L & L Energy (NASDAQ:LLEN)

2011 Fiscal First Quarter:

• Shunda Mining Company acquisition is taken off the table.  During the LLEN's due diligence process, management spotted safety record issues that would have increased business risk.
  
• Assured investors that the company is evaluating additional accretive acquisition targets that could help exceed financial guidance; Believes a transaction will be consummated before the end of 2010.
  
• Reaffirmed that company guidance does not include acquisitions.   
  
• Addressed sequential decline in gross margins: The company continues to diversify its business and reduce overall business risk. Part of this strategy includes ramping up its coal washing business which carries less margin than direct mining operations.  Management also noted that the company has made some investments that may benefit margins going forward.
  
• Vertical integration strategy and emphasis on being a service provider gives it pricing power.
  
• Financing goals: Appears that the company will use debt over equity in the current market environment.
  
• L & L Energy has strengthened its internal control procedures.
  
  
  • Hired internal auditors and a CPA from Arthur Anderson.
  • Will continue to upgrade professional staff.
  • Contemplating retention of a new auditor.

L & L Energy reported preliminary results for its fiscal 2011 first quarter:

• Revenues for the first quarter increased approximately 336% to $55.3 million, compared with revenues of $12.7 million in the same period a year ago.
  
• Gross profit for the first quarter increased to $18.6 million, up approximately 207% compared with $6.1 millionin the same period a year ago.
  
• Net income increased approximately 306% year-over-year to $10.9 million, compared with $2.7 million in the same period a year ago.
  
• Earnings per share for the quarter totaled $0.36 per diluted share, an increase of approximately 177% compared with $0.13 in the same period a year ago.

"We are delighted to be able to announce such exceedingly positive preliminary results for our first quarter," commented Dickson Lee, Chairman and CEO of L&L. "We continue to experience the accretive effects of the four acquisitions we made last year, as well as the benefits of operational improvements at those facilities. China's government recently reiterated its commitment to consolidate the coal industry and support mergers and acquisitions of smaller mines, which form the crux of our strategic expansion. We look forward to sharing our full quarterly results with our shareholders shortly.  We expect strong continued growth for the rest of the year as we continue to execute our core businesses, integrate our recent acquisitions, and seek out new growth avenues."

GeoTeam note:

According to analysts estimates, LLEN has one more quarter left of above average EPS growth, before EPS growth is forecast to slow for a few quarters.

Quarter	Fiscal 2012	Period Change	Fiscal 2011	Period Change	Fiscal 2010
First	$0.45 E	9.8%	$0.41	215.4%	$0.13
Second	$0.49 E	16.7%	$0.42 E	41.4%	$0.29
Third	$0.40 E	25.0%	$0.32 E	-5.9%	$0.34
Fourth	$0.52 E	26.8%	$0.41 E	2.5%	$0.40
Year	$1.85 E	20.1%	$1.54 E	32.8%	$1.16

Source: Reuters

We have referenced this issue in the past. Please be aware that 2011 company EPS guidance of $1.61 is greater than analyst estimates.  Also keep in mind that LLEN goal is to pursue accretive acquisitions.

 

Fiscal Year 2010 Financial and Operating Highlights

(Pending Finalization of Audit)

Management believes that:

• Revenues generated in fiscal year 2010 increased to approximately $109 million, up from $41 million in 2009, representing a 166% increase.
• Operating income for fiscal year 2010 doubled to approximately $39 million, compared to $19 million in 2009
• Net income for fiscal year 2010 tripled to approximately $30 million, compared with $10 million in 2009
• Fully diluted earnings per share for fiscal year 2010 were approximately $1.17, up from 2009 EPS of $0.46.

Dickson Lee, Chairman and CEO of L & L, commented: "We are thrilled to report such dramatic growth in our fiscal year April 30, 2010 results.  We believe our financial performance in 2010 showcases the effectiveness of our aggressive growth strategy.  We have seen strong organic growth this year, coupled with an unprecedented number of successful acquisitions, which resulted in sales growth of 2 1/2 times.  The integration of these new additions into our existing operations will continue to benefit the Company. We will continue to look for other strategic actions to create the best possible value for our shareholders. We expect continued high demand for our products in the long-term, as approximately 80% of China's electricity generation is fueled by coal. We look forward to fiscal year 2011 with enthusiasm, and will share any new developments as they materialize."

Financial Outlook for Fiscal Year 2011

Management reaffirms previously stated guidance of $218 million in revenue and $46 million in net income for fiscal year 2011 ended April 30, 2011. These organic growth projections translate to EPS of $1.61 based on 29 million shares outstanding today. This does not include Company's potential acquisitions. Revenue and net income guidance projections for fiscal year 2011 represent year-over-year growth of 100% and 56%, respectively, from 2010.

