China Tracker - Details for American Lorain (ALN)

 American Lorain
 Analyst Coverage
2011-08-16Rodman & RenshawReiterationOutperform$5.00
 

Margin pressure to remain Considering China's increasingly inflationary environment, the company's below-expectation Q2 gross margin did not strike us as a major surprise. In fact, we had already tempered our margin expectations after Q1 results. We now expect the inflationary environment will continue in the near to medium term future and exert pressure on the company margins. This could be further exacerbated by the company's product-mix shift to a higher percentage of sales from convenience foods, which typically carry slightly lower margins than chestnut products. In this regard, we are now taking on an even more conservative approach in our margin outlook for the next several quarters.

2011-05-18Rodman & RenshawReiterationOutperform$5.00
 

We have adjusted our estimates for FY2011 and FY2012 to reflect the recent quarterly performance. We now expect total revenue in FY11 and FY12 will reach $223.9 million and $274.8 million, respectively. We now project net income will be $21.9 million in FY11, or $0.62 per diluted share. The respective numbers in FY12 are $28.2 million and $0.79. We continue to view American Lorain as a transforming growth story evolving from basically a chestnut processor to a diversified full-service packaged food manufacturer, and believe the company offers attractive investment potential for investors looking for growth opportunities in China's consumer sector. The shares are trading at 3.6x its expected 2011 EPS, which in our opinion represents an attractive valuation. Thus we are maintaining our Market Outperform rating on the shares of American Lorain. We are, however, lowering our price target to $5 from $6 previously. Our new $5 price target is based on the shares trading at 8x our expected 2011 EPS estimate of $0.62.

2011-04-21Rodman & RenshawReiterationOutperform$6.00
 

We view American Lorain as a transforming story evolving from basically a chestnut processor to a diversified full-service packaged food manufacturer. The company's bread-and-butter chestnut business has an existing strong market presence, and could bring steady annual percentage growth rates in the mid-teens in the near to medium term future. This established industry and marketing position, with its built-in distribution network and brand awareness, further facilitates the company's effort of aggressively expanding its convenience foods business, which offers significant growth and diversification potential. Underscored by China's rapid increase in disposable income and urbanization, we believe the company offers attractive investment potential for investors looking for growth opportunities in China's consumer sector.

2011-04-08Maxim GroupDowngradeHoldn/a
2011-04-06Rodman & RenshawReiterationOutperform$6.00
 

Maintaining Market Outperform Rating and 12-month PT of $6. At $2.39, ALN shares are still trading at only 3.4x our 2011 EPS of $0.69. Our 12-month PT of $6 applies ~7x to our 2012 EPS estimate of $0.83, which assumes some multiple recovery in the U.S.-listed Chinese company universe. A common point of feedback with ALN previously, is its negative operating cash flows in 2009. The 2010 10-K filing, which illuminated a more normalized OCF level, gives us continued confidence in this name.

2011-04-05Global HunterReiterationBuy$6.00
 

China Gerui reported solid Q4 and FY2010 results, beating on the top line and in line on the bottom line. The company also reiterated its prior 2011 revenue and net income guidance and offered EPS guidance in the $1.20-$1.25 range, since the warrant overhang and resulting uncertainty in final share count has been removed. Phase 1 of CHOP’s capex plan is almost complete, with the new chromium plating line already operational and the two new cold-rolling lines expected to be fully operational during the current quarter. Phase 2 should be complete by year-end and cost $12MM to $15MM. E&Y’s audit of CHOP’s internal controls has been completed and the company should file its annual report on Form 20-F by April 19, 2011. The company indicated that demand for its products remains strong and as a result CHOP operated at almost 100% capacity in 2010. CHOP generated $36.5MM in operating cash flow in 2010 and should have close to $120MM in net cash (~$2.00 per share) following the recent warrant exercise. In order to enhance shareholder value, CHOP announced a $10MM share-buyback program, which it expects to complete within six months. The stock currently trades at only 4x 2011 P/E and less than 2x 2011 EV/EBITDA multiples; as a result we are reiterating our Buy rating and $10 price target.

2011-02-10Rodman & RenshawReiterationOutperform$6.00
 

Reiterating Market Outperform Rating and 12-month PT of $6. At $2.87, ALN shares are still trading at a sluggish 4.7x our current conservative 2011 EPS estimate of $0.62. Our 12-month price target of $6 applies 9x multiple to our 2011 EPS estimate, based on a triangulation of multiples awarded to its Chinese consumer food peers trading in China and the U.S. We believe the keys to unlocking value in the stock include 1) upgrading to a higher-profile auditor; 2) stimulating free cash flow generation by working more with distributors rather than with supermarkets directly and thereby shortening its cash conversion cycle; and 3) providing further clarity on 2011 working capital and capex plans and the company's strategy to fund these needs.

2011-02-02Rodman & RenshawReiterationOutperform$6.00
 

We are lowering our 4Q10, 2010, and 2011 EPS estimates to $0.24, $0.60, and $0.62, respectively from $0.28, $0.63, and $0.74 previously, mainly to account for the 3.44MM share equity issuance announced in September 2010. However, our revenue and net income estimates remain within, albeit at the low end of American Lorain's 2010 guidance of $182-$190MM revenues and $17.8-$19.0MM net income. The lower volume of chestnuts sold this year, which we do not think can be compensated by slightly expanding margins, is pulling our estimates to the low end of the guidance range. That said, should revenues of $182MM and net income of $17.8MM materialize in 2010, that would still represent ~24% YoY topline and net income growth (distills to ~9% EPS growth after we factor in the equity dilution). Bottom line is, ALN is still delivering more than what the market is giving it credit for judging by the stock's low P/E multiple.

