What exactly does this company do? From what little I can gather on their web site, they are making various lithium and battery chemicals and selling those to battery manufacturers. Do they have any unique product? What is their basis for competing against larger companies who sell the same things? Is there any real barrier to entry here?
It looks like these might be commodity chemicals that any company could sell. How do they manage to achieve such high gross margins selling commodity chemicals?
Note the income statement shows they spend almost nothing on R&D. That makes it hard to believe they are a specialty chemical company or that they would have any hard to imitate science / R&D behind their specialty chemicals.
As a related remark: it's really disappointing to see that all of the discussion around this company is from day traders and people talking about technical characteristics of the chart. Why is no one actually talking about what the company does to make money?!
"I look at things like the return on equity against the shareholder equity, and the EBITDA against the enterprise value"
In other words your interested in earnings per share. Your dressing it up to much. I just don't know how anybody has made any money in value investing lately. If you were a value investing in the last 10 years you have negative returns.
I have activley traded stocks for the last several years and have achived 40% to 90% of continualy compounding growth on my entire portfolio by trading actively
Companies change so often, I believe you have to change your investing strategy with them. buy and hold had been dead for a while.
You can be in the best company in a cold sector and your chances of having a stagnant investment are about 90 to 1.
I believe its important to look at enterprise value, but only to gage how it might impair the future returns on eps or stifle a buyout. I think the most important things to look at are future growth potential and industry and competitor capacity and above all, the changing trends.
Csgh already has the experience and capacity to produce larger scale product at "on demand basis" You can say that their product is not unique, but niether are many large scale business. Steel producers don't own the formula to cure cancer, however most of them make good returns and have been around because they were the first ones to the table and siezed the market share by making it unreasonable for new competitors to come into the picture.
So why would Battery manufactures want to build brand new facilities just to produce and manufacture the raw materials for their batteries when they can purchase the high quality goods already suited to make their products perform even better. Just like the oil refiners as you said. Oil companies want one customer to distribute their product to the end users. Csgh will distribute their product to the battery manufacturers.
You can argue margins all day long. The real issue is wether you believe in the company or think its a fraud. I don't believe we have enough information to support or dispute wether it is possible for a Chinese lithium manufacturer to get the nice margins. We don't know that Csgh doesnt' have a special agreement with its supplier to pay 60 percent of its market costs. Thats why you diverify your porfolio to offset the risks. Unless you can actually visit the facilities and examine all of the internal financials your just speculating anyways.
So what I'm trying to say is that I'm willing to risk a small portiion of my portfolio that I can afford to lose because I'm speculating that Csgh is a legit company that has a chance to capture tons more market share as demand for lithium grows and can become a bread and butter company with good consistant returns without that special unique product , but instead of shear market demand and experience and capacity to fill the demand for its product.
If the SEC filings can't answer your questions, what else can? You are welcome to visit the offices and the factory if you get a chance to visit China. The company actually offered a visit to a poster who tried to pay a visit to the factory.
Enron was physically located in Texas and there were real people working inside real buildings. Still it was a big lie. There are countless number of companies like this in this world. The way you deal with this is to either put all your money under your bed or invest with passion (bold) and caution (diversification).
According to the Battery Industry Association of China, DLX is the second largest non-governmental manufacturer of hi-tech cobalt salt products in Asia based on tons produced. DLX’s products and processing capabilities include the production of cobalt ore, cobalt carbonate, nanometer-sized cobaltosic oxide and high-crystalline spherical lithium cobalt oxide which is used lithium batteries. In addition, Sun Group specializes in:
• Hi-pressure leaching technology of raw materials,
• Hi-performance extraction technology of soluble cobalt salts,
• Chemical precipitation technology of soluble cobalt salts,
• Mesh-belt metallurgical powder calcinations,
• Multilevel selecting technology, and
• Stable sol and gel technology.