 

The Company expects

• Revenue of $218 million for the 2011 fiscal year ending April 30, 2011 which represents growth of approximately 102% over previously released 2010 guidance of $108.1 million.
• Expects net income after tax and minority interest to grow from an estimated $28.1 million in 2010 to $46.7 million in 2011 for an increase of 66%. The Company is
• Earnings per share of $1.33 for 2011, an increase of 41% over previously released 2010 guidance EPS of $0.94 for the fiscal year 2010.

Removing L&L Energy from the GeoBargain list. The company issued bullish fiscal 2011 annual guidance. However, breaking the guidance down on a quarterly basis will likely not result in the quarterly 30% EPS minimum growth required for a GeoBargain.

Added to the GeoBargain List on May 19, 2009  @ $1.90

Reached a high of $14.91 in April 2010.

Current price $10.25

Management believes revenues and earnings would exceed the previously provided guidance released in March 2010. Management said that it expects fiscal 2010 annual revenue ended on April 30, 2010 to be higher than $108.1 million. The Company also believes net income would exceed the previously announced $28.1 million, or $0.94 EPS, on a GAAP basis, subject to final audit.

"We have two important elements working in our favor: first, demand for coal in the world's fastest growing economy, China, continues to exceed supply; and secondly, the PRC's mandate that smaller coal mines make infrastructure investments to improve efficiency and safety or face being shut down. With the mandate in process, we intend to acquire more profitable coal mines and help comply with the PRC mandate, that will bring in significant revenue and profits."

Valuation Scenarios

Coded as a GeoBargain on May 19, 2009 at a price of $1.90

Data Inputs:

Fiscal Year Ends in April
 

Date	08/03/09	03/04/10
Price	$3.05	$8.47
12 Months Trailing EPS a	$0.29	$0.52
GeoTeam 2010 Fully Tax-Adjusted EPS Estimate Based on Company Revenue Guidance	$0.74	$1.00
EPS Growth Rate Based on  GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	52.7%	185.7%
P/E Ratio Based on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	4.12	8.47
PEG Ratio (P/E divided by growth rate)	0.08	.05

^a All EPS numbers have been adjusted by the GeoTeam® to reflect a standard tax rate.

Short-Term Valuation Scenarios

Date	08/03/09	03/04/10
Price Based on P/E of 25 on Four Quarters Trailing EPS	$7.25	$13.00
Price Based on P/E of 20 on Four Quarters Trailing EPS	$5.80	$10.40
Price Based on P/E of 15 on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	$11.10	$15.00

Long-Term (12 Months Forward) Valuation Scenarios

Date	08/03/09	03/04/10
Price Based on P/E of 25 on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	$18.50	$25.00
Price Based on P/E of 20 on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	$14.80	$20.00

Peg Ratio Analysis - Common rule of thumb that PEG ratio should be less than 1.0

PEG Ratio Less than 1?

YES

These scenarios are not investment advice, but are scenarios based on some commonly used investment guidelines.  They are provided to aid investors in making their own investment decisions.

This morning LLFH announced the closing of a financing deal with Laidlaw & Company.  This is significant as LLFH previously stated fiscal 2010 guidance was contingent upon financing, which was also reaffirmed. The GeoTeam® is still awaiting news of an exchange uplisting.

Source: PR News Wire (October 9, 2009) 

Yesterday, LLFH released its fiscal 2010 first quarter financial results. 

1st QUARTER Fiscal 2010 vs. 2009 FINANCIAL SNAPSHOT ENDED JULY

	1st Quarter 2010	2nd  Quarter 2010	Period Change
GAAP Revenue	$12.75 million	$10.67 million	19.5%
GAAP EPS	$0.126	$0.118	6.8%
Tax Rate	7.0%	7.0%	0.0%
Fully Tax-Adjusted EPS	$0.089	$0.084	6.0%
Fully Diluted Shares	21,307,409	21,944,901	2.9%

At first glance the results were not up to par to what we were looking for. However, the following factors have to be considered :

1. Less than one month of sales were included in its recently acquired coal washing facilities.

2. The GeoTeam® is assuming that there may have been some one time integration costs associated with the coal washing facilities.

3. In its Rodman investor presentation LLFH issued very bullish guidance.

4. Comments from the company remain bullish:

"In the next quarter, L&L will show a full 3 months of operations from coal washing and results will be much more impressive as Hon Shen and DaPuAn have a combined annual capacity of over 500,000 tons."

