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Rob Feinblatt is an individual investor.
  • Yongye International (YONG) is the next big agriculture play in China 0 comments
    Mar 9, 2010 5:24 PM | about stocks: YONG, CAGC, CGA

    Most investors in U.S.-traded Chinese stocks, in particular agriculture companies, know China Agritech Inc (OTCPK:CAGC) which supplies fertilizers to farmers.  CAGC sported a whopping 66% revenue growth in 2009 with 92% net income growth.  Without question, terrific growth particularly given the economic malaise of 2009.  Interestingly, CAGC serves the highly competitive fertilizer market with relatively high margins lending credence to the barriers to entry for selling to local farmers in disparate provinces.  CAGC has a P/E multiple over 30x EPS which compares favorably to its growth rate but is too rich for most investors risk appetite, in my view.

    Hence, lets look at Yongye International (NASDAQ:YONG).  Yongye is a lesser followed, equally impressive grower in the Chinese ag market.  The company sells a proprietary "nutrient" used by farmers for planting and animal life growth known as a fulvic acid.  They operate through a unique, powerful business model adding store-fronts throughout Chinese provinces (9,000 at the end of 2009) while branding their products and giving them a low cost distribution network.  The company has been adding capacity aggressively and plans for 50% plus growth the next 3 years with expanding margins.  Right now the company has low 50's gross margins which should rise with the vertical integration of lignite coal acquisition to as high as the low 60s GM percentage.  

    YONG trades a 9x 2010 estimates of 1.00.  9x!  That's a third of CAGC's multiple and the company has equally strong growth prospects with arguably less competition going forward.  ITS A BUY!  Price target is $18 which would be 18x 2010 estimates and 12x 2011 estimates.

    Disclosure: Long YONG

    Stocks: YONG, CAGC, CGA
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