GeoBargain & Special Update - Performance Laggards

Throughout the last year we have highlighted a slew of GeoBargain/Special stocks that have performed spectacularly. In contrast to the success stories, there are a few stocks that have not come through with the desired catalysts needed to fuel returns.

Hq Sustainable Maritime (NYSE Amex:HQS)

We are removing HQS from the GeoBargain list. The stock showed glimmers of hope, but it was unable sustain its momentum. The Company recently reported poor third quarter results, missing analyst estimates. Furthermore, analyst estimates indicate negative EPS growth for the next two quarters, which may inhibit short-term price gains. We will be quick to add HQS to the GeoBargain list once the 30%+ EPS growth resumes. Analysts expect this to happen in the Company’s fiscal 2010 second quarter ending in June.

See 2009 third quarter release.

Songzai Intl Holdings (OTCBB:SGZH)

As we indicated on Monday, November 16, 2009 GeoBargain Songzai Intl Holdings reported weak third quarter results. The stock responded by falling sharply. We are keeping SGZH on the GeoBargain list as it appears that the poor third quarter performance may be due to a one time event.

Excerpt from our recent discussion note:

"The decrease in sales was mainly due to the temporary closing of a major power plant customer for one month in July for overhauling and maintenance of its boilers.”

Unfortunately, with no press release, investors have to dig into Songzai’s 10Q filing to locate this info. It is our belief that a responsible public company should take the time to alert investors with press releases to compliment its filings. We will make a suggestion to the Company to issue a press release, an action that may alleviate recent concerns.  Songzai should also communicate how much of the decline in sales was the result of the closing of its power plant; would the revenue comparison have been flat or shown growth?

See recent discussion note.

YoCream Intl Inc (PINK:YOCM)

YoCream had a been a great performer for the GeoTeam. However, the Company never really performed after we coded it as a GeoBargain, and momentum stagnated after it reported fiscal 2009 3rd qtr. on Aug 27. YoCream showed weaker growth than what the firm had reported for several of its past quarters.

In that press release the company offered some words of encouragement that could point to an interesting fourth quarter:

…"The third quarter merely saw us catch up with last year's roll out of smoothie sales to a major national account. In fact, sales of our core frozen yogurt products are up 66% in the third quarter. We continue to work with large national accounts. Four more are in test with different products right now. So we expect steady growth ahead for our core products as well as surges in sales should the national accounts approve the products in test."…

…"When asked about capacity to respond to additional surges in sales to large national accounts, Senior Director Matt Hanna reported that YoCream will complete $4 million in FY '09 plant infrastructure capital expansion. This will effectively double the capacity to pasteurize, culture, and package frozen yogurt mix. "We can now run in one shift what was taking us two shifts to produce," he stated. "We believe significant growth is coming and we are prepared to support our core business and new customers.”...

We still have not heard anything from the Company on this account so we are not sure what to expect.

YoCream also recently announced a special dividend. On one hand, this is good news indicating that cash flow remains strong. On the other hand, is the Company attempting to soften the blow of a weaker fourth quarter? We may be over thinking the situation, but we thought short-term investors would want to know. At any rate, we still are optimistic about the long term scenario and are likely willing to accept a few subpar quarters due to the Company’s historical success.

See discussion note from August 27, 2009.

American Lorain Corp (NYSE AMEX:ALN)

As we indicated in an update on Nov 17, 2009, ALN estimates came down due to dilution from a recent offering under book value per share. The new EPS estimates are $0.54 for 2009 and for $0.59 2010.

Due to its low 2010 P/E of 4.92, we will keep ALN as a GeoSpecial for the time being for those investors who believe its P/E should match it 2010 growth rate of 9.3%

Astrotech Corp (NASDAQ:ASTC)

Please see Nov 17, 2009 update.

Gravity Co Ltd (NASDAQ:GRVY)

We will give GRVY one or two more quarters to see if it can put together consistent EPS growth quarters and address some issues we have highlighted in the past.

See original discussion notes.

Halifax Corp (PINK:HALX)

HALX reported results substantially below our expectations. This combined with the stock being delisted from the AMEX/NYSE propelled the stock to fall below $1.00. The Company is still forecasting that sales and EPS growth will begin in its 2010 fiscal year ending March, prompting us to keep HALX as a GeoSpecial.

See original discussion note.

