On January 4th, Longwei Petroleum Investment Holding Ltd. (NYSE Amex: LPH) issued an update on its fiscal year progress and commented on the pending acquisition of the assets of Huajie Petroleum, a 100,000-metric-ton fuel storage facility.
While the Company is currently working to finalize the acquisition, some investors have expressed frustration over the delay. Thankfully, calmer heads have prevailed and the stock remains unaffected. Bottom line, the Company listened to shareholders and is moving forward to acquire this facility in an all-cash transaction. To that end, they have already paid for over 80% of the cost.
China is expected to account for 40% of the world’s oil demand growth this year, and as a dominant player in its regional market, LPH is strongly positioned for robust growth. The Company generated revenues of $204.8 million for the first five months of the fiscal year ending June 30, 2012. Historically, the second half of the fiscal year is stronger than the first for LPH, with revenues peaking in the fourth quarter. If this pattern holds true—and there’s no reason to believe it won’t—LPH is well on track to meet its guidance of $576 million in revenues and $78 million in net income for fiscal 2012.
LPH is tremendously undervalued, trading at less than 2x earnings while growing at double-digit rates. The Company’s stock price has yet to recover from last year’s implosion in the China small-cap sector, which depressed the valuations of numerous companies. With LPH, investors have a company with a proven business model, strong growth, and a huge pending acquisition, trading at rock-bottom prices. Investors who add LPH to their portfolio today will be positioned to profit as the shares continue to rebound.
The success of LPH’s Gujiao facility, acquired in 2009, gives investors a preview of what to expect with the Huajie asset purchase. While LPH was able to generate $188.3 million in revenues in its first full year of operations of the Gujiao facility, accounting for nearly 40% of Longwei’s fiscal 2011 sales, the Huajie acquisition is expected to generate $300 million in revenues during its first year of operations. To learn more about LPH, you can take a video tour of LPH’s Taiyuan City and Gujiao facilities or view the Company’s presentation from our latest virtual conference.
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.
Fortunately calmer heads prevail? What heads? Who’s kidding who here? How about some real data regarding the status of the acquisition instead of the usual stall tactics and PR BS. You can build a tank farm from scratch in less time this company has been in negotiations. . . . . . . . unless a refinery comes with it. What negotiations?
Hi Mark,
In regards to the status, and as mentioned in the blog post and in Longwei’s recent update, the Company has already paid a cash deposit of approximately 80% toward the purchase price of the Huajie. Shareholders objected to an equity component for the acquisition, management listened and moved forward on an all cash purchase. It’s pretty simple.
When we posted the blog the stock was trading at $1.30, its since hit an intra-day high of $1.70 on increasing volume and appears ready to continue moving higher. Even with the recent appreciation, just taking into account the Company’s current fiscal 2012 projections, sans the Huajie acquisition, the shares are still trading at a ridiculous discount to book value.
We certainly stand behind our comment of calmer heads prevailing.
The 80% cash deposit info is months old. What is new here?