DLX provides a comprehensive selection of cobalt products such as battery anode cobaltous (cobalt) carbonate, nano-level cobalto cobaltic (cobaltosic) oxide, and high-crystallinity ball lithium cobalt oxide. DLX also provides substitute products, including ternary anode material (which is composed of lithium cobalt oxide, lithium nickel oxide and lithium manganese oxide) developed through our research and development efforts.
Currently, DLX’s products are classified in China at the third quality standard, the highest standard in China based on certain qualitative measures. Furthermore, DLX’s products can be directly supplied to the domestic and foreign markets as independent finished products.
Currently, DLX distributes its products directly to customers or through its sales agents.
I never questioned *volume* of products sold.
I am questioning how is the level of profitability they are claiming possible, given the simplicity of the science involved. Anyone should be able to copy this at similar cost, and beat them on price. The 40% gross margin shouldn't be sustainable *at any volume*.
Regarding quality: that's a possible approach for your side of the argument. Is it difficult to achieve high quality in lithium cobalt oxides? Why? Certainly if their quality is better than everyone else's in a measurable way and that quality is difficult to achieve, that's the start of an explanation. But nothing in your post leads to that.
Calling a Co's financials fraudulent does not make them so. In light of truth's post (and other's as well) you need to do more than merely point to gross margin to convince me.
What other evidence of fraud do you have?
You can invest in "hot sectors". I prefer to invest in value. I look at things like the return on equity against the shareholder equity, and the EBITDA against the enterprise value. I'm interested in calculating a compound return on investment over a few years time.
The refiner example is interesting but I think that is not the right model. Oil and gas companies use refiners because they do not want the hassle of distribution to thousands of local retailers. The oil and gas companies want to sell huge quantities of oil to one customer (the refiner) and stick it in the pipeline and send the invoice. The refiner creates end products and then deals with all of the hassles of distribution to local markets. Note that the refiner is making thin margins most of the time. Most refiners don't even make a 10% gross margin! CSGH is claiming never less than 36% gross margins on its income statement. In the world of chemicals, that's HUGE.
If I had to guess, Lithium Ion is going to become a vertically integrated business. That's because the battery makers won't be able to compete on costs with other battery makers unless then control all of their input costs. No battery maker will be able to compete with vertical integrated makers like BYD if they are paying 36% to 41% of the cost of the input oxides as profits to CSGH.
Finally, I don't think you are thinking this through. If CSGH really did have a proprietary process for creating lithium oxides that made them the low cost supplier to that industry, then they might as well be 1/4 of a Google. They would become an industrial monster. What I am trying to understand is how does a company with $26K per quarter of engineering costs outdo the entire chemical industry? Not likely.
That was a very on topic response, and I appreciate it!
So one key question is whether lithium cobalt oxides are commodity chemicals or specialty chemicals. When I do an online search, I literally find dozens of manufacturers of this product, and the basic chemistry required to create this oxide is well known. That suggests it is a commodity chemical. Do you have a different view? If it is a commodity, then all of the dozens of manufacturers have the same costs for lithium, and for cobalt, and for the chemicals involved. All of the Chinese-based manufacturers have the same costs for labor. So how can CSGH be making this product cheaper?
Having invested in other chemical companies, one thing you notice is that over the economic cycle, even the specialty chemical companies see a big change in their gross margins. How is it that CSGH manages to always nail its gross margin over many quarters at 36% to 41%? That's both a very narrow range as well as being a very high number. It doesn't look very real compared to the way other chemical companies report gross margins.
I do understand your point that CSGH is not the battery maker. The largest Lithium Ion battery maker in China is now BYD (Hong Kong 1211) and I'm pretty sure that BYD does integrate its costs vertically. Ultimately, don't you think all of BYD's competitors would do the same? Who can afford to have 41% of the sale price go into the supplier's pockets when BYD doesn't have that cost?
You have suggested some research and I'll do that. In the meantime, I found nothing on the China Sun web site that really explains in a coherent way whether their advantage is that they are producing at lower cost, or if there advantage is that they have some higher quality that people are willing to pay more for.
