3SOF

Oliver,

This is the IPO site for Sunpower.  There is also a  link to their website.

http://www.ipohome.com/common/ipoprofile.asp?ticker=SPWR

About ETLT.  I agree that this stock seems undervalued.  However, if we are to agree that the market is always right, there has to be a reason for this.  I don't think it is just because their cash is earmarked to domestic use.  During my research, I've noticed that the company's earnings have gone down over the last 3 years.  The pps has also been in a long downtrend.  Do you know what accounted for this?  And what fundamental factor is accounting for the sudden breakout now?  Thanks. 

I would appreciate anyone's input on this.

Quote from: logocovet on November 14, 2005, 11:35:59 PM
Oliver,

This is the IPO site for Sunpower.  There is also a  link to their website.

http://www.ipohome.com/common/ipoprofile.asp?ticker=SPWR

About ETLT.  I agree that this stock seems undervalued.  However, if we are to agree that the market is always right, there has to be a reason for this.  I don't think it is just because their cash is earmarked to domestic use.  During my research, I've noticed that the company's earnings have gone down over the last 3 years.  The pps has also been in a long downtrend.  Do you know what accounted for this?  And what fundamental factor is accounting for the sudden breakout now?  Thanks. 

I would appreciate anyone's input on this.

logcovet; unfortunately I am very busy @ work, so earliest time would be the weekend to analyse this IPO.

Form 10QSB for ETERNAL TECHNOLOGIES GROUP INC


--------------------------------------------------------------------------------

15-Nov-2005

Quarterly Report



Item 2. Management's Discussion and Analysis or Plan of Operation
The Company's business is seasonal. Accordingly, the results of operations for the three and nine month periods ended September 30, 2005 are not indicative of the results for any other quarter, period or for the fiscal year.

The following is derived from, and should be read in conjunction with, our unaudited condensed consolidated financial statements, and related notes, as of and for the three and nine months ended September 30, 2005 and 2004.

Three Months Ended September 30, 2005 Compared to the Three months Ended September 30, 2004

Revenues -

Revenues for the three months ended September 30, 2005 decreased by $4,047,683 or 44.6% to $5,026,968 from $9,074,651 for the corresponding period of the prior year. This decrease resulted from a decrease in the sale of lamb meat of $2,877,600, in cattle embryo transfers of $1,518,951 and the sale of sheep of $92,723 which was partially offset by an increase in sheep embryo transfers of $441,609.

Cost of Sales -

Cost of sales for the three months ended September 30, 2005 decreased by $2,251,681 to $3,512,402 from $5,764,096 for the corresponding period of the prior year. This decrease resulted from a decrease in the costs of lamb meat of $2,049,236 of cattle embryo transfers of $461,730 and sheep purchases of $108,723 which was partially offset by an increase in sheep embryo transfer costs of $368,008. The gross profit margin from the sale of mutton was 28.7%, the gross profit (loss) margin from the sale of sheep was (17.3%) and the gross profit margin on embryo transfers was 43.9%.

Depreciation and Amortization -

Depreciation and amortization expenses were essentially unchanged compared with the corresponding period of the prior year, increasing by $3,452 to $193,619 for the three months ended September 30, 2005 compared to the corresponding period of the prior year. The increase resulted because of increased assets being depreciated.

Selling and Administrative Expenses -

Selling and administrative expenses decreased by $120,216 or 28.9% to $294,917 from $415,133 for the corresponding period of the prior year. This decrease resulted from a decrease in penalty expense of $93,878 and a decrease in management expenses of $23,329 which was offset by small decreases in other categories.


Other Income (Expense)
For the three months ended September 30, 2005 the company experienced an increase in interest income of $13,513 or 46.9% to $42,278 from $28,765. The increase is attributable to an increase in interest rates and the Company keeping a larger percentage of it's cash in interest bearing accounts.

As a result of the foregoing, the company had net income of $1,068,308 or $.03 per share for the three months ended September 30, 2005 compared to net income of $2,734,020 or $.09 per share for the corresponding period of the prior year.

Nine Months Ended September 30, 2005 As Compared to Nine Months Ended September 30, 2004.

Revenues

Revenues for the nine months ended September 30, 2005 increased by $2,076,828 or 13.6% to $17,292,310 from $15,215,482 for the corresponding period of the prior year. This increase is attributable to an increase in cattle and sheep embryo transplants of $2,128,056 and in roll mutton of $6,140,878 which was partially offset by a decrease in the sale of lamb meat of $6,326,477.

