China Biodiesel Share Discussion Threads

[tim00] 08/10/2009 09:20

Just had a very helpful reply from Gloria He, the FD. My query concerned government grants. In brief, the policy has shifted from offering grant to VAT rebate, so the grants are likely to be phased out fairly quickly I guess, but more than fully offset by the benefits to CBI of VAT rebates. Grants are now tied largely to R&D rather than production, so some grant might continue given the company's focus on technological development.

[tim00] 08/10/2009 08:48

qipincha, I think counting the NAV and the profit stream is double counting, but you're definitely right that companies without assets should be priced down relative to their profits figures. Imagine a company whose main asset is a cash deposit of say £10 million. You could value the company according to its NAV (ie £10 million) or a multiple of its profits (ie its interest income), but you can't add both together. Ultimately though, we're agreed that whether you look at CBI's assets or its likely future profits, the company is strongly under-valued.

[qipincha] 07/10/2009 22:03

hi everyone,
just finished a busy day and rush to this bb

are we doing wrong estimation of company sp??? Tim and Forest, forget about the profit of H2 for the time being, I think there is something foundamentally wrong when we talk about cbi share price

in my opinion, the share price should be
(net asset value + profit*PE)/number of share

at the moment, the estimation of share price is based only on the profit, which is wrong and biased. Without consideration of company's net asset value, many many company should end up with negative share price rather than positive. And some company has goodwill in this balance sheet. (learned this from Tim, thanks)

my calculation of cbi share price is:
current net asset (188,706,734RMB/55m) +1.2p(eps)*10(PE) = 31p + 12p = 43p

of course, there are other things have to be considered when estimate the company sp, like company reputation and the dilution of share.I think cbi has a good record in the past and we should be clear of this. if the profit reach 5p per share, we should have share price back to 80p level, imho.

[forest owlet] 07/10/2009 14:23

Yes I would certainly agree with at least 20k tons qipincha, but I am not confident the run rate will not have fallen back since late Q2 tim00, so I am expecting somewhere between 20-25k tons production for 2H.

[tim00] 07/10/2009 11:08

It's clear that production volumes were increasing steadily through Q2. In other words, the "run rate" at the end of June would have been substantially higher than the Q2 average, possibly consistent with production of 13000 tons in Q3 even without further progress. So I think 30k tons in H2 is indeed perfectly achievable.

[mikeja] 07/10/2009 10:36

They may also be selling around 1x next yrs earnings.

[qipincha] 07/10/2009 09:07

Forest,

the sales volume was 10,347 tons in Q2, the sales in H2 will at least 20,000 tons. With the improvement of market, 30,000 tons is not ambitious

[forest owlet] 07/10/2009 08:49

I don't think there will be anything like 30k output in 2H, but of course it is all guesswork. Depends how optimistic/pessimistic you are on sales.

[qipincha] 07/10/2009 08:22

Hi tim,

agree with your estimation.

I feel that cbi has been extremely under valued in the past year.

In fact, the share price should be based on the value of the company plus the profit, not only the profit. For example BYOT,FGN, the share price stand above 30p and the companies are not even making profit.

CBI has a very low PE value compare to many other stocks in its section. with estimed eps 5p, the share price should be back to a region between 50p-80p level,at least

[tim00] 07/10/2009 07:37

Here are some interesting numbers. Profit in H1 was 1.2p per share. Of that, Government assistance was 3.1p per share. VAT rebate was 490 RMB per ton. Assuming the same rate of rebate in H2 and production of 30k tons, the VAT rebate is worth around 15 million RMB in H2. Assume government grants of 4 million RMB (which is a low estimate possibly). There are also income tax rebates for CBI on its profits, which I estimate at 3.5 million RMB in H2. Adding this all up gets 22.5 million RMB, equivalent to 4.5p per share. I estimate profit in H2 that arises without Government assistance is just 0.4p per share, consistent with Forest Owl's view of a depressed market still. Adding these together gives total profit per share in H2 of just under 5p per share. But the point is that this is nearly all Government assistance. CBI can easily ramp up production when it doesn't need to price to make a profit, unlike some non-bio competitors.