Source: PRnewswire (September 15, 2009)

 
FULL YEAR 2010 Guidance Ending April ^a,b

	Full Year 2010 Guidance	Full Year 2009 Reported	Period Change
GAAP Revenue	$108.1 million	$40.9million	164.3%
GAAP Net Income	$28.1million	$9.9 million	183.8%
GAAP EPS	$0.94	$0.46	104.3%
Fully Diluted Shares	30.0 million	21.6 million	38.9%

Source: SEC Form 8K (September 10, 2009. Page 13)

^a The above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

^b Guidance is subject to funding requirements.

 

Excerpt from the GeoTeam's® initial report on L & L Intl Holdings.

Tying It All Together

L&L's favorable revenue guidance along with industry trends have prompted the GeoTeam to follow the LLFH story. At a quick glance the the stock is selling at at P/E of just 5 times the fully taxed adjusted 2010 analyst EPS estimate of $0.39 (Analyst estimate is $0.47) Furthermore, this estimate is likely conservative for three reasons:

1. The estimate is based on revenue of $55.1 million which is below the company's recently stated guidance of $95 million.
   
2. The estimate is based on 22.49 million diluted shares outstanding. The company currently has 20.5 million diluted shares outstanding.
   
3. The estimate does not include the revenue contribution from its new coal washing endeavor.

It should be safe to assume that analyst EPS estimates will be substantially raised. A quick rudimentary analysis implies 2010 EPS potential of $0.74 fully taxed. The company should be reporting 2009 year end results shortly, which will shed further light on the future, at which time the The GeoTeam will create detailed potential valuation scenarios.

Its also interesting to note that currently L&L owns 60% of its recently acquired mines. The company has commented, in its SEC filings, that it would like to pursue a 100% ownership. Depending on how such a deal would be structured it could add another element of EPS upside.

New article available for L & L International Holdings

Valuation Scenarios

Coded as a GeoBargain on May 19, 2009 at a price of $1.90

Data Inputs:

Fiscal Year Ends in April
 

Date	08/03/09
Price	$3.05
12 Months Trailing EPS a	$0.29
GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate Based on Company Revenue Guidance a	$0.74
2010 Future EPS Growth Rate Based on  GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate a	355.2%
P/E Ratio Based on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate a	10.5
PEG Ratio (P/E divided by growth rate) a	0.03

^a L & L Intl Holdings is not paying a full U.S. tax rate.  Therefore, all EPS numbers have been adjusted by the GeoTeam® to reflect a tax rate of 36%.

Short-Term Valuation Scenarios

Date	08/03/09
Price Based on P/E of 25 on Four Quarters Trailing EPS c,d	$7.25
Price Based on P/E of 20 on Four Quarters Trailing EPS c,d	$5.80
Price Based on P/E of 15 on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	$11.10

Long-Term (12 Months Forward) Valuation Scenarios

Date	08/03/09
Price Based on P/E of 25 on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	$18.50
Price Based on P/E of 20 on GeoTeam 2010 Fully Tax-Adjusted Implied EPS Estimate	$14.80

Peg Ratio Analysis - Common rule of thumb that PEG ratio should be less than 1.0

PEG Ratio Less than 1?

YES

These scenarios are not investment advice, but are scenarios based on some commonly used investment guidelines.  They are provided to aid investors in making their own investment decisions.

Fiscal Year Ends April

Fiscal 1st QUARTER 2009 vs. 2008 FINANCIAL SNAPSHOT ENDED JULY

	1st Quarter July Fiscal 2009	1st Quarter July Fiscal 2008	Period Change
GAAP Revenue	$12.4 million	$8.3 million	49.4%
GAAP EPS	$0.16	$0.01	1500%
Tax Rate	0.0%	0.0%	0.0%
Fully Tax-Adjusted EPS GAAP b	$0.10	$0.01	900.0%
Fully Diluted Shares	21,944,901	20,365,869	7.8%

Source: See Filing for the period ended July, 2008

---

Fiscal 3rd QUARTER 2009 vs. 2008 FINANCIAL SNAPS HOT ENDED OCTOBER

	2nd Quarter OCTOBER Fiscal 2009	2nd Quarter OCTOBER Fiscal 2008	Period Change
GAAP Revenue	$11.3 million	$7.8 million	44.9%
GAAP EPS	$0.11	$0.02	450.0%
Tax Rate	0.0%	0.0%	0.0%
Fully Tax-Adjusted EPS GAAP b	$0.07	$0.01	600%
Fully Diluted Shares	22,386,910	19,987,885	12.0%

Source: See Filing for the period ended October 31, 2008

---

 
Fiscal 3rd QUARTER 2009 vs. 2008 FINANCIAL SNAPSHOT ENDED JANUARY

	3rd Quarter JANUARY Fiscal 2009	3rd Quarter JANUARY Fiscal 2008	Period Change
GAAP Revenue	$10.0 million	$5.5 million	81.8%
GAAP EPS	$0.10	$0.03	233.0%
Tax Rate	0.0%	0.0%	0.0%
Fully Tax-Adjusted GAAP EPS b	$0.06	$0.02	200.0%
Fully Diluted 22,386,910 Shares	22,488,896	19,987,985	12.5%

Source: See Filing for the period ended January 31, 2009

GeoNuggets®- Quick Check List Highlighting Undiscovered Opportunities.

