China Tracker - Details for Fushi Copperweld (FSIN)


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 Fushi Copperweld
 Analyst Coverage
2011-08-04Roth CapitalReiterationBuy$10.50
2011-05-06JefferiesReiterationHold$11.00
2011-05-05Rodman & RenshawReiterationOutperform$11.50
 

Despite reporting disappointing 1Q11 results, Fushi Copperweld management maintained its full year EPS guidance of $1.15 - $1.25 per fully diluted share. At the same time, the company continued to generate strong cash flows from operations, ending the quarter with $128.9 million in net cash ($3.36 per fully diluted share), representing 41.2% of the company's current market cap. With the management buyout proposal at $11.50 per share still on the table, we believe there is a significant near-term upside potential to the stock. We are maintaining our Market Outperform/Speculative Risk rating and a price target of $11.50. Our price target is in line with the proposed management buyout price and implies the shares attaining a P/E level of approximately 10x our FY11 fully diluted EPS estimate of $1.15.

2011-05-04Roth CapitalReiterationBuy$11.50
 

FSIN reported 1Q11 results that we view as roughly in-line with our estimates, adjusting for a number of non-recurring items (audit fees, privatization fees, elevated tax rate). As expected, management maintained 2011 EPS guidance of $1.15 to $1.25. We continue to view the proposed privatization as the major value driver for shares.

2011-04-06Rodman & RenshawReiterationOutperform$11.50
 

Fushi Copperweld reported 4Q10 and FY10 results in line with the previously issued preliminary financial results. Revenues for 4Q10 and FY10 came in at $69.9 million (~ up 35.2% YoY) and $265.0 million (~44.9% YoY), respectively. The company reported 4Q10 and FY10 gross profit of $22.2 million (~ up 29.1% YoY) and $79.3 million (~44.7% YoY). Excluding stock-based compensation, 4Q10 and FY10 operating income increased to $16.4 million (~29.8% YoY) and $59.0 million (59.9% YoY), respectively. Non-GAAP net income adjusted for non cash charges including $14.3 million deferred tax expense was $13.4 million or $0.35 per fully diluted share in 4Q10 and $49.4 million or $1.32 per fully diluted share for the full 2010. On a GAAP basis, Fushi Copperweld reported a 4Q10 loss of $2.4 million or ($0.06) per fully diluted share and FY10 net income of $31.9 million or $0.85 per fully diluted share. Based on the company’s FY11 fully diluted EPS guidance of $1.15 - $1.25, we are forecasting FY11 revenues of $290.7 million, adjusted net income of $46.4 million and fully diluted EPS of $1.21. We are maintaining our Market Outperform rating and a price target of $11.50. Our price target is in line with the proposed management buyout price and implies the shares attaining a P/E level of approximately 9.5x our FY11 fully diluted EPS estimate of $1.21

2011-04-05Roth CapitalReiterationBuy$11.50
2011-03-30JefferiesReiterationHold$11.00
2011-03-16Rodman & RenshawReiterationOutperform$11.50
 

We are reducing our price target from $13 to the management buyout price of $11.50. While we believe that, in the long-term, the company's dominant position in the bimetallics industry may position it for strong growth should the market demonstrate wider acceptance of bimetallic wire across industries, we are in the meanwhile perplexed by the slower than expected market penetration of bimetallic products in Asia and now believe that the proposed buyout price offers good value in the foreseeable future. Fushi Copperweld is currently trading at 6x our fully diluted FY10 EPS forecast of $1.40 and 7x our fully diluted FY11 EPS forecast of $1.21, significantly below the current industry multiples of 14x and 11x for the US-listed wire and cable manufacturers. Our price target of $11.50 is in line with the proposed management buyout price and implies the shares attaining a P/E level of approximately 9.5x our FY11 EPS estimate.

2011-03-15JefferiesDowngradeHold$11.00
2011-03-15Global HunterReiterationBuy$11.50
 

Fushi announced preliminary Q4 and FY2010 results which came in above our estimates and consensus; however, the company provided conservative 2011 EPS guidance of $1.15 to $1.25 compared to the consensus estimate of $1.40, citing the delay in the 3G build out in China and some unexpected delays in CCS capacity roll out from its Dalian facility. As a result of these delays we are lowering our 2011 revenue and EPS estimates. In addition, due to the recent auditor upgrade from Frazer Frost to KPMG, the company will have to restate its previously reported annual and quarterly results beginning from 2007 and will not be able to file its 10-K on time. It is important to note that all restatements are related to non-cash, non-operating items including treatment of deferred income taxes and cross currency swaps. We believe that some immaterial restatements related to the interpretation of GAAP accounting and a one-time delay in filing its annual report is a small price to pay to gain investor confidence in reported results and business fundamentals by upgrading to a “Big Four” auditor. We continue to believe that at current prices FSIN remains a very compelling stock on both an absolute and relative value basis; however, we believe that the announced MBO at $11.50 will act as a ceiling in a stock in the near term and as a result we are lowering our price target from $15 to $11.50.

