The company is giving guidance of $181 million in total revenues, and $14.4 million in net income, or $.27 earnings per share, for the fiscal year ending Dec. 31, 2006.
The Company anticipates it will have 2,000 employees sometime in 2007, and should achieve around a fifty percent (50%) increase in revenues from the sale of cell phones during fiscal 2007.
The Company also is forecasting that by 2010 the company plans to expand operations to all of China, and have operations in around 4,000 stores and achieve revenues of around $1 billion. To achieve these goals the Company believes it should grow 30% per year intrinsically, and 50% via acquisitions. The Company anticipates that acquisitions will be achieved via cash from operations and outside financing.
VALUATION RATING
With China 3C Group projecting âintrinsicâ growth of around 30% per year, and 50% growth in revenues for fiscal 2007, itâs in Ludlow China Fundâs opinion that a 30 price to earnings (PE) would be fair, if not conservative. If you give CHCG a PE of 30, based on a projected EPS for fiscal 2006 of $0.27 per share, we get a price target valuation of $8.10 a share.
>> This as of feb- so numbers are higher will do the math later and find out new price target.
>>
Initial Research Report
Investors should consider this report as only a single factor in making their investment decision.
China 3C Group Rating: Speculative Buy
Juan Noble
CHCG $6.38 â (OTC BB) March 9, 2007
FY2006A FY2007E FY2008E
Total revenues (in millions) $148.2 $412.0 $612.0
Earnings per share
FY2005A
$32.6
$0.04 $0.24 $0.56 $0.88
52 - Week range $7.50 â $1.00 Fiscal year ends: December
Shares outstanding as of December 31, 2006 52.5 million Revenue/share (ttm) $2.82
Approximate float 7 million Price/Sales (ttm) 2.26
Market Capitalization $335 million Price/Sales (FY2007)E 0.81
Tangible Book value/share $0.20 Price/Earnings (ttm) 26.1X
Price/Book 31.6X Price/Earnings (FY2007)E 11.4X
China 3C Group. (OTC BB: CHCG), headquartered in HangZhou City in Chinaâs Zhejiang Province, is a distributor and retailer of consumer
electronic products. The companyâs retail market, through which it generates more than half of its revenue, is East China, which it services through
a chain of 800 stores concentrated mainly in Shanghai and the neighboring provinces of Jiangsu and Zhejiang.
Key Investment Considerations:
We are initiating coverage of China 3C Group (OTC BB: CHCG) with an investment rating of Speculative Buy
and a 12-month price target of $8.50 per share. We believe that because of the risk and uncertainty underlying
China 3Câs growth prospects, the stock is suitable only for investors with a high risk for tolerance.
China 3CGroup is expanding rapidly, its growth driven by organic growth, the opening of new stores, and
acquisitions. We believe that even without acquisitions, the company could increase its revenue fourfold and
its net income fivefold during the next two years. An aggressive expansion effort aims to expand its retail
chain to 4,000 stores and raise its revenue to one billion dollars by 2010.
The companyâs consumer electronics product line includes well-known international brands, as well as lower-
cost ones that enable China 3C to offer a broad selection across a wide range of price points. A unique
âstores-in-storesâ organization enables the company to piggy back on other retailersâ traffic, blunt the
potential competitive edge of large-store broad-line retailers and avoid large capital expenditures.
The companyâs trading area is concentrated in the densely populated eastern coastal provinces of Jiangsu and
Zhejiang, and in the city of Shanghai. These markets, the largest in China, account for more than one-fifth of
the nationâs gross domestic product and roughly the same proportion of its wholesale and retail trade.
We project strong cash flow that should enable the company to support substantial increases in working capital
and amass large cash reserves that could cover a large portion of its acquisition financing requirements.
>> Looks real good $COST I remember when you posted this my problem was the quality of the real estate-- they don't own very much lots of store within stores and kiosks but hey what the F I'm over that! ~ stoney
