My China play: SDTH

[Garoh]

I think it's one of the best chances to get this stock at these prices ... I added more yesterday because I expect this to shoot to at least to  $11 in a few days 


let's waiting and watch 

[David Randolph]

I think it's one of the best chances to get this stock at these prices ... I added more yesterday because I expect this to shoot to at least to  $11 in a few days 

let's waiting and watch 

I agree Garoh, nice timing

The stock had that gap up, then came down to fill it. It should be free to go up now, according to the fundamental trends.

I'll keep holding SDTH for the long term.

[David Randolph]

I think it's one of the best chances to get this stock at these prices ... I added more yesterday because I expect this to shoot to at least to  $11 in a few days 

let's waiting and watch 

Your timing was perfect Garoh, I hope you're also right on the $11 call

Nothing new out today for SDTH, I'll keep holding for the long term.

[Garoh]

Hi David 
Yes I'm 90% sure we'll  reach this target , we just need to wait and see ..

I see it from a technical view as well as your excellent fundemantal analysis 

[David Randolph]

Hi David 
Yes I'm 90% sure we'll  reach this target , we just need to wait and see ..

I see it from a technical view as well as your excellent fundemantal analysis 

Thanks Garoh, and congrats for your awesome timing here

SDTH closed at a new all time high yesterday. Analysts are now expecting $0.49 EPS in 2007, against the company's internal guidance of $0.44. This is because SDTH beat analysts expectations for the past four quarters:



Considering the 2007 EPS estimate, SDTH is trading at 19.8 times earnings. EPS in 2006 was $0.34 and $0.49 is expected for 07, so the earnings growth rate is 44%.

SDTH represents that beautiful situation when the P/E is half of the growth rate.

To maintain the 44% growth rate SDTH has to earn $0.71 per share in 2008. Is this possible? Not just possible, it is likely, in my view. SDTH earned $0.14 per share in Q3 2007 and this is already $0.56 annualized. I can only see growth going forward, not just because of an increase in production volumes, but also because the more weight NPCC has in the company's revenues, the more profit margins expand.

With $0.71 EPS in 2008 and an earnings multiple of 20, SDTH will be a $14.2 stock in late 2008. This is a 46.5% return for the next 12 months and it sounds good to me.

I'll keep holding SDTH for the long term.

[David Randolph]

With $0.71 EPS in 2008 and an earnings multiple of 20, SDTH will be a $14.2 stock in late 2008. This is a 46.5% return for the next 12 months and it sounds good to me.

Instead of a 46.5% return in 2008, buyers around yesterday's close will get 57%. Sellers around yesterday's close will get nothing.

That's all I have to say about what happened with SDTH yesterday.

I'll keep holding the stock for the long term.

[guledh0]

ShengdaTech Receives Patent Approval for Advanced NPCC Technology
PR Newswire
December 17, 2007: 08:00 AM EST

TAIAN CITY, China, Dec. 17 /Xinhua-PRNewswire-FirstCall/ -- ShengdaTech Inc. ("ShengdaTech" or "the Company") a leading manufacturer of nano precipitated calcium carbonate ("NPCC") and coal-based chemical products in the People's Republic of China ("PRC"), today announced the Company's patent application for its membrane dispersion technology used to manufacture NPCC has been approved by the State Intellectual Property Office of the PRC. The patent number is ZL200510086388.2 and is under protection of PRC patent law for 20 years.

"We are pleased to receive the patent for our membrane dispersion technology. Since the commercialization of our membrane dispersion technology at the end of 2006, we have improved the quality and consistency of NPCC particles, lowered our production cost and increased our market penetration," commented Mr. Chen, CEO of ShengdaTech. "We believe this demonstrates our success in implementing this advanced technology and our ability to continue increasing our market penetration in current and new applications."

The membrane-dispersion technology was co-developed by ShengdaTech and Tsinghua University, the leading science university in the PRC. ShengdaTech and Tsinghua University each has 50% ownership of the technology, while ShengdaTech has sole commercialization rights to all applications using the technology. The membrane dispersion technology enhances the use of carbon dioxide, producing NPCC particles that are more stable. The result is a better quality NPCC product due to the improvement in particle size, uniformity and distribution, which translates into better manufactured end products. ShengdaTech believes the NPCC products produced using this cutting- edge technology will define the international standard for NPCC particles as the Company targets higher-end markets for NPCC applications.

About ShengdaTech, Inc.

