China Tracker - Details for China Gerui Advanced Materials (CHOP)

 China Gerui Advanced Materials
 Analyst Coverage
2011-06-01TripointInitiationBuy$8.00
2011-05-11Brean MurrayReiterationBuy$10.00
 

Overall, results were in line as modest expectations in Q1 are setting up for a strong ramp in the back half of the year with utilization accelerating following the May/June timing for new production commencement. However, costs appear to also be above our original estimates, with one-time interest related to a new facility and higher raw material costs. This drove full year earnings revisions and the switch to non-GAAP adjusted EPS reporting. While the 2011 earnings revision would imply a potential target price reduction, China Gerui's incremental cash position, north of $5 per share, and deep valuation discount provides sufficient cushion for downside to valuation expectations, in our view. We maintain our Buy rating and target of $10, which implies a forward price to earnings multiple of 3x our 2012 estimate plus net cash of $5.17 per share. 

2011-05-10Rodman & RenshawReiterationOutperform$11.00
 

We have tweaked our model to reflect the updated 1Q11 financials and revised outlook. For 2Q11, we now estimate revenue, gross profit, and non-GAAP net income will reach $84.9 million, $28.0 million, and $17.0 million, respectively. The respective figures for full year 2011 are: $339.4 million, $114.1 million, and $69.1. We are reiterating our Market Outperforming rating on the shares of Gerui as well as our $11 price target. Our price target of $11 is based on Gerui shares trading at 9x our 2011 EPS estimate of $1.22, representing a PEG ratio of 0.4.

2011-04-26Brean MurrayReiterationBuy$10.00
 

We maintain our Buy rating and target price of $10, which implies a forward price-to-earnings multiple of 5x our 2011 EPS estimate plus cash. This also implies an EV/EBITDA multiple of 2.4x our 2011 estimate. Our target forward PE multiple, which suggests 100% upside from current levels, is still at a steep discount to its peers who are trading at an average forward PE of 12x. This target multiple, in our opinion, is more justified for a company that is estimated to grow revenue 32% and earnings by 22% in 2011.

2011-04-21Global HunterReiterationBuy$10.00
 

China Gerui filed its FY2010 annual report (Form 20-F) on April 19, with results in line with its original expectations discussed during the company’s earnings conference call on April 7. As expected, audited financial results were the same as the unaudited numbers previously announced by the company and there were no restatements or adjustments to any historical results. Ernst & Young's review of CHOP’s internal controls has been completed and determined to be “effective” with no material weaknesses. We continue to view CHOP as a solid investment opportunity with a simple business model, earnings that are backed by cash flows and results that are audited by a top 20 PCAOB-ranked auditor in UHY. Notably, the company may upgrade to a Big 4 during the current fiscal year. The stock currently trades at theoretical liquidation value based on net tangible assets, 4x 2011 P/E and less than 2x 2011 EV/EBITDA multiples. As a result, we reiterate our Buy rating and $10 price target.

2011-04-08Global HunterReiterationBuy$10.00
 

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.

2011-04-08ChardanReiterationBuy$9.50
2011-04-07Rodman & RenshawReiterationOutperform$11.00
 

For 2011, Gerui now expects to realize $330-$345 million of revenue, $115-$120 million of gross profit, and $70-$75 million of net income, translating to diluted EPS between $1.20 and $1.25. We believe this guidance is achievable, as we expect the company will start normal production of its two new cold-rolled, wide-strip steel lines with 150,000 tons of annual capacity in 2Q11, after the successful production launch of its chromium plate line last month. We also anticipate some margin expansion as the new wide-strip and chromium plated products could bring in higher gross margins (somewhere between 35-40%) than the existing thin-strip products that typically offer gross margins of around 30%.