Cost of Sales -

Cost of sales for the nine months ended September 30, 2005 increased by $2,862,070 or 29.5% to $12,576,696 from $9,714,594 for the corresponding period of the prior year. This increase resulted from an increase in the costs of cattle embryo transfers of $2,177,574, of sheep embryos or $364,025 and roll mutton of $4,622,992. The increase was partially offset by a corresponding decrease in the cost of embryos of $5,600. The gross profit margin on the transfer of cattle embryos was 30.6%, the gross profit margin from the sale of mutton was 28.6% and the gross profit margin from the sale of roll mutton was 24.7%.

Depreciation and Amortization -

Depreciation and amortization expenses were essentially unchanged compared with the corresponding period of the prior year increasing by $4,052 for the nine months ended September 30, 2005 compared to the corresponding period of the prior year. The increase resulted because of increased assets being depreciated.

Selling and Administrative Expenses -

Selling and administrative expenses increased by $2,004 for the nine months ended September 30, 2005 to $1,207,100 virtually unchanged from the $1,205,096 for the corresponding period of the prior year. The increase was largely due to an increase in marketing expense which was offset by reductions in office salaries and professional fees.


Other Income (Expense)
For the nine months ended September 30, 2005 the company had interest income of $139,206, an increase of $55,591 from the $83,615 for the corresponding period of the prior year. The increase is attributable to an increase in interest rates and the Company keeping a larger percentage of it's cash in interest bearing accounts.

Interest expense was $55,152 for the nine months ended September 30, 2005, due to the Company issuing convertible debentures with a beneficial conversion feature to settle penalties for not timely meeting filing and effectiveness deadlines for a registration statement. The interest expense relates to the amortization of the beneficial conversion feature. There was no interest expense for the corresponding period of 2004.

The Company recorded an impairment loss for the nine month period ended September 30, 2004 of $53,517. There was no impairment loss recorded for the nine month period ended September 30, 2005.

As a result of the foregoing, the Company had net income of $3,017,994 or $.10 per share for the nine months ended September 30, 2005 compared to net income of $3,755,368 or $.13 per share for the corresponding period of the prior year.

Liquidity and Capital Resources

As of September 30, 2005, the Company had cash and cash equivalents of $24,164,917 and working capital of $30,948,076. This compares with cash and cash equivalents of $27,473,354 and working capital of $27,436,168 as of December 31, 2004.

Cash used in operating activities totaled $3,117,004 for the nine months ended September 30, 2005. This compares with cash provided from operating activities of $1,289,673 for the corresponding period of the prior year. This decrease resulted from a decrease in net income of $737,376 and non-cash expenses of $252,643 and changes to the current accounts which was partially offset by an impairment loss in the prior year of $53,517 and other non cash-changes.

Cash used in investing activities totaled $1,272,108 during the nine months ended September 30,2005 compared to $1,506,024 provided by investment activities for the nine months ended September 30, 2004. All of the cash from investing activities during the nine months ended September 30, 2004 was from the sale of property. All of the cash used in investment activities during the nine months ended September 30, 2005 was for the purchase of fixed assets.

Cash provided from financing activities for the nine months ended September 30, 2005, totaled $330,899 all from contributed capital. This compares with cash provided from financing activities of $78,670 for the nine months ended September 30, 2004, again all from contributed capital.

At September 30, 2005, the Company had notes payable of $443,366. These notes are currently the subject of litigation where the Company is challenging their validity.

Although the Company has a cash and bank balance of $21,329,840, it has all been designated by management for expansion of its operations within the People's Republic of China. Therefore, if the Company is to expand outside the PRC, as it anticipates doing, or pay its non-PRC obligation, it will have to sell additional shares of its stock or borrow funds from third parties. Unless it is able to either borrow funds or sell additional shares, it will have insufficient resources to carry out is business objectives outside the PRC for the next twelve (12) months.


http://biz.yahoo.com/e/051115/etlt.ob10qsb.html

I just bought in yesterday at .73...will this 10QSB have a negative effect on the pps?

Is anyone still holding this?

thanks

julia

well Julia I have mixed feelings

.....As a result of the foregoing, the company had net income of $1,068,308 or $.03 per share for the three months ended September 30, 2005 compared to net income of $2,734,020 or $.09 per share for the corresponding period of the prior year.

I have put a stop loss @ 0.71$ for today.

Just my private opinion

other feedback is appreciated

Well...unfortunately la-onda....bid and ask this am have already dropped...now i see it at .67 x.67...i guess i will start the day off with a loss ...good luck to you.

julia

below .6 
this hurts

Maybe things are turning around.... la-onda !
+18.34%.....Volume @.....434,228
Much needed !!!!!!

