China Gengsheng Minerals, Inc. (AMEX: CHGS)

Manufacturing

$4.50

CHGS reported solid results for its fourth quarter (4Q09) and full year of 2009 (FY09) even without sales of its new product line, fine precision abrasives. Revenue in 4Q09 was up 18% year over year and 2.4% sequentially to $15.2 million while full year 2009 revenue grew 14.5% to $57 million. The pending launch of the new product line, fine precision abrasives, will help offset slower growth in the refractories segment and improve margins overall. However, that’s not to say that refractories sales will not continue to grow as we project 12.1% refractory sales growth year-over-year in 2010 (CHGS has over 200 customers, many in the steel, iron, petroleum, chemical, coal and glass manufacturing businesses that need to replace refractories annually). We remain optimistic that sales of abrasives will begin to meaningfully contribute to the top line in 2010 and beyond. We are maintaining our Buy recommendation and target price of $4.50.
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Value Proposition

• CHGS’s production facilities in Gongyi, Henan Province, are located near abundant reserves of bauxite and corundum, two important raw materials used to manufacture refractories.
• CHGS’s subsidiary, Guizhou Southeast Prefecture GengSheng New Materials Co., Ltd., manufacturers corundum materials, a crucial raw material used to make refractories.
• CHGS is one of the few full-service refractory manufacturers in China, providing the Company a competitive advantage over smaller producers.
• The Company’s refractory customer base includes top Chinese steel manufacturers including Baosteel, Angang, ArcelorMittal, Shandong Steel, and Jiauquan Iron and Steel.
• CHGS’s fracture proppant products have been certified as a tier-1 supplier by PetroChina, Sinopec and CNOOC.
• In April 2009, CHGS completed a second proppant facility which uses a proprietary “revolving kiln” technology. This second facility also doubled annual production capacity to 60,000 tons.
• CHGS’s new facility for manufacturing fine precision abrasives has a capacity of over 20,000 metric tons. Only two other suppliers in China have capacities of over 15,000 metric tons.
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• Overview
• China Gengsheng Minerals, Inc. (“CHGS” or the “Company”), is a Chinese-based producer of mineral-based industrial products supplying a variety of industries and international markets. The Company’s four primary product segments include refractories used in the steel making process, industrial ceramics used in electrical components, fracture proppants used in oil & gas drilling, and fine precision abrasives used in the manufacturing of solar cells. CHGS sells its products across China and exports to Asia, Europe, and North America.
  
  Investment Highlights
  • Revenues grew by an average of 35% each year from 2006 to 2008.
  • Net income totaled $4.1 million in 2008 compared to net income of $3.0 million in 2007, a year-over-year increase of 35.2%.
  • Sales of fracture proppants nearly doubled for the six months ended June 30, 2009 reaching $4 million, a year-over-year increase of 89%.
  • CHGS recently secured their first carbon silicate contract with a Taiwanese vendor for 300-1,000 metric tons per month. This contract could be worth anywhere from $20-$40 million.
  • CHGS recently signed a contract with Chinalco’s Gongyi division, ensuring 250,000-300,000 tons of bauxite per year.
  • On October 1, CHGS announced that it had created a new product called Si-Enhanced Anti-Creep High-Aluminum Castable, which can expand the lifespan of industrial furnaces by up to 30%.

  Recent News

  Recent News: China GengSheng Minerals Inc 05/11/10 7:00 AM EDT China GengSheng Minerals to Report First Quarter 2010 Financial Results on May 17, 2010 - PR Newswire 05/07/10 7:02 AM EDT China GengSheng Minerals Retains The Piacente Group as Strategic Investor Relations Consulting Firm - PR Newswire 04/28/10 7:12 AM EDT China GengSheng Minerals Wins Two Fracture Proppant Export Contracts Valued at Approximately $3.6 Million - PR Newswire 04/15/10 12:50 PM EDT RedChip Visibility Issues Research Update on China GengSheng Minerals Reaffirming Buy Rating - Globe Newswire 04/14/10 7:00 AM EDT China GengSheng Minerals Wins Two Fracture Proppant Supply Contracts with China's Changqing Oilfield Valued at Approximately $1.3 million - PR Newswire 04/08/10 2:14 PM EDT RedChip Announces Corporate Video Presentations and CEO Interviews From Its 2010 New York Equities Conference Now Online - Globe Newswire