Seeking Alpha

Mindful.Investor's  Instablog

Mindful.Investor
Send Message
I am an IT professional with MBA from NYU Langone program. I view the investing as part of my practice to control the greed and fear.
My blog:
  • ADY Has The Potential To Double In 3 Months 0 comments
    Feb 1, 2012 10:12 PM | about stocks: ADY

    ADY is currently being traded around $2.40, and I believe it will be around $6~$8 in 3 months.

    ADY is one of the top infant milk powder brands in China. It used to be a hot stock back in 2008, when melamine was detected in a wide range of Chinese milk power products, but since ADY's product was among the few that did not contain melamine, the company's revenue surged after the government announced the report. Sequoia Capital invested $63M into ADY to help ADY build farms that met international standards, as the infand milk power industry realized a high quality source of milk is one of the key drivers in attracting the worrisome mothers in China.

    Since the capital injection, ADY has not grown at the speed projected both by the company and Sequoia, so in February 2011, Sequoia decided to quit the funding partnership with ADY. Since then, ADY has faced cash shortage and eventually, it was forced to sell its two farms at $114M collectively. Howver, ADY is still guaranteed to get the raw milk from these two sold farms before any other infant milk power companies.

    I believe ADY is bottomed at this level around $2.40 for following reasons:

    1. The company will have enough cash from the sale of its two farms. (paying Sequoia $65M out of $114M), so bankruptcy will be almost impossible, its investors will realize that in March's annual report.

    2. The company's November sick cows news will drive 4th quarter revenue down slightly, and I believe revenue will be around $69M, with EPS ranges from 17 cents to 21 cents. After ADY denied those rumors, its sales started to recover in December. I expect ADY will earn $0.9 ~ $1 in 2012.

    3. ADY just introduced a tracking system through its new web site. Customers can track the source of milk powder (locations of the manufacturing facilities/farms, specific dates in the whole process. etc.), and this system will not only give customers peace of mind regarding the quality of the product, but also help eliminate the knock off products in the market.

    4. 2012 is the Year of the Dragon, and according to Chinese culture, children born in this year will supposedly be exceptionally lucky. Thus, an amazingly high number of babies will be born, which will drive the whole infant milk powder market.

    5. Just after Chinese New Year, the company annouced 200 new job positions, including sales representatives in multiple regions. It seems the company does not have any concern about the cash flow and is highly confident about the market growth in 2012. I expect the quarterly operation cash flow to be around $25M starting this quarter.

    Below is ADY's past seven quarters' net income and my estimated 4th quarter income.

    Disclosure: I am long ADY, EDU, FMCN.

    Themes: chinese stock Stocks: ADY
Back To Mindful.Investor's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.