Gulf Resources Inc. (GURE, Financial) manufactures and trades bromine, crude salt and chemical products used in oil and gas exploration. So bromine, crude salt and chemical products. Seems pretty simple and useful in today's economy and, possibly, the future.
If it were an American company, it would definitely be trading much higher than $1.78 a share. Since many investors remain skeptical of Chinese businesses, however, the stock is trading at a fraction of its intrinsic value.
I have been going back over the SEC filings and here are the highlights over the last decade. The company has driven growth across every major financial number, yet aside from a brief run to $11.66 in 2009 and again in 2010, the stock has struggled to get above $2 a share. All this despite the company continuing to retain more earnings and build its book value.
Current financials
- Revenue: $148 million
- Income: $38 million
- Market cap: $83 million
- Book value: $2.11
- NCAV: $205 million
- Shares: 47 million
2012 Financials
- Revenue: $102 million
- Income: $15 million
- Market cap: $59 million
- NCAV: $94 million
- Book value: $6.89
- Shares: 35 million
2008 Financials
- Revenue: $87 million
- Income: $22 million
- Market cap: $31 million
- NCAV: $53 million
- Book value: $7.68
- Shares: 24 million
By issuing more stock (via executive options), the company has kept its price per share down while increasing the market value. In all respects, this is for the major shareholders' benefit, which includes institutional investor Jim Simons (Trades, Portfolio)' Renaissance Technologies who owns 3.48% of the stock.
The average volume is 79,000 at $1.80, so it is highly susceptible to potential manipulation by sizable positions.
But at its center, Gulf Resources is a company with a lot of insider ownership, including the chairman’s family, which owns over 13 million shares or 28.6% of the outstanding shares, and Chen Weijie with over 6 million shares, good for 13% of the company. Together, that controlling stake is pretty powerful.
Who is Ming Yang?
According to the company’s SEC filings, Ming Yang became the chairman of Gulf Resources in 2006. Yang has been the representative of Shandong Shouguang congress since 1995. In 1998 he was awarded as Honorary Entrepreneur in Weifang City, with a population north of 10 million. Since 1993, he has led many companies to higher profits and technology progress. At 49, Yang seems to be a very capable operator, and has salary of just $20,724. In fact, the entire executive compensation is fairly low with just $233,762 paid out to the entire C-suite team.
What’s the value?
With a super low price-earnings ratio of 2.3 times, a net current asset value of $205 million against a market value of just $83 million and a high insider ownership rate, the stock is deeply discounted. The problem is liquidity and the ability of the company to continue building retained earnings. At $7.68 a share, the book value is four times higher than the current trading price. I would be shocked if the stock does not trade significantly higher at some point in the next three to five years.
Disclosure: I do not own Gulf Resources but may initiate a position in the next 72 hours.
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