2011-03-02Roth CapitalReiterationBuy$11.50
 

FSIN announced today that the Special Committee of its Board has engaged BofA Merrill Lynch as its financial advisor and Gibson, Dunn & Crutcher LLP as its legal adviser to assist in consideration of the proposal brought forward on November 3, 2010 by Chairman/Co-CEO Mr. Li Fu and Abax Global Capital (HK) to take the company private at $11.50 per share in cash. We view this announcement as an early step and continue to view the buy-out process as a complex, mid- to long-term event.

2011-03-02JefferiesReiterationBuy$14.00
2011-02-14Roth CapitalUpgradeBuy$11.50
 

We are lowering our estimates primarily reflecting a higher expected tax rate ($0.08 of $0.13 downward EPS revision for 2011 and $0.10 of $0.18 for 2012). Additionally, we model slightly lower production volume and lower expected margins. From a long-term view, we believe FSIN is capable of generating at least 10% revenue growth (assuming stable commodity prices) and 15% earnings growth on a sustainable basis. Our $11.50 price target reflects the proposed Fu/Abax going private bid price; and we view as easily supported by FSIN's fundamentals.

2011-02-03Rodman & RenshawReiterationOutperform$13.00
 

FSIN is currently trading at 7 times our FY11 adjusted fully diluted FY11 EPS estimate of $1.40. We continue to view FSIN's valuation as attractive and reiterate our Market Outperform rating and 12-months price target of $13. Given FSIN's dominant position in the bimetallics industry and the long-term growth opportunity associated with the broader acceptance of bimetallics in multiple applications across industries and geographical regions, we believe the company warrants a higher valuation. Our 12-months price target of $13 is based on the shares attaining a P/E level of 9x our FY11 EPS estimate.

2011-01-27Rodman & RenshawReiterationOutperform$13.00
 

We view the appointment of KPMG as a positive step for the company. KPMG is one of the Big Four accounting firms with a significant presence in China. With recent reports of accounting deficiencies discovered in a few US-listed Chinese small-cap companies, we believe this auditor upgrade is timely and will help strengthen investors' confidence in the company. Furthermore, the appointment confirms the management's commitment to transparency and stringent corporate governance standards as the special committee reviews the submitted management buyout proposal. We remind that on November 3rd, 2010, the company's Board of Directors received a proposal from the Company's Chairman and CEO, Mr. Li Fu and Abax Global Capital to acquire all of the outstanding Fushi Copperweld common stock not currently owned by Mr. Fu and affiliates for $11.50 per share in cash. Although the offer price provides a 19.4% premium to yesterday's closing price of $9.64, it values the shares at only 8.2x our FY11 fully diluted EPS estimate of $1.40. Adjusted for $117.9 million or $3.10 per fully diluted share in cash as of the end of 3Q10, the proposal values FSIN shares at 6x our FY11 EPS estimates. This multiple is significantly below the current FY11 industry average of 13.7x for the U.S. listed wire and cable manufacturers and our price target of $13. We continue to believe that the company warrants a higher takeout valuation.

2011-01-27Roth CapitalReiterationNeutral$11.50
 

FSIN announced the appointment of KPMG as its auditor for the fiscal year ending December 31, 2010, replacing Frazer Frost. Management expects a seamless transition and no delay in the filing of its upcoming 10-K. The KPMG engagement comes earlier than we anticipated, and we're highly encouraged they will complete the company's upcoming 2010 audit. We believe the lack of a top-tier auditor has presented an overhang for shares and believe this upgrade provides a basis for multiple expansion.

No meaningful progress concerning privatization. So far, FSIN has not released any updates related to the proposed management buyout ($11.50 per share in cash). We suspect the deal has not made meaningful headway since there has been no formal announcement on the engagement of a financial advisor. While rising copper prices present a favorable demand environment for bimetallics, we believe the buyout bid price has become an overhang on FSIN's stock price given uncertainty over the complicated deal process and the feasibility of a successful buyout.

