Stock Preacher

China Organic Agriculture Inc. (OTCBB: CNOA)

China Organic Agriculture Inc. (CNOA), through its subsidiaries, is engaged in the business of distribution of agricultural products in China, including green rice, organic rice, soy beans, ice wine and other agricultural products. The Company reports its operations under two segments. The first segment is agricultural products, which focuses on the trading and distribution of agricultural products. The second segment is the Wine Production segment that produces and acquires grapes to be converted into wine and ice wine.

The Company distributes its products mainly through large agricultural distributors, including Shen Zhen Shen Jin Da Agricultural By-product Trading Co. Ltd., Beijing Jingu Hengfa Trading Co. Ltd., Shanghai Liang You Group Co. Ltd., Jinyunda Industry Development Co. Ltd., and Guang Dong Guangliang Industry Co. Ltd.

The Company has seven subsidiaries as of June 30, 2009. CNOA was incorporated in August 2005, in the state of Florida and is headquartered in the Liaoning province, People’s Republic of China.

Source: Reuters.com, SEC Filings.

Financial Summary

The Company’s sales for the three months ended June 30, 2009, totaled $30.0 million compared to $3.3 million for the three months ending June 30, 2008, an increase of approximately 808%. The increase in sales was attributable to the sales volume of Dalian Huiming, in which the Company acquired a 60% ownership interest in October 2008. During the three months ended June 30, 2009, all sales were generated by the Company’s Agricultural Products Trading segment, reflecting the Company’s new initiative of purchasing grains from producers and then reselling this to retailers and wholesalers. The second quarter’s gross profit was $6.9 million (or 23% of revenue) as compared to last year’s gross profit of $0.9 million. Net income allocable to CNOA shareholders was $2.5 million for the second quarter of 2009, compared to a net loss of $121,000 for the same period last year.

At June 30, 2009, cash and cash equivalents were $9.0 million as compared to $7.3 million at December 31, 2008. Current assets totaled $110.6 and current liabilities were $58.6, resulting in working capital level of $52 million, and a current ratio of 189%. During the six months ended June 30, 2009, the Company had negative cash flow from operating activities of $9.2 million, primarily attributable to the increase in accounts receivable which was largely due to increased revenue levels. CNOA also recorded investments of $37 million in restricted cash and $47.9 million of cash flows from financing activities

Analyst Consensus

No consensus recommendations data available.

Investment Highlights

The Company has experienced significant growth since its inception. CNOA’s expanding portfolio of premium and natural food products is not only including green and organically grown rice, but also California wine, organic soybeans, kidney beans, mushrooms and other premium products. The Company has developed an extensive distribution network throughout many of China’s major cities, including Beijing, Shanghai and Nanjing. The Company is positioned to leverage this network to increase market penetration with broad distribution of agricultural, food and related premium products. CNOA intends to expand its sales in mainland China, the special administrative region of Hong Kong and other Asian countries as well.

CNOA’s fast growing Ankang Agriculture subsidiary is primarily responsible for distributing a variety of premium, natural agricultural products. These products include the Company’s flagship products of organic and green rice, which has been sold since its inception, as well as new product lines including soybeans, kidney beans and mushrooms. Some of these new products will be distributed under the Company’s recently acquired organic “Xiaoxinganling” brand name, popular in the northeast provinces of China. By acquiring this trademark, CNOA aims to utilize Xiaoxinganling’s brand awareness to further expand its premium line of food products.

In 2008, the Company China bought a 153-acre vineyard in California called Bellisimo Vineyard. Bellisimo Vineyard produces Chardonnay, Merlot and Cabernet Sauvignon wine grapes and is located in Sonoma County, California. CNOA intends to market wines in China under its own label, and to distribute other successful California-based wine brands through the Far East Wine Holding Group subsidiary. In late 2008, CNOA announced a Chinese-Foreign equity joint venture with China-based Xinbin Manchu Autonomy County East Star Wine Company Ltd. The joint venture, to be branded Asia Star Ice Wine Company Ltd., will market and sell premium and specialty ice wines through CNOA’s distribution subsidiary, Dalian Ankang. Initial output of both premium wines and ice wines are projected at approximately 2,000 tons. China Organic will own 60% of the new entity.

In September 2008, CNOA completed the acquisition of 60% of Dalian Huiming Industry Ltd. for $10.6 million in an all cash transaction. Dalian Huiming is a major agricultural trading company with broad distribution and product lines providing many revenue-building opportunities. It focuses on soybeans, corn, and cereal crops, which are all major agricultural products in China’s northeast expanding the diversity of the products CNOA offers. Sales to consumers are made in regions including the provinces of Liaoning, Jilin, Heilongjiang, Sichuan, Fujian, and the cities of Beijing and Shanghai. Based on net earnings, Dalian Huiming is one of the top-tier agricultural trading companies in the Northeast provinces of China.

CNOA targets multibillion-dollar expanding Chinese markets for premium and natural foods and wines. In 2007, food and beverage sales accounted for RMB 793.1 billion (USD 104.4 billion) of the total retail sales, a 30% increase over 2006, as China’s economy continued on an upward path. In 2007 alone, sales of organic foods by the country’s 800 government-certified producers reached $4 billion last year, of which about $140 million comprised exports, both up 20% from a year earlier. Impacted by the global financial crisis, the food and beverage industry’s operating revenue changed from rapid growth momentum to downturn in H2 2008. During Jan-Feb 2009, the revenue of the overall food and beverage industry increased only 14% year on year, 23 points lower than that of Jan-Feb 2008, recording new low in recent years. The growth rate in Jan-May 2009 rebounded a little to 15%. According to Research and Markets, from January to May of 2009, sales of Chinese food industry came up to RMB 315.635 billion, increasing by 13.47% YOY.

While there are currently 600 million urban Chinese, that number is expected to grow to more than 1 billion by 2020. The burgeoning Chinese middle class now includes more than 200 million people and is growing rapidly. Consumption of wines, especially foreign wines, has increased 50% from 2000-2005 and looks to be exceeding that growth by a further 70% for the balance of the decade. Meanwhile, while demand is growing rapidly, the supply of foreign wines is extremely tight. In 2007, China imported approximately 54 million of bottles of wine China has been labeled as the sleeping giant of the wine industry.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

CNOA is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

The MACD for the Company currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0 which implies that the underlying moving averages are trending higher.

CNOA is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Comparative Analysis

CNOA is capitalizing on China’s burgeoning domestic demand for premium products due to an expanding class of consumers with the ability to acquire premium food products. The Company has experienced significant growth since its inception in 2002 and continues to implement a number of strategic initiatives to further expand revenues and earnings. CNOA is turning in solid earnings increases, selling organic products in a country with rapidly increasing wealth and it could be in exactly the right place at the right time to take full advantage of the massive growth in the organics marketplace.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Insider Trading Activity

Net Share Purchase Activity

Report Disclaimer

DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority.  We are neither licensed nor qualified to provide investment advice.

The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice.  The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities.  We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them.

Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company.  An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report.  Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research.

Any individual who chooses to invest in any securities should do so with caution.  Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested.  Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934.  Subscribers are cautioned not to place undue reliance upon these forward looking statements.  These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated.  Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC.  You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled.  However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions.  We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so.  Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

Popularity: unranked [?]