Saturday, August 16, 2008

SDTH - Precipitated growth

SDTH- a stock I followed and that I found about a year ago. SDTH does Nano Precipitated Calcium Carbonated NPCC for tires paint and various other materials. They sell their product to Tire companies as it improves rubber quality and reduce cost. As the 10Q puts it
"NPCC - The Company is engaged in the development, manufacture, and marketing of nano-sized ultra fine Precipitated Calcium Carbonated (NPCC). Limestone isconverted into NPCC by a proprietary production method. The NPCC segmentincludes the operations of the Shandong Haize Nano and Shaanxi Haizesubsidiaries.Chemical - The Company is also engaged in the manufacture and sale of ammonia-based products, namely ammonium bicarbonate, liquid ammonia, and methanol. The ammonia-based products are mainly used as chemical fertilizers and rawmaterials for the production of other chemical products (both organic andinorganic,) including formaldehyde and pesticides."

The company just reported Q208
- Revenue 75.7% yoy to $39.8 million
- Gross margin increased from 35,2 to 36.8%
- Net income increased 66.3% yoy to $10.0 million, or $0.18 per diluted share

So lets cut to the chase here, the chemical business is expected to double (due to Jinan fertilizer) in the next year and that's their cash cow (52% of rev). And fertilizers are in a nice up-trending market right now. NPCC sales grew 76.4% and they keep expanding their customer base (tire companies, auto, paper...).
With an 09PE of 15.5 an eps growth of 26, margin at 36,8% and a virtually debt free stock as they just took on 115M convertitble debt that can be repaid with their 138M of cash, this stock is clearly a steal. My 3 months target is $13.

Disclamer: I own some SDTH shares. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

PWRD - Perfect world, perfect stock?

PWRD- Perfect world is a Chinese online game producer. PWRD focuses on 3D role playing games ( MMORPG). Their business model is very simple, they do free-to-all games that you can install and play. You will however need to buy “items” on-line to enhance your player’s power and abilities (item-based-revenue model). These games are very addicting and viral, as a result “communities” of players are built in short period of time and expand exponentially. Perfect World, Legend of Martial Arts, Perfect World II, Zhu Xian, Hot Dance Party and Chi Bi are some of their games but the latest and probably one of the most promising one Pocketpet Journey West. Company is about to launch a “second life” type of platform as well.

Key metrics:
-ACU (concurrent users) 660,000 in 1Q 08, an increase of 177.8% from 1Q 07
-APC (paying customers) 1.7 million in 1Q 08, and an increase of 144.7% from 1Q 07
-ARPU was RMB151 in 1Q 08, and an increase of 58.2% from 1Q 07
- Company spends $0.6M per game and has 650 R&D staff , the cheapest COGS of the sector.
- Eps is growing at 225% 2.62 vs 0.82 in 1Q07.
- Sales is growing at a 2600% rate 303.2 vs 11.2 in 1Q07
- Gross margin is growing at a staggering 87% yoy and profit margin 53% yoy
- Virtually debt free (35M debt can be paid with their cash at hand of 226M)
- CFO grew at 410% and FCF at 142% yoy to 18M
Given a PE of 22 Forward PE Curr.Year of 15, Next year 11.9 and eps growth rate of 35% I calculated a 3 months price target of 30$.
Company is benefiting from a booming online gaming market, increased purchasing power of Chinese players, cheap R&D ($0.5M to develop a new game), and will get additional revenue with Overseas licensing : RMB38.7 million in 1Q 08 an increase of 265.6% from 1Q 07.

So to sum it all up, a debt-free company with tremendous growth ahead, a PE of 22, margins of 87% and exploding EPS that looks like a perfect stock to me. Only cloud in the picture watch the competition.

Disclaimer: I own PWRD stock. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.