How much is China Finance Worth?
China Finance, Inc. [[CHFI.OB]] may be down more than 80 percent this year, but some investors are placing bets on a successful future. The financial guarantee and investment company foresees a strong 2009 as it provides financial services to some of the fastest growing private companies in China, and benefits from a sizable government stimulus package. So, is now the right time for investors to get involved in this company?
Last year, China Finance reported sharply lower investment income on account of the global economic crisis. The company’s biggest source of revenues in 2007 was providing “surety guarantees,” whereby it would fund reverse-merger transactions for Chinese companies seeking to become publicly-traded companies in the United States. Revenues for this service amounted to approximately $16.77 million in 2007, but dropped to zero in 2008.
Despite slower investment income, China Finance’s asset base remains a strong point. The company’s net assets at the end of 2008 amounted to approximately $37.3 million. Given that there are 57,617,744 million shares outstanding, according to the company’s latest SEC filings, this amounts to a net asset value of approximately $0.65 per share in value. Moreover, this value could be considered depressed given China’s upside potential.
Currently, non-income producing common stocks represent 68 percent of this asset base, followed by loans receivables at 28 percent and real estate for the balance. Only four of the company’s 13 holdings are trading at a loss, after the company sold off the majority of its bad investments in 2008 for a loss of more than $7 million. Now, these holdings include relatively safe and popular names like China 3C Group and China Organic Agriculture.
Despite the positive outlook, China Finance still has many risks associated with its business. The company has traditionally relied on loan guarantees and cash payments to fund its operations, while building its asset base with common stock. However, the market for such fees has dramatically declines in 2008 and may take awhile to return to prior levels. Meanwhile, the company’s stock is extremely volatile, and at times illiquid, as it trades on the OTC market.
In the end, China Finance is trading at a sharp discount to its net asset value. The company’s assets – primarily consisting of liquid common stock – have a value in excess of its share price. However, the company is facing a decline in business that it will have to turn around in 2009 in order to regain shareholder trust. Prudent investors may want to wait for this turnaround to materialize, but speculators may want to take a look at this stock with strong potential.
CONTACT: Daniel Minton, Managing Director, 406-862-5400, daniel@accelerize.com