Call(s) to Action: Please stay tuned for a report on two Pharmaceutical companies competing to use a cannabis-based compound to treat a specific condition in children.  One of the companies is a bullish call, and the other bearish.

Here are the stories that the GeoTeam is following today… (Please see full disclosures at bottom)

  • ChinaHybrids
    • CAAS ($8.61) – Announced it will acquire the remaining shares of two of two key subsidiaries.  Company states the transaction will be immediately accretive to earnings.   We are working to verify this claim.
    • HGSH ($3.17) – To engage in large-scale rebuilding projects in Hanzhong City.  Total investment in the projects is estimated to exceed $1.3 billion.
    • VNET ($27.82) – To acquire the entire equity interest in Dermot Holdings Limited.
    • YGE ($3.36) – Announced it has signed a 31.6 MW supply agreement with Gestamp Solar, a leading Spanish developer and operator of utility-scale PV systems for a solar power plant in Daigo, Japan.
    • BITA and KNDI report strong quarterly earnings.  Please see earnings screen for full list of China-Based companies reporting earnings today.
  • U.S. News
    • LRAD ($2.24) – Beginning to track due to recent strong Q3 2014 results which was fueled by new border security solution product and indications of another strong quarter ahead.
    • STRL and CHYR report improved bottom line results on healthy revenue increases.  Please see our earnings screen for full details.
  • GeoBargains/GeoBargains on the Radar
    • GeoBargain on the radar and Tier one Pink MHGU appears to be in position to accelerate top and bottom line growth rate.
    • MGPI ($8.80) – Industry and raw material cost trends favorable for MGPI.  Need to determine if revenue growth is in the cards.
  • Pump and Dumps
    • PRKI ($0.28) – Self-written IPO with plans to operate a daily deal website. The company has zero revenues.  We will track for promotional campaign.

For more timely information, particularly during the daily trading session, we urge our members to read our message board posts daily.

Disclosure: Long CAAS; Other Long Positions; Other Short Positions; Pump & Dump Positions (Password GEO2014)

Sincerely,

The Geoteam

Summary of general highlights:

On the Asian Front…

Select China Earnings…

Stock Price** EPS Estimate Reported EPS Prior Year Reported EPS
Bitauto Holdings (NYSE:BITA) $67.76 $0.39 $0.45* $0.23*
Kandi Technolgies Group (NASDAQ:KNDI) $19.51 n/a $0.08* $0.03*

* denotes non-GAAP; ** Pre-market

Please see our ChinaHybrid June 2014 quarter earnings screen (password GEO2014) for select companies that have reported earnings.

In Other News…

China Automotive Systems (NASDAQ:CAAS) ($8.61) – CAAS is a leading power steering components and systems supplier in China. The company announced :

it has entered into a Stock Exchange Agreement to acquire the remaining 20.0% minority interest in Jingzhou Henglong Automotive Parts Co., Ltd. (“Jingzhou Henglong”), and the remaining 19.0% minority interest in Shashi Jiulong Power Steering Gear Co., Ltd. (“Shashi Jiulong”), from Jiulong Machinery Electricity Manufacturing Co., Ltd. (“Jiulong Machinery Electricity”).

The Company will issue a total of 4,078,000 new common shares of CAAS stock to Jiulong Machinery Electricity as consideration for the acquisition of the minority interests. The Company will issue 3,260,000 new shares in exchange for the 20% equity interest in Jingzhou Henglong, and 818,000 new shares for the 19% equity interest in Shashi Jiulong. The shares will be issued in a private placement transaction that is exempt from registration with the U.S. Securities and Exchange Commission.

The aggregate purchase price of the acquisition will be equivalent to approximately US$ 35.2 million based on the closing price of CAAS stock of $8.62 on the Nasdaq Stock Market on August 8, 2014. The net income of the two subsidiaries totaled $27.8 million in 2013.

Quotes from Hanlin Chen, Chairman of China Automotive Systems,

“We are pleased to consolidate the remaining shares of two of our key subsidiaries and take full ownership. Their operations and financial results are important to the success of CAAS. With full ownership, we will benefit from having greater control over the operations and future growth of each business. We will also immediately consolidate higher net profits, which will be accretive to our net earnings per share.”

China Hgs Real Estate (NASDAQ:HGSH) ($3.17) – HGSH is a leading regional real estate developer headquartered in Hanzhong City, Shaanxi Province, China. The company today announced that the Company was in process of signing two project agreements with local government to rebuild large-scale shanty areas located in Hanzhong City. The total investment in these two projects is estimated to exceed USD1.3 billion.

