ADR Forum

vikas72 · Joined: 21 Dec 2007 Posts: 651

There is a lot of Ad about the China Investor Report. Can anyone post their recommendation.
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vikas72 · Joined: 21 Dec 2007 Posts: 651

They recommend American Dairy (ADY) in their free report. Here is the excerpt ...

American Dairy (NYSE: ADY)
Los Angeles, California 90017 Web Site: www.americandairyinc.com
Recent Price: $17.69 - April 9, 2007
52-week low / high: $11.11 / $25.50
Shares outstanding: 15.4 million
Market Capitalization: $272.99 million
Growth Report Portfolio Buy Price: $12.00 – September 5, 2006
Rating: Buy
Price Target: $21.25
Financial Highlights:
FY05
FY06
% Change
Q405
Q406
% Change
Revenues
$68.0 M
$122.8 M
+ 80.5%
$25.6 M
$38.2 M
+ 49.2%
Net Income
$11.6 M
$19.9 M
+ 71.2%
$4.0 M
$4.4 M
+ 9%
Cash $39.5 million
Long Term Debt: $16.9 million
American Dairy is a pure play in the Chinese dairy industry. The company’s wholly owned subsidiary, Feihe Dairy, is a growing producer and distributor of milk powder and soybean products in China. Strategically situated in the key “Milk Belt” of Northeastern China, American Dairy is close to its network of milk suppliers, a critical factor given the competition for raw milk in the country.
A majority of the company’s revenue is derived from the production of milk powder with the remaining originating from soybean and walnut-based products. The company’s strategy to focus on higher margin products such as infant formula, yogurt and cheese products to satisfy rising demand should bode well for its future.
Helping to drive growth is the company’s focus on quality and brand recognition. Consumer concerns relating to quality issues along with rising income levels in China are allowing consumers to spend more on premium products.
China’s market for the consumption of dairy products is at an early stage and positioned to grow. The country’s per capita dairy consumption stands only at about a fifth of the world average, according to the Ministry of Agriculture in China. This gives rise to significant growth opportunities for companies producing dairy products.
In China, there is a push by the government to promote the drinking of milk as part of a healthier diet. And given that there are over 200 million primary school children in China, the growth potential is sizeable.
Other key government programs to grow the Chinese dairy industry include exemption from corporate income tax and Value Added Tax (VAT) rebates. American Dairy receives VAT rebates and has a tax exemption through 2009.

Financial Results
2006 Calendar Year
American Dairy experienced significant growth in 2006. Revenue was $122.8 million, an increase of 80.5% from $68.0 million the previous year. Net income was $19.9 million, an increase of 71.2% from $11.6 million in 2005. Comprehensive income, which incorporates a foreign currency translation adjustment, was $21.0 million, or $1.14 per diluted share, in 2006 versus $12.2 million, or $0.74 per diluted share, in 2005.
Latest Quarter: Q4, 2006
In the fourth quarter of 2006, net revenue grew 49.2% to $38.2 million from $25.6 million a year earlier. Fourth-quarter net income totaled $4.4 million, an increase of 9% from $4.0 million in the year-ago quarter. Comprehensive income totaled $4.3 million, or $0.22 per diluted share, versus $3.9 million, or $0.25 per diluted share, the previous year.
The company experienced a compression of net margins in the quarter, primarily as a result of its investment in advertising and marketing. This investment could prove beneficial in the coming quarters as the company attempts to increase brand awareness and drive future revenue growth.
The cash balance at the end of the fourth quarter 2006 was $39.5 million, up from $13.0 million at the end of the fourth quarter of 2005.
Guidance & Outlook
American Dairy is estimated to earn $1.36 per diluted share on revenues of $152.5 million in 2007 and $1.98 per diluted share in 2008, according to a single estimate gathered by Thomson Financial Network. At the current price of $17.69, the earnings estimate gives the stock an attractive 13X its estimated 2007 EPS and 9X the 2008 estimate.
American Dairy currently has guidance calling for first quarter 2007 revenues to increase at least by 39% from the first quarter of 2006, to $36.0 million.
Concluding Remarks
Trading on the NYSE, American Dairy is a small-cap Chinese stock that provides investors with impressive growth in an expanding market at an attractive valuation.
The trend for dairy consumption in China is rising and outstripping supply, and American Dairy is set to capitalize on the increasing demand. This has been made possible via modern processing facilities, good sourcing of raw milk, strong brand recognition, established distribution networks, and continued product development and diversification.
The stock has minimal coverage on Wall Street and hence is not widely known by investors. Institutional ownership is also sparse. This allows investors to enter intopositions early and at decent valuations before the company becomes more known. A look at the valuation of other U.S.-listed Chinese growth stocks reveals the share price appreciation potential after more investors catch wind of a great stock.
Why We Like American Dairy
• The company has the size and resulting efficiencies of scale to grow its business substantially
• Distribution via an expansive sales network across 25 provinces in China along with established relationships with major distributors
• Location in the “Milk Belt” gives the company an advantage in sourcing milk and paying lower shipping costs for milk
• The company’s focus on premium brands is positive given the rising income levels and consumer bias towards quality products
• The stock has minimal coverage on Wall Street, so it is not widely known
Risks
• The production of milk powder involves the sourcing of raw milk, which is a concern given the small size of the country’s dairy herd and breeding programs
• American Dairy does not own any cows, so any major interruption in the company’s ability to source milk can prove detrimental
• The company has to compete for the supply of raw milk with producers of liquid milk
• Rising income levels could result in more demand for fluid milk
Investment Catalysts
• Government push to drive up the consumption of milk
• The potential is significant given the growth of the country’s dairy consumption
• VAT rebates and exemption from corporate income tax will help to drive the dairy industry
Other Companies of Interest
• Mengniu Dairy (Hang Seng: 2319)
• Synutra International (SYUT.OB)
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vikas72 · Joined: 21 Dec 2007 Posts: 651

ADY looks good. Looks less risk, but is moving fast.
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