Eternal Technologies Group, Inc. Announced Today Its Preliminary Outlook for the Year-Ending December 31, 2005
Monday December 5, 9:00 am ET

HOUSTON--(BUSINESS WIRE)--Dec. 5, 2005--For the year-ending December 31, 2005, Eternal Technologies Group, Inc. (OTCBB:ETLT - News) anticipates revenues in excess of $21,000,000. This compares with revenues of $16,834,759 for the year-ended December 31, 2004. The current period will benefit from the inclusion of the financial result of E-Sea Biomedical Engineering Co. International Ltd. which will be profitable for the fourth quarter. However, the fourth quarter will not reflect any material results from the Human dairy project as most of the revenue producing activity will begin in the first quarter of 2006. The company expects earnings for the year-ending December 31, 2005 to exceed those for the year-ended December 31, 2004. The company also anticipates a significant increase in net assets from those reported as of December 31, 2004.

still out and no cash available 

Apr-04-2006   Bullish Harami 

http://www.stockta.com/cgi-bin/analysis.pl?symb=ETLT&num1=3&cobrand=windchart&mode=stock

feedback is appreciated 


blog update:

Tuesday, April 04, 2006
April 3 Update: Eternal Technologies Group (ETLT.ob) April 3 - Closing Price $0.47 USD Strong Speculative Buy - Target Price $1.38.


Overview

ETLT is an obscure microcap stock with a market capitalization of $20,238,537.57. There is only 1 institutional holder of the stock, Freedom investment corp. and they hold a mere 2000 shares.[1] ETLT trades on the OTCBB exchange; this fact, along with its small size have contributed to a lack of institutional coverage. There are currently no analysts covering the stock. The closest thing to analyst coverage that ETLT has received is a feature in "Knobias clip report". Knobias is a research organization dedicated to providing information on OTC and microcap stocks, their research coverage is not very extensive and the clip report is simply a newsletter with several pro and con points on each stock. Interestingly enough, there are some blogs on the internet that have some information and research available on ETLT.

The company is out of favour, the stock price has deteriorated from over $1.50/share in 2003 to $0.51 as of market close on March 31, 2006. The company has a history of poor communication with shareholders. Before the third quarter of 2005 the company outsourced its US investor relations to Empire Public Relations group. This agency did not provide good support to the company, and ETLT replaced them with Heron public relations group in the third quarter of 2005. Since this time, Heron has increased communications to shareholders and launched a website for ETLT, http://www.eternaltechs.com/. Nevertheless, it remains at times difficult to contact Heron and they have made no inroads into greater promotion and investor awareness of the stock. Investors are also tend to be annoyed by ETLT's tendency to file its 10-K and 10-Q filings late, a problem which plagues many listed Chinese companies.

ETLT is a conglomerate and therefore is likely subject to the discount usually present in conglomerate stocks. The stock is very cheap based on price metrics. The trailing twelve month P/E ratio is a startling 5.79. The price-to-book ratio is 0.45, based on a consolidated balance sheet of ETLT and the E-sea subsidiary. They also have $0.575/share of cash, which is more than the total market capitalization of the company. ETLT has the characteristics of a "net-net", stock, with current assets less total liabilities higher than the total market capitalization of the company. As well, performance over the last 2 years has been disappointing, with margin compression in their core business. The company is not in any significant financial distress, and interest coverage is 41.2 times EBIT.

Business Description

ETLT is in 2 distinct businesses, one of which is executed by its subsidiary E-Sea. The core business is based on agricultural genetics/animal husbandry. ETLT provides its clients, with genetically engineered breeding stock, embryos, semen and related technology and consulting services to large commercial and government farms in China. The goal of ETLT's products are to help increase clients' production yields and quality of livestock, while reduce growing costs. ETLT began providing its services by focusing on sheep breeding, but has since diversified into dairy cattle operations as well, importing embryos from Australia and US. Over time, ETLT seeks to develop a herd of genetically engineered livestock in order to produce a domestic supply of embryos. In addition to providing these services, ETLT sells sheep meat to butchers in Beijing from the sheep that it rears which are not deemed appropriate for embryo harvesting or future breeding.

ETLT also is the parent company of a 100%-owned subsidiary E-Sea which is in a different line of business, the sale of medical devices, primarily focusing on medical imaging technology. Their most interesting device and the one that seems to have the most potential is their Tri-operator Digital Mammary Gland Diagnostic System. According to the company, it is an early-stage breast cancer detection system which is 96% effective in detecting breast cancer, 2 years earlier than most competitors. E-Sea holds a Chinese patent on this device. In addition to the actual devices, E-Sea also markets medical imaging software.