L & L International Holdings (OTCBB:LLFH)

Price (5/22/09) = $2.10

Company Description: The Company holds and operates profitable coal mines and wholesale facilities in China.

L & L Intl Holdings is the newest addition to the GeoBargain List as it meets nine out of the ten GeoBargain® criteria and is taking the necessary steps to propel its growth to the next level.

	Requirement
	Recent 52-week High
	30% EPS Growth Rate
	10% Revenue Growth
	Strong Balance Sheet
	Positive Cash Flow
	Debt to Equity Ratio less than 20%
	Current Ratio is at least 2:1
	Return on Equity is at least 15%
	Minimum Pre-tax Operating Margins of 8%
	Preferably Under 50 Million Shares
	High Insider Ownership (generally greater than 15%)
	Limited Institutional Ownership
	P/E Divided by Growth Rate (PEG Ratio) is Less Than 1.

Understanding L & L Intl Holdings

L & L Intl Holdings is not your typical U.S. Listed Chinese firm. The company has United States head quarters with an American influenced management team and has been in operation for 13 years. The Company recruits bilingual professional accountants, engineers, advisors and assigns them to China to improve operations and impart American management philosophy.

L & L Intl Holdings participates in the coal related business. The company's mining and distribution operations are in Yunnan, a coal rich province of China. Prior to coal mining operations the company was engaged in the business of selling air compressors to coal mines to pump air into mines. However, through this venture the company recognized a greater opportunity to directly participate in coal mining operations . Thus, to focus on this opportunity, L&L recently spun off its air compressor operation. The company's current strategy relies on three modes of revenue.

1. Wholesale Revenue. In 2006 L & L Intl entered into the coal aggregation market as a Wholesaler. The company gathers coal from entities that operate mines which, it then re-sells to its customers. The majority of coal mining operations in china are comprised of small "mom and pop" ventures. The players tend to be inefficient and unsophisticated and not large enough to supply the needs of large end user customers. Customers would prefer to purchase their coal needs from a few reliable source. This need has created a market for well organized firms such as L & L Intl.
   
   
2. Direct Mining Revenue. In 2008 the company made a decision to vertically integrate its operations and actually take ownership in coal mines. Doing so would help them meet the increasing demand for coal in china that far outweighs supply. This also makes strategic sense in that they have an existing loyal customer base who they can sell their coal to. Furthermore, direct ownership should result in higher margins compared to wholesale operations. The company executed this strategy in May 2008 when it acquired a 60% interest in two income producing coal mines located in the Yunnan coal rich region of China. Acquiring an income producing mine is significant as it generally takes 3 to 5 years for a new mining venture to become income producing. The GeoTeam found it interesting that customers actually pick up the coal from L & L Intl's mine locations, limiting transportation costs.

   Benefits to direct ownership of coal mines:

   • Direct mining business has significantly higher margins than the Wholesale business.
     
   • Will enable the company to increase its coal capacity, thereby attracting more customers and enabling it to meet the greater demand for coal in China.
     
   • Could make the company a viable acquisition target.
     
     
3. Coal Washing Revenue. Building on its vertical integration strategy the company just announced its entry into to the coal washing market. What is coal washing and its significance? Coal washing is a process that separates coal into "quality tranches." The coal is crushed and then doused with water. The washed coal is then separated by weight into categories of poor, medium and high quality. The higher quality tranche commands a higher price. When coal is sold unwashed it will thus command a lower price. Entering this market is a logical step as the company can now offer a complete product to its customers at higher prices. Customers also become more satisfied by knowing what they are buying and not having to outsource the washing process.

Reasons L & L Intl Holdings Has Piqued The GeoTeam's Interest

1. Poised For Major Revenue Gains. The Company's coal capacity is increasing:
   
   
   • The company plans to increase the capacity of its current two mines by 88% to 450k tons annually.
   • L&L owns an 85% interest in a third mine which is expected to receive an official license, becoming operational by the end of 2009, with an estimated 200,000 tons of annual coal capacity.
   • L&L owns a 65% interest in a fourth mine slated for operation in 2011.
   • At full capacity the new coal washing facility can process 300 million tons and can produce annual revenues of $30 million.
   • The company's vertical integration should enable it to gain more customers as a one stop shop source for coal.
   