2011-01-27Global HunterReiterationBuy$15.00
 

Fushi Copperweld announced yesterday the appointment of KPMG to replace Frazer Frost as its new independent public accountants. KPMG will audit the company’s FY2010 results and the auditor change should not result in any delays in filing its 2010 10-K. We believe that engaging a “Big Four” auditor is the best way for any US listed Chinese company to improve its corporate governance and eliminate some of the “China discount” which has been present in the sector during the recent months. The company’s Board of Directors is still in the process of reviewing the going private buyout offer at $11.50 initiated by the company’s Chairman and CEO, Mr. Li Fu, together with Abax Global Capital. We continue to believe that given the company’s industry leader position in the field of bimetalics with patented technological advantages, strong government relations, impressive growth opportunities in the domestic and global markets, consistent cash flow generation and the elimination of the only substantial criticism that we have heard against the company by appointing KPMG as its auditor, the proposed buyout price significantly undervalues the true potential of the company.

2010-11-03Roth CapitalDowngradeNeutral$11.50
 

FSIN today announced that its board has received a proposal letter from Chairman and CEO Mr. Li Fu and Abax Global Capital (Hong Kong) to acquire all of common shares outstanding at $11.50 per share in cash. The consideration represents a 19% premium over average closing price of $9.68 in the past two weeks and a 26% premium over yesterday's closing price. Mr. Fu and his affiliate own ~29.2% of outstanding common shares. The premium for FSIN is in a similar range as Harbin Electric (HRBN-Buy-$21.67). FSIN's board has formed a special committee of independent directors to consider this proposal. We are waiting for FSIN's upcoming filing for more details on the proposal.

Similar to HRBN, we believe the buyout proposal reflects Chinese management's frustration over consistent low valuation multiples in the U.S. market, and we believe more U.S.-listed China companies will follow suit. A few successful buyouts may shore up investors confidence in Chinese companies listed in the U.S. via reverse merger. It may also help to reduce pressure from shorts. However, we caution that the buyout process can be longer and more complicated than most investors are accustomed to.

The $11.50 bid represents 9.1x/7.8x/6.7x of our 2010/2011/2012 EPS estimates. Our previous 12-month PT of $15.00 was based on a 10.2x/8.7x multiple to 2011/2012 estimates. We do not anticipate a competing bid and therefore lower our price target to $11.50 from $15.00 and downgrade FSIN from BUY to NEUTRAL.

2010-11-03Rodman & RenshawReiterationOutperform$13.00
 

Fushi Copperweld has announced that its Board of Directors has received a "Going Private" proposal letter from Mr. Li Fu, the Chairman and CEO of Fushi Copperweld and Abax Global Capital Ltd. to acquire all of the outstanding Fushi Copperweld common stock not currently owned by Mr. Fu and affiliates for $11.50 per share in cash. If approved, the proposed acquisition will be completed via an acquisition vehicle and will be financed with a combination of debt and equity.

The Board of Directors has formed a special committee of independent directors to review the proposal and is planning to engage independent advisors to assist the committee in evaluating the proposal. Upon the appraisal completion, the committee will submit its recommendations to the Board of Directors. Special Committee will evaluate the current $11.50 offer and, if necessary, recommend the adjustment in valuation.

Shareholder Approval Required Shareholder approval will be necessary to pass the proposal. We understand the company has set a threshold (specific number not disclosed) that must be reached for the proposal to be approved. Mr. Fu and affiliates which own 29.2% of the shares will be excluded from the voting process.

Fair Value? Although the proposed offer values the stock at a 26% premium to yesterday's closing price, $11.50 is well below the stock's historic highs. Given the company's FY10 adjusted fully diluted EPS guidance of $1.25 - $1.29, the proposal values the shares at 9x FY10 earnings, valuation that may be deemed too low by company's stockholders and is below our 12-months price target of $13 which is based on the shares attaining a P/E level of 9x our FY11 adjusted fully-diluted EPS forecast of $1.40.

Outcome Not Certain, Reasons Not Clear. The management has not been able to offer additional information regarding the reasons for "going private". We will issue an update if additional information becomes available. At present, we believe the approval of the submitted proposal is far from assured and valuation may be revised in the future. 

2010-11-02Roth CapitalReiterationBuy$15.00
 

Fushi reported Q3 EPS in line with our estimates despite a revenue miss. Revenue equaled $66.5M vs. ROTH/consensus est. of $72.9M/$72.6M. Revenue downside was primarily due to a 7.8% y/y volume decline in the Chinese telecom market. Better than expected gross margins (29.6% vs. ROTH est. of 28.4%) and successful control of operating expenses offset the revenue shortfall to produce EPS of $0.34. Management guided Q4 EPS in the range of $0.29 to $0.31, ROTH/consensus estimates are $0.32/$0.33 respectively. Guidance includes a $0.03 tax expense as a result of "deemed dividend" related to shareholder loans made in order to build up the Yixing facility. Excluding the $0.03 non-cash charge, we consider Q4 guidance generally in-line with our expectations.

