Company History and Business
Founded in 1995 by Mr. Si Chen, American Lorain Corporation produces and sells chestnut products, convenience food products, and frozen foods products to most provinces in mainland China. The company has 13 production lines capable of producing over 200 varieties of products. American Lorain Corporation sells its products in over 40 countries including the United States, Japan and Taiwan. American Lorain Corporation is the is the leading producer of chestnut products in China.
The business openly states it is commited to quality production through food processing and has earned various international certificates of quality such as SKS Kosher and JAPAN JAS. In 2008, Lorain Group was cited as "The Leading Enterprise of National Agricultural Industrialization" by eight ministries of China, in which the Ministry of Agriculture is included.
In December 2013, American Lorain has completed the installation of a Chestnut Decladding Line.
In 2014, American Lorain Corporation obtained 51% control in the Athena Group, a leading brand and one of the largest producer of canned chestnuts and bean sprouts products in France. The France operation owns two highly automated production lines which are considered Europe-leading in technology and capacity. The Portuguese factory was established in 2013 and is located near Portugal's main chestnut producing region, which is essential to sufficient supply of raw materials given the falling chestnut output in Europe in recent years. Controlling interest in this business is good beause it provides the Corporation with raw materials, ie, chestnuts.
Athena is currently one of the largest suppliers of Asian foods to French supermarket chains and has a variety of imports such as coconut milk, noodle, soy sauce, and rice paper from China, Thailand, Malaysia, etc.
Financial Strength
American Lorain Corporation is selling for only 2.2 times earnings, and has increased its net income for three consecutive years in 2010, 2011, and 2012. Total assets over the same period have increased from 174,983 to 218,698 in 2011 and 250,365 in 2012. Net tangible assets over the same period have increased also. Profit margins are 7 percent and Return on Equity is 10 percent. The company holds .96 cents per share in cash which is used for the raw purchases of chestnuts.
This business has just recieved a purchase order from a Turkish customer for 5 million USD.
The balance sheet shows positive total assets and net tangible assets.
| Current Assets | ||||
| Â | Cash And Cash Equivalents | 36,345 | 30,371 | 15,040 |
| Â | Short Term Investments | - | - | 9,448 |
| Â | Net Receivables | 76,066 | 63,555 | 42,568 |
| Â | Inventory | 38,073 | 34,349 | 29,807 |
| Â | Other Current Assets | 9,676 | 149 | 1,128 |
| Â | ||||
| Total Current Assets | 160,159 | 128,424 | 97,990 | |
| Long Term Investments | 270 | 472 | - | |
| Property Plant and Equipment | 84,640 | 84,377 | 72,095 | |
| Goodwill | - | - | - | |
| Intangible Assets | 5,297 | 5,425 | 4,877 | |
| Accumulated Amortization | - | - | - | |
| Other Assets | - | - | 20 | |
| Deferred Long Term Asset Charges | - | - | - | |
| Â | ||||
| Total Assets | 250,365 | 218,698 | 174,983 | |
| Â | ||||
| Liabilities | ||||
| Current Liabilities | ||||
| Â | Accounts Payable | 9,632 | 10,076 | 10,887 |
| Â | Short/Current Long Term Debt | 32,951 | 36,076 | 29,633 |
| Â | Other Current Liabilities | 1 | - | 89 |
| Â | ||||
| Total Current Liabilities | 42,584 | 46,152 | 40,610 | |
| Long Term Debt | 27,079 | 15,598 | 5,031 | |
| Other Liabilities | - | - | - | |
| Deferred Long Term Liability Charges | - | - | - | |
| Minority Interest | 9,949 | 8,628 | 7,432 | |
| Negative Goodwill | - | - | - | |
| Â | ||||
| Total Liabilities | 79,612 | 70,378 | 53,072 | |
| Â | ||||
| Stockholders' Equity | ||||
| Misc Stocks Options Warrants | - | - | - | |
| Redeemable Preferred Stock | - | - | - | |
| Preferred Stock | - | - | - | |
| Common Stock | 35 | 35 | 34 | |
| Retained Earnings | 84,098 | 65,940 | 48,688 | |
| Treasury Stock | - | - | - | |
| Capital Surplus | 53,487 | 53,016 | 52,371 | |
| Other Stockholder Equity | 33,133 | 29,331 | 20,816 | |
| Â | ||||
| Total Stockholder Equity | 170,753 | 148,321 | 121,911 | |
| Â | ||||
| Net Tangible Assets | 165,456 | 142,895 | 117,033 | |
Recenlty the business has been showing high accumulation volume into 2014. The per-share price has increased 46 percent year-to- date.
Institutional investors such as Morgan Stanley have been purchasing shares of American Lorain Corporation as shown in the chart below, showing that institutional investors are interested in the business.
Management
Mr. Si Chen is actively involved in improving the quality and efficiency of the products by creating value. The business is commited to their product and support this by purchasing new plant equipment and automation upgrades for key production procedures for chestnut products. This is done through introducing numerous new equipments such as an additional chestnut decladding line, automated chestnut packaging line, and chestnut vacuum saturator chestunt sorting line in 2013. This means the value of the business has improved while also improving the quality of the product. There are over 30 satellite offices in mainland China, and the purhasing of businesses to improve market share has meant the management is comitted to expanding the business to reach new customers.
Valuation
This business is selling for only 1.18 per share. The book value of these shares is 5.8 dollars per share. This business is priced below the book value per share by 80%. This stock has an 80% margin of safety to book value. The Graham number for this business is 7.84 dollars per share. Doubling price in this business per share value would still be lower than the book value for the business. Without consideration to the earnings growth of this business, it is selling at a discount and a large margin of safety.
Risk
American Lorain Corporation has established itself as a leader in chestnut produts. There are competitors in the Processed and Packaged goods industry that produce similar products with less interesting results. There are competitors in areas of the world with like businesses. There is near 1 million in shares short for this business but with a recent 46 percent year to date gain this number is expected to decrease.
