China’s increasingly strict stance on food safety coincides with the nation’s rapid urbanization and economic development. Chinese consumers are growing wealthier and busier, resulting in increased demand for packaged convenience foods such as snack packs, microwaveable meals, and frozen foods. According to market research firm RNCOS, the Chinese processed food market has grown rapidly in the past few years. Chinese sales of processed food reached an estimated value of RMB 4.5 trillion (approximately US $6.7 billion) in 2009. RNCOS expects the market to grow at a compound annual growth rate of 33% from 2010 to 2013.

As China’s processed food market continues to grow, so will demand for protective food packaging that preserves freshness and seals out potential contaminants. High-quality food packaging can extend a product’s shelf life, provide a barrier against oxygen and moisture, prevent tampering, and protect product integrity. Food packaging is part of one of China’s largest, fastest-growing industries: China’s packaging industry is worth over $81 billion and contributes approximately 2.5% to the country’s GDP. Market research firm Euromonitor reports that the Chinese packaging industry has been growing steadily since the mid-1980s and forecasts that the industry’s total output value will expand at an annual growth rate of 16% through 2015.

One of the top innovators in this highly lucrative industry is Shiner International, Inc. (NasdaqCM: BEST). Shiner is China’s largest provider of coated films used in food safety packaging, with a market share of roughly 50%. The Company produces packaging films for a variety of consumer products, including processed foods, tobacco products, CDs and DVDs. Shiner’s global client base includes several of China’s top food manufacturers as well as media giants Sony and Warner.

Shiner is growing sales in all of its product lines in 2010, with its coated film segment experiencing the highest growth (up 136% year-over-year during the first half of 2010). Revenues grew 65% year-over-year to $13.2 million for the second quarter of FY10, up from $8.0 million for the same period a year ago. Net income was $0.94 million for the second quarter of FY10, compared to a net loss of $0.28 million in the same period last year. Shiner recently opened two new sales offices in Shanghai and Hong Kong and plans to open 14 additional sales offices worldwide by the end of 2011 to better serve its international customers.

As China’s government cracks down on the quality control and safety practices of food providers and China’s increasingly affluent and mobile population demands greater convenience in its eating choices, Shiner International is in an ideal position to grow and benefit from the industry’s growth. Shiner’s CEO, Qingtao Xing, recently stated that the Company expects “improved operating results in the years ahead as we position ourselves for the marketplace changes that are occurring.” We couldn’t agree more.

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.

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.

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.