoughts on Trina Solar and the Solar Space

Time to sell was when it was $40, now is good time to buy ahead of strong earnings. Given jittery market overall it will be late next week before the pre-earnings run begins in earnest.

Further Thoughts on Trina Solar and the Solar Space

Bentinger, for what it's worth I agree with GS concerning the dangers of investing in many solar companies long-term. This will be a volatile game and significant dangers are now emerging. See above post re Europe and competitive landscape developing in Europe. However, I also think that most of the solar plays right now, including TSL at $28, are potentially excellent short-term trades.

Further Thoughts on Trina Solar and the Solar Space

Anyone here got a copy of, or link to, TSL's development road-map? I've them for FSLR and SPWR and make interesting reads. FSLR expects to be able to sell with ASP's of $1.00 in a few years time. Currently their total cost per watt is just over $1.00 and should break below this threshold in Q3'08. I know, not apples to apples but costs do matter...

Given the solar support cut-backs in Spain and the general economic slowdown across Europe, not to mention the huge expansion plans that most solar companies have embarked upon, I think in the next couple of years it will be very important for solar companies to have strong balance sheets and very competitive technology. Whilst I consider TSL to be potentially excellent short-term trade right now at $28, a medium or longer term investment decision for me would have to incorporate information with regard to their road-map (and of course significant efforts to strengthen their balance sheet).

Appreciate if anyone can give me a link to TSL's road map, or perhaps some on-line investors presentation where I may access the main details. thks.

The 'Problem' With Solar Companies is Not Really a Problem

Dicki, you say TSL should reach grid parity in 2010. Currently their production cost per watt is about $2.60 all inclusive and are forecast to be about $2.50 by end 2008 or early 2009. What do you forecast their total cost per watt will be in 2010? Do you have any TSL road-map reference you can post here. I understand the thin-film companies may have total costs per watt of about 80 cents by 2010 with ASP's of about $1.20 per watt. I know they are not oranges to oranges but for large installations where labor & installation costs can be spread pretty thinly costs per watt & ASP per watt do matter. I'm leaning toward the belief that if solar companies cannot get ASPs towards grid-parity - i.e. in region of say $1.50/$2.50 per watt (depending on output per panel etc) in the next few years - then they may find the going tough against more competitive offerings.

Further Thoughts on Trina Solar and the Solar Space

Jack, disageee on both counts.

You cannot logically have a dump of silicon on the market that lowers silicon input prices that doesn't lower selling prices for companies such as TSL. They are two side to the same equation give or take a short period.

Also, forgive me pointing this out but it is inconsistent to speak of giving conservative estimates on the one hand whilst on the other hand choosing to ignore the dilutive effect of an equity or equity related debt offering that has been already discussed by management.

I agree that TSL may be a buy, very probably is, but the thrust with my questions is to get to clean information not guess what may occur if and when management occasionally spin positive events as no doubt they and all other do from time to time. I'm striving to look beyond that. Surely the main purpose of good research and exchanges of data is to get beyond spin and look at best underlying information. An equity offering, or equity related offering, is more than probable for TSL. Seeing a you consider this major event to be a probablility why have you excluded it from 'conservative' EPS calculations in what was a long discourse about prospects and earnings for TSL. I feel I will probably buy TSL, but not until I get a better feel for their true prospects and EPS.

Best.

Further Thoughts on Trina Solar and the Solar Space

Jack, there’s a lot of silicon coming onto the market and I understand that this is part of the reason why silicon pricing is forecast to drop going forward. It seems to me that with such a lot of extra product hitting the market that selling prices across the board for solar companies are in danger of softening as we get into 2009 and a growing awareness of this should act as a headwind for most solar stocks in later 2008.