Industry Analysis

Much of ETLT's core business activities are reliant upon activities and growth in the dairy industry, as well as demand for Sheep. China is currently seeing rapid and accelerating growth in dairy consumption which grew at a compound annual growth rate (CAGR) of 7.6% between 1993-2003. This accelerated between 1998-2003 to a CAGR of 10.8%.[2] Furthermore, there is still significant room for further growth in the industry. Currently China consumes 11 kg of total dairy per capita, versus a world average of almost 100 kg and 266 kg in the US. Increasing disposable income, health consciousness, distribution and government support are driving growth. According to US department of agriculture (USDA) statistics for dry nonfat milk, South Korea consumes 7 times more per capita, Taiwan 11 times and Japan 16 times.[3] The major crisis that the Chinese dairy companies face is a lack of supply of dairy cows. The dairy industry and milk consumption are growing at a faster rate than the supply of dairy cows. The Chinese government has resorted to importing dairy cows to help fulfill this need, however this has been a costly proposition as imported cows are expensive to purchase and import. ETLT is highly leveraged to growth in the dairy industry as well as a drive by the government to improve milk yields on Chinese dairy cows. According to the USDA, the yields on Chinese Dairy cows are less than half of the yield on North American cows. ETLT's cattle sale operations should perform well going forward, as the prices for dairy cattle are robust due to the shortage. Much of their success will be based on how vigorously the Chinese government seeks to expand dairy cow yields. ETLT currently has the support of the government which is a positive sign, and the current government policy has been one of promoting improved animal husbandry techniques as part of the solution to the overall cattle shortage issue.

The situation for sheep stock does not currently have the growth characteristics of the dairy cow market, however the industry has some major problems which ETLT seeks to address. Currently the wool yield on Chinese sheep is about 2 kg, compared with more than 4 kg in the U.S.[4] Thus this same yield issue exists in the sheep industry as well. The government seems eager to increase the efficiency and sustainability of its sheep production. There are currently issues regarding the sustainability of China's foraging herds, due to increased desertification of traditional pastoral lands. One part of alleviating this problem is by increasing efficiency and yields on livestock. As of 2002, sheep meat was considered a premium meat in China, with the average market price of goat meat and mutton in Beijing in 2002 was 9.64% higher than the market price of beef, or 64.2% higher than the market price of pork.[5] In addition, strong per capita income growth is spurring the consumption of meat in China. According to food and agriculture organization of the UN, average annual goat meat and mutton consumption per person in China has increased from 1.5 kg in 1996 to 2.1 kg in 2001, a CAGR of 7%.[6] The dietary trends in other Asian nations which have industrialized exhibited a shift from a carbohydrate based diet to a more protein based diet. This trend should be expected to continue in China at it continues to quickly increase its per capita GDP. In 2004, the per-capita meat intake was 49 kg in China, while that in the United States was 127 kg.[7] The agricultural services industry for sheep will move in step with sheep consumption and production. The current environment is attractive, with moderate growth and strong future potential.

The agricultural industry has traditionally been dominated by state owned farms as well as small scale semi-private farmers. A shift towards greater privatization would likely benefit ETLT, since private producers will have a greater concern for efficiency and livestock yields. In a bid to increase agricultural production and provide greater incentives to farmers and the agricultural industry, the Chinese government repealed the Agricultural Tax, a change which takes effect January 1, 2006.

With regard to E-Sea, the medical device market is growing quickly According to Frost & Sullivan, the China market for medical devices and equipment is expected to grow from US$5.9 billion in 2002 to US$10.1 billion in 2006, a CAGR of approximately 14%.[8] Hospitals and clinics are almost exclusively government run organizations, although they are generally given a large amount of operating autonomy. As a result hospitals are expected to generate enough revenue from user fees to cover between 70-90% of their operating costs. This autonomy also allows them discretion over the purchase of medical devices. The medical device industry is currently fragmented with 2,900 medical device manufacturers in China at the end of 2003.[9] Most of these manufacturers focus on low tech medical devices, and as of 2003, 85-90% of medical equipment was imported from abroad.[10] Importing these devices is quite costly, and as a result the Chinese government is encouraging the development of a domestic high-tech medical equipment industry through tax incentives. Going forward, Chinese hospitals may be more inclined to purchase Chinese medical equipment to foster the growth of the industry and also to attain cost savings.

