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Old China Hand
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After managing a $1 billion international portfolio for one of the largest hedge funds in the mid 1990s, I have been a private investor for 15 years and am a proud owner of two Chihuahuas.
  • Huge backlog growth point to major Q1 2011 earnings beat 0 comments
    Mar 21, 2011 12:24 AM | about stocks: CVVT
    Much has been said about CVVT guiding down revenues from 30% growth to the 25%-28% range (equating to $228 to $235 million).

    Q4 2010 revenues came in at $52 million compared to analyst expectations of $44 million. If the additional $8 million of revenues had not come through, 2010 revenues would have been reduced from $183 million to $175 million. 30% revenue growth for 2011 from that latter number is $227 million. So revenue projections for 2011 have actually been raised!

    Furthermore, in the conference call CVVT management stated that backlog had increased from $80 million for Q3 2010 to 850 million RMB ($129 million) for year-end 2010, which is quite a quantum leap! From that year-end backlog, they expected 250 million RMB ($38 million) of revenues to appear in Q1 2011. Assuming CVVT gets additional orders which get shipped in the same quarter, it would be reasonable to expect at least $45 million of revenues for Q1 2011.

    Q1 2011 analyst estimates before the earnings call was for $40 million of revenues. After the call in their financial models Roth expects Q1 2011 revenues to be $35.8 million; Piper Jaffray has $32.3 million; and Brean Murray forecasts $40.3 million.

    So the company is setting itself up to beating Q1 2011 estimates by a substantial margin.

    Organic growth for Q4 2010 accelerated to 32.6%; assuming this momentum carries on to the following year, 2011 revenues and earnings look in fine shape.

    I thought that CEO Mr Wang and CFO Dr Wei did an excellent job explaining current business conditions and mapping out the company's bright future. I believe shareholders are in very good hands, with a billion dollar market cap being a very reachable goal.

    I am looking forward to receivables stabilizing and the company generating $50 million of free cash flow for 2011. Year-end cash balances should be $90 million, half of the current market cap. Net of year-end cash, 2011 p/e comes to 2x. This is an extraordinary price for probably the finest company in the Chinese RTO space.

    It is worth noting that as the premier valve company in China, with incredibly close governmental ties as it is dealing nearly exclusively with state-owned enterprises, with the Chairman as head of the China Valve Association plus analysts having visited and inspected all 6 of the operating plants, the issue of "fraud" in this instance is particularly nonsensical.

    Comments welcomed.

    Disclosure: I am long OTC:CVVT.
    Stocks: CVVT
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