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  • Gushan Environmental Energy: A Diamond in a Rough Patch [View article]
    Indeed. My analysis above writes down PPE by 35% from book values to arrive at 2.50 per fair value of tangible equity.
    Oct 5, 2010. 03:30 PM | Likes Like |Link to Comment
  • Gushan Environmental Energy: A Diamond in a Rough Patch [View article]
    Unfortunately I 100% disagree with your assessment that there is no point in making an investment if there is no growth in top or bottom line for the time being. To me this seems like a short sighted view of the company's story. They had been growing before 2009 and still have expansion plans and are building out their volume. The long argument here is that they will grow again in the future, and in the meantime the company's strong balance is compelling.
    Oct 5, 2010. 03:21 PM | Likes Like |Link to Comment
  • Gushan Environmental Energy: A Diamond in a Rough Patch [View article]
    Management has made several references to this. They have been increasing production of products to the chemical industry each quarter as a percent of its total sales. Management has indicated explicitly that they have to do it slowly because they are such a large supplier that they will drive the price down if they immediately begin supplying to their full capacity.
    Oct 5, 2010. 07:48 AM | Likes Like |Link to Comment
  • Gushan Environmental Energy: A Diamond in a Rough Patch [View article]
    As a quick follow up-- even if you write down the PPE to 0, the shares are still at nearly a 40% discount to cash. In the analysis I put forth in this piece, I wrote the PPE down by 35% to adjust the book value and cash to 2.50 per share which I am calling my fair value for the stock.
    Oct 1, 2010. 08:03 AM | Likes Like |Link to Comment
  • Gushan Environmental Energy: A Diamond in a Rough Patch [View article]
    Thanks for sharing your thoughts.

    On point e. what I meant by it was used previously for food purposes, was that the oil itself before it was "used cooking oil" was previously "cooking oil" and used to prepare food with. I had the understanding that since food inflation in China was rampant, this was raising the cost of cooking oil, both in its cooking form and then in its used form (since the inputs to making cooking oil were more expensive, i.e. vegetables or other eatable food products). This is the reason management gave for switching to in-eatable forms of oil to use as raw materials-- so it would not be competing with China's eatable food sources for inputs to make refined oil.

    I will disagree with you and say that I don't think any one else is using used cooking oil to do anything else with to compete with GU's business model-- but rather the demand and shortages for food, including the eatable forms of food it requires to produce cooking oil, is raising GU's raw materials cost. Diversifying to in-eatable sources is part of the diversification plan that we all know is taking some time to complete, but is necessary for GU's future.

    Given all of this, I will agree with you that it is hard to tell if the new business will be profitable but the way I see it GU is working on its problem on two fronts. 1. it is diversifying its raw materials, and trying to import from outside China, in an effort to bring those costs down. 2. it is producing less refined oil and more specialty chemicals until plan 1 is working.

    So, if either one of those two things can make it such that GU can operate at least at breakeven, there would be no need to write down asset values-- but I agree write downs are probably in the cards though the market has already written them down.
    Oct 1, 2010. 07:26 AM | Likes Like |Link to Comment
  • Gushan Environmental Energy: A Diamond in a Rough Patch [View article]
    Hi Jan,

    I am not sure what you are getting at when you elude to the summation that all the bad luck may be organized. The way I see it is that GU is going through a transformation from biodiesel to specialty chemicals. They essentially built out a huge infrastructure of chemical plants capable of producing refined oil in the form of biodiesel, by-products of biodiesel, and specialty chemicals. In fact they built the largest capacity by volume in all of China and among the top in all of Asia.

    a. Unfortunately I have nothing further on this progress. This would be a great question to probe on the conference call-- though it was asked last time and management just said that progress is still being made-- did not elaborate further.

    b. Indeed this may be the case. The consumption tax issue is confined to specific localities. I do believe that GU carries some weight as the largest producer of biodiesel in the country and by essentially boycotting the tax by not producing, they may be able to affect the outcome in their favor.

    c. The latest earnings release made reference to that plant coming back online on October 31. Again, I think this is a catalyst for the stock over the next month.

    Beyond that I think your questioning is along the lines of why the other plants that are not affected by the tax issue are not producing the biodiesel for which they have capacity.

    My insight on this is that until they can secure feedstock and the tax issue is resolved, they are scaling down refined oil production to the oil market and scaling up specialty chemicals in all of their plants (not just the ones affected by the tax issue). It is a conscious choice to switch production by management that they have expressed over the last year. Evidence of this is in the latest press release and I will copy in the lines below. But basically diesel production is going down and chemical production is going up. It's a switch. I'm not huge into chemicals but I think they sell almost the same exact product but sell it to chemical companies that don't use it for energy purposes which bypasses the tax.