ShengdaTech is engaged in the business of manufacturing, marketing and selling nano-precipitated calcium carbonate ("NPCC") products and coal-based chemicals for use in various applications. The Company converts limestone into NPCC using its proprietary technology. The unique chemical and physical attributes make NPCC a valuable ingredient in tires, paints, polyvinyl chloride ("PVC") building materials and other products. NPCC enhances the durability of many products by increased strength, heat resistance, and dimension stabilization. The Company is also engaged in the manufacture and sale of coal-based chemical products namely ammonium bicarbonate, liquid ammonia, melamine and methanol. The Company markets and sells its coal-based products mainly for chemical fertilizers and raw materials in the production of organic and inorganic chemical products, including formaldehyde and pesticides.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as unanticipated changes in product demand especially in the tire industry, changes in composition of tires, ability to attract new customers, ability to increase our product's applications, ability of our customers to sell products, cost of raw material, downturns in the Chinese economy, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission.

    For more information, please contact:

     Crocker Coulson, President, or
     Leslie Richardson, Financial Writer
     CCG Elite
     Tel:   +1-646-213-1915
     Email: [email protected]
            leslie.richardson@ccg

[David Randolph]

Thanks for posting SDTH's press release in my absence guledh0

• ShengdaTech Receives Patent Approval for Advanced NPCC Technology
PR Newswire (Mon 8:00am)

This is obviously good news, but not unexpected. The stock went down exclusively due to the general market negative mood and because there were big profits to take here, to compensate for losses elsewhere.

Anyway, the press release shows one of the reasons I like SDTH so much. ShengdaTech is a unique company, not a Chinese copycat of a Western company. What the company makes isn't made by any other company in the World, and its product has a growing number of applications:

«NPCC used in tires and PVC contributed 46.0% and 37.1% of revenue, respectively. NPCC used in latex increased to 8.5% of total NPCC revenue from 1.5% in the third quarter of 2006. NPCC used in paint, paper and printing ink contributed the balance of 8.4% of total NPCC revenue.»

We have six applications here, but some of them, which are still incipient in terms of revenue contribution (like paper, for example), can be huge. It feels like SDTH is just scratching the surface of possibilities.

I'll keep holding SDTH for the long term.

[Garoh]

I think it's one of the best chances to get this stock at these prices ... I added more yesterday because I expect this to shoot to at least to  $11 in a few days 


let's wait and watch 

It's on track .. High $10.55 almost at the target but next will be $13 No doubt ..
Nice pick David

[David Randolph]

It's on track .. High $10.55 almost at the target but next will be $13 No doubt ..
Nice pick David

Thanks Garoh, and congrats on your great call

SDTH closed at a new all time high yesterday, and this isn't due to any "China hype", because Chinese stocks aren't rising as a group. Finally investors are understanding SDTH's unique business and are bidding the stock higher.

We're at $509 M market cap now and the forward earnings multiple is 16 (considering $0.64 EPS estimate for 2008).

I believe that if we get up to a $1 B market cap the multiple will expand considerably ... most institutional investors don't believe/get interested in Chinese companies when they're below $1 B market cap. I've been seeing outstanding Chinese micro and small caps trading at a p/e of less than 10 while Chinese big caps are trading at 30, 50 or even 100 times earnings.

I'll keep holding SDTH for the long term.

[la-onda]

nice christmas chart:

[stocky]

David,

Plz check the following link:

http://www.investorplaceblogs.com/users/stocksshah/2007/12/the_best_of_the_best.php

[Garoh]

David,

Plz check the following link:

http://www.investorplaceblogs.com/users/stocksshah/2007/12/the_best_of_the_best.php

Hi Stocky

You should've written Cesar Borja instead of David Randolph 

I think he will be a well known guy in the near future 
wish you best of luck David .

[terainvestment]

I wish to thank David for his great patience in writing me replying to my questions!
Thanks for the great job you did this year, Merry Christmas from italy!

Andrea (alias Tera)

[David Randolph]

nice christmas chart:

Yep la-onda, on Monday SDTH closed at a record high for a 4th day in a row, so it's really bullish from a technical standpoint.

David,

Plz check the following link:

http://www.investorplaceblogs.com/users/stocksshah/2007/12/the_best_of_the_best.php

Wow stocky, thanks a lot for the distinction If one year ago someone told me I would teach fundamental analysis I wouldn't believe it. But the more I learn and pass on to you, the more I enjoy it

I think he will be a well known guy in the near future

Well, I hope not Garoh, I have no desire at all to be a "well known guy". I wish and look for the best for my family, and fame ... would bring more problems than virtues, in my view.

