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Yongye International, Inc. Message Board

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  • yo_roe yo_roe Apr 21, 2011 7:23 AM Flag

    Post from Cap Global Gains

    "2. Is there a reasonable rationale for going into the coal mining business? All we've heard from the company through Global Gains is it wants to secure its supply of lignite coal and eliminate the middle man in the supply chain of its basic raw material. But as KitKat points out, lignite is essentially a waste product of mining higher grades of coal. Is there any documented supply problem or risk of one? It is true that lignite is inefficient to transport, so a local supply is desirable, but in the absence of a documented supply issue, the large expenditure for mining rights looks like a solution in search of a problem, especially for a company whose single best rebuttal to the short attacks would be generating cash and financing manufacturing growth out of that cash flow.

    3. Is there really a good competitive reason to keep secret the names of its distributors and the locations of its alleged 25,000 branded stores? From the company's description, these are basically tiny agricultural village general supply stores, not dissimilar to those you can still find in the hinterlands of northern New England today, where small family-owned dairy farms persist. What is the argument for keeping the location of these stores secret on competitive grounds? If there were enough business for competing stores, competing stores would exist. Is it credible that a competitor such as China Green doesn't know these villages exist? Allegedly, Roth went in and did channel checks -- presumably with these secret distributors and not-publicly-identified stores, or a few of them anyway. In the absence of a credible reason to keep the locations of these stores secret, the explanation that the stores are not identified because there really aren't that many of them seems at least as likely as the company explanation."

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    • "Investors seem to gravitate to one of two poles on a number of the squishier issues with respect to related party transactions, discrepancies in filings, etc. One is to insist upon Western standards, which I take it is KitKat's view. The other is to chalk them up to cultural differences and let them go. If one actually has an interest in emerging markets, a prudent approach might lie somewhere between these poles. It's much easier to get a feel for Guanxi and other Chinese concepts that translate poorly in the West if one spends a little time in China. There are, in fact, cultural differences. Related party transactions mean something quite different there. Understanding that is necessary to participate in the Chinese markets. One can, of course, choose simply not to participate. But as even Warren Buffett has opined, China is likely to be an engine of global economic growth for much of the 21st century. To elect not to participate because of customs and standards with which we are unfamiliar is problematic if one is seeking higher rates of return than the U.S.indexes are likely to provide.

      I understand the risks that KitKat and others point out. When she asks why one would even consider these shares given the imponderables, I would point to the potential return. It is not as if there are safer American alternatives trading at equally microscopic valuations. A fully diversified portfolio spans the risk/reward spectrum. Wal-Mart, a darling of the large-cap value community, trades at a P/E more than twice YONG's, has nothing like the growth prospects in percentage terms owing to its massive size, and has been dead money for a decade. There is a price to be paid for safety, too.

      I elect to own a small basket of Chinese small caps, most of them (but not all) vetted by the Global Gains crew. The entire basket represents a small percentage of my portfolio. I view it as something akin to a spin of the roulette wheel, not unlike speculating in biotechnology or high flyers at the high-risk end of the spectrum. I might have mentioned already that Baidu has been a sensational investment. As Peter Lynch pointed out, one 10- or 20-bagger makes up for a lot of swings and misses. I do not find it irrational to conclude that a basket of these companies, vetted to the extent possible, is worth a pinch of capital at the daring end of a balanced investment program."

      • 1 Reply to yo_roe
      • "the imponderables"?

        Funny how the words sounded so empty, from some who are so self-absorbed with small minds and limited educations.

        In this day of age, business models are literally growing out small bedrooms, shabby basements and other "unimaginable" places - the eBay stores and businesses are such examples, and they generate $blns in revenues for eBay.

        Can you imagine some idiots insist on checking out the those millions of tiny "stores" and businesses that spread across many countries?

        Yongye's networked micro store concept is in fact revolutionary, which is not that different from how eBay conduct its vast business, nor it is very different from how Amway generates $blns in the US. Yongye's business model is a combination of both the eBay structure and that of Amway model. Those businesses rely on vast number of micro sales locations to generate $blns of revenue in aggregate, year after year.

        ++++++++++

        Why did the poster put Yongye and China Green together? China Green is a proven case in accounting fraud, as its auditor pointed out!

        Yongye is absolute clean in its accounting.

 
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