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  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    One more thing here. In China the data such as address and phone number about a company that many web business pages pulled out may be the data for its "legal representative", not its own data. Legal representative is there just for procedural requirement. Strictly speaking, the only required responsibility of a legal representative is to forward government letters sent to a company he/she represents. Beyond that they don't have any further duties and ties with the companies they represent. The equivalent thing in the U.S. is called "registered agent": http://bit.ly/Rrn35B.

    I personally somebody in China who is a legal representative for 500 companies! He charges $20 per company per month to make a living. As a result of careless data pulling on websites in China, you'll see a lot of companies that all show the same phone number and address on some online information sites. In reality all they have in common is their legal representative. A common sense: it is very unlikely, if not totally impossible, for many companies to have real business operations squeeze all in some single unit in a building and use same telephone number.
    Dec 1 11:31 AM | 1 Like Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    Umbisam,

    Sure if you feel strongly about it, I encourage you to talk to Mr. Toups or their IR representatives directly.

    You need to be very careful about company or personal information found on online especially in China. Even in the U.S. reports and web writers make mistakes frequently, but the reporters and web posters in China are even less professional and more careless. Economic, industrial, or national information is less likely to be wrong, but at company or personally level it is very unreliable. In addition, just name wise like English names popular Chinese names are limited in number. So, may people have identical names, and many companies have identical names too. If you want to make sure you need to pull out personal identification card or company registration form kept in local Agency of Industry and Commerce. Personal identification number and business registration number are the only unique identifiers for people and companies in China.

    Kevin
    Dec 1 11:05 AM | 1 Like Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    Umbisam,

    There are information regarding the seller in the company's 2011 and 2012 10-K reports. If you want to know more beyond what has been disclosed, please call the CFO or auditor to see if they are willing to give you more information. Note that it is standard for this type of business transaction to have non-disclosure agreement signed between the parties. So, some information the company may not be able to disclose even if it wants to. The only possible exception of information disclosure (which is also quite common) is to government authorities and the company’s auditor.

    I don’t know what you want to know, but remember a key point in my article: sometimes too much information may actually blur your view on really important issues and your decision making. Longwei only buys this one property from the seller, and thus only cares about (1) whether the seller owns 100% of the property. For this the company can easily verify with government agencies and (2) whether the sale price is reasonable. For this the company had a professional asset appraisal company valued the property last year before signing the deal and again this year after the close of the transaction. The new appraised value actually was above the purchase price because land value increases in China every year.

    As a shareholder of the company and therefore indirectly a partial owner of the property, the only thing that is really important for me now after the transaction is closed is how much profit the property can generate for the company. At full capacity, the facility can probably generate U.S. $500M revenue and $60M - $70M net profit a year (will be higher if China currency appreciates further). That’s well worth the $110M purchase price in my opinion.

    Kevin
    Dec 1 01:59 AM | 2 Likes Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    No I wouldn’t tell you that they are changing auditor to a so called big-4 or big-10 one next month. I do not know for sure when they might make the switch. All I can tell you is that I personally don’t need them to hire a big-10 auditor to be comfortable putting my money in the stock. I honestly think that aside from brand name recognition there is really nothing wrong with their current auditor and that I trust their current auditor and their auditing process as much as I trust those of big-10 accounting firms. Here are the reasons:

    1. I for one don’t give big 4 or 10 accounting firms any “trust premium” over a small accounting firm provided that they do have adequate experience auditing public companies and Chinese companies. The word “upgrade” is truly misleading. Let’s face it: big 4 firms failing as frequently in ensuring the reliability of their American clients’ as well as Chinese clients’ financial statements as smaller accounting firms, and when they screw up they screw up completely, not just moderately, and they made investors lost maximum amount of money. I actually recall more fraud cases audited by big-4s than by non big-4s: Enron, Worldcom, Global Link, Bear Stern, Lehman, Movie Gallery, CCME, Sino-Forest, etc. Of course, this may due to some recognition or exposure bias, but again I have not seen any concrete statistics proving that big-4 or big-10 companies are really more reliable than others. As with other industries in the U.S., these big name houses just charge a lot more for the same service (completing same tasks) and sometimes with poor quality of service such as less responsive and unfriendly staff.

