Wednesday, April 14, 2010

Bookkeeping: Starting L&L Energy (LLEN)

[please note - I consider this a highly speculative position, which is subject to massive volatility]

After punting Massey Energy (MEE) yesterday, I am faced with the dilemma of chasing after a stock that never corrects (Walter Energy) or adding to a current position which is doing ok, but not great (Alpha Natural Resources).   Upon further thought I started looking at some Chinese coal names I have been tracking for a few months, and have decided to begin a position in one of them: L&L Energy (LLEN).  This is actually a US domiciled company which has its operation in the US, so an interesting hybrid.

L & L Energy, Inc., through its subsidiaries, engages in coal mining; clean coal washing; and coal consolidation, coking, and wholesaling businesses in the People's Republic of China. The company's coal products include raw coal, washed coal, and metallurgical coke. It holds 80% equity interest in the DaPuAn and SuTsong mines, which are located in the Yunnan Province, as well as owns interests in the DaPuAn coal washing facilities. The company distributes its coal through direct sales and third party wholesalers. It was formerly known as L & L International Holdings, Inc. and changed its name to L & L Energy, Inc. on January 4, 2010. The company was founded in 1995 and is headquartered in Seattle, Washington.

Website here.

After a nice run the past few months the company has a market capitalization of about $330M so it is big enough that I can see myself not affecting its price in a real world environment - which is a concern for stocks of the $100-$200M market cap level.   Average volume is also good at over 500K shares a day on average but well over 1M a day of late as the stock has gathered more attention - a move to the NASDAQ exchange Feb 18th also helped to place it on more radars. (including mine).  The company has 1000 employees and despite not being on a major exchange has been issuing US financial statements since 2001 according to their website.


Not that valuation matters as people are now chasing retailers and industrials at 40x+ earnings, but as as of last quarter, for the first 9 months of its fiscal year 2010 the company has 77 cents diluted EPS and 82 cents basic.  In the last quarter they posted mid 30 cents of EPS so figuring they can do something similar in Q4, that takes them to about $1.10 in yearly EPS.  At a $12.30ish stock price its about a 12 PE ratio which is ok for a commodity stock.  I don't think investors particularly care about valuations right now... as long as momentum holds, they will pay any price for any stock right now.  That said, LLEN is not particularly expensive.

Some data from last earnings report: 
  • L & L Energy, Inc. (Nasdaq:LLEN - News)  a U.S. company operating coal businesses in China, announced financial results for the third fiscal quarter ended January 31, 2010. Earnings in the third quarter of fiscal year 2010 totaled $9.5 million, or $0.37 EPS, 9 month year to date EPS is $0.82.
  • Quarterly revenues increased by approximately 280% year-over-year to $37.9 million.  
  • Quarterly Net income increased by 440% year-over-year to $9.5 million.
  •  Nine month revenues ended January 31, 2010 increased by $44.3 million to $75.2 versus $30.9 for the same period a year ago.
  • Nine month net income increased by $12.5 million to $19.2 million versus $6.7 million for the same period a year ago.
  • Coal revenues for the third fiscal quarter of 2010 were derived entirely in China, from coal mining, coal washing, coking, and coal wholesale operations. 
It is a pretty sparse earnings report, aside from the above info and a balance sheet and P&L that's about all they offer.

The company had a presentation at the RedChip New York Growth Equities conference earlier this month to help get the word out. On Seeking Alpha, member "Chinese OTC Player" says at the conference, the company's VP of US Operations indicated this quarter's results will surpass last quarter's.


Technically the stock had doubled ($7 to $14) in just 2 months... actually more than doubled before pulling back.  I've been tracking it closely since $9, gnashing my teeth for not jumping in as the stock continued to rally.  Showing the inherent volatility in any Chinese small cap, after brushing $15 just 6 sessions ago, the stock fell back to below $12 yesterday.  This took it to the 20 day moving average - so unlike most stocks nowadays, it actually pulled back.  So I'll give it a whirl since the timing is right, as a replacement for another coal position.  If it breaks the 20 day moving average, it certainly has risk of downside to $10 (50 day moving average).

  1. It's a "small cap Chinese" name so can rise or drop 10% on any session for no particular reason
  2. I doubt the investor base is 'strong hands'.
  3. Unlike the US China is tightening monetary policy so any day there is worry about a slowdown in the Chinese economy the stock has a chance to be crushed
  1. The stock market can only go up or sideways
  2. Ben Bernanke compels us to buy stocks since savings is to be eschewed.

I've started a 2.2% exposure around $12.35.

Long L&L Energy in fund; no personal position

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