L&L International Set for Strong 2009
L&L International Holdings, Inc. (LLFH) may not be the most well known energy company, but its exposure to China’s strong growth and its cheap earnings multiple could mean opportunity for investors.
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L&L International Holdings, Inc. [[LLFH.OB]], a coal and compressed air company operating in China, may not be the most well-known company in the market, but its exposure to China’s strong growth makes it worth a second look by long-term investors. Meanwhile, the company’s stock trades at a discount to its peer group, which makes it an appealing value play as well.
China is the world’s largest producer and consumer of coal, with approximately 71% of the country’s energy coming from the commodity. While demand has softened in recent months, many experts believe the contraction is only temporary, and demand is expected to rebound in the second half of 2009 as the Chinese economic stimulus package goes into effect.
Last quarter, L&L International recorded revenues that were up 80.1% to $9.99 million and earnings that were up 210.8% to approximately $2 million compared to the same period in 2007. Meanwhile, demand for coal remains robust, except during the downturn, with demand increases averaging some 13% annually since 2004, compared to supply increases of only 7% annually.
L&L International is also quickly growing through acquisitions in addition to its intrinsic growth. This week, the company announced that it acquired Hong Shen coal washing facilities that it expects will add $39 million to its annual revenues, while increasing gross margins thanks to vertical integration with the company’s existing operations to give it a competitive edge.
L&L International also trades at a discount to its peer group. Currently, the company’s stock trades at just 8.39x earnings with its peer group trading closer to 10x earnings. This discount alone suggests that the company’s stock should be trading closer to $3.60 per share. However, when considering the company’s superior growth rates, the multiple should jump even higher.
In the end, L&L International represents a compelling growth play on China’s growing energy demand. While demand for coal is a little soft right now, many experts expect it to pick back up and continue as the stimulus package goes into effect. As a result, long-term investors looking for some exposure to China’s coal market may want to take a look at this stock.
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