   
2. Industry Dynamics Are Favorable
   
   
   • Coal represented over 70% of China energy source in 2008.
   • China's Stimulus Plan is already giving a boost to its economy.
   • L&L's operations are located in the Yunnan Province whose infrastructure demands require large quantities of steel, coke, and coal.
   
   
3. Margins to Remain Healthy
   
   
   • Vertical integration into direct mining activities should increase overall margins.
   • Coal prices should increase which becomes more advantageous as the company strengthens its direct mining endeavors.
   • Vertical integration into coal washing should create greater pricing power.
   
   
4. Competitive Advantage
   
   
   • Vertical integration should enable it to retain and attract new business as a one stop shop.
   • The Company's American management philosophy and organization make it more attractive than inefficient fragmented competitors.
   
   
5. Focus on Enhancing Shareholder Value
   
   
   • The company shares information with Wall Street.
   • The company recently reduced its shares outstanding to approximately 20.5 million shares from 22.5 million shares, which will help to drive EPS growth.
   
   
6. Favorable 2009 Guidance

   On April 28, 2009 L&L issued revenue guidance of $95 million. The company reported revenues of $30 million for the nine months ended December 2008. Furthermore, this guidance does not include the revenue contribution from its new coal washing endeavor.

Tying It All Together

L&L's favorable revenue guidance along with industry trends have prompted the GeoTeam to follow the LLFH story. At a quick glance the the stock is selling at at P/E of just 5 times the fully taxed adjusted 2010 analyst EPS estimate of $0.39 (Analyst estimate is $0.47) Furthermore, this estimate is likely conservative for three reasons:

1. The estimate is based on revenue of $55.1 million which is below the company's recently stated guidance of $95 million.
   
2. The estimate is based on 22.49 million diluted shares outstanding. The company currently has 20.5 million diluted shares outstanding.
   
3. The estimate does not include the revenue contribution from its new coal washing endeavor.

It should be safe to assume that analyst EPS estimates will be substantially raised. A quick rudimentary analysis implies 2010 EPS potential of $0.74 fully taxed. The company should be reporting 2009 year end results shortly, which will shed further light on the future, at which time the The GeoTeam will create detailed potential valuation scenarios.

Its also interesting to note that currently L&L owns 60% of its recently acquired mines. The company has commented, in its SEC filings, that it would like to pursue a 100% ownership. Depending on how such a deal would be structured it could add another element of EPS upside.

Plan of Operations

As China does not substantial petroleum or natural gas reserves, different from that of the US, 71% of China energy is relying on coal. As China economy continues coal grow at high speed, supply of coal cannot meet the demand, thus drives coal prices upward in the recent years. This continuing demand of coal provides a leading, competitive edge for L&L energy operations, which is based on the coal rich region of Yunnan Province in the southwestern area of China. Yunnan’s strong infrastructure demands large quantities of steel, coke, and coal supplies in the next 3 years. As a result, the Company plans to expand its energy business via M&A existing operation to following government’s oligopoly policy that is to aim to eliminate many small inefficient coal mines, to increase operational efficiency and safety standards.

The Company has entered 3 MOUs to acquire other energy related entities in Yunnan Province in July of 2008, following its policy to continuously acquire and expand other profitable energy entities in China and other parts of the world. Due to the unexpected Wall Street financial crisis, happened in the summer of 2008, the US liquidity is dried up which resulting a delay of the Company funding process. It is the Company’s plan to focus on funding while upgrading its team by inviting additional qualified professionals to help growth.

L&L is a US company, public listed in the US OTC-BB market since 8/4/2008. L&L is known to have organizational skills and visions to upgrade the coal mining standards, which most of the local small China miners do not have. To ensure its growth momentum, L&L is investing its time and resource to develop strategic relationship with large Japanese coal trading firms, not only to learn the high standards of Japan coal operations but also to take advantage of price differences between the higher international coal markets, and lower China domestic markets, following the Company international operational policy.

The Company seeks institutions capital funding to increase its business competitive advantages and to fund acquisitions. The Company registered the KMC and LSP investments with the Chinese government, and is in process to register the 2 Mines (“L&L Coal”) and recruit experienced managers to join in as executives, when financial resources become feasible.

Source: SEC Form 10Q (FOR THE FIRST QUARTER ENDED ON October 31, 2008)