Reiterating Market Outperform Rating and 12-month PT of $6. At $2.89, ALN shares are still trading at a sluggish 4.7x our 2011 EPS estimate of $0.62. Our 12-month price target of $6 applies 9x multiple to our 2011 EPS estimate, based on a triangulation of multiples awarded to its Chinese consumer food peers trading in China and the U.S. We believe the keys to unlocking value in the stock include 1) upgrading to a higher-profile auditor; 2) stimulating free cash flow generation by working more with distributors rather than with supermarkets directly and thereby shortening its cash conversion cycle from the ~143 days recorded in 3Q10; and 3) providing clarity on 2011 working capital and capex plans and the company's strategy to fund these needs. 

2010-12-13Piper JaffrayReiterationBuy$6.00
2010-12-10Rodman & RenshawReiterationOutperform$6.00
2010-08-11Rodman & RenshawReiterationOutperform$6.00
 

We are maintaining our 2010 and 2011 EPS estimates of $0.60 and $0.74, respectively, and reiterate our 12-month price target of $6, which assumes 8x our 2011 EPS estimate.

2010-08-02Maxim GroupReiterationBuy$5.50
2010-06-30Rodman & RenshawReiterationOutperform$6.00
 

While investors generally agree on the strategic rationale of the acquisition, the point of discussion appears to be centered on its price tag and deal structure. Strategically, Shandong Greenpia extends ALN’s current portfolio of cold dishes/convenience foods by more than 20 product varieties, its customer base by more than a dozen (including some in Japan and Korea, having no overlap with ALN’s existing Japanese and Korean customers), and expands the company’s retail sales points by roughly 100 in China alone. Financially, the valuation appears fair on the basis of <1x net asset value (on a salvage value basis), in our view. So what does the seller gain in selling to ALN in lieu of auctioning off its production lines? American Lorain essentially used the part-equity deal structure, in allowing the seller to participate in any upside in ALN shares, as a bargaining chip. Our back-of-the-envelope accretion/dilution analysis suggests that the deal is roughly a penny accretive to 2010 and our 2011 EPS estimates. In terms of ongoing capital structure, we still believe that ALN has more than adequate cash to support its September – January harvesting season.

2010-06-16Rodman & RenshawReiterationOutperform$6.00
 

Valuation is compelling, even with fully-diluted warrants and options. We maintain our 2Q10, 2010, and 2011 EPS estimates of $0.09, $0.60, and $0.74, respectively. At $3.14, ALN shares are trading at 5.2x 2010E P/E and 4.1x 2010E EV/EBITDA, a meaningful discount compared with average peer multiples of 8.6x and 4.8x, respectively. It is worthwhile noting that even after we have conservatively assumed the fully diluted share count of 32.9MM as the denominator (this is non-GAAP), ALN shares are trading at 5.6x 2010E P/E, which remains significantly below its peers. The 32.9MM shares include all warrants and stock options, and assume that the proceeds from such conversion will remain on the balance sheet earning zero interest. In a more realistic scenario using the treasury stock method, current trading multiples approximate those calculated using GAAP numbers.

2010-06-08Maxim GroupInitiationBuy$5.50
2010-05-27Global HunterInitiationBuy$6.00
2010-05-14Rodman & RenshawReiterationOutperform$6.00
2010-03-30Rodman & RenshawReiterationOutperform$6.00
 

American Lorain reported Q4 results ahead of our top and bottom line estimates, and offered robust FY10 guidance.

2010-03-10Rodman & RenshawReiterationOutperform$6.00
2010-01-08Red ChipInitiationOutperform$5.25
 

Not only does ALN trade at a discount to its peers on a historical P/E basis, the stock trades at nearly half the forward P/E of our selected peer group. Applying the median forward P/E of the peer group we have identified to our estimate of ALN's earnings per share (EPS) for the next 12 months, we derive a revised target price of $5.25, which represents an 87% upside to the Company's current share price.

2009-11-19Rodman & RenshawReiterationOutperform$6.00
ALN
Food
SCORE
6
READ: Score Cards Explained
SAFETY/RISK SCORE
HIGH RISK
DETAILS: Safety/Risk Model for ALN
Current Price:  $0.36
F10k Day (2008-02-21): -96.02%$9.00
2009 Close: -88.23%$3.05
2010 Close: -86.25%$2.61
2011 Close: -77.57%$1.60
High (2012-10-19): -75.75%$1.48
Low (2012-07-19): -64.46%$1.01
Exchange: ASE
Market Capitalization: 12.36 mill
Total Shares: 34.42 mill
Float: 6,209,000.00 mill
Avg Volume: 146.80 k
Short Interest: 59.60 k
Short Ratio: 0.56%0.4 d
Last Quarter: 2010-12-31
Revenue (MRQ): 82.32 mill
Net Income (MRQ): 8.21 mill
Op. Cash Flow (MRQ): 33.86 mill
all financial data provided without warranty