China Growth Development (OTCBB:CGDI), Equicap Inc (OTCBB:EQPI), Xinyinhai Tech Ltd (OTCBB:XNYH) and Sino Gas Intl (OTCBB:SGAS) are four stocks that we have previously profiled as GeoSpecials. These are stocks all selling under book value, so we will still marinating their GeoSpecial designations.

China Growth Development (OTCBB:CGDI)

We are still waiting for CGDI to experience consistent EPS growth. Its 2009 third quarter still showed negative EPS growth on moderately increased revenues. To see more of the factors that will ultimately affect CGDI valuations please refer to our original discussion note on September 21, 2009.

We are also perplexed at the lack of Investor Relations, given the following excerpt  in the third quarter filing:

“On April 1, 2009, the Company’s Board of Directors authorized the Company to engage a corporate advisory service firm to provide corporate consulting, investor relations, and other services.  The agreement was for a period of 3 months and the Company agreed to pay $5,000 per month and issue."

An event that may be able to add to earnings would be the purchase of additional properties as suggested in the same filing.

“In 2009, we intend to continue to work to expand our presence in the commercial real estate market, including the acquisition of another shopping mall.”

Of course, financing terms would have to be considered.

We are also not sure what to make of the following development:

“The City of Taiyuan commenced an urbanization project in 2009 to transform and convert farmland designated for rural use in the Hao Zhuang Village, including the land where the Company’s primary China operation and properties are located, into urban uses.  Simultaneously, the transformation will also affect the current property titles and land use rights for all enterprises located in the Hao Zhuang Village.  Once the transformation is completed, the Company will receive new property titles and land use rights, which will entitle the Company to completely separate from the current rural system.  The transformation is expected to be completed in early 2010.  The impact on the Company is highly uncertain and could not be reasonably estimated as of September 30, 2009.”

Equicap Inc (OTCBB:EQPI)

Although it is experiencing strong revenue gains, Equicap is still losing money. 

The decrease in gross margin in this quarter as compared to the same period in the prior fiscal year was attributable mainly to a general decrease in gear prices and the launch of new lower-margin gearbox products. The shift in product mix and development of new products has been implemented by the Company as a strategy to quickly penetrate the market for its products and build sales.

It is important to note that Equicap has significantly reduced its losses. If we include minority interest income, the Company is actually profitable. It will be interesting if EQPI intends to acquire a majority interest in this entity. See original note for further research and caveats on the EQPI story.

Sino Gas Intl (OTCBB:SGAS)

SGAS Shares have pulled back after a brief stint over $1.00. It is possible that shares came under pressure due to an S1 filing allowing certain shareholders to sell their shares. The Company did release improved 2009 third quarter results and offered an upbeat outlook. We will keep the stock coded as a GeoSpecial as it is selling under its book value per share. The stock is in an industry that seems to get little attention as evidenced by a lack of questions during the Company’s last conference call.

Going forward, Sino Gas will continue to focus on the existing projects, explore their potentials, increase the penetration rate, improve our gas distribution networks, and enhance operating efficiency and cost structure.

In the past several years, Sino Gas has strategically and geographically positioned itself in China. The company has heavily invested and built a good foundation and networks to get to the next level. The company currently operates on 35 gas distribution networks in different parts of China, including 29 with concession rights. We will continue to target good opportunities to expand into small and medium size cities, and increase our market share as capital becomes available.

As of today, Sino Gas has only developed small portion of the market we cover.  We are optimistic about our future growth.

Source: 2009 Third Quarter Conference Call.

See original discussion notes.

Xinyinhai Tech Ltd (OTCBB:XNYH)

See notes.

Sutor Tech Group (NASDAQ:SUTR)

SUTR has yet to see benefits as it reported its fourth straight decline in sales and EPS after missing 2010 first quarter analyst estimates. We will keep the stock coded as low end special situation play for long-term investors due to its low P/E and analyst estimates that show growth picking up in the second half of its fiscal year. However, by no means is our stance overly confident at this time.

See discussion notes.

GeoInvesting.com Disclosure

You agree that you shall not republish or redistribute in any medium any information on the GeoInvesting website without our express written authorization. You acknowledge that GeoInvesting is not registered as an exchange, broker-dealer or investment advisor under any federal or state securities laws, and that GeoInvesting has not provided you with any individualized investment advice or information. Nothing in the website should be construed to be an offer or sale of any security. You should consult your financial advisor before making any investment decision or engaging in any securities transaction as investing in any securities mentioned in the website may or may not be suitable to you or for your particular circumstances.