    2. For Longwei’s current business operations and scope, its current auditor has more than adequate resource and experience. Longwei’s current auditor Anderson Bradshaw PLLC specializes in auditing Chinese companies with years of experience in auditing public Chinese companies. It has in-house auditors based in its Utah HQ and Hong Kong office who are fluent in Chinese and know Chinese government and business practices and procedures very well. If you like big-4, the auditor’s staff has 30-years of combined big-4 experience. Take a look at their website: http://bit.ly/TrKqrj. Some of the accountants have very extensive experiences and strong reputation, while many have very strong educational background.

    3. In the last conference call I dialed in and asked the CFO their current auditing practice. The CFO said that their American auditors who are based in Utah office and their Hong Kong office employees go to Longwei’s offices in Shanxi 3 times a year to check a lot of documents and asked verifications from government offices, banks, customers, and clients. In other words these American accountants personally checked all documents and guaranteed accuracy and reliabilities of them. You can see two pictures with Longwei’s Utah auditor standing with the CFO and accounting manager in Taiyuan here: http://bit.ly/LDWz9D. If you want you can call the auditing firm to confirm. The CFO also said that the auditor has turned up the intensity and rigorousness of the auditing procedure this year due to the blown-up cases of some Chinese companies and SEC’s close scrutiny. It is not surprising to me at all if SEC pays more attention and conducted more review of the auditor’s practices and procedures because of its focus on Chinese companies. On the contrary, as I know all big 4 auditors “outsource” the auditing job of their Chinese clients to their brand offices or subsidiaries in China, and that’s actually the main reason that their U.S. headquarter failed to ensure that the auditing 100% follows U.S. SEC standard. When problem arises, these big-4 firms in the U.S. just wipe their hands clean and dump all blames and responsibility to their subsidiary in China. I am much more comfortable with Anderson Bradshaw’s auditing practice than big-4 firm’s auditing practice with Chinese companies.

    4. This one is purely personally. Longwei’s auditor is based in Utah, the capital of Mormon. The accountants shown in the photos on the auditor’s and Longwei’s websites look much more sincere and honest than those cocky accounts on east or west coast.
    Nov 30 07:40 PM | 2 Likes Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    Steve,

    I did write my first article about this stock when it was at low 1s way back in last December and earlier this year. However, unfortunately few people really listened.

    As I said in the article, your thinking about missing 1.3 and having to buy now at 2.4 is no different from many traders' thinking that Apple was expansive at 40 because it was 20 not too far ago. Well it turned out that 40 was still a fantastic entry point looking back. I am sure that several months later people who are new to this stock will complain "man it was 2.4 just awhile ago and now I have to pay 3.5" and then "man it was 3.5 just awhile ago and now I have to pay 4.5". Other than the points I already said in the article, I really don't know what else I can say about this. You'll just have to make a decision yourself. If you don't like the company, pass and move on. If you like it and you are an investor rather than a trader, think about how you define the stock as cheap or expensive in fundamental terms, not in technical terms.

    Kevin
    Nov 30 11:25 AM | 2 Likes Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    One more thing: the last fraud case - Autonomy, a well known European company that HP purchased, serves as a fresh and painful reminder to all American investors on the danger of blind, across-the-board negative view toward a country and blind, across-the-board trust toward another. Enron, Worldcom, Bear Stern, Lehman Brother, Madoff, and the list goes on...

    If all American companies are put under the same high standard as the one investors have been putting on Chinese companies and required to do all things Longwei has done that I mentioned in the article to 100% prove the reliabilities of their businesses and financial statements, odds is high that many will fail to deliver and thus should be viewed as not trustworthy under the "assume guilty until proven 100% innocent" judgment process, a complete contradiction to the "assume innocent until proven guilty" judgment process that the legal system of the U.S. is based on and that so many Americans are so proud of.
    Nov 30 04:51 AM | 1 Like Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    Ed, my primary reason of mentioning KMP is to show the similarity between its business operation and Longwei's. Of course, no two companies are 100% the same, but among all well known public companies KMP's business is probably the closest to LPH's. I see the following sentences of yours in description of KMP almost perfectly apply to Longwei too: "They are in strategic areas of US growth in refining and new fields that are reaching new production highs in merely transporting and storing product. They use capital well and buy at a discount, sell for the right reasons. "