[qipincha] 06/10/2009 17:27

buy in when share price is low

[qipincha] 06/10/2009 17:23

seems I have missed an interesting discussion

one thing I have to mention again is their Xiamen plant re-opened after a period of close down. THat will significantly reduce the portion of operation cost! hence improve profit margin

[forest owlet] 06/10/2009 16:01

I certainly won't object either to 4p or more in 2009, and in the long term it will be substantially more. There is good reason to be conservative until demand consistently improves in China. In the meantime a lowly PER seems hard to avoid.

[tim00] 06/10/2009 15:18

They weren't getting VAT rebates last year, a big difference. But I wouldn't object if they only made 3-3.5p per share in H2. Still 4-5p in 2009, making a forward pe ratio of 2.5-3!

[forest owlet] 06/10/2009 15:09

Government grants, VAT rebates and somewhat more competitive prices are not enough to insulate the company from the wider economic trends. Just look at 2008. (IMHO If CBI's prices were strongly competitive they wouldn't have seen production collapse last year or be so slow to pick up this year. I don't buy into that story.)

Their feedstock prices have a strong correlation with crude as I understand it. But that correlation is not the present issue. It is overproduction of petrochemical products and weak margins in China since the start of Q3 that is the big issue.

I don't think interims gave much of a clue as to how Q3 was going, but I did notice this: Against a background of uncertainty in the global economy and the business environment the management believes it is well prepared to lead the Company through the tough period ahead. That doesn't sound like there was an obvious improvement in early 2H to me.

If CBI makes 6p eps in 2H I will eat my words. I am going to stick my neck out and forecast a range between 3-3.5p eps in 2H09, and if the current overproduction/low prices/weak or negative margins in the oil refining industry continues into 4Q then it could be lower imho.

[tim00] 06/10/2009 14:58

Agreed, I have estimated support of 3.8p per share in H2.

[mikeja] 06/10/2009 14:55

The difference is that their feedstock prices are not the same as ordinary crude.Of the 6p in earnings my view is that 4p will come from the gov.

[tim00] 06/10/2009 14:53

Government grants and tax rebates give the company tremendous competitive advantages on price and means they can grow sales volumes irrespective of trends in the wider market. I'm more with Mikeja on this. And note there was no negativity in the half-year results regarding trading since June.

[forest owlet] 06/10/2009 14:45

The primary reason why I am not optimistic short term is that it does not matter that CBI are concentrating on BI and BII petrochemical substitutes rather than conventional biodiesel, as since the beginning of Q3 the price cap mechanism in China has not been an effective ceiling on prices charged for controlled products as almost all ex-refinery products (diesel, gasoline, petrochemical industry feedstocks etc) have suffered from low selling prices (in relation to feedstock costs) owing to output outstripping demand. Margins on petroleum products in the oil refinery industry have often been negative in Q3.

These low prices and large inventories will be putting the squeeze on CBI's margins and depressing their growth in output imho.

Personally I won't be adding at these levels.

[forest owlet] 06/10/2009 14:28

Oh well mikeja, if you like, just about all petrochemical products are currently experiencing weak pricing power and reduced margins compared to earlier this year, owing to production outstripping demand. I think your estimate of 6p for 2H09 is a long way out. I will be really surprised if they reach 4p.

I have a holding in CBI but I am not optimistic about the share price in the short term. Hopefully demand and pricing will improve in 2010.

[mikeja] 06/10/2009 13:34

By the way,thanks rob,keep on talking them down.

[mikeja] 06/10/2009 13:33

FO,CBI produces for the petrochemical industry,not a fuel.
Have no reason atm to revise my eps of 6p for H2,bt some very cheap stock today.Note that in the interims co talked of acquiring new customers,working on new products and improving margins.

[robandkerry] 06/10/2009 10:03

Im not surprised that this is falling back, there is no support level. It could fall back to around 5p without news.