Even though China is outpacing other nations in terms of vehicle sales, there is still tremendous room for growth. According to estimates from JP Morgan, the per capita ownership of cars in China is roughly 1/20th that of Europe, or 1/40th that of the United States. J.D. Power and Associates forecasts that sales of passenger vehicles in China will increase from 8.7 million vehicles in 2009 to 13.5 million vehicles by 2015, an increase of more than 55%. With numbers like these, it seems safe to say that the outlook for China’s auto industry is quite positive.

As car sales have grown in China, sales of electrical micro-motors have increased as well. Micro-motors control a wide variety of features in a car, from windshield wipers to power door locks and power windows. According to the China Electrical Equipment Industry Association, total sales of electrical micro-motors in 2008 increased 28% year-over-year to $9.6 billion. Global demand is poised to grow at an average rate of 12% annually for the next five years, attributed primarily to growing Chinese demand for consumer goods such as automobiles and household appliances.

China Electric Motor, Inc. (NasdaqGM: CELM) has established a strong presence in the Chinese electric micro-motor market with its “Sunna” brand of motors. CELM’s products are used in automobiles, home appliances, and digital equipment. The Company caters to the needs of small and medium enterprise (SME) customers, which are not met by larger competitors who focus on higher-priced motors and long-term contracts. Sunna brand motors have a reputation as low-noise, low-vibration, energy-efficient, and highly reliable micro-motors.

CELM has enjoyed rapid growth over the past five years due to expanding sales volume and increased focus on the fast-growing Chinese original equipment manufacturer (OEM) market, which produces higher margins than distributor-led sales. Revenues increased at a compound annual growth rate of 77% between 2004 and 2009. Net profit grew at a CAGR of 81% over the same period.

The Company’s manufacturing plant operated at 106% of capacity in 2009, and the Company is currently constructing new production equipment with a capacity of 24 million motors per year to meet high customer demand. In July, CELM leased a new factory in Zhejiang, the second largest micro-motor manufacturing hub in China. The Zhejiang factory will give CELM approximately 21.6 million units of new capacity for AC motors and approximately 43.2 million units of new capacity for coreless motors. The Company recently reported earnings for the quarter ended June 30, 2010, highlighted by a 13.3% year-over-year increase in revenues and a 93.2% YoY increase in net income. With China’s vast appetite for cars and other consumer goods driving the electric micro-motor market, CELM has a green light for continued growth.

Disclosure: The subject security 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.

After massive stimulus spending and accelerating GDP growth through 2009, the economic community is waiting to see whether China’s government continues to encourage rapid growth or takes measures to cool the economy. The World Bank forecasts a moderate scenario of 9.5% GDP growth for 2010, which falls roughly in line with most estimates. It projects 8.5% growth in 2011, and longer term its “growth accounting exercise suggests that potential GDP gradually declines to 7 percent in 2016-20.”

“The expected deceleration of potential growth also places a premium on policies that can increase sustained productivity growth, including via more reallocation of labor, enhanced human capital, and innovation,” says the report. As it becomes more challenging to continue delivering high rates of economic expansion over the next decade, the Chinese government is expected to enact policies favoring companies that can boost human capital (labor) productivity, such as firms in the professional education and training industries. For example, one promising company that would directly benefit from this anticipated trend is China Executive Education, Inc. (CECX), a provider of executive training programs and business skills seminars in China.

Analysts in the report noted that “recent adjustments in domestic fuel and water prices, the pilot with an ad valorem resource tax on oil and gas in Xinjiang, and plans to gradually end subsidized electricity prices for energy-intensive industries, are steps in the right direction” as China’s government begins to ease measures that give Chinese companies an unfair benefit in global competition. While policies intended to remove protectionist subsidies and underpricing could have an adverse short-term effect on some weaker firms, the price adjustments and recent yuan revaluation are positive long-term indicators since they signal Chinese firms’ increasing ability to compete in a free global market.

According to the report, the short-term outlook for firms in various consumer goods industries is also favorable: “Household consumption growth has remained solid, in line with a favorable labor market. The recovery of consumer confidence and continued consumer spending growth since early 2009 are in large part fueled by a strong labor market.” With a recent boost in car sales, home appliances, and other consumer durables, companies like China Electric Motor, Inc. (CELM), a manufacturer of micro motors for use in car components, household appliances, and digital equipment, should continue to see strong demand for their products.

Not only that, but the market for advertising is strong and typically very cyclical, following trends in the consumer goods sector. Companies such as China New Media Corp. (CMDI), which operates large outdoor advertising networks in some of China’s largest cities, stand to profit in the current environment.

