Puda Coal Set to Benefit from Stimulus, Consolidation
Puda Coal, Inc. [[PUDC.OB]] is a red hot company in an otherwise troubled coal industry. The Chinese coal producer achieved record revenue and net income, generated strong cash flow, and closed 2008 with a healthy balance sheet. However, the firm began to see its fourth quarter slow down as the economic downturn led to a decline in operating income and profit margins.
The Chinese coal industry has been struggling with higher supply and low demand, which has put downward pressure on prices for coking and cleaned coal. At the same time, coal miners are passing on their higher costs for producing raw coal, which has put a pressure on profit margins as not all of this price increase could be passed on downsteam.
Despite the signs of a slowdown, Puda Coal remains hopeful that the Chinese government’s stimulus package will help pull the country out of trouble. The company believes that the package will encourage the development of infrastructure projects such as railway construction, products of motor vehicles, as well as real estate projects, which should drive demand for coal.
Puda Coal also made the strategic decision to enter the coal mining industry in order to increase its profitability as raw coal prices continue to eat into its margins. To this end, the company signed a non-binding letter of intent with a local county government in the Shanxi Province to consolidate its six coal minutes and construct a coal gangue power plant.
Puda Coal remains a very robust company too, with $39.1 million in cash and cash equivalents on its balance sheet at the end of 2008. The company generated some $26.5 million in cash from its operating activities for the year, compared to a cash burn last year. Meanwhile, the company also had $67.4 million in working capital and a current ratio of 5.7:1.
Going forward, shareholders are looking towards the final approval of its first mining operation in the Shanxi Province to help reduce raw coal costs and boost profitability through the economic decline. Meanwhile, investors are hopeful that China’s RMB4 trillion stimulus package will help to jumpstart the demand picture and drive growth in 2009 and 2010.
CONTACT: Daniel Minton, Managing Director, 406-862-5400, daniel@accelerize.com