Quotes from management,

“We are excited by the local government’s shanty area rebuilding plan,” commented Mr. Xiaojun Zhu, Chief Executive Officer of China HGS Real Estate, Inc. “We will actively participate in the Shantytown reforming projects and provide a better living environment for the local residences. We remain focused on providing quality housing with affordable pricing for growing new urban residents in these regions,” concluded Mr. Xiaojun Zhu, Chief Executive Officer of China HGS Real Estate, Inc.

21 Vianet Group (NASDAQ:VNET) ($27.82) – VNET is the largest carrier-neutral Internet data center services provider in China. The company today announced

the Company and its affiliate have entered into definitive agreements to acquire from DYXnet Group the entire equity interest in Dermot Holdings Limited and its subsidiaries (collectively, the “Dermot Entities”), which operate the Virtual Private Networks (“VPN”) business unit within DYXnet Group and include without limitation to Diyixian.com Limited and Shenzhen Diyixian Telecom Company Limited.

Quotes from Mr.Josh Chen, Chairman and Chief Executive Officer of the Company,

“We are excited to welcome Dermot Entities to join our family. The Dermot Entities’ VPN business has a unique network footprint and offers best-in-class, fully-managed network enabling connectivity to major Asian cities. In addition, their tactical expertise in navigating the region has allowed them to establish a dominant market position with an impressive installed base of over 2,000 customers, including some of the world’s largest enterprise and carrier customers. We believe this acquisition will also serve as an integral component of our overall cloud market strategy, as businesses increasingly seek reliable, secure, and highly customizable enterprise grade cloud services.”

Mr.Shang Hsiao, Chief Financial Officer of the Company, stated,

“We are thrilled to acquire the Dermot Entities with their healthy balance sheets and strong financial performance including more than 90% recurring revenues. The Dermot Entities are uniquely positioned to address the market for connectivity within some of the world’s largest and fastest growing economies, capitalizing on demand for connectivity to the Greater China Region. According to Cisco Visual Networking index, IP traffic in Asia Pacific will grow at a compound annual growth rate of 35 percent from 2012 to 2017. Furthermore, we believe this acquisition will not only be accretive for both earnings and cash flow, but also generate potential synergies with our public and private cloud businesses.

Yingli Green Energy (NYSE:YGE) ($3.36) – YGE is the largest vertically integrated photovoltaic (“PV”) module manufacturer in the world, known as “Yingli Solar”. The company announced :

its wholly owned subsidiary, Yingli Green Energy Spain, S.L.U. (“Yingli Spain”) has signed a 31.6 MW supply agreement with Gestamp Solar, a leading Spanish developer and operator of utility-scale PV systems for a solar power plant in Daigo,Japan.

According to the agreement, the Company will deliver more than 125,000 multicyrstalline YGE 60 Cell Series modules to Gestamp Solar from October 2014 to February 2015. The 31.6 MW solar power plant will be situated on a former golf course in the town of Daigo, located in Japan’s Ibaraki Prefecture. The system is expected to generate approximately 32.730 GWh\year of clean electricity, and utility grid interconnection is anticipated in the second quarter of 2015. This is the first solar project developed by Gestamp Solar in Japan, and is also one of the largest utility-scale projects to be developed by a foreign company in Japan. Gestamp Solar is the sole proprietor of the project.

Quotes from management,

“This is an important milestone for Gestamp Solar. It is the largest single solar project to secure non-recourse financing in Japan and we are confident to see more projects on a similar scale in the future,” said Mr. Jorge Barredo, Chief Executive Officer of Gestamp Solar.

“This is not the first collaboration between Yingli Spain and Gestamp Solar. In 2012, a 20 MW plant was built in Moquegua, Peru and Yingli was the sole PV module supplier. Gestamp Solar is a long-term strategic partner for us, and we look forward to a continuous and fruitful cooperation in the future,” said Mr. Fernando Calisalvo, the Managing Director of Yingli Spain.

“We are pleased to see this achievement build on the company’s track record of success in Japan, which includes our 32 MW project in Okayama, Japan announced in July,” commented Mr. Liansheng Miao, Chairman and Chief Executive Officer of Yingli Green Energy. “The Company’s shipments to Japan increased by more than 50% in the first quarter of this year as compared to the fourth quarter 2013. Our success in this important emerging market is key to Yingli’s corporate strategy, and we look forward to further supporting the growth of solar PV in Japan moving forward.”

