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I just posted Sino Gas International (SGAS), currently $0.65, as my new stock-to-watch with a speculative rating of 1, my highest level of confidence!
SGAS is a leading developer of natural gas distribution systems in small and medium size cities in China, as well as a distributor of natural gas to residential, commercial and industrial customers in China.
SGAS generates revenues from two sources: natural gas connection fees and sales of natural gas - mostly to residential apartments. SGAS owns and operates 37 natural gas distribution systems serving approximately 100,900 residential and five commercial and industrial customers.
SGAS's 2008 revenues were $21.45 million up 6% from 2007 revenues of $20.27 million. SGAS generated net income in 2008 of $1.6 million down 79% from their 2007 net income of $7.7 million.
One of the main reasons for SGAS's decline in net income in 2008: 57% of their revenues in 2008 came from natural gas sales with 43% from connection fees... in 2007, 36% of their revenues came from natural gas sales with 64% from connection fees.
SGAS's gross margins on connection fees are much larger than natural gas sales. In 2008, SGAS connected 26,770 new residential households to their gas distribution network, down from 39,306 new residential households in 2007. This was primarily due to a temporary slowdown in real estate construction in China during the worldwide financial crisis last year.
SGAS also took about $1.2 million in non-recurring charges in 2008 unrelated to their business. Without these non-recurring charges, their net income for the year would have been around $2.8 million.
SGAS only has approximately 25 million shares outstanding or approximately 30 million fully diluted. At SGAS's current price of $0.75, its fully diluted market cap is only around $12.6 million when they generated net income last year (excluding non-recurring charges) of $2.8 million!
Based on those numbers, SGAS's P/E is only around 4.5! I believe this is a ridiculously low P/E for a company that grew their residential customer base by 36% last year!
I believe natural gas is the most undervalued commodity at this time and we could see natural gas prices start to soar in the near future... which means we could see major growth in SGAS's natural gas sales in the years ahead.
With China`s new stimulus package and other efforts the country is taking to boost their economy... SGAS expects to see the return of growth of household connections, especially in small-to-medium sized cities where the real estate market is at an early developing stage.
Imagine if SGAS is able to successfully bring their net income back up to $7.7 million like in 2007 and the stock traded with a P/E of 15 like many U.S. utility companies... in this scenario we would be looking at a share price of $3.85 on a fully diluted basis!
SGAS has positive shareholder equity of $58.25 million! Therefore, the company has a fully diluted book value of approximately $1.94 per share!
I believe SGAS's upside potential at $0.65 is astronomical and I urge you to research this company immediately!
At $0.65, SGAS could be a HUGE BARGAIN
Remember, they call for $1.20! Add SGAS this Thursday, Nov 19!
Green Bull Team
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