    For Longwei, "They are in strategic areas of China growth in oil consumption and new factories, power plants, and mines that are reaching new production highs in merely transporting and storing product. They use capital well and buy [oil] at a discount, sell for the right reasons. " Note that for Longwei it pretty much has not got any external funding for more than 3 years amid extremely unfriendly and expensive capital market for Chinese small caps and used their own internal capital (operating profits earned from its business operations) to fund its expansion. Had investors been willing to give the company more money, it would have grown at much faster speed.
    Nov 30 04:24 AM | 2 Likes Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    Glen,

    Appreciate your comment, but your statements here and the reason that you have negative view on LPH, or most Chinese small caps I suppose, are the root cause of your and some others problems in investment. You are letting the stock's past price performance, which was pretty totally out of the management's control in 2011 and early 2012 amid the market's "sell all Chinese small caps and ask questions later" attitude and your pre-fixed subjective perception and assumptions, rather than facts, cloud your judgment.

    The factual data and information, such as the company's SAIC and SAT records, pointed to the conclusion that the company's reported profits are indeed true. There is a reason why Longwei was the first and the only Chinese company I know that are willing to publish their corporate tax records in China. I have not seen or heard any Chinese companies that are willing to "cook up their net profits" in their financial statements reported to PRC tax agency and pay huge amounts of additional taxes just to make them look good, certainly not any of the ones that were proven or almost proven to be frauds.

    I know you lost a lot of money in CCME and became highly skeptical to all Chinese small caps since. For the record (you can go see my past posts on my personal blog), I felt that CCME was a scam right from the beginning and did not put a dime into it. I do not blindly support all Chinese small caps. I only support a small number of companies for which hard data and informaiton that are directly tied to the companies' business operations and financial records pointed to true and strong companies.

    As for your comment about "permanently borrowing investors' money", Longwei still has fast growth in short horizon due to sales expansion from its large new facility. So, it is reasonable for the company to reinvest earned profits into inventory build-ups right now in order to maximize revenue and EPS growth for shareholders. Longwei has gone public to the main exchange for only 4 years. How many years had Apple gone public before returning first cent (first dividend) to shareholders?

    Kevin
    Nov 30 04:12 AM | 2 Likes Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    Rydall,

    Good point. The CFO said in several occasions that the two executives do not take compensation because they own 66% of the company and want to keep as much profits in the company as possible to help it grow. This is one benefit for having the founders of the company still having majority stake in the company after going public and having their interests naturally aligned with all other shareholders (compared to founders and CEOs of so many companies such as Netflix CEO who simply sell sell sell their shares).

    However, at some point they have to sell some of their shares to reep returns on their years of hardworking and investment in the company. That's why it is natural for them to pursue privatization and relisting in another market that is less discriminative to Chinese small caps to have their stock trading at much higher valuation level if the market in the U.S. keep on putting their stock at a low valuation level.

    Note that in the last earnings conference call (http://seekingalpha.co...) the CFO said all options including going private, dual listing, and staying single-listed in the U.S. in the future are all on the table. I think there are several reasons why Cai is more open to all options than many CEOs of Chinese small caps.

    First, compared to other CEOs he probably is less hostile to U.S. capital market simply because there are more supports to LPH than most other Chinese small caps. So, reciprocally he is still willing to give making LPH at fair valuation a try in the U.S.

    Secondly, the two biggest shareholders Mr. Cai and M.S. Xue seem to be more fearful of lawsuits than most other Chinese small cap owners. They also care more about their company's reputation than other CEOs probably partly because their company's assets and operations are more valuable than other companies' by nature and partly because his own personal value system (note that Mr. Cai is an ex high-rank officer in Chinese military). In addition, practically speaking it is harder for the "independent committee" to say that a buyout price below book value per share is fair for LPH shareholders because Longwei's assets and operations are more concrete and have been verified more and are relatively not risky (harder to argue that the company may suddenly run into loss in the future). So, to avoid lawsuit and greater chance for a court to approve the buyout, the offer price probably cannot be below book value per share, which is $3.5 right now and quickly rising to $4 by next spring.