The outlook provided by the World Bank seems to be one of moderating but still strong growth in China’s economy in the coming years, with a stable monetary policy forecast. This seems like the natural inclination as China matures into a fully developed nation.  As the update highlights, economic conditions have created abundant opportunities for Chinese companies to expand rapidly and will continue to do so for years to come.

Disclosure: The securities referenced herein are clients 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.

American Lorain is the leading producer and distributor of chestnut products in China. The worldwide chestnut market is an estimated $2.1 billion, and China accounts for approximately 60% of sales. With rising operation costs causing chestnut production to decline in South Korea and Japan, Chinese companies such as American Lorain are positioned to gain a larger share of the international chestnut market.

Lorain-branded products are carried by 4,980 retail stores across 26 provinces and administrative regions in China. Data collected on March 23, 2010 indicated that American Lorain added 1,312 stores to its retail network over the previous month, a 36.7% increase in a one-month period and an approximate 144% increase over the number of stores that carried Company products in the middle of 2009. Two agreements signed in the first quarter promise to expand the company’s reach even further. The Company signed an agreement in March with Jinluo Group to distribute Lorain Candied Bean and Bean Paste through Jinluo’s network of approximately 3,000 retail food stores in China. Also in March, 7-Eleven agreed to sell American Lorain’s ready-to-heat-and-eat “Lunch Box” products in 550 7-Eleven stores located in Guangzhou. American Lorain’s strategy of diversification appears to be paying off, as convenience foods sales were up 586% year-over-year in the first quarter of 2010, reaching $7.1 million.

In May, the Company announced that it had begun promoting sales of open-bottom frozen chestnuts at Lorain-branded retail food counters in 40 locations in Beijing and Chongqing, which it plans to expand to 70. The promotion, designed to counter the seasonality of chestnut sales, is expected to generate approximately $3.6 million in revenues for the fiscal year.

Based on current growth, the Company expects to meet its full year 2010 goal of having 5,000 stores selling American Lorain products sometime in the second quarter of 2010. The Company projects sales growth of 24.1% to 29.5% and net income growth of 23.6% to 31.9% for the year.

Disclosure: The subject security 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.

G. Willi has also engaged in a major advertising campaign to improve brand awareness in its core Israeli market via both television and Internet.  Management has wasted no time in utilizing the recent inflow of cash, and the company plans to invest additional funds in its promising new Israel-based export division, which it sees as a key driver of organic growth internationally.

Management also revealed in the call that the company is examining two new opportunities that could have an enormous contributive effect on future growth.  First, it is negotiating the potential acquisition of an unidentified American firm, which would provide a foothold for the company to further establish its brand name in the U.S.  Second, in response to a question posed in the call, G. Willi’s president and COO alluded to a pending agreement with a prominent American supermarket chain in which the company could become a supplier of private label foods for the chain.

Even without these pending developments, the company expects to see increasing growth from its expansion into the United States, which currently accounts for about 20% of total sales.  Surprisingly, only a small fraction of buyers of kosher food products do so for religious reasons and the company expects to capitalize on the trend toward healthy food alternatives to capture a greater share of the estimated $13 billion U.S. kosher food market.

Disclosure: The subject security 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.

4Q09 revenue was up 11% year-over-year to $62.9 million on growth driven by sales of Lorain(R)-branded convenient foods, which accounted for 26.2% of total revenues compared to 16.5% in 4Q08. 4Q09 EPS was $0.24.

In their earnings release, American Lorain also provided 2010 guidance: $182.0 to $190.0 million in revenues, or 24.1% to 29.5% organic growth for the year. The Company also provided net income guidance of $17.8 to $19.0 million, or 23.6% to 31.9% earnings growth year-over-year.

ALN is the largest producer and distributor of chestnuts in China. In addition to a variety of chestnut products, ALN develops, manufactures, and sells convenience foods, and frozen, canned and bulk food (FCB food). The company sells its food products through supermarket chains and wholesalers in China, Japan and South Korea and exports to more than 40 other countries. ALN has five state-of-art manufacturing facilities located at Junan, Luotian, Miyun and Dongguan with 21 production lines in total, capable of producing out between 10-50 products.

The company’s convenience food product line, which features ready-to-eat (RTE) and ready-to-cook (RTC) foods, generated revenues of $34.6 million, a 34.5% increase year-over-year.

ALN announced on March 30th that the total number of stores in China where Lorain(R)-branded products are sold reached 4,890–up 36.7% in a one-month period from the 3,578 retail stores reported in February 2010 and up from 2,000 stores in mid-2009. American Lorain plans to increase retail locations in 2010 into 8,000 locations. 

