Shannon Roxborough | Jan 31, 2008 6:20am EST | 13 Comments
Rating:
China's red-hot economy may be cooling a bit, but the nation's industrialization efforts are still moving full steam ahead.
The toxic chemical element bromine is playing a key behind-the-scenes role in China's growth and infrastructure build-out.
Bromine and bromine-derived compounds have a wide range of uses. They're used as flame retardants, to purify water, in pesticides, oil-well drilling fluids and disinfectants. They're also used in the production of paper, inks, dyes, medications, films, hydraulic fluids, hair perm products, refrigeration and dehumidifying agents, and for a variety of industrial, manufacturing and agricultural applications.
By and large, as bromine goes, so goes China. China consumes 20% of the world's supply of bromine. And the soaring demand for bromine in China, stoked by the country's manufacturing machine, has left a supply gap, since domestic production can't keep pace with demand. Which brings us to Gulf Resources, Inc. (OTC: GFRE), the largest producer of bromine in China and the world's fourth largest supplier. The Shandong province-based company has two wholly owned subsidiaries: Shouguang City Hao Yuan Chemical Industry Co., Ltd. (SCHC), a manufacturer and distributor of bromine and crude salt, and Shouguang Yu Xin Chemical Industry Co., Ltd. (SYCI), which produces various bromine-based specialty chemical products.
Currently controlling over 15% domestic market share, Gulf Resources has a goal of attaining at least 20% market share by the end of 2008. If its recent accomplishments are any indication of things to come, the goal is well in reach. Gulf Resources is one of only six companies in China licensed to extract bromine. The government has been actively seeking out and shutting down unlicensed bromine operations, many of which Gulf Resources have subsequently acquired.
SCHC recently inked a deal to acquire the Wei Fang City Hanting area of a bromine producer for approximately $9.7 million. The agreement transferred assets including a complete production facility and a 50-year land lease (plus mineral rights) on a 2,641-acre property with a proven 200,000 to 210,000 metric tons of bromine reserves.
"What is not often seen is a successful company confidently broadening their product portfolio through acquisition. But that appears to be the case with Gulf Resources Inc., which has just announced that it will gain 4,700 tons of incremental annual bromine production capacity equating to $9.4 million in revenue and $2.4 million in net income through a strategic acquisition," said D.R. Clark, an analyst with SmallCap Sentinel, following the report of the acquisition.
"The management team has executed on its growth plan while the domestic bromine market in China continues to experience strong demand. This factor, in addition to the RMB currency appreciation is anticipated to drive further bromine price increases. We continue to evaluate additional unlicensed bromine facilities in our immediate geographic area and expect to complete several asset purchases this year. ... Our exploitation license provides the conduit to pursue these opportunities and is a key asset for our company. Any contemplated acquisition is expected to be incremental to this guidance," said CEO Ming Yang in a Jan. 9 statement.
Yang added that the company is experiencing growth in both of its operating subsidiaries, which are being driven through organic expansion and targeted asset purchases.
“SCHC will continue to make capital improvements where appropriate, including new bromine wells and convey trench lines, while leveraging new integrated production processes to improve capacity utilization,” Yang said. “Further, our SYCI subsidiary plans to purchase two deep processing plants which produce bromine-based derivatives, a market we are focused on penetrating, which will provide incremental revenue growth and further margin enhancements."
Gulf Resources is also making other moves. Its SYCI subsidiary has successfully developed an environmentally-friendly oil field drilling fluid system, which the company plans to begin selling in April (the system has been recognized by China's three largest oil suppliers, a required step prior to commercialization of new products targeting the domestic petroleum industry). SYCI has already received orders from CNPC-owned companies, which are scheduled for May delivery. SYCI will initially produce 3,000 to 5,000 tons annually to begin supplying an estimated $45 million domestic market.
In March, the company expects to report revenues of $54 million and net income of about $13 million for the 2007 calendar year. On Jan. 25, Gulf Resources announced it secured a major contract to supply Daqing Petrochemical Complex, a subsidiary of China National Petroleum Corp., the country's top oil and gas producer, with oil refining chemical additives. The agreement will generate $20 million in revenues this year, which will contribute to the $87 million in total revenues and $23.5 million in net income the company projects for 2008.
On Jan. 8, Maxim Group reiterated its "buy" rating, with a target set at $4, commenting that "GFRE has a recent history of generating a low- to mid-30% free cash flow margin. ...We view GFRE shares as attractively valued relative to three-year revenue and earnings (compound annual-growth rates) of 20% and 25%, respectively."
GFRE shares, which closed at $2.62 on Wednesday, have traded between $0.75 and $3.19 over the past 52 weeks.
A largely overlooked play on China's industrialization boom, Gulf Resources (GFRE) has plenty of potential to boost production and expand its customer base, thereby developing significant revenue and earning streams.