On the U.S. Front…

Notable U.S. Earnings…

Stock Price** EPS Estimate Reported EPS Prior Year Reported EPS
Sterling Construction Co (NASDAQ:STRL) $9.00 $0.07 $0.07* -$1.61*
Chyron Corporation (NASDAQ:CHYR) $2.18 $0.01 $0.02* -$0.09*

* denotes non-GAAP; ** Pre-market

GeoBargain/Specials…

Meritage Hospitality Group (OOTC:MHGU) ($5.20) – engages in the operation of quick-service restaurants primarily in Michigan, Florida, Georgia, North Carolina, South Carolina, and Virginia.  MHGU appears to be in position to accelerate top and bottom line growth rate.  Although top and bottom line results were unexciting in its Q2 2014 release, commentary was bullish:

“Our proprietary casual dining restaurants continued to perform well in the second quarter with net earnings growth of 560% over the same period last year. We have an exciting project pipeline for both Wendy’s and our casual dining restaurants in 2015 and 2016, which we believe will accelerate our sales, EBITDA and earnings growth rates going forward,” stated Meritage CEO, Robert E. Schermer, Jr.”

We will plan to be more aggressive in trying to secure an interview with management.

In Other U.S. News…

Lrad (NASDAQ:LRAD) ($2.24) – LRAD designs, develops, and commercializes directed sound technologies and products in North and South America, Europe, the Middle East, and Asia. We are starting to track the company.  Reasons for tracking:

  • The company reported strong Q3 2014 results:
    • Revenue was $8.0 million, an increase of $5.8 million, or an increase of 271%, as compared to $2.2 million in the same quarter last year.
    • Diluted EPS was $0.06, as compared to EPS of -$0.03 in prior year.
  • The strong Q3 2014 quarter was mainly due to the increased sales of LRAD’s border security solution, the LRAD 2000X, of which $4 million worth of product is shipped to a Middle Eastern country for their border and perimeter security program. As the political tension in Middle East area continues, we think LRAD’s border security solution may benefit the company in the near term.
  • It appears the company has been continuously executing its Share Buyback Program. Below is  some more detail about this program, according to its most recent 10Q filing,

“In July 2013, the Board of Directors approved a share buyback program under which the Company may repurchase up to $3 million of its outstanding common shares. In November 2013, the Board of Directors authorized the repurchase of an additional $1 million of the Company’s outstanding common shares. The repurchase authorization expires December 31, 2014. During the nine months ended June 30, 2014, the Company purchased 256,082 shares at an average price paid per share of $1.86 for a total cost of $476,494. At June 30, 2014, all repurchased shares were retired.”

According to its Q3 2014 press release, the company repurchased 123,009 shares of stock at an average price of $1.85. It seems the company has increased the pace of stock repurchase in Q3 2014.

  • Healthy capital structure with no debt.
  • Stock is trading at trailing P/E of 12.4, based on its trailing EPS of $0.18 as of Q3 2014. If the stock will be trading at P/E ratio of 15 and 25, the stock price would be $2.70 and $4.50, respectively.

Caveat:

  • Recent success has been attributable to strong sales to one customer (middle east customer).  We need to gain a better understanding of this risk.

Mgp Ingredients (NASDAQ:MGPI) ($8.80) – produces and sells distillery and ingredients products to the packaged goods industry in the United States, Japan, and Canada.   Industry and raw material cost trends favorable for MGPI.

  • Reported strong Q2 2014 results on 8/7/2014; Reported GAAP EPS of  $0.28 vs $0.02
  • According to its most recent Q2 2014 results, gross margin increased from 6.7% in the same quarter last year to 10.4%, mainly due to lower raw material costs, and SG&A expense increased slightly 8.3% year over year.
  • Although year over year revenue growth remains relatively flat, the expanded gross margin and operating margin helped the company achieve diluted non-GAAP EPS of $0.16 vs $0.01, even after excluding the earnings from the company’s minority interest investments,  ICP Holdings, where MGPI has 30% ownership interest.
  • Summary quote from management:
    • The Company continues to show improved operating performance compared to a year ago, driven by demand for premium beverages, positive fundamentals for industrial alcohol, and lower raw material costs. The Company’s focus on costs includes reduced levels of selling, general and administrative expenses, after adjusting for severance and proxy-related costs incurred in the prior year.
  • The company has a relatively low float, share count of 17.6 million, with little potential dilution. We will interview management to determine if revenue growth is in the cards.

Caveats:

  • According to the company’s 10Q filing,
    • “Our proportionate share of the earnings of ICP has recently had a significant positive impact on our net income for the quarter and year to date periods ended June 30, 2014. There can be no assurance that such results will continue in future periods. We presently expect that ICP’s recent levels of profitability may not be sustained. Consequently, we expect that ICP’s   contributions to our net income may be reduced in future periods.”
  • EPS comps become difficult in Q1 2015 unless the company continues to cut cost or finds a way to increase sales.

The company did not mention this risk in its press release, so we are not sure if investors are aware of this disclosure.  Even without ICP contribution, the company faces favorable EPS comparison over the next two quarters.

For more timely information, particularly during the daily trading session, we urge our members to read our message board posts daily.

Sincerely,

The GeoTeam