ALN’s has maintained its steady growth despite the economic slowdown. The company plans to leverage the gains in its retail footprint to continue expanding awareness of the Lorain brand and capitalizing on the burgeoning opportunities in the convenience food market.

Disclosure: The subject security 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.

One company contributing to and benefiting from the rapid development of China’s growing textile industry is China Linen Textile Industry, Ltd. (OTCBB: CTXIF). Engaged in the business of production and distribution of various types of linen products, CTXIF ranks among the country’s leading manufacturers in the industry (CTXIF sells 40% of its product within China and the rest overseas to various parts of Europe).

Earlier this week CTXIF released very positive annual results with net revenue increasing 31.2% year-over-year and net income jumping nearly 63% to $6.02 million or $0.30 per share compared to 2008. This growth trend can be attributed to a recipe of a growing consumer base, continued R&D and expansion, and a brand name just beginning to emerge into the mainstream market. CTXIF expects its brand name to gain even more consumer loyalty from increased quality in its products due to the new Heilongjiang Research and Development Center.

Clearly the markets have not factored in the expected double digit growth in 2010 into the company’s current share price, currently just $1.75. With a pending NYSE Amex uplisting, CTXIF is well positioned to provide investors considerable upside.

Disclosure: The subject security 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.

The kosher food market is a growing and globally expanding market as the number of kosher food consumers worldwide is now eclipsing 10 million. A staggering statistic which bodes well for G. Willi- Food International LTD. (NasdaqCM: WILC), an Israeli-based company specializing in high-quality, great-tasting kosher food products. The Company is a dominating force in the still growing kosher food industry in Israel and has now set its sights on the U.S. market.

As one of Israel’s leading food importers, WILC markets and sells its food products to over 1,500 customers in Israel and around the world including large retail and private supermarket chains, wholesalers and institutional consumers. In 2008 the Company sold 80% of their products in Israel, with the remaining 20% being split equally between the U.S. and Europe. However, looking forward CEO Joseph Williger sees WILC’s global presence altering dramatically with a goal for 2011 of 50% of products being sold in Israel and the remaining 50% being split between Europe and the United States.

Many Americans might think kosher foods are sold mainly to Jews or vegetarians, but surprisingly the largest consumers of kosher products are the one in five people who are of Muslim faith. Furthermore, as Americans become environmentally sensitive in a time of “label reading,” an increasing number of people of non-muslin decent are now turning to kosher food products. Only about 15% of people who buy kosher do it for religious reasons, according to Mintel, a research group that last year produced a report on the kosher food explosion. The top reasons cited for buying kosher? Quality, followed by general healthfulness.

Even with market data revealing a $200 billion kosher food industry growing at 15% year-over-year (Market Trend, 2008) the majority of the food industry has yet to realize the profits to be made by converting their food to kosher, giving WILC the opportunity to dominate the market both in the U.S. and Europe.

With continued growth and expansion into the U.S. market, WILC should generate revenue and earnings growth of a minimum of 25% in 2010. Since RedChip began coverage in mid-December 2009 WILC has had an impressive 35% rally to the upside from $5.09 to a January 19 close at $6.87.

With a game-changing geographic expansion underway and deals with major U.S. retail chains in the works, WILC is well positioned to benefit from a growing Kosher market where it has the advantages of experience and financial strength.

Disclosure: G. Willi-Food International, 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.

American Lorain is the largest manufacturer of processed chestnut products in China. The Company launched its chestnut business in 1995 and currently produces about 50 high value-added processed chestnut products. ALN’s food products are sold in 26 provinces and administrative regions in China, as well as in 42 countries.

Chestnut products are the Company’s highest margin products, but its sales are seasonal. In an effort to reduce the impact of seasonality on its operations, the Company has steadily increased production of frozen, canned and bulk foods, as well as convenience foods such as meals ready-to-eat. Non-chestnut foods are expected to contribute an increasing portion of ALN’s total sales as Chinese consumers shift consumption toward branded, modern food products.

American Lorain has enhanced its cooperation with supermarkets and restaurant chains to help boost domestic market share. ALN products have successfully entered 115 Wal-Marts, 84 Carrefours and 2,700 other markets and convenience stores. Additionally, a new agreement with two popular restaurant chains in China provides ALN with an opportunity to strengthen its domestic sales.

Company management projects sales and earnings gains of 25-30% in 2010 based on three compelling factors:

• ALN’s strategy of strengthening domestic sales channels through shifting sales to agents will provide a wider distribution for its food products with access to more supermarkets and convenience stores.
• New agreements with popular chain restaurants in China, such as KUNGFU Catering Management Co. and CSC Catering Management Co., will begin adding significant revenue in 2010.
• A nationwide marketing campaign, funded by a recent private placement transaction which raised $12 million, will boost sales, particularly in the convenience food segment.

