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Chestnuts (American Lorain) and Chinese reverse mergers

Chestnuts (American Lorain) and Chinese reverse mergers. The Chestnut – she’s a fickled beast. Chestnuts in China. pkg’ed food is 24% of ALN revenue. Maxim Analyst Report. valuation based on P/E. Under what circumstances is this a good valuation model? (assume the EPS of 62 cents/shr).

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Chestnuts (American Lorain) and Chinese reverse mergers

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  1. Chestnuts (American Lorain) and Chinese reverse mergers

  2. The Chestnut – she’s a fickled beast

  3. Chestnuts in China

  4. pkg’ed food is 24% of ALN revenue

  5. Maxim Analyst Report

  6. valuation based on P/E • Under what circumstances is this a good valuation model? (assume the EPS of 62 cents/shr)

  7. when is P/E = 9 the right answer? • () term = 0 and D = 0. • (1+r)/r = 9 when r = .125 • analyst later uses r = .16. • (1+.16)/.16 = 7.25. • need more growth in RI (need summation = .24) • did analyst forecast such growth from 2010 to 2011?

  8. implied assumptions about RI growth • from analyst report • EPS2010 = .62, EPS2011 = .78 • CE2009/shr = 88.7/26.3 = 3.37/shr • CE2010/shr = 120.4/29.3 = 4.11/shr • RI2010 = .62 - .16*3.37 = .0808 • RI2011 = .78 - .16*4.11 = .1224 • ΔRI = .1224 - .0808 = .0416. • ΔRI/E2009 = .0416/.55 = .0756 • ΔRI/E in perpetuity = .0756/.16 = .47.

  9. reserve-engineering the margins

  10. reverse engineering the interest, taxes and minority interest

  11. valuation parameters So how did our analyst arrive at $9/share?

  12. reverse mergers

  13. ...but there has been trouble

  14. The 349 Chinese reverse mergers

  15. so what is an investor to do? • there are about 10,000 publicly traded stocks around the world, don’t need to own this one. • If reality is that the financial statements are part reality, part fiction, which part might you trust the most? • What else could we do to bolster our confidence?

  16. about 30 million shares outstanding

  17. are they bribing the auditors? http://www.swongcpa.com/front/about/index

  18. shuffling money to friends and family?

  19. and what about HOGS? Disclosure: We have no positions in any stocks mentioned, and no plans to initiate any positions. China Economic Review has no interest or investments in the stocks it covers, and has strict rules for staff with regard to holdings and trading to ensure their impartiality.

  20. from the yahoo! message board When it comes to investing in China RTOs, there is simply no substitute for on the ground DD. Some of the OTGDDs are fairy easy to carry out, HOGS is one such case. Assuming company is telling the truth, all you need to do is to follow the company list and locate the shop and take a photo, that’s exactly what I asked my investigator to do. I’ve chosen Anyang city because it has been scouted by CER street by street, in taxis, and on motor bikes, and CER found 8 branded stores in Anyang city, so we have a benchmark to compare to. Furthermore, it’s a third tier small city which is easy to investigate, one probably needs to spend a week in Shanghai to figure it all out, for Anyang, it’s a one day job. Anyang is also one of the home bases of Zhongpin, so one should expect rather good coverage there. I have chosen 20 CONSECUTIVE stores on Zhongpin’s list to show that I won’t mark the bullseye after the shot. They are list item 151 – 171 on Zhongpin’s list (http://zpfood.com/stores.html), excluding nr. 153, which is in a county, not in the city. I HAVE FOUND 17 OUT OF 20 STORES! The pictures are here http://www.flickr.com/photos/65567638@N07/

  21. next class • Introduction to Portfolio Management • Reading: Sloan on Portfolio Management (note – this is the first chapter of an unfinished book) • Exam! • Projects!

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