Nov. 16, 2009 (Chinavestor) Four Chinese companies reported earnings on Monday with mixed results. Sinovac (AMEX:SVA) reported before the open, Sina Corp. (NASDAQ:SINA), American Oriental Bio (NYSE:AOB), and WuXiPharmatech (NYSE:WX) after the close. Besides these companies, this report is going to review Rino International (NASDAQ:RINO), a stock that is up 25% in the last two days following earnings announcement.
The method we are going to use is based on the general assumption that earnings are driving stock prices. Investors like companies with strong, sustainable revenue and earnings growth.
Note: some of these stocks are regularly appearing on the Weekly Stock Buy List and/or the Portfolios, distributed to Chinavestor clients. For subscriber benefits, please visit the Premium Content page.
Sinovac (AMEX:SVA), this Beijing based vaccine maker, reported sales growth of 142% to $21.2 million - but as the following chart testifies this is partly due to a low basis. Net Income grew sixfold to $5.2 million in the third quarter.
According to the chart, most of the expectations of a high sales and earnings growth have already been incorporated into the stock price of Sinovac (AMEX:SVA). With the H1N1 scare on the back burner, sustainability of revenues and earnings are a big question. The Company didn't provide estimates for the upcoming quarter.
Market reaction to the report was a sharp 10% drop in share price for Sinovac (AMEX:SVA). Investors should feel good about the company if it's going to report at least four straight quarters of constant revenue and comparable earnings growth. Until that happens we don't consider Sinovac investment grade. It's just too much of a risk in our assessment.
Sina Corp. (NASDAQ:SINA), one of the most prominent Chinese web portal, reported better-then-expected revenue growth but lowered Q4 outlook. Shares of Sina Corp. (NASDAQ:SINA) are trading 4.8% higher in post-market trading.
As the following chart shows, shares of Sina Corp. (NASDAQ:SINA) has been follwoing revenue and earnings growth very closely, a very good sign of abundant liquidity. But with Q4 revenues lowered to $93-$96 million vs. average analysts' estimates of $99 million, upside is limited for Sina Corp. (NASDAQ:SINA).
American Oriental BioEngineering (NYSE:AOB) reported mixed Q3 numbers. Revenues grew but earnings fell. But the reason American Oriental (NYSE:AOB) is trading 7.46% lower in post-market trading is that the Company had to restate 2006, 2007, and 2008 earnings due to accounting errors. This is a very bad news, something that's not acceptable for a Chinese company. There has been too much of bad talking about the Chinese cooking books. Recall what 51job Inc. (NASDAQ:JOBS) has still to endure after such a mistake years ago. With such an abundance of quality Chinese companies on U.S. exchanges, investors quickly abandon companies with low quality corporate governance. We advise investors not to touch American Oriental Bio (NYSE:AOB).
WuXi PharmaTech (NYSE:WX) has been an overbought company as we highlighted it on the daily reports. But earnings came out better-then-expected and shares for WuXi PharmaTech (NYSE:WX) are trading 11% higher after the close.
While revenues grew YoY and QoQ, earnings growth fell last quarter for WuXi PharmaTech (NYSE:WX). The good news is that despite a plateau in WuXi's profits, revenues and earnings growth far surpassed that of the stock price. This is due to a disastrous 2008 performance but it looks that the time has come for investors to recuperate from such losses. Assuming WuXi will make good on its revenue forecast, the share price has a lot of ground to make up.
The last stock for today is Rino International (NASDAQ:RINO). While RINO reported last week, the stock has been on fire and is worth to take a closer look.
The first thing investors have to notice is the big run up in stock price lately. This is in tandem with its reported revenue and earnings growth. But there are some worrisome developments. If Chinavestor calculations are correct, that's based on full year outlook and analysts estimates of $44 million for Q4, revenues will be well below current numbers. This is going to take a toll on current stock price.
The other factor to consider is that Rino Int. (NASDAQ:RINO) has been reporting strong orders for months by now, piling up a backlog of orders worth $57.2 million. As we argued on October 24 Rino Shifts Gears that "the question is not potential but whether Rino is up for the task of increasing capacity." This also means that most of the strong orders, revenue and earnings growth are already incorporated into the stock price, challenging the sustainability of further price appreciation.
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