Second, TSL management, during the Q1 earnings conf call, spoke about their 2008 and 2009 capex plans being $250-300 million and that ‘when the time is right’ they would seek to fund this via equity or equity related financing. This too is likely, until it is concluded, to act as a headwind for the stock price – especially because that the dilution effect is likely to be fairly large given the relatively small size of TSL’s shareholders equity and balance sheet. Additionally, seeing as such funding should ideally have to occur before the end of 2008, it would seem prudent to incorporate some dilution effect into EPS projections for latter part/s of 2008.

Keep up the good work.

What's Behind the U-Turn in Oil Prices?

Jim,
What is the total value of contracts traded on NYMEX daily?
What is the daily total value of physical oil shipments globally?

I'm heaing a lot of talk recently saying that NYMEX is amplifying oil price moves up and down because its total contract values are comparatively small. Hence, whether the money flowing into NYMEX is for genuine hedging purposes or for pure investment/speculative purposes, if total daily NYMEX contract values are indeed relativley small, this might help explain why NYMEX oil prices are not as apparently rationale as many pundits have expected.

China North East Petroleum: Strong Growth, Clear Visibility

Larrry, the 2.5m figure in SEC filings is Proven Reserves, whereas the 75 million number is total oil reserves. The Proven figures will rise strongly as they drill lots more wells over the next couple of years. See further explanation relating to Proven, Probable and Possible oil reserves above dtd May 7, 9.15am.

China North East Petroleum: Strong Growth, Clear Visibility

My understanding: Oil reserves are broken into three categories; (P1) Proven, (P2) Proven & Probable, and (P3) Proven, Probable and Possible.

P1 at December 2007 was 2.5m bbls.

P2 has not been published but would represent the estimated amount of recoverable oil in the four combined oil fields. This figure should be about 35% of the total oil reserves of 75m bbls, less the approx 40% output that belongs to PetroChina in the remaining years of the leases. Net-net this works out at about 16m bbls.

P3 is 75m bbls.

Over the next few years, as CNEH rolls out its drilling program, we can expect P1 to increase towards the P2 figure of about 16m bbls.

Should CNEH be successful at implementing CO2 technology, that would increase the recoverable percentage by about 20% to say 55% of total reserves, which in turn would boost Proven & Possible (P2) to about 25m bbls, and Proven reserves (P1) would then, in time, graduate towards this higher figure.

Smallcap Materials Pick: PolyMet Mining

I've taken a stab at my own valuation. Valuing 182mt Provable & Probable reserves and 422mt Reserves plus a further 121mt of possible Reserves (might or might not be economical, I don't know) all using near-current mineral selling prices I get a total of $28bn. An acquirer might buy this using an assumed Net Income figure of 15% working off profits spread over 20 years of production and then apply a 10% npv factor, this being; 15% = $4.2bn and npv = about $2bn.

PLM anticipated in 2007 that the mine would require up-front capex & additional infrastructure of $350m in order to get the project up & running. That was at 2007 prices. And just as I used near-current sales prices for valuing the underlying reserves of PLM we must also adjust upwards this $350m to reflect commodity price increased (iron & steel etc) betwen 2007 and 2009 when they expect to incur that capex, thus a capex figure of $500m is more correct. The company had assued in 2007 that it could fund this capex by bank borrowings. Given credit market tightness in 2008 I think the best case now is that this $500m would be funded via convertible debt using a 5/4 ratio, i.e. equivalent to $400m fully diluted shares in current money.

Thus the fully diluted equity in present terms becomes ~160m shares that already exist plus approx 140m new (convertibles) shares equivalent to fund the $500m capex = total 300m shares fully diluted.

Dividing the $2bn Net Income NPV above by 300m shares gives a potential buy-out valuation for PLM of about $6.66 per share. It would be higher if the company can fund the $500m capex using more debt. On the other hand the approvals are not yet in place....

All in all this gives a much more sober picture than I had hoped to uncover and my maximum upside of $6.66 is a long way short of the potential mentioned in Greg's article above. We all like to uncover investments with hidden potential and I'd welcome any further insights people may have, especially if I've omitted something important.