    "Furthermore, to help mitigate the potential adverse impact from the consumption tax issue, the Company is continuing its efforts to expand alternative sales channels, including biodiesel sales as fatty acid methyl ester to the chemical industry, which are not subject to consumption tax, while reducing its sales of biodiesel to the refined oil market. This strategy contributed in part to the year-to-year decrease in the sales volume of biodiesel because the size of the Company's customer base in the chemical industry was smaller than that of the refined oil market. In addition, the proportion of biodiesel sold to the chemical market continued to increase from 26.6% of the total volume of biodiesel sold in the second quarter of 2009 to 70.5% in the first quarter of 2010 and 68.2% in the second quarter of 2010. "


    e. I think some of the problem here is that China has food shortages and GU used to use feedstock that was used previously for food purposes. So, food costs have gone up in China overall which raises the cost of the food by-products. So to answer your question, I believe the demand is coming from the Chinese people by way of food necessities

    Beyond these points, I would love to hear your feedback on the insights that I have put forth here along with your own insights and ideas on the same issues.
    Sep 30, 2010. 10:49 AM | Likes Like |Link to Comment
  • Gushan Environmental Energy: A Diamond in a Rough Patch [View article]
    Hi Jan,

    These are all valid concerns for the company and should factor into the share price to some extent, but in my opinion, not to the extent that the shares trades well below even if the cash balance. I'll respond to the points as best as I understand.

    a. There is not much guidance from management on this front except that they say they have signed contracts and are moving forward with importing castor bean oil from Indonesia-- albeit slower progress than planned. In my opinion, this is less of an issue than it could be because they are not operating at anywhere close to full capacity right now any way. If there was going to be delays in securing these contracts and materials, this is the best time to have these issues since GU's plants are not running fully.

    b. I believe part of the issue is that GU sells its product to Chinese and government entities whereas some of the competitors sell to private companies and internationally and are somehow able to avoid the tax for now. I may be wrong about this, as management has provided little guidance on this as well. What we do know is that there is a pending resolution because GU has challenged the ruling on this tax issue.

    c. The latest piece of information I have seen on this is that GU has explicitly said they plan to bring the plant back up at the conclusion of EXPO at the end of October. There should be an official press release on this one way or the other and this could be another catalyst for the stock price to move up.

    d. GU is moving one of its facilities to a different area in the same business park. The business park is helping to pay for these costs. This is a short term issue in my opinion and wouldn't be considered important for the long term view of the company.

    e. From what I understand they are not operating at full capacity due to the tax issue-- not from supply shortages. Inflation in China is a problem for GU and its raw materials but management has said it is diversifying with castor bean oil-- again the guidance on this is that progress is still being made on this front-- and again better to have these problems now when plants are not running fully than otherwise.

    Obviously several keys issues for the company-- mainly the tax problem and the supply problem. Both of those have to do with producing biodiesel. The same plants can produce specialty chemicals as well which wouldn't have the same supply issues or the tax issues-- so to be trading at a small fraction of the tangible book value and even a 40% discount to cash, seem like it provides a great value or even distressed equity investment opportunity. At leas that's the way I look at it.
    Sep 29, 2010. 11:06 AM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]
    Response, point by point

    1) I am under no obligation by anyone including CFA to reference another author's report when making my conclusions (in fact like I said, that in itself could be a violation). This is where I think you are confused about the CFA's rules. You claim that there are obvious red flags. This is not a fact. This is your and a few other author's opinion. If the flags were so obvious, how did harbinger, roth and hudson research analysts miss them when they did a full analysis. So again, if there are things to look into they sure as heck aren't obvious like you're making them out to be. In this case, I did look into the things that the audit committee said they would be looking into, and am fully satisfied with what I found. Again, I do not need to respond to the other allegations presented by bloggers when making my analysis.

    2) I am fully allowed to make a strong opinion one way or another on a stock, and again I do not need to reference another person's opinions about it. I can also recommend how to weight the stock and trade the stock.

    3) There are rules about drinking at work. I do not work on the weekends or late evenings, so the fact that I said I am not responsible for what I say during these times is irrelevant as I did not publish research during these times. In fact I don't think any of my comments on the boards would be considered published research. It is an anonymous message board.

    4) Improving professional competence has to do with keeping up on new laws and attaining more education. This concept not not apply here. I realize you pulled a few things off the website but this one doesn't make any sense at all.
    Aug 13, 2010. 01:59 PM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]
    Man o Man. You are quite wrong Arrow, and I will not be responding publicly to your post because in my opinion this is very petty. I will respond to you via a Seeking Alpha email right now if you want to discuss the CFA more.
    Aug 13, 2010. 01:41 PM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]
    Truth is, this has gotten a little too heated. We've deviated away from the issues completely and this has become personal for some of us, including myself lately with regard to all the most recent comments I have posted. I think I need to take a page out of your guy's book and keep myself a little more confidential until we have a final resolve on this. You can have my picture back if you really want, but please ask nicely.
    Aug 13, 2010. 07:52 AM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]
    Arrow, you are too funny man. I literally just had a guffaw just now, vis a vis my picture comment. I can picture you sitting there just fuming about these comments and BAM, I change something on my profile and then victory! I definitely did it because of something that had to do with your comments. If I was worried about anything, I'd remove my entire profile. Maybe I should just put up a picture of an arrow instead next time.
    Aug 13, 2010. 07:44 AM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]

    I promised myself I wouldn't respond but you make it very hard to not respond to your post. I'll keep it short, and then hopefully stick to my guns and stop humoring you. As I have said many times, I have looked into the evidence myself and made my decision based on my own analysis. What I HAVEN'T done is read all the blogs that many short sellers come out with. I don't find it useful. The fact you keep linking me to SEC documents is funny. I have seen them all and believe it or not, I have come up with a different opinion than you keep trying to point me to!

