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Phil Charles
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Ph.D., MFE, Based in Los Angeles I have been covering Chinese stocks listed in the U.S. and Hong Kong for four years
  • Acorn International: The Most Undervalued Chinese Stock 2 comments
    Dec 9, 2009 4:47 PM | about stocks: ATV
    Cheap Valuation
    I have been covering hundreds of Chinese companies listed in the U.S., Acorn International (NYSE: ATV) is one of the most undervalued Chinese stocks I can find! Currently, the company’s market cap is $144 million, based on its today’s price of $4.86 and a total of 29.6 million shares of ADS outstanding. However, according to its quarterly financial report, by the end of September, 2009, it has cash and cash equivalents of $150.4 million, meaning cash value of $5 per ADS, and its book value is ~$8 per share. So basically, you are buying Acorn’s business for free! That’s why I think this company has been overlooked by majorities of American investors. I expect it to rise to at least $6 in the next few months, which will give us a 20%+ return.
    Superior Business Model
    Founded in 1998, Acorn is the No.1 TV shopping company in China with 17% market share. It airs infomercial programs through 46 channels (34 nationwide and 12 local) across the country reaching over 500 million people, and also runs a nationwide distribution network. Its uniquely scalable and multi-platform strategy maximizes consumer exposure and cross selling opportunities. The company leverages its interactive, cross-media sales platforms to build, promote and distribute proprietary Acorn brands. Its top selling products include electronic learning devices, cell phones and cosmetics.
    Chinese Consumer Story
    Chinese domestic consumption is the biggest investment theme in China! Despite global financial crisis, China’s retail sales grew ~15%-16% so far this year. TV shopping has become more and more popular among the Chinese middle-class. Currently, TV shopping only represented 0.1% of total retail sales in China, compared to 8% for the U.S. and 12% for Japan and Korea. So it suggests tremendous growth potential for Acorn, which is already the leader in the industry.
    Acorn Is Turning Around
    Since the last quarter of 2008, Acorn’s management has refocused on its own branded product lines. As a result, its sales have been turning around. Its first nine month revenue rose 30% to $227.9 million from the same period a year ago, while net income were $22.6 million, compared to a loss of $12.7 million. The management expected to “achieve net revenues in the range of $280 million to $290 million and net income from continuing operations excluding share-based compensation expenses and non-recurring impairment charges to be $10 million to $11 million”.
    Though some investors might be concerned about the new regulation on TV shopping in China, on the contrary, I think the new regulation will wipe out weak competitors and further consolidate Acorn’s leading market position.
    Without further ado, if you buy my idea on Acorn International, then you should invest some in the stock. Happy Investing!

    Disclosure: Long ATV
    Stocks: ATV
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  • wheatvschaff
    , contributor
    Comments (10) | Send Message
    Agreed. Holding this stock in my portfolio. Here's how I see it:


    ATV has 172 million in net cash and investments, which is $5.90 per ADS. It also carries its 33% interest in the stock software company at cost, which undervalues that asset. And, of course it has a TV shopping business that will do about $290 million in revs and $10+ million in net income. Hard to see how the sum of these parts are worth anything less $8 per share. Finally, the Guthy-Renker deal could add a lot to 2010 revs and earnings.
    15 Dec 2009, 06:37 PM Reply Like
  • Phil Charles
    , contributor
    Comment (1) | Send Message
    Author’s reply » The management finally made the right call by announcing a special dividend. Great!
    21 Dec 2009, 03:46 PM Reply Like
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