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Yongye International, Inc. Message Board

  • yo_roe yo_roe Apr 21, 2011 7:21 AM Flag

    Post from Cap Global Gains

    I thought I would share this thoughtful post from the Motley Fool Global Gains MB:

    "Having played a little devil's advocate in KitKat's defense behind the Global Gains pay wall, I'm going to attempt the opposite here.

    From a value hound's perspective, the initial appeal of Yongye is pretty simple. The company reported 2010 earnings of $1.05 a share, a report signed off on by a Big Four auditor (KPMG). At a current market price of about $5, the shares are trading at a price/earnings ratio of just under 5 for a company that has grown sales by roughly 100 percent each of the past two years and net income almost as much (from $14 million in 2008 to $51 million in 2010).

    By those numbers, Yongye is a pretty good value. Combine that with the Chinese government's active support and reduced tax rates for agriculture and the rural population -- it's been at the top of the central government's five-year plans for several years now -- and solid growth going forward appears sustainable. In a managed economy, government support is an important factor. Some investors will view the risk of an arbitrary about-face in Beijing as an immediate disqualifier, but China is experiencing an unprecedented migration from rural to urban environments and the government has a survival interest in improving rural livelihoods, both for social stability and China's inexorably growing need for food. As we've seen over the past 20 or 30 years, a totalitarian government can be much more single-minded about pursuing capitalism than a democratic one when it chooses to be.

    Further, there is a classic lemmings-to-the-cliff action going on now with respect to Chinese small caps listed on American exchanges through reverse mergers. Several have been found to be either frauds or lacking in accounting reporting controls. Shorts smell blood in the water and have substantial interest in these companies across the board. So, unless one assumes they're all frauds, we have a baby-with-the-bathwater opportunity in which an investor capable of identifying the baby could make an investment at an excellent price relative to the baby's prospects going forward. Traditionally, when the entire market hates a sector, that's when value investors get interested.

    Finally, you have the macro reality that started the love affair with emerging market shares in general, and those of Brazil, Russia, India and China in particular. The mature Western markets are now the equivalent of large cap stocks. They can be expected to grow at very modest rates compared to the emerging markets. The success stories in the emerging space -- Baidu, for example -- are growing at ridiculous rates and carry multiples to match. So if you find undervalued companies in these markets, beset by bad press, fears of fraud and short attacks, perhaps they are worth a closer look, in the manner of panning for gold.

    The convoluted corporate structure of most of these companies listed in the U.S. through reverse mergers is obviously a negative. On the other hand, for most of these companies it was the obvious way to go. They were unable to raise capital at home due to government controls that make it a very long process with no guarantee of success at the end. At the same time, these companies are generally without the resources or expertise to mount a traditional Western road show in connection with an IPO. So they take the easy way to the capital markets, which makes sense from their point of view. Given the hazards of the result to the minority shareholder, it is one of many potential disqualifying factors for western investors, but the companies have reasons for taking this route unrelated to criminal motivations, although those are certainly also possible."


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    • "He's refusing to talk any more about it as you backed him in a corner with his errors too many times today. LOL"

      He'll be

    • "No more CGA on this board."- h_g_h

      He's refusing to talk any more about it as you backed him in a corner with his errors too many times today. LOL

    • Their most recent 10-K shows an unqualified opinion from the auditor.

      I'll just have to assume that you must have somehow gotten a different copy with different language, that's not on the SEC's website, and not available to shareholders.

    • Let me correct:

      "So, when someone is talking about the SOX in China <<after being accused of fraud, with clearly cooked books>>, that's an indication of hype from a fraud suspect, as if the SOX would lend some credibility to them that they never had. It is like a sign post - "I am a fraud", whenever I see some tiny Chinese company that was already in accounting trouble crowing about the SOX, of which they are completely clueless.

      (And CGA was among those limited number of companies with cooked books, confirmed by the auditor report. After that, the CEO started his hype of hiring two Big-4. That's for example. No more CGA on this board.)

    • The majority of posters/readers probably never know this little fact:

      In early 2009, before Feb, Yongye started the SOX implementation project. That was way ahead of the most of the bigger companies in China.

      Nobody forced the company to start it so early.

    • The SOX is only partially adopted by some of the Chinese companies listed in the US, such as SINA, SOHU, BIDU, and yes, YONG is among them.

    • h_grant, give up on it. meking has effectively shut you down twice on this thread and you keep coming back with more bs.

    • I don't know what your background really is, and that isn't the topic.

      The SOX implementation is basically not doable b/c of the language barrier that is too big. Unless those CEO's in China have a full understanding of the SOX, you won't be able to do it effectively.

      Also, the SOX is a product of the US. The Chinese companies still struggle with the GAAP. And the funny thing is that, even the Wall Street big money players don't really use GAAP when evaluate a US company. The prevalent method used by the big money managers is still the non-GAAP.

      So, when someone is talking about the SOX in China, that's an indication of hype from the fraud suspects, as if the SOX would lend some credibility to them that they never had. It is like a sign post - "I am a fraud", whenever I see some tiny Chinese company crowing about the SOX, of which they are completely clueless.

    • The funny thing is I've audited many domestic and international SEC companies for a big 4 firm ever since 404 was rolled out and I guarantee I understand it better than anyone on this board.

      We also identified many significant deficiencies and weaknesses in our sox testing which led to similar adverse opinions, but in none of those cases did they have anything to do with fraud.

      If it's impossible to implement SOX in china, as you say, then the adverse opinion in CGA's K would be meaningless. Which I would disagree with, it certainly is not a good sign, but by no means an indication of fraud.

      Again, I'm not saying that they're not a fraud (I don't know if they are or not, but having a big 4 firm doing SOX compliance testing as they do, abeit recently, lessens that risk significantly). All I'm saying is that the auditors have not said that they even suspect fraud, as you claimed above. That's all.

    • Do you even understand what the SOX means? Don't talk nonsense about something that is literally nonsense from the CGA management.

      It is impossible to implement the SOX in China. Period. End of discussion about CGA - junk. Please go to CGA board, dig up all my posts there since Jan 2010.

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