    Thirdly, by giving out more information to the public the CEO Cai will make himself a stronger case in court if investors sue for not high enough price.

    Note that for dual listing there is actually no "conflict of interest" for Mr. Cai to push LPH stock higher in the U.S. before such event because the higher the stock's price is in the U.S. will also help a little bit for its dual-listing IPO valuation in Hong Kong or China.

    All in all I think if Longwei still ends up announcing a privatization, the case will be closer to YONG than to other smaller and less followed Chinese companies. In other words the offer price will be less ridiculous at least from trailing P/E standpoint. YONG offered $6.60, or about 5.41 times of trailing twelve month EPS at the time of announcement. Supposed LPH's TTM (1/1/2012 - 12/31/2012) EPS is $0.70 by next January/February, 5.41 times will be $3.79, a price that I think Mr. Cai will have no problem with. So, even if the stock appreciates to $3.5 before the buyout, I estimate that it still doesn't affect Mr. Cai's bottom line (it increases the chance for Mr. Cai to quickly get his offer approved since he has been so transparent with shareholders for so long).

    If, on the other hand, the stock does shoot over $4 before end of January and there seems to be strong institutions' and analysts' support keep on coming in, Mr. Cai may any going private transaction and just keep on doing good with American investors to see if the stock can keep on appreciating here in the U.S.

    Kevin
    Nov 29 08:18 PM | 3 Likes Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    RRU2,

    Good comment about Weitian group. The company certainly may attend more investors' conferences or do some road shows for funds and I-banks going forward. Personally I am more interested in the investors/analsyts day next year.

    Kevin
    Nov 29 06:24 PM | 2 Likes Like |Link to Comment
  • Simply Put, Longwei Petroleum Worth $6 Or More Per Share [View article]
    Joe,
    Sure, I respect your trading decision, but truly my honest suggestion, as the core spirit of this article goes, is not to make premature assumption that the upswing of a stock will just stop after some period or when you don’t feel it moving up. It not only applies to Longwei but to any stocks in similar situation. There are times when technical trading (resistance, supports, trends, etc.) works well, and there are times that it is a wild guess at best. LPH is certainly in the later status right now. The breaks above $1.8x and $2.0 have proven this.

    This much is for sure that almost all investors and traders see and agree: the 3-year old warrants have created a super resistance at $2.25. Now it is gone. I have not written about LPH specifically for a long time, but I think now is the right time for me to let all existing investors and potential investors (those who are interested in oil stocks or Chinese stocks) hear my views because so many significant developments have happened to the stock over the past 4 months. I actually had this article ready a while ago, but under strong suggestions of some big shareholders of Longwei I have decided to hold publishing it until the warrants have expired because I think it would be unfair for warrant-holders and none-holders if I published this article before expiration. Had I published it before warrant expiration, I would have been seen trying to help the stock breaking through the exercising price and make more warrants exercised (although I honestly don’t think I or anybody can move the stock significantly above the formidable resistance). I think over past one month or so many writers have made the same decision of temporarily holding publishing new LPH articles too.

    Now that concern is gone, and the stock is once again set free. So, people who are strong value-focused investors can feel free to buy the stock again without worrying about increasing share count, giving warrant holders advantages, or simply seeing their buy effort bumping into the stone wall of $2.25.

    As for news, again my suggestion is not to make premature conclusion. From what I see at least November operational result and details about the investors/analysts day early next year should be coming in short horizon.

    As for BP vs LPH, yup sure I will give BP some preference over LPH if the two are trading at the same P/E, but unfortunately BP is trading at more than twice of LPH’s valuation. So, that is really a muted point of discussion.

    Kevin
    Nov 29 06:21 PM | 6 Likes Like |Link to Comment
  • Important Lessons Learned From Apple Over The Past 10 Years [View article]
    Water96,

    Ok, purely from the standpoint of current valuation, it is hard to say that Apple is overvalued. 12.8 times of annual net profit is by no means expensive for a company that is growing at 27% right now. Microsoft, which is growing much slower than Apple, is currently valued at 14.5 times of annual net profit.

