China Direct (CDS) is a provider of management advice, investment capital, business development services, strategic planning, macroeconomic industry analysis, and financial management services in China. The company also offers business advisory and consulting services. China Direct is, at its core, a play on basic materials, which plays right into China’s massive infrastructure boom. The company’s three main businesses involve magnesium, basic materials and green technology. China Direct helps small and medium-sized Chinese companies access capital markets in the United States either through acquiring U.S.-based companies or going public on U.S.-based exchanges.
For fiscal 2007, the Florida-based company reported profits of $11.8 million, or 67 cents a share, on sales of $174 million. In the second quarter of this year, China Direct reported record results, highlighted by net income of $7.5million, or 26 cents a share, on sales of $76.2 million. The company is projecting profits of $26 million, or $1 share, on sales of $320 million for 2008. Management reaffirmed those estimates earlier this month. Three analysts follow China Direct, one with a rating of “strong buy,” the other two with “buy” ratings. Last Friday, the company announced a $2.5 million stock repurchase program.
While magnesium continues to be a significant part of China Direct’s business and global commodity prices continue to swoon, the company says it is well-positioned to endure such price volatility and that it expects magnesium prices to stabilize in the near future. About 47 percent of China Direct’s shares are held by insiders with 36 institutions holding another eight percent. Mutual funds holding China Direct shares include Marshall Small Cap Growth, CornerCap Contrarian, First American Small Cap Index and Northern Small Cap Index.
China Direct shares closed Monday at $4.44. They have traded between $3.80 and $12.95 over the past 52 weeks. China Direct has a market value of about $104.4 million and price-to-earnings ratio of 7.22. The company has nearly $32 million in cash on hand and little debt. China Direct also enjoys a favored relationship of China’s currency, the yuan, to the U.S. dollar.
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