Company analysis

ETLT benefits from government endorsement of the mission of the company and the goal of increasing overall livestock yields through superior animal husbandry techniques. In 2000, ETLT invested in an executed first transfer project in China of 10,000 fine breeding sheep embryos. It won an award in 2004 from the state ministry of education in recognition of the work executed in the sheep project as well as contributions to the advancement of breeding technology and advanced animal husbandry techniques. ETLT's operating performance has seemed poor over the last 2 years due to decreasing margins on its embryo transfer business. Gross margin has decreased from 57.7% in 2003 to 27% in 2005. This statistic is of concern, and the potential for further margin compression remains a risk to the company. Nevertheless, the previous gross margin may have been unsustainable and ETLT is still earning a healthy gross margin on the business. ETLT has also compensated for the decreased margin by increasing sales, thus keeping their overall gross income more or less stable. The increased demand for dairy cattle, and ETLT's operations in that industry may lead to an increase in gross margins from current levels. ETLT has a number of proprietary techniques for embryo transfer though it is unclear what the true level of legal protection ETLT has if someone were to infringe on their embryo transfer technology. Since most agricultural customers in the country are government companies, ETLT's reputation as the largest commercial provider of fine breeding embryos and established relationships with the government are extremely important.

E-Sea has patents on its medical devices which include: the tri-operator digital mammary gland diagnostic machine; a machine for the diagnosis and treatment for male erectile functions; an instrument for monitoring blood oxygen levels in the brain; and a medical imaging workstation. E-Sea also manages 1 breast examination clinic in the Longgang district of Shenzen and plans to open 4-6 new clinics in 2006. The fees on these examinations are paid for by the local government and the clinic has become very popular earning $68,000 in revenue and conducting over 13000 examinations after only 2 months of operations. E-Sea has signed a 6-year agreement with the local government to provide examination services to women in the district. E-Sea should be able to capitalize on this fast growing market, especially with the financial resources of ETLT behind it.

A potential cause of concern is that management only owns 2,987,000 shares, or 7.5% of the total shares outstanding. The largest shareholder is an independent investor names Shang Jiaji with 8.5% of the company. Shang Jiaji has been selling shares over the last few years, and his sales have been the cause of much of the downward pressure on the stock. On the positive side, this lack of concentration in share holdings could potentially make the company a more attractive target for acquisition.

Valuation and Risks

In valuing the company I decided to value the core business and the E-Sea business separately as they are distinct businesses operating in different industries with different growth and return on asset profiles. The company has relatively low financial risk, as there is almost no outstanding debt and over $20 million in cash on hand. Interest coverage is over 40 times EBIT. The company could potentially reduce its cost of capital by adding a debt component. There are 2 outstanding lawsuits that cover approximately $553,946 plus accrued interest and legal fees.

The business risk to ETLT has 2 separate and distinct elements. There is the actual business risk, and there is the risk of ETLT being a fraud. ETLT has a higher than average level of risk regarding compliance to securities and accounting standards. The company is listed on the OTCBB and thus the officers are subject to Sarbanes-Oxley, and US GAAP. However, since China has no extradition treaty, and the company is incorporated offshore, this company has a higher than normal risk of fraud. The share price and current market sentiment is obviously heavily discounting the possibility of fraud. A major potential but legal trading advantage exists for anyone who could spend the $1500 to take a trip to China and visit ETLT on site.

The actual business risk related to ETLT is similar in nature to most companies with operations in China. There is a potential currency risk in the case of ETLT since it buys its embryos in $USD and sells its finished product in RMB. As long as the Renminbi stays pegged within a tight band to the American Dollar, then this upside is minimized. But economists have been almost unanimous in statements that the Chinese Currency is undervalued and call for an increase in its value by 15-40%.[11] This would effect ETLT positively in the respect that its large cash position would now be worth much more in the country in which it reports, thus increasing the reported cash balance. It would also allow the company to buy high-yield embryos for a lower price, positively affecting margins. On the other hand, the revaluation would also increase the attractiveness of simply importing the necessary cattle from Western nations, which could negatively affect ETLT's embryo transfer business. The net effect of the currency risk is unknown, but it needs to be considered as a risk. There is a risk that their farmland in Inner Mongolia will be subject to the growing desertification taking place that area. The Chinese government has deemed that the land ETLT holds is not appropriate for plowing, this may harm sheep operations there. However, they have not plowed the land, so the actual effect of this may simply mean limiting any expansion of operations there. There is risk related to the ETLT's tax status. China is still an autocratic nation and there is a potential, though not imminent risk that ETLT could lose its tax free status on its core agricultural business.

