James Kar's  Instablog

I have been a big fan of China Natural Gas (NASDAQ: CHNG) as you can see from my prior posts.  Today, CHNG surged close to 20% at $11.25 (at this writing) without apparent reason.  The only news is that the company successfully completed its public offering of more than 5 million shares and raised about $47 million (after underwriting expenses).  The proceeds will be used for constructing liquefied natural gas facility, acquiring 8 natural gas fueling stations, buying 8 trucks to transport the natural gas.  Also, part of the proceed will be used to establish a joint venture with China National Petroleum Corp.

Obviously, the public offering news is not new so the stock price already reflected the potential of earning dilution.  However, if the offering proceeds can actually increase both revenue and earnings above the cost of equity, then the offering is welcomed by investors.  Based on today's price action, investors are pleased that the stock offering is successful and believe the managment can increase its earnings with the additional equity funding.

 

China auto maker, BYD Co (BYDDF.PK), partly owned by Warren Buffet's company, announced its plan to sell all-electric battery car in the US next year.  The story was reported by Wall Street Journal Aug 21 weekend edition.

The chairman of BYD Co. announced that he would use the proceeds (up to $500 million offering) from a planned new share sale ( up to 100 million) in China to help marketing the car in the US.  The company is entering into the US market with its most advanced model with 5-seated, and the car is expected to sell at slightly over US$40,000.  The chairman claimed that its customers at the beginning will be government agencies, utilities and may be some celebrities.  BYD co. is also plan to enter into Europe with a similar strategy in 2011 or later.

Note: there are some discussions of whether BYD Co. actually has the technology to put the all-electric car together.  Due to this pessimism, the stock is still not advancing to fully reflect its potential.  Furthermore, the company needs funding to market the car in the US.  Thus, BYDDF.PK is planning to sell up to 100 million new shares.  Of course, the new shares will dilute current earnings.  However, if the new offering proceeds can fund the marketing expansion into US, the potential revenue and earning may more than offset any dilution.  It takes money to make money.  If the company can generate more earning with the new money, then the potential dilution is not a concern.  The stock has been under pressure for the above reason.  Thus, if you are a long-term investor with risk capital, you may want to buy some shares.  Remember, it is a highly risky investment, but it also has an excellent return potential.

China Natural Gas (CHNG) announced an update for its power supply agreement with local government.  On March 25, 2009, CHNG announced that it had an agreement with the Yulin local government providing about RMB20 million to build a transformer substation for CHNG's liquified natural gas plant.  Now, Yulin municipal government doubled its investment to RMB 40 million (about US$6 million) for the transformer substation.  This investment will ensure stability and capacity of the electricity supply for CHNG's LNG plant.  For detail of the press release, please see finance.yahoo.com/news/China-Natural-Gas...

In the press release, CHNG is expecting an increase in the natural gas price in the near future.  This is good news for CHNG as the gas price is controlled by the central government and is at artificially low level.  The increase will make the China natural gas price closer to the market price.  At the current gas price, CHNG continues to increase its earning.  Imagine how the price increase can help the earning figure in the future.

The stock is down for the last couple of days in sympathy with the sell-off in the China stock market.  For long-term investors, you should consider gradually increase your holding.  But then again, the stock market seems to be heading lower and you may be able to get the stocks at a lower price.  So, I suggest to invest 1/3 of your planned investment, and buy more when the stocks drop even lower.

On August 11, 2009, China Natural Gas (CHNG) announced Q2 results with following selected highlights:

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LJ International Inc (NASDAQ: JADE) designs, manufacturs and distributes its own jewelry brand called ENZO.  JADE sells its jewelry through jewelry stores, department stores and its own stores. JADE has 94 stores in mainland China, Hong Kong and Macau.  Amid the current economic environment.  It also wholesales to North America and for 2008, the North America markets account for 51% of its total sales. 

JADE's main competitor is Fuqi International Inc (NASDAQ: FUQI), which is also located in China.  FUQI also designs precious metal jewelry and sells a range of luxury goods in China such as platinum and Karat gold chains.  FUQI has 69 retail counters and stores in China.  The stocks for jewelry manufacturers and sellers have been beaten down due to economc recessionary environment.  However, on July 22, 2009, JUQI announced that it expected Q2 earning would be at or above the high-end of earning estimates of $0.27-$0.32. The average consensus is $0.30. But at the same time, stock price falls because FUQI planned for more stock offering.  But today, the stock recovers signicantly.

My speculative trade is JADE.  If FUQI can beat expected Q2 earning, JADE may be able to do the same.  Of course other investors have the same thought and bid up JADE to $2.07 (up 7.27%) at this writing or up about 10% for the last 2 days.  JADE is expected to announce Q2 earning on August 5.  If the stock falls back to around $1.90, I will buy the stocks as a speculative trade ahead of earning announcement. There is no Q2 earning estimates for JADE since JADE has no analyst coverage.  Therefore, if JADE could beat Q1 profit of $0.1, the stock may advance nicely. 

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In my past articles, I have talked about China is taking steps to increase global exposure of RMB and to replace US dollar with a global reserve currency using Special Drawing Rights (ADR).  On July 1st, the IMF already agreed to issue bonds denominated in SDR.  This is a sign that China has its way, especially when two major emerging countries, Russia and India are supporting China. On July 6th, some cross-bothered trade can be settled in China yuan.  Again, although the volume is small but is a step that China wants to make its currency as a global trading currency.  A lot of commentators claimed that China's currency cannot be a global currency replacing US dollar for a long time as the China RMB is not globally traded or liquid enough.  I believe these comments are short-sighted.  They make these comments based on current environment, but in my opinion, China is taking all the small steps to make China RMB as a global trading currency in the future.  Of course, this will not happen within the next few years, but it is entirely possible this could happen within next 10 year.  Remember about GM bankruptcy.  All the bankruptcy experts claimed that GM in no way can be out of bankruptcy within 60 days and President Obama's plan is not realistic.  Now, GM is out of bankruptcy.  Also, when Japanese cars entered into US market in the 1970s, every auto industry also claimed that US needed not worry about Japanese cars as they have the technology and quality.  Now you know what happens.  So, all the comments about why China RMB cannot be a global currency may be proved wrong again in 10 years. Remember how Chinese reaches their goals: slowly but surely.  Chinese don't like to rush things without think it through and test the water first.  China government will move gradually towards its goals.

There is an excellent article in Economist titled "Yuan small step" that worths your reading.

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