2011-03-21Global HunterUpgradeBuy$10.00
 

We initiated coverage of China Gerui on August 12, 2010 with a Neutral rating as we expressed our concern that the company’s capital structure, which contained 16.5MM warrants that expire in March of 2011, would prove to be a significant overhang, preventing near-term appreciation. We also expressed our enthusiasm for both the operating business and management and recommended to investors to remain patient. CHOP’s warrants expired on March 19 (effective date March 21), removing the overhang. As a result, we are upgrading CHOP to a Buy rating with a $10 price target, predicated on 8.4x 2011 P/E and 5.4x 2011 EV/EBITDA multiples. In this note we also highlight the key points that are the crux of our bullish outlook and why the company should be viewed separately from the broader group of steel commodity players. Those reasons include CHOP’s leading position in the niche precision steel products market, diverse end-market applications and “tolling” operating model (which helps to reduce the company’s commodity risk), strong operating cash flows, quick cash conversion cycle and a number of identifiable, near-term catalysts that should help create value for investors, including: a strong Q4 announcement with a clean 20F report, an update on the capex rollout and a potential auditor upgrade to a Big Four firm in 2011.

2011-03-08Brean MurrayInitiationBuy$10.00
2010-12-15Global HunterReiterationNeutraln/a
2010-12-09ChardanReiterationBuy$8.00
2010-11-16Hudson SecuritiesReiterationNeutraln/a
2010-11-01Global HunterReiterationNeutraln/a
2010-10-05Brean MurrayInitiationBuy$9.00
 

Given the company’s solid fundamentals, strategic expansion initiatives, robust market opportunities, proven management team and attractive valuation, we are initiating coverage on the company with a Buy rating and a 12-month target price of $9, based on the shares trading at 8.9x and 7.2x our fully diluted GAAP EPS estimates for 2010 and 2011, respectively.

2010-09-01Rodman & RenshawReiterationOutperform$10.00
 

Reiterating Market Outperform Rating and $10 PT In light of the strong 2Q10 results and upbeat outlook, we are reiterating our Market Outperform rating on the shares of Gerui and our $10 price target. We now expect total revenue for 2010 and 2011 will reach $262.3 million and $359.0 million, representing YoY growth of 19.8% and 36.9%, respectively. We project net income in 2010 and 2011 will be $49.3 million and $70.2 million, implying respective YoY growth of 13.6% and 42.2% and diluted EPS of $0.98 and $1.15. Our 12-month price target of $10 is based on Gerui shares trading at 9x our 2011 EPS estimate of $1.15, representing a PEG ratio of 0.5.

2010-09-01ChardanReiterationBuy$8.50
2010-08-12Global HunterInitiationNeutraln/a
2010-08-10Rodman & RenshawInitiationOutperform$10.00
 

The shares of Gerui are currently trading at 5.5x and 4.6x our respective 2010 and 2011 EPS estimates, below its respective peer averages of 11.9x and 9.1x. This in our view represents an attractive valuation for this company. We believe Gerui, as the national leader in its market segment and with a favorable market environment, should command a forward P/E multiple that is at least in-line with its steel company comparables. Our 12-month price target of $10 is thus based on Gerui shares trading at 9x our 2011 EPS estimate of $1.15, representing a PEG ratio of 0.5.

2010-01-07Maxim GroupReiterationBuy$10.00
2009-11-24Maxim GroupInitiationBuy$10.00
CHOP
Steel
SCORE
10
READ: Score Cards Explained
SAFETY/RISK SCORE
MODERATE RISK
DETAILS: Safety/Risk Model for CHOP
Current Price:  $0.65
F10k Day (2009-11-02): -90.72%$7.00
2009 Close: -88.40%$5.60
2010 Close: -88.95%$5.88
2011 Close: -80.60%$3.35
High (2012-04-05): -82.25%$3.66
Low (2012-10-19): -56.67%$1.50
Exchange: NMS
Market Capitalization: 31.45 mill
Total Shares: 48.39 mill
Float: n/a
Avg Volume: 316.20 k
Short Interest: 495.20 k
Short Ratio: 1.81%1.6 d
Last Quarter: 2010-12-31
Revenue (MRQ): 66.14 mill
Net Income (MRQ): 11.34 mill
Op. Cash Flow (MRQ): 17.50 mill
all financial data provided without warranty