E-Sea is also subject to potential currency risk, since much of the competitive landscape consists of imported medical equipment, then E-Sea would lose at least part of their price competition advantage if the Renminbi appreciates in value. This risk is mitigated somewhat by the government's endorsements and incentives given to domestic high-tech companies. There is patent infringement risk associated with E-Sea, although this is less of a problem than in the past, there is still lose patent regulation in China relative to North America. There is also the risk that due to lack of capital, E-Sea may potentially be overwhelmed by larger competitors in the market. For all these reasons I believe that ETLT has a high overall risk

In calculating the likely yield on debt that a company like ETLT would have to pay, I looked at the rates that 2 other Chinese small capitalization companies were paying on their debt: Tiens Biotech and American Dairy. American Dairy has a 5.76% non-trading note payable, as well as a short term loan from the China Construction Bank at 6.69%. Tiens Biotech has a short term note outstanding with an interest rate of 5.22%. The average of these yields is 5.90%, but I will add a size premium to ETLT's debt, since both American Dairy and Tiens Biotech are larger companies, with market capitalizations between $200-300 million. I decided on 260 basis points as a reasonable premium considering ETLT's high interest coverage, arriving at a cost of debt of 8.5%. To arrive at the cost of equity, I looked at the average equity over debt premium for a BBB conglomerate, added a size premium of 5% due to ETLT's small market-capitalization, and also added a country risk premium of 5% which yields a cost of equity of 24.54%. I also assume that due to the business risks inherent to the company, the ideal capital structure has only 10% debt. These assumptions lead to a weighted average cost of capital (WACC) of 22.81%. I believe that this high WACC adequately considers risks and the high cost of capital for a small foreign firm.



Asset Value Valuation

Both segments of ETLT's business are viable and thus the asset value should be based on reproduction values. In ETLT's core business, I believe that the reputation and relationships that ETLT has built with various levels of government in China would be costly to reproduce, I therefore capitalize marketing asset as ½ of 4 times trailing twelve month selling general and administrative (SG&A) expenses. ETLT's expertise is also significant in the areas of embryo transplant, but since they merely hold rights over a technique, rather than an actual patent, I assign their capitalized R&D asset a relatively low ½ of trailing twelve month SG&A expenses. ETLT does not have any operating leases and instead has prepaid $6,000,000 for 25 years of land usage rights on their farm in Inner Mongolia. I have not added back the amortization in order to be conservative, since the flexibility in land usage has decreased since the Chinese government deemed it illegal to plow. Property plant and equipment (PPE) represents 35,000 square foot embryo transfer center, as well as the AnBo Biotech Center a 6,450 square foot facility located in Beijing housing a laboratory facilities to support advanced biotech and embryo research and development activities. There is no reason to believe that either of these facilities is significantly impaired, so I will add back the depreciation to arrive at a replacement value. The value of the convertible note is simply the option value of its conversion, since it is non-interest bearing. Our valuation determines a net reproduction value of assets of $1.23/share for ETLT's core business.



The E-Sea asset value is relatively simple with amortization and depreciation added back to all of the fixed assets. The long term assets are less than 2 years old, so there is not likely any significant impairment of these assets. Since there is no research and development expense for the last year, I have assumed capitalized R&D asset to be equal to the book value plus amortization of their patent rights. The long term contracts and relationships with the Shenzen government are definitely valuable and I have decided to value this at 2 times ½ of normalized SG&A expense. This yields a net asset reproduction value of $0.13/share for E-Sea.



Earnings Power Valuation

Earnings for the core business were normalized by taking company guidance on revenues of $21 million and using a conservative EBIT margin of 18%. Relative to the 2004 EBIT margin of 24.6%, this is number is low, but it is close to the 17% EBIT margin that ETLT realized in the first 9 months of 2005. The earnings are assumed to be no growth earnings, since the company has not demonstrated a consistent level of growth in the past 3 years. These assumptions lead to an adjusted EPV of $0.93 for the core business.
To arrive at a no growth EPV value for E-Sea, I normalized the earnings for this year by multiplying the 6 month revenues for 2005 by 2, and taking an EBIT margin of 35%, which is less than the EBIT margin of 39% of 2005, and 53% in 2004. Our assumptions lead us to an adjusted no-growth EPV value of $0.19/share. E-Sea has displayed growth in an environment were return on invested capital (ROIC) is greater than WACC. I expect this franchise to be sustainable and therefore I have computed a value of growth of $0.08/share. I have decided to use a growth rate of 11%. Between 2001-2005 China had an average nominal GDP growth rate of 10%. I feel that due to the current lack of medical technology in China, as well as increasing income levels and health concern will allow the medical device market to grow at a faster rate than the overall economy. As mentioned earlier, experts peg this growth rate at 14%, but in the interests of being conservative, I will use 11%. With an ROIC of 40.5%, and WACC of 22.8% this gives a growth multiplier of 1.41; applied to the EPV of $0.19/share and I arrive at a value of growth for E-Sea of $0.08/share. This multiplier is sensitive to changes in the cost of capital and any reduction in the cost of capital will increase the value of the growth significantly.