We noticed a drop of gross margin in Fayetteville from 20.1% in Q309 to 12.5% this quarter. Q4 gross margin levels are anticipated to remain low and it's unlikely Fayetteville will contribute meaningfully to the bottom-line. We expect demand from the telecom sector to remain lukewarm at least through Q4 before new expenditure plans are announced by telecom carriers. Meanwhile, FSIN made impressive progress in the electric utilities sector, which contributed a record ~60% of total revenue in Q3. We remain positive on this trend, as the acquisition of Dalian Jinchuan presents strategic expansion opportunities. However, we see the transportation end-market as still lacking visibility, and do not expect substantial progress in the near-term. High copper prices makes bimetallic wires more attractive. High copper prices and favorable copper/aluminum and copper/steel price ratios should drive further demand for pure copper substitutes.

Maintain BUY, lower PT to $15 (from $17). We are reducing our 2011 numbers to reflect reduced Chinese demand in the telecom sector and CCS ramp-ups. We are also introducing 2012 numbers to our model. Our $15 PT is based on a 10x multiple applied to our 2011 EPS est. of $1.47.

2010-10-29Roth CapitalReiterationBuy$17.00
 

We anticipate FSIN to track in line with or slightly miss ROTH forecasted revenue of $72.9M and EPS of $0.34. Consensus expected $72.6M/$0.34 for revenue and EPS respectively, and management guidance for the quarter was $0.33 to $0.35 per share. We are somewhat concerned over volume demand as spending in China's telecommunication sector witnessed a yoy decrease in Q3. However, this could be mitigated by higher ASPs as a result of rising copper prices, which increased >14% during the quarter. Several US comps also commented on the recovering demand in Americas.

2010-10-04Rodman & RenshawInitiationOutperform$13.00
 

We forecast revenues and adjusted net income of $287.3 million and $49.1 million in FY10 and $337.0 million and $53.9 million in FY11, respectively, which translates to fully diluted adjusted EPS of $1.31 in FY10 and $1.41 in FY11. We initiate coverage with a Buy rating and $13 price target based on the shares attaining a P/E level of 9x our FY11 EPS estimate.

2010-08-04Roth CapitalReiterationBuy$17.00
 

Fushi Copperweld reported Q2 revenue of $69.0M, beating ROTH/consensus estimates of $67.6M/$66.0M. Q2 sales rose 42.9% yoy and 15.9% sequentially due to sustained global demand, a strong pricing environment and improved contribution from acquisitions. Shipped volume increased 9.6% sequentially. The decline in volume in China resulted from a slowdown in 3G build-out was offset by a strong global market. However, we note a better-than-expected gross margin at the Fayetteville facility (14.6% vs. est. 13.5%) reflects higher utilization and improved operational efficiency. Overall gross margin was 28.4%, 90 bps below our forecast, due to a slightly lower-than-expected margin at Dalian facility.

2010-06-30Global HunterInitiationBuy$15.00
 

Following the recent equity raise and debt repayment, Fushi controls a strong balance sheet with $78.5MM in cash and zero debt, which translates to $2.07 per share on a net cash basis. As of Q1 FY 2010, Fushi had a current ratio of 10x, working capital of 157.5MM and a trailing twelve months free cash flow yield of 10.7%. The company is also profitable on the cash flow basis, reporting positive operating cash flows since its IPO in 2005. FSIN is trading at a significant discount to industry and sector peers, offering one of the most attractive risk / return opportunities in the US listed China space, in our opinion. At yesterday's closing price of $8.19, the stock is trading at 6.5x FY2010 and 5.6x FY2011 on a P/E basis, significantly below the peer group averages of 10.3x and 9.2x, respectively. On the EV/EBITDA bases, FSIN is trading at 3.2x and 2.4x for FY2010 and FY2011, based on our estimates, also below the peer group's averages of 6.6x and 5.1x. Our $15 price target is predicated on 12x FY10 and 10.2x FY11 on a P/E basis and on 7.3x and 5.6x EV/EBITDA multiples.

FSIN
Infrastructure
SCORE
0
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SAFETY/RISK SCORE
HIGH RISK
DETAILS: Safety/Risk Model for FSIN
Current Price:  n/a
F10k Day (2006-08-25): -100.00%$8.00
2009 Close: -100.00%$10.12
2010 Close: -100.00%$8.88
2011 Close: -100.00%$7.52
High (2012-10-19): -100.00%$9.30
Low (2012-04-09): -100.00%$5.72
Exchange:
Market Capitalization: n/a
Total Shares: 38.20 mill
Float: n/a
Avg Volume: 519.80 k
Short Interest: 7.82 mill
Short Ratio: 34.33%15.0 d
Last Quarter: 2011-03-31
Revenue (MRQ): 65.93 mill
Net Income (MRQ): 6.83 mill
Op. Cash Flow (MRQ): 15.01 mill
all financial data provided without warranty