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YUII, is it too good to be true?

Apr. 02, 2011 5:27 PM ETYUII
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To the all shareholders of YUII (Yuhe International, Inc): I am an individual investor. I believe that YUII (Yuhe International, Inc) is lying about their financial report. I don’t think they can make such good profit. It is too good to be true. The reason is below:1.      In 2009, the DOB (day old broiler) price is crushed; it is far below the cost. All the big competitors like Shangdong MinHe Animal Husbandry Co. Ltd had a big loss. But YUII had a big profit; their profit margin was as high as 27%. This is too good to be true. DOB is basically like commodity, you can not sell higher price than others. Their cost is 80% of soybean and corn (Also commodity), you can not buy these stuff far below market average price. One more reason is Shangdong MinHe Animal Husbandry Co. Ltd had higher brand recognition in Shangdong province, China. Minhe sell their DOB a little higher than YUII. And MinHe is 2 times size of YUII. These two company are in same province, same market area. There should not be such big difference.2.      In 2010, YUII had a net profit margin of 29%. At the same time, Minhe only has 4%. We know this is a commodity. 4% is reasonable. 29% is ridiculous. And I also find some other competitors in China who has same profit margin around 5%. So I believe this is an industry average. How YUII can have such high margin??? Is that suspicious?3.      YUII said they don’t have account receivable because the customers all pay cash. This is in China. If you know a little about business in China, you will know this is impossible. Every company in China has account receivable. All the other competitors have, why YUII don’t? What makes YUII so special?4.      YUII made 19.5m, 12.7 million, and 10.5 million in 2010, 2009, and 2008 respectively. At the same time, MinHe, a company 2 times size of YUII, lost 42 million RMB (about 6.3 million USD) in 2009, and made 41 million RMB (about 6.2 million USD) in 2010. MinHe had an profit projection for 2011 and 2012 is around 10.1 million USD and 11.2 million USD. 5.      YUII made a lot of acquisition recently. All these acquisitions are suspicious to me. There must be some accounting shenanigans.Conclusion: YUII tried their best the telling you a perfect 5 stars company growth story (high margin, no account receivable, excellent cash flow, high growth rate, smart acquisition). But, if you look closely to all these elements, this just makes no sense. This is just another mediocre Chinese company which is not qualified to make public offer in Chinese market. Then they made some shortcut, hired some unknown accounting firm in US, get listed on US market. They are telling the fancy stories to American investors and fooling around because they know American investors won’t find the truth. Sincerely, Flywiththewolf

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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