RedChip Visibility, a division of RedChip Companies, recently issued a first quarter fiscal year 2010 research note on Longwei Petroleum Investment Holding (OTCBB: LPIH), a diesel, gasoline, fuel oil, and solvent oil distributor operating in China’s Shanxi Province. Rahul Sowani, Research Analyst for RedChip, reiterated a Strong Buy rating and raised the target price on LPIH shares to $5.00.
Sowani wrote in the report:
“Longwei’s 1QFY10 performance was better than expected and the top line will further strengthen as the new Gujiao facility becomes fully operational. Management is expecting an additional $40 million in revenue and $6 million in net profit in FY10 which we believe is attainable given the vast customer base available in Gujiao. With strong macro-economic indicators of the Chinese economy and the Gujiao facility development nearing completion, we expect Longwei to strengthen its current market position and aggressively pursue additional market share in Shanxi Province.”
Longwei’s revenue for the year ended June 30, 2009 was $196.8 million, a year-over-year increase of 36.9%. Net income for the year ended June 30, 2009, excluding one-time items, was $26.5 million, a year-over-year increase of 28%.
Jim Crane, CFO of Longwei, recently presented at RedChip’s China Equities Conference in Shanghai on December 8th. During the presentation, Crane stated that Longwei’s new 70,000-metric-ton capacity oil depot facility in Gujiao, located about 30 miles from their existing storage facility in Taiyuan, is expected to be fully operational on or near January 1, 2010. The facility is already delivering on small orders.
Crane noted that Longwei is uniquely positioned as one of only three private, fully licensed oil distributors in Shanxi Province who has significant storage capacity and the only one in Gujiao — a key competitive advantage. Though Gujiao is geographically close to Taiyuan City, the customer base in Gujiao will consist of mostly coal plants, while the Taiyuan facility serves mostly gas stations.
Crane also stated that of the 11-13 key customers identified for the Gujiao facility, Longwei has preliminary contracts signed with six. These agreements are an indication of how much product the customers will buy throughout the year, though Crane says they are difficult to valuate because of the fluctuations in gasoline and diesel prices. (Gas prices determine the value of their current inventory and their revenues.) On November 10th, China’s National Development and Reform Commission mandated an increase on the retail prices of gasoline and diesel by CNY480 (US$70.28) per metric ton, which means the average price for #90 gasoline and #0 diesel increase 0.36 and 0.41 yuan per liter, about 6%-7%, respectively. Good news for Longwei.
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Disclosure: Longwei Petroleum Investment Holding, Ltd. is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.