China Yida Holding Co (NASDAQ:CNYD)

Added to the GeoSpecial list on July 14, 2009 @ $9.01
Added to the GeoBargain list on July 14, 2009 @ $9.70

Catalyst: Had been reporting strong EPS growth; New tourist ventures are expected to add a new phase of revenues.
Peak performance: Reached a high of $17.00 on June 11, 2010
Current Price: $12.60

Current road block: We are not quite sure CNYD will be able to achieve 30% EPS growth in the near term; For the media business management expects 2010 organic growth of only 5-10% in advertising revenues from FETV; Delays in construction and lost business resulting from Southern China Flood on June 18, 2010 will likely negatively effect the next two quarters.

"On June 18, 2010 the Taining County in the Fujian Province of China recorded an average 9.2 inches of rainfall within 24 hours, causing flash floods in the county. The entire county suffered enormous damage in this disaster. China Yida's tourism properties within the Great Golden Lake suffered unprecedented damage, with total impairment of tangible assets estimated at $0.5 million. In addition, the Great Golden Lake tourism area is expected to be closed until June 30, 2010, which is expected to lead to an estimated direct loss in revenues of approximately $0.3 million. The expected Great Golden Lake reopening date is subject to change, and will depend on weather conditions as well as progress in the cleaning and restoration effort. Management is pleased that visitors and employees were reported safe and unharmed during the flood, and that the appeal and beauty of the natural resources in the area have not been affected."

The fact that the company has some monster 2009 EPS quarters they are going up against (Around .40 for each of last three quarters of 2009) also poses some challenges.

Basically we have another situation where short-term we are faced with some EPS growth challenges.

Short term and risk adverse investors should be aware of the quality issues currently present in the ChinaHybrid Space, questioning the validity of what seem like solid fundamental stories. It is beginning to get ugly so be cautious and understand that more pain may have to be endured, as ChinaHybrids are easy prey for short investors. The broad brush that is being applied to theses stocks appears unfair, but we can’t ignore the psychological impact this can have on investors’ portfolio decisions. If history is our guide, fear will eventually create an immense opportunity to invest in the companies that prove they can meet quality litmus tests enact shareholder friendly moves. Credibility can also be restored if independent legal/SEC opinions validate accounting practices currently in question.

With a cash balance of approximately $31.06 million and 2010 annualized operating cash flow tracking at about $32.0 million, liquidity seems intact. However, the company has left the door open for more dilution:

"In April 2010, we engaged two new tourism projects, the Ming Dynasty Entertainment World in Bengbu City, Anhui province, and the China Yang-sheng (Nourishing Life) Paradise in Zhaungshu City, Jiangxi province, which represent our commitment to expanding our business operations by applying our current business model to the development of other valuable tourist destinations throughout China. We expect both projects will complete their first phase of construction and be open to public by the end of 2012. Over the course of the next few years, we intend to further grow and expand our businesses in China’s tourism, media, entertainment and other related industry by acquiring additional tourist areas. Such acquisitions will be financed either through our revenues and cash flows or by financings and sales of our stock or other securities. "

Long-term investors should read Drexion’s post from March 24, 2010.

Our intent over the short-term is to build a check list to assess the risk position of firms in the ChinaHybrid space. For the time being this will consist of the following: (this list is likely to grow substantially)

-Is the company's auditor ranked in the top 100?
-Is the auditor located in the U.S.A? If located in China the PCAOB (Public Company Oversight Board) may be denied access to investigate the practices of the auditing firm. Short sellers have been using this information as a tool to validate their opinions.
-Are the company's internal controls satisfactory?
-Are their any outstanding legal issues?
-Do the company's top ten customers represent less than 10% of revenues?
- Operating cash flow divided by current liabilities is greater than one. The higher the better.
- Cash divided by current liabilities. This is an the most conservative liquidity ratio. The higher the better.

Short term and risk adverse investors should be aware of the quality issues currently present in the ChinaHybrid Space, questioning the validity of what seem like solid fundamental stories. It is beginning to get ugly so be cautious and understand that more pain may have to be endured, as ChinaHybrids are easy prey for short investors. The broad brush that is being applied to theses stocks appears unfair, but we can�t ignore the psychological impact this can have on investors� portfolio decisions. If history is our guide, fear will eventually create an immense opportunity to invest in the companies that prove they can meet quality litmus tests enact shareholder friendly moves. Credibility can also be restored if independent legal/SEC opinions validate accounting practices currently in question.

We have yet to verify if the Chinese filings for ChinaHybrid stocks we monitor match respective SEC filings. We are in the process of completing this task. Conservative investors may want to limit exposure or buy put options on stocks, that have this availability, as insurance against long positions, until we publish our findings. Odds are we will identify some promising companies that will fail this litmus test.

Please note: On July 6, 2010, the GeoTeam® removed all Chinese stocks that were on GeoBargains and GeoSpecial lists to respective Radar lists as we complete our "quality assessment."

***Very Important GeoTeam® note. We have yet to verify if the Chinese filings for ChinaHybrid stocks we monitor match respective SEC filings. We are in the process of completing this task. Although we are not totally convinced that SAIC filings are an accurate represenation of financial statements the issue is impacting stock prices. Conservative investors may want to limit exposure or buy put options on stocks, that have this availability, as insurance against long positions, until we publish our findings. Odds are we will identify some promising companies that will fail this litmus test.

see relevant articles