Strategic Valuation Analysis

In the case of ETLT's core business, the AV is higher than the EPV, so one would expect to have an ROIC less than WACC. I have determined the ROIC of 14.3% on the core business. This is a healthy ROIC, but below the WACC of 22.81%. For this aspect of the business I have determined 2 major catalysts which could help EPV approach AV. One catalyst is improved communication to shareholders and better compliance to filing dates. The cost of equity is higher than it needs to be due to poor communication to shareholders, and consistent late filings. If ETLT improved its disclosure and communications with shareholders, the cost of equity would decrease and EPV would rise. I have given this a probability of 30%. A second potential catalyst is based on an improved demand situation, and therefore greater margins. Recently, ETLT's margins have experience compression due to higher costs and lower demand for sheep embryos. Because of the shortage of dairy cows, ETLT may be able to earn better margins as they shift their focus towards high-yield dairy cows. I have estimated a probability of this at 30% as well. This leads to a total catalyst value of $0.18/share.

In the case of E-Sea, the EPV is higher than the AV. As one would expect, the ROIC of 40.5% is higher than WACC. In the case of E-Sea it seems as though that they have a sustainable competitive advantage. They have patents on their medical devices and a captive audience. They have signed favourable, exclusive long-term contracts with the local government of Shenzen regarding the use of their equipment in clinics within that city. Their breast cancer device is unique to the Chinese market in that it detects the cancer much sooner than competitors, thus it has a significant advantage over competing products. Therefore, E-Sea will have a demand advantage as well. It is an established and recognized product, therefore an entrant would have to build up recognition and approval from doctors as well as the Chinese government. Gaining this approval can take years and potentially cost more than E-Sea spent developing it. E-Sea's recent acquisition by ETLT is also a source of competitive advantage as it will potentially be able access the large amounts of cash to expand the business that an entrant firm in China would have difficulty finding. Finally, as E-Sea continues to grow its clinic infrastructure, it will further protect itself against entry of incumbents.

Determination of intrinsic value

The intrinsic value of the ETLT core business is a product of both the underperforming EPV and the catalyst, and I calculate the intrinsic value of the core business at $1.11/share. For the E-Sea business, since I have determined it is growing in an ROIC > WACC environment, the intrinsic value is a product of the EPV and value of growth; I calculate it as $0.27/share. However the maximum price one would be willing to pay is the $0.19/share EPV. This implies a total intrinsic value of $1.38, representing a 63% margin of safety based on current stock price of $0.47. This 66% margin of safety implies 194% upside.


Risk Management Assessment

For ETLT's core business, one must carefully watch the cash position as this is the source of so much of ETLT's intrinsic value. ETLT's performance has deteriorated due to greater costs in their sheep embryo business. This has been mitigated with increased revenues, however further deterioration of margins would harm the business. Although ETLT's business has deteriorated somewhat, this risk is mitigated by the abnormally large margin of safety on the stock. The large margin of safety also mitigates the risk that E-Sea does not live up to the growth expectations, since even if I exclude the value of that business entirely I would still arrive at an intrinsic value of $1.11, which still provides a margin of safety of 54%. In this case the margin of safety minimizes downside risk.

Opinion

Based on abnormally large margin of safety and a cash position exceeding market capitalization, I recommend a buy on this stock at the current price. Before placing a large amount of money in the company perhaps a trip to China could be arranged to actually view the facilities and confirm that nothing fraudulent is happening. In the absence of fraudulent activity, this stock is extremely undervalued, and has on a conservative basis has almost 200% upside potential.

http://harbinus.blogspot.com/

Hi la-onda
Just some feed-back on ELTL . As you know pennys are the hardest thing in the world to predict but this is only only my opinion . I have noticed one thing about pennys while keeping a close eye on them since elite has picked some really good ones lately.
They have big names associated in their PR's from contracts they are posting and if the PR's wasn't for real the big name company's could get them in a lot of trouble for this. I never pick a stock that willn't give me a profile of it,Why won't they let someone see their profile. Also
another lesson learned from elite. Volume,,,volume,,volume has got to show investors are interested. Stocks with low volume are very hard to dump if trade goes bad.
Like I said it's just my opinoin and everyone one who plays this game must consider the amount of risk they are willing to take when intering a position especially with pennys.
Hope you have a great trading day

Does anyone have any feedback on ETLT.