No need to discuss their future products under test yet. I'm trying to develop a coherent explanation for their historical financial reports.
I did bring something to the table. CSGH is producing a commodity chemical product and yet their financials show a margin that would not be possible for a commodity chemical. 10 to 15% gross margin is appropriate to a commodity, yet they get 36% to 41%. That by itself is more homework and due diligence than I could find in the last 50 posts put up in this group. The requirement should not be that I answer every aspect of every question for myself.
How do you get a specialty chemical margin from a commodity chemical product? Some ways to do this:
1) You have a protected market (e.g., you have "friends" in government who protect your business)
2) You cook the books.
3) You have a lower cost basis (e.g., you own the largest lithium mine in China, or you have a proprietary process that lowers your costs).
4) You have some proprietary process with real added value so that customers are willing to pay you more money than they do for the same chemical made by others.
CSGH doesn't own lithium mines. And lithium is by far the scarce and expensive input to the process. So it is not that part of 3). CSGH doesn't appear to have any proprietary processes in its traditional product lines (despite it claims to the contrary), because the chemicals it produces are easily produced and many companies make them. So it does not look like the last part of 3) or 4).
There should not be a requirement that I read every document the company has ever released to convince myself that they have something proprietary. The financials alone raise questions, and it's reasonable to ask others who have studied the situation to defend the company. That would be a much better use of every serious investor's time than the absolutely worthless drivel that is being posted in the group day in and day out for weeks. I mean how many thousands of posts do we need to see with people shouting "it's up!" "it's down!" and then insulting each other with no basis for original opinion or the response?
"Why is no one actually talking about what the company does to make money?!"
"against larger companies who sell the same things"
This company generates positive cash flow every quarter in contrast to "larger companies".
However, I think XDSL's board would be more attractive for you.
Do they have any unique product?
An Eco-Friendly lithium ion phosphate Product
What is their basis for competing against larger Co?
2nd largest Lithium Co in China
How do they manage to achieve such high gross margins selling commodity chemicals?
They have a mine and they make a high end product where they can charge for it
It looks like these might be commodity chemicals that any company could sell.
They could but they need the Special Sauce
Note the income statement shows they spend almost nothing on R&D
Dalian Xinyang High-Tech has been in business for quite some time
look at other statements to.
Why is no one actually talking about what the company does to make money?! Because you can only say so much.
You know I'm thinking you might wont to go short this one
just a couple a shares
What makes the CSGH lithium ion phosphate more eco-friendly, and is there any proprietary science behind that?
You say that they are the second largest lithium company in China, but that is at best a very misleading statement. Most of the world's reserves of Lithium are located in the salt flats of Bolivia, Argentina, and Chile. They certainly aren't in China. Can you point us to the page where CSGH claims to own any minerals in ground or claims to be in the mining business? As I interpret their web site, CSGH buys lithium from other suppliers, and then prepares it for use by battery makers. So they are a chemical process manufacturer, and it looks like they are employing a commodity process.
You say they have high gross margins because they have a mine and they have a high end product. Well, they don't have a mine. And I'm not seeing where they have a high end product either. They are doing something that is very commodity, so in a competitive environment they should not be getting more than about a 10% gross margin. So how is it that the financials are claiming a much higher margin? Either the financials are being cooked, or alternately there is some other explanation for why they are not being competed down in price. Maybe they have some kind of government subsidy or protection, for example.
Regarding their not spending much on R&D: is the income statement they are putting out each quarter in error? What does Dalian Xinyang High-Tech being around for a long time have to do with anything? This company doesn't appear to spend much on R&D, if their financials are correct. If they don't spend much on R&D, then they probably cannot have a significantly proprietary chemical process, and they therefore should not be able to get the gross margins they are claiming.
I would never short an over the counter day trader stock that did not have options to hedge my downside risk. I'm only trying to understand if there is something worth investing in here.