Disclosure: American Lorain Corporation 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.

China Linen Textile Industry, Ltd. (OTCBB: CTXIF)

China Linen’s wholly-owned subsidiary, Heilongjiang Lanxi Sunrise Linen Textile Industry Co., Ltd., operates one yarn-spinning factory and two fabric-weaving factories at its 28,000 square meter facility in Lanxi County, Heilongjiang Province in the northeast section of the People’s Republic of China near the city of Harbin.

The Company’s yarn-spinning factory processes raw flax into yarn. Annual production capacity at the yarn-spinning factory totals approximately 1,600 tons of pure semi-bleached linen yarn and gray yarn in various specifications. The two fabric-weaving factories maintain an annual production capacity of approximately 8 million meters of fabric, including gray linen fabric, hemp linen fabric, blended or interwoven fabric (such as cotton/linen and rayon/linen blends) and semi-bleached linen fabric.

With products available in dozens of specifications, China Linen can meet the needs of its clients from domestic and overseas markets. Approximately 60% of the Company’s finished products are exported to customers in Europe, North America, South America and the Middle East. The remaining 40% are sold to customers in China.

Financial highlights for the three months ended September 30, 2009:

• Total revenue increased 14.8% year-over-year to $20.57 million in the nine months ended September 30, 2009, compared to revenue of $17.92 million in the prior-year period.
• Net income increased 31.7% to $4.30 million in the nine months ended September 30, 2009, from $3.17 million in the year-ago period; EPS was $0.21, up from $0.16.
• Operating income rose 44.9% to $5.09 million in the first nine months of 2009, compared to $3.51 million during the same period in 2008.

Gross profit totaled $5.72 million in the first nine months of 2009 for a profit margin of 27.8%, up 28.5% from $4.45 million and a 24.8% profit margin in the 2008 period. Current assets were $27.45 million as of September 30, 2009, and current liabilities were $24.36 million at the end of the prior-year period; no long-term debt.

Chairman and CEO Si Chen commented in their news release: 

“Moving from the OTC BB to NYSE Amex is a major milestone for American Lorain, as we strive to improve liquidity and transparency for our shareholders. Trading on NYSE Amex is also an important endorsement of the Company as a major player in the food processing industry in China and helps us build credibility with our customers worldwide.”

American Lorain Corporation, a leading processed foods company that sells chestnuts, convenience foods, and canned, frozen and bulk food products both domestically and internationally through its subsidiaries, is also gaining momentum with its marketing strategies and innovation based on marketing tests, particulary for  its convenience food products: Ready-to-Cook (RTC), Ready-to-Eat (RTE), and Meals Ready-to-Eat (MRE). This MRE product recently saw a boost to sales and product placement through ALN’s strategic alliance with leading convenience store chain, Beijing K.P.I. Hi-24 Convenience Stores Co., Ltd. 

ALN, who produces approximately 50 varieties of chestnut products including aerated open-bottom chestnuts and sweetheart chestnuts, is also attending the world’s largest food and trade show, Anuga, being held in Cologne, Germany, October 10th through 14th. Beijing Lorain, a Lorain Group Company, will be exhibiting at the trade show event, which attracts over 160,000 industry visitors and is considered by many to be the most important food and beverage trading hub.

Chestnuts:  A $2.1 billion market

It is estimated that chestnuts have been cultivated in China for at least 2,000 years. A versatile nut, the chestnut is the only nut to contain Vitamin C,  as well as significant protein and more fiber than an apple. The chestnut can be used to make flour for bread, or can be candied, boiled, steamed, grilled, roasted or fried (as fritters), or used as a stuffing for vegetables or poultry. As chestnuts are a seasonal product, ALN leases or owns a total of 23,700 metric tons of storage, and plans to expand capacity in 2009 by adding an additional 6,000 tons of storage. The market for chestnuts is currently estimated to be about $2.1 billion, worldwide. China accounts for approximately 60% of the world’s chestnut output.

With well-established domestic sales distribution channels that cover 26 provinces and administrative regions in China (including large supermarket chains and wholesalers) as well as international sales channels that reach 42 countries, ALN is poised for growth, particulaly as it moves to capitalize on higher-margin convenience foods.

The Company has $29.1 million in working capital (as of June 30, 2009) and is trading at 5x P/E (ttm) while its competitors trade at 10-12x P/E (ttm). ALN is also under strong leadership as Mr. Si Chen, the company’s founder, Chairman and CEO, is an expert in the food sector with over 20 years industry experience.

American Lorain is definitely a stock to watch.

Disclosure:  American Lorain Corp. 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.