    The key question, though, is over the next 10 years whether Apple’s revenue will keep on growing at this fast speed, at slower speed, not growing at all, or even contract. Another important question is whether the company can sustain its current high margin. I am more positive on the answer to the first question. Even if the company loses some of its “fashion appeal” in the eyes of consumers and hypes of new product introductions, it probably can still maintain certain level of market share and grow its revenue as global smart phone and tablet markets, which are still far from mature, keep on growing.

    I am less positive on the answer to the second question. Apple’s margin right now is very high for a high-volume electronic seller by any standard, similar to Sony’s margin on audio stereos 25 years ago, or IBM’s margin on laptop 20 years ago. Exactly how excessively high is Apple’s margin? From the view point of the utility of a tablet, Apple is charging consumers probably 10 times of what the gadget’s functions really worth. Look at the last hot discussion of the tablet world: Indians’ $35 tablet: http://ti.me/1039kDm.

    Now, I don’t expect Apple to lose its brand name superiority and premium margin so fast. My guess is that it probably will be able to stay as the top brain in electronic gadget world for at least three more years. It’s margin and/or revenue growth rate will probably only drop gradually for the next 5 years. Of course, if the company is able to make other revolutionary inventions for consumers, its revenue growth and high margin may stay longer. It is just a little hard for me to imagine that kind of further revolutionary breakthrough keep on coming out even from even such an innovative company like Apple.

    So, for now I am setting my expectation of Apple over the next 10 years as IBM in 1990s. It will still grow at above average speed and be a good investment, just not the outrageously splendid investment it was 10 years or 5 years ago.

    Kevin
    Nov 20 01:45 AM | Likes Like |Link to Comment
  • Important Lessons Learned From Apple Over The Past 10 Years [View article]
    Pal,

    You are right. Nope, I by no way meant to say that I think there is a chance for Apple stock to give us another 10,000% return over the next 10 years, probably not even 500% return. I think at this point Apple is a good super cap company that more likely than not will give investors good return but not homerun return.

    As I said in the article, we need to identify next Apple and invest in its young age to seek extraordinary alpha. You can read some of my other articles to get a sense of what some other companies I am bullish on. I and my family have very extensive experience doing business in China and Taiwan. Therefore, I am more poised to identify solid Chinese companies that I think are current enormously undervalued.

    Kevin
    Nov 19 03:10 PM | 2 Likes Like |Link to Comment
  • Important Lessons Learned From Apple Over The Past 10 Years [View article]
    Waters96,

    That's a far more difficult question to answer than what can be said about past 10 years of Apple as I did in my article. I'll give you a more thorough response of my take later today. In conclusion I am in a "buy but not strong buy" camp for Apple right now.

    Kevin
    Nov 19 03:03 PM | 1 Like Like |Link to Comment
  • Trunkbow A U.S.-Listed Chinese 'Mobile Payment' Company Also Going Private [View article]
    The only "strange" I see is that it it too low as DT and many other writers pointed out about many Chinese small cap buyot offers lately. However I can tell you that American investors have put themselves in an awkward situation in front of a judge I can tell you. Many of these companies have been trying very hard to let the market know all the positive developments happening in their companies and said that they are bullish about their companies' future. Some of them also explicitly said in conference calls or new releases that their stock price way too low, as LPH CEO said in the 3rd last paragraph in the new piece for updated Huajie asset appraisal published on 10/22. Read it and you know exactly what I am talking about. If LPH dish out a buyout offer at say $3.5 right now, shareholders will have no chance to win their "price too low" lawsuit in court. The judge will say: "well since you didn't think the company was worth $3 and haven't been willing to pay above $3 for 2 years, why are you now complaining when you are paid $3.5 per share?"

    My suggestion to these law firms: in addition to suing the companies you should also sue theose bashers that have kept on throwing out allegations to these companies without concrete evidencea and told investors to adopt the crazy mindset of "presume guilty until 100% proven innocent" and sell sell sell the stocks even when the P/Es were already at 80% discount to industry average.
    Nov 8 03:09 PM | 5 Likes Like |Link to Comment
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