At 37 c a share this has taken a huge beating and the YE results should come out either today or tomorrow as per PR firm I just called.

NAV per share must be USD 1.20 or thereabouts.

Some OS tax issues

Any comments are truely welcome...

wow..too many threads on ETLT..i just picked the top...tired of having to look in each one to see which one was the original...wish the date of the first post was visible when doing the search, rather then the last post on the thread.

Anyways...nice revs news caused a healthy move here. Watch to see if it continues to break the last high and hold over.

Wednesday, November 15 2006 11:55 AM, EST

Eternal Technologies Announces Third Quarter Results

Business Wire    "US Press Releases "

HOUSTON--(BUSINESS WIRE)--

Eternal Technologies Group, Inc. (OTCBB:ETLT) today reported results of operations for the three and nine months ended September 30, 2006.

Revenues for the three months ended September 30, 2006 increased by $2,089,207 or 41.6% to $7,116,175 from $5,026,986 for corresponding period of 2005. For the three months ended September 30, 2006 the company had net income of $1,843,743 or $.05 per share compared to net income of $730,231 or $.02 per share for the corresponding period of the prior year.

For the nine months ended September 30, 2006, the company reported revenues of $21,702,671, an increase of $4,443,288 or 25.7% from the $17,259,383 reported for the nine months ended September 30, 2005. The company had net income of $4,043,242 or $.10 per share for the nine months ended September 30, 2006 compared to net income of $2,560,091 or $.06 per share for the corresponding period of 2005.

The Company continues to be very liquid. As of September 30, 2006, it had cash and cash equivalents of $14,891,671, short term investments of $25,262,732 and working capital of $39,692,110. The company's shareholders equity increased to $53,340,660 or $1.31 per share, substantially above its closing price of $.0467 on November 14, 2006.

Mr. Jijun Wu, Chairman of the company, stated that "the company is performing and continues to perform very well, exceeding its projections in all of its operations. He went on to state that the results of E-Sea are particularly encouraging, as E-Sea has generated $5,761,636 in sales for the first nine months with a gross profit margin in excess of 60%. He concluded by stating that the company expects to have record operating results for the year ended December 31, 2006.

The company's financial statements for the three and nine months ended September 30, 2006 are attached hereto.

About Eternal Technologies

Eternal is a major agricultural genetics and biopharmaceutical R&D firm operating in China with the support of the Chinese Government. Eternal's animal breeding division has a strong asset base, cash position and net income. Eternal has become one of China's leading institutions for biopharmaceutical and biotech research, pure breed cultivation and breed stock production. The Company has secured a key market niche by commercializing gene engineering technologies and providing superior breeding stock, allowing China's citizens the ability to improve their living standards. With the world's largest population, a double-digit national growth rate and entry into the WTO, Eternal Technologies has a playing field set for tremendous opportunity. As a prominent player in the agricultural genetics industry, cash in the bank and an untapped market, Eternal has the potential to become a major player in China's national growth.

    For more information please visit website: www.eternaltechs.com
                   ETERNAL TECHNOLOGIES GROUP, INC.

Julia posted the news,
Eternal Technologies Announces Third Quarter Results
Good report...... market reacting favorably ! 
There are a number of future events... catalysts for this company.
This is why the stock will trade less and less like a OTCBB stock in the future.

52wk Range: 0.35 - 0.69
Volume: 2,615,363........
Avg Vol (3m): 182,202

Technicals ........
13-day EMA Cross Above 50-day MA
Close Above the 50-day MA
Close Above the 13-day MA
Percentage Gainer

Last Price Quote is:
21.43%above 13-day MA
24.23%above 50-day MA
RS Rating: N/A 

Fundamentals
Reports Earnings

Key Data:
Market Cap (M): N/A 
P/E Ratio: N/A 
PEG Ratio: N/A 
Next Earnings: N/A
Last Analyst Rating: N/A

Dang...i had this on my watch list too and failed to buy the gspot breakout..grrrr..i was distracted and missed it.

An S-8 was issued this am FYI

Terliso....ur 3 magic lines are workign it here.

heating up today.  up 7.61%