The stock is not likely to disappoint growth-oriented investors.
Rating:
China's red-hot economy may be cooling a bit, but the nation's industrialization efforts are still moving full steam ahead.
The toxic chemical element bromine is playing a key behind-the-scenes role in China's growth and infrastructure build-out.
Bromine and bromine-derived compounds have a wide range of uses. They're used as flame retardants, to purify water, in pesticides, oil-well drilling fluids and disinfectants. They're also used in the production of paper, inks, dyes, medications, films, hydraulic fluids, hair perm products, refrigeration and dehumidifying agents, and for a variety of industrial, manufacturing and agricultural applications.
By and large, as bromine goes, so goes China. China consumes 20% of the world's supply of bromine. And the soaring demand for bromine in China, stoked by the country's manufacturing machine, has left a supply gap, since domestic production can't keep pace with demand. Which brings us to Gulf Resources, Inc. (OTC: GFRE), the largest producer of bromine in China and the world's fourth largest supplier. The Shandong province-based company has two wholly owned subsidiaries: Shouguang City Hao Yuan Chemical Industry Co., Ltd. (SCHC), a manufacturer and distributor of bromine and crude salt, and Shouguang Yu Xin Chemical Industry Co., Ltd. (SYCI), which produces various bromine-based specialty chemical products.
Currently controlling over 15% domestic market share, Gulf Resources has a goal of attaining at least 20% market share by the end of 2008. If its recent accomplishments are any indication of things to come, the goal is well in reach. Gulf Resources is one of only six companies in China licensed to extract bromine. The government has been actively seeking out and shutting down unlicensed bromine operations, many of which Gulf Resources have subsequently acquired.
SCHC recently inked a deal to acquire the Wei Fang City Hanting area of a bromine producer for approximately $9.7 million. The agreement transferred assets including a complete production facility and a 50-year land lease (plus mineral rights) on a 2,641-acre property with a proven 200,000 to 210,000 metric tons of bromine reserves.
"What is not often seen is a successful company confidently broadening their product portfolio through acquisition. But that appears to be the case with Gulf Resources Inc., which has just announced that it will gain 4,700 tons of incremental annual bromine production capacity equating to $9.4 million in revenue and $2.4 million in net income through a strategic acquisition," said D.R. Clark, an analyst with SmallCap Sentinel, following the report of the acquisition.
"The management team has executed on its growth plan while the domestic bromine market in China continues to experience strong demand. This factor, in addition to the RMB currency appreciation is anticipated to drive further bromine price increases. We continue to evaluate additional unlicensed bromine facilities in our immediate geographic area and expect to complete several asset purchases this year. ... Our exploitation license provides the conduit to pursue these opportunities and is a key asset for our company. Any contemplated acquisition is expected to be incremental to this guidance," said CEO Ming Yang in a Jan. 9 statement.
Yang added that the company is experiencing growth in both of its operating subsidiaries, which are being driven through organic expansion and targeted asset purchases.
“SCHC will continue to make capital improvements where appropriate, including new bromine wells and convey trench lines, while leveraging new integrated production processes to improve capacity utilization,” Yang said. “Further, our SYCI subsidiary plans to purchase two deep processing plants which produce bromine-based derivatives, a market we are focused on penetrating, which will provide incremental revenue growth and further margin enhancements."
Gulf Resources is also making other moves. Its SYCI subsidiary has successfully developed an environmentally-friendly oil field drilling fluid system, which the company plans to begin selling in April (the system has been recognized by China's three largest oil suppliers, a required step prior to commercialization of new products targeting the domestic petroleum industry). SYCI has already received orders from CNPC-owned companies, which are scheduled for May delivery. SYCI will initially produce 3,000 to 5,000 tons annually to begin supplying an estimated $45 million domestic market.
In March, the company expects to report revenues of $54 million and net income of about $13 million for the 2007 calendar year. On Jan. 25, Gulf Resources announced it secured a major contract to supply Daqing Petrochemical Complex, a subsidiary of China National Petroleum Corp., the country's top oil and gas producer, with oil refining chemical additives. The agreement will generate $20 million in revenues this year, which will contribute to the $87 million in total revenues and $23.5 million in net income the company projects for 2008.
On Jan. 8, Maxim Group reiterated its "buy" rating, with a target set at $4, commenting that "GFRE has a recent history of generating a low- to mid-30% free cash flow margin. ...We view GFRE shares as attractively valued relative to three-year revenue and earnings (compound annual-growth rates) of 20% and 25%, respectively."
GFRE shares, which closed at $2.62 on Wednesday, have traded between $0.75 and $3.19 over the past 52 weeks.
A largely overlooked play on China's industrialization boom, Gulf Resources (GFRE) has plenty of potential to boost production and expand its customer base, thereby developing significant revenue and earning streams.
The stock is not likely to disappoint growth-oriented investors.
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