    There is no violation to my ethical standards that I can even fathom. I am fully allowed to express opinions to buy or sell, though I typically don't like to, and I try to say as often as I can that ONP is very risky, don't overweight the stock, etc, etc.

    As far as your very nice quote from me, I don't get your point. I did my analysis and I am waiting for Deloitte to confirm it since I trust what they say.

    Done and done. I promise not to respond again. :)
    Aug 12, 2010. 05:10 PM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]
    Actually I will respond to one of Arrow's comments because it attacks my ethical values which I take very seriously. He makes reference to the fact that I admitted I did not read all of the blogger's blogs If you read the earlier parts of the post you cherry picked you'll see it is in reference to writing a response article to you guys but I do not have time to do read all your allegations and respond to them. The rules I follow say nothing to the fact that I must read other analyst reports before making my own opinions. In fact there are more strict rules to the effect that I shouldn't let other analyst reports bias my opinion. The rules are regarding objectivity and independent thinking. If I read your reports and allegations and just went along with them, THAT would be a violation. I realize it is important to investigate the allegations against it, and I have done this and made my opinion. Your assertion that because I don't agree with your point of view, that I am being unethical, in my opinion, is bad logic.

    Lastly, if there was such a rule that said I had to read every single analyst report about a stock I am making an opinion on (and there isn't), these blogs would not qualify. They are not reports. I do not need to read all your allegations and take them into account when making my opinion.

    I'm sure we can both agree these arguments are getting petty and off point. Lets let this discussion end. I'm sure you'll have more to say in response to this post, but I am fine with that, and will let you have the last word.
    Aug 12, 2010. 09:18 AM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]
    I do not have time to respond to everything you and Arrow just wrote. I barely have time to read it. I will say though that there are no rules with my institution that say I can't make a recommendation. In fact if that were true no sell side analysts would have the charter because they wouldn't be able to do their job. At several points in the last few weeks, I do state its risks and what I believe to be its opportunities. I showed you an example of when I clearly state its risks, including the allegations put forth of fraud. The part about me trying to stay away from outright saying BUY THIS STOCK is just my personal ethical efforts.

    Beyond that I think we're arguing in circles, vis a vis, my opinions on ONP and your opinions. I will let you get the last word on your last enormous point. I cannot respond to it all.

    Aug 12, 2010. 07:52 AM | Likes Like |Link to Comment
  • Orient Paper's Top Supplier: An Empty Shell Owned by ONP's CEO [View article]
    I'm not even sure where to start.

    Arrow said I should also be not anonymous. Well, first of all, I'm not the one making hugely controversial and no less than sensational claims. You all claim ONP, including its ceo, cfo, auditors and board are conspiring to commit fraud. I am merely saying this is NOT TRUE according to the evidence I see.

    And Arrow, I would challenge you to find anything I have ever written that recommends that anyone buy ONP right now. In fact there are multiple times where I say through posts that due to my code of conducts I follow, I cannot recommend buying or selling anything, and very often I say that ONP is an extremely risky move to invest in right now given the allegations and suited only for people with high risky appetites. Here is something I wrote on the boards several days ago, and here is the link.

    "Thanks for the support. I do have to say though this is not my recommendation to go out and bet your house on this stock. Given that it's micro cap, has country risk, and now has allegations about it, I would give it no more than an equal weighting. If Deloitte clears it you can bump it up a little in your portfolio, but basically-- don't go nuts."

    And Seasaw, I disagree that your alias name on SeekingAlpha holds you accountable. It is way too easy to just get a new alias name and no one would every know. You can't do that with your given name. Legitimate research analysts post their real names and credentials when they write their reports. If their reports go bust, they deal with the consequences of angry investors like men. You hide behind a fake alias name. You are publishing serious allegations and making extremely strong opinions about serious matters such as a stock's valuation so why should you be held to less accountability than a sell side analyst. Wait, I know why, because you're a blogger. And that is fine, so long as you stick to blogging, but my problem is that that SA lets bloggers publish their blogs as NEWS, similar to a sell side analyst. So, if they're going to let you publish an article that shows up in a news feed, I think they should make you publish your real name so you have to deal with the consequences of your research just like everyone else who gets that kind of publicity.

    These, of course are just my opinions. Eli Hoffman would disagree with me, as does SA in general.
    Aug 12, 2010. 12:09 AM | Likes Like |Link to Comment