But thanks

I wish to thank David for his great patience in writing me replying to my questions!
Thanks for the great job you did this year, Merry Christmas from italy!

Andrea (alias Tera)

Thanks Andrea, I still have to reply one e-mail from you ... well, I'll do it right now on this thread, because maybe some more people have the same doubts:

Hi David,

I have a question: when the stock dilution of a company is considered "normal"?
Is there a math formula to determine if the dilution is positive or negative for shareholders?

There are two ways to look at this issue.

1 - There's "dilution" every time the # of shares outstanding rises. For example, if you own 10,000 shares of a company with 1 million shares outstanding, you own 1% of the company. If then the company issues and sells another 1 million shares, your 10,000 shares now represent just 0.5% of the company. 

2 - There's dilution whenever the EPS goes down due to the rise in the # of shares outstanding. As you probably know ...

EPS = Net Income/# of shares outstanding

... so a rise in the # of shares outstanding makes EPS go down. However, if the capital raised from issuing and selling new shares is invested in a way that makes Net Income rise more than proportionately, then the final result is a higher EPS and usually a higher valuation for the whole company. In the prior example, it is possible that your 0.5% of the company now are worth more than the 1% you used to own.

So the math formula would be:

If the end result of a rise in the # of shares outstanding is a lower EPS, then there's "negative dilution". If the end result of a rise in the # of shares outstanding (due to an even bigger rise in net income) is a higher EPS, then there's "positive dilution".

So, whenever a company announces a private placement or some other issuance of new shares (it can be to fund an acquisition of another company, or for an employee incentive plan, or to cover for losses and just keep things going) investors need to think if that will bring a lower or higher EPS in the near future.

Merry Christmas from Portugal Andrea

Looking at SDTH now, which is currently the biggest gainer and largest holding of the Main Portfolio.

The company has been beating even its own optimistic perspectives. In the Q2 earnings release management said the following:

«"We are rapidly expanding our market share as we build our leadership position in the NPCC market in China. Currently, we are in the testing process with a number of potential new customers, including 12 PVC manufacturers, 20 tire manufacturers, 15 latex makers, 25 adhesive producers, and four paper makers. We expect to add five to six new clients in the third quarter 2007. In addition, we recently doubled our sales team to 60 sales agents," commented Mr. Chen. "Overall, we expect to see continued strong growth in our NPCC products as we bring on additional capacity and increase our marketing efforts."»

And then in Q3 they reported:

«Added nine new domestic customers and three international customers»

I'm also enthusiastic about the following:

«"We are dedicating our efforts to increasing NPCC applications and expanding our penetration in international markets. We have recently added a top chemical engineer, Mr. Zhude Xu, to our R&D team to further our efforts to develop NPCC for use in paper," Mr. Chen commented. "We are also currently in discussion with several major international companies including PVC manufacturers in Japan and South Korea and a paper manufacturer in North America."»

I wonder who is this North America paper manufacturer? Could it be International Paper (IP)? (just speculating here).

Anyway, the global paper market is huge, even bigger than the global tire market ... if we think about it for a second, it doesn't make all that much sense to produce paper from cutting trees ... or producing tires using natural rubber. It seems that nano precipitated calcium carbonate (NPCC) is a real cost effective alternative to substitute some of the natural resources commonly used to produce many of the goods we use in our everyday lives.

The stock has been rising very rapidly and what I thought could happen in late 2008, it seems is around the corner now:

With $0.71 EPS in 2008 and an earnings multiple of 20, SDTH will be a $14.2 stock in late 2008. This is a 46.5% return for the next 12 months and it sounds good to me.

However there are people already starting to talk about $1 EPS in 2008. And this would mean at least $20 a share and a $1 B market cap. Thinking about it, the company already brought an additional 40 metric tons of capacity online in November 2007 and it is scheduled to bring another 60 metric tons in Q1 2008. This is 100 metric tons to add to the pre-existing 90 metric tons of capacity. So, if  producing 90 metric tons they make about $0.5 EPS in 2007, why not $1 EPS in 2008, since they'll be producing about 190 metric tons of NPCC?

The market seems to take all the company can produce. Longer term, following the same logic, the company has plans to reach 1,000 metric tons of annual production of NPCC, which would mean about $5 EPS and a share price of about $100.

Sure, there will be big pullbacks along the way, but if everything goes as plan, in a few years SDTH will be a $5 B company ($100 a share) and I'll remain focused on the long term and will ignore the short term fluctuations.

I'll keep holding SDTH for the long term.