China Agritech Grows with Granular Fertilizer
China Agritech Inc.’s (CAGC) entry into the granular fertilizer market helped it beat second-quarter earnings estimates and led to a bullish outlook for 2009.
China Agritech Inc. [[CAGC.OB]], a China-based liquid and granular fertilizer provider, reported strong second-quarter results last week after entering the granular fertilizer market. The company saw its net income jump 74.6% to $5.85 million on revenues that rose 56.9% to $20.98 million. Meanwhile, the company also announced that it would exceed its prior 2009 guidance.
A Look at the Q2 Numbers
China Agritech saw $7.3 million of its $7.6 million increase in second-quarter earnings come from its new granular fertilizer. Unfortunately, this fertilizer has a higher cost to produce (which led to a 6.1% decrease in gross margins to 42.6%), but lower operating, administrative and tax expenses offset the lower gross margins and led to an improvement in the bottom line.
Chairman and CEO Yu Chang commented, “With the Harbin production now in operation, we are much closer to reaching our goal of developing capacity for 200,000 metric tons to penetrate the organic granular fertilizer market, which is a larger market than liquid fertilizers in China.
“The Chinese government is taking steps to promote the use of organic fertilizers in its ‘Green Food’ movement and it is also increasing farmers’ income through subsidies and price supports. With our newly added capacity, we can offer farmers in China a wider variety of organic fertilizers to meet their needs to improve crop yield and health.”
Financial Health and Valuation
China Agritech’s balance sheet also appears to be robust with little debt and cash of $16.51 million or $0.58 per share. Meanwhile, the company’s current ratio stood at a very healthy 5.38, suggesting that its assets far outweigh its liabilities. Notably, the cash flow statement also supports the earnings improvement that was seen in the income statement.
Currently, China Agritech trades at a price-earnings multiple of around 6.5x its prior year’s earnings of $0.45 per share. While the company issued guidance of just $0.33 per share for 2009, it now expects to beat that number with the help of its granular fertilizer business. After all, second-quarter earnings per share came in at a healthy $0.22 per share alone!
Finding the Value…
If this year’s earnings surpass last year’s $0.45 per share figure, then some investors believe there is value to be realized. The entry into the granular fertilizer business could make this possible. As a result, this is one stock that OTC investors should keep on the radar.
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