O'Neill
stated that the time to buy Chinese equities is now. I've been
saying the same thing in my articles here at Seeking Alpha.
As outlined in an article written by Steven Orlowski at Emerging Money, O'Neill, identified factors that led him to his conclusion. These included:
- China's M2 money supply growth having accelerated to 14.8 percent in September which resulted in the Chinese Financial Conditions Index (FCI) easing, which O'Neill indicated is a positive sign for future growth.
- The country's trade balance coming in at a high of almost $28 billion for September, with stronger than expected exports growing at a 9.9 percent rate.
- For the first nine months of this year, China's trade surplus approximating $150 billion, or about 2.5 percent of GDP, an amount that is one quarter of its level before 2008.
- Inflation, as measured by China's Consumer Price Index (CPI), rising by 1.9 percent year-on-year in September. This is significantly less than the People's Bank of China's 4 percent target for all of 2012.
- A 3.6 percent decline in China's Producer Price Index (PPI), which O'Neill indicated "suggests that near-term future inflation is not a risk. Inflation will probably ease further which, amongst other things, will continue to boost real Chinese income growth."
- GDP for the third quarter of this year rising 7.4 percent year-on-year, which is in line with expectations. For the first nine months of this year China's GDP has risen 7.7 percent.
O'Neill also stated that China's growth for this year would be in the 7.7 to 7.8 percent range, which is consistent with recently released projections made by the International Monetary Fund (IMF).
O'Neill was quoted as saying,
"Premier Wen said it looks as though China will easily meet their 7.5 percent 'target' for 2012. In fact, they will probably exceed it slightly. Not bad, eh?"
O'Neill indicated that other factors that affected his decision to announce a "buy" recommendation for Chinese equities included stabilization of housing prices, Chinese consumption rising as a percentage of GDP, inflation below the government's target and a trade surplus that is a quarter below its peak.
Longwei Petroleum Investment Holding Limited (LPH)
I have been identifying Chinese companies whose growth is tied to the growth of China's domestic economy. I believe that Longwei Petroleum Investment Holding Limited is one of those companies, and a company that is worthy of investment consideration.
Longwei Petroleum is based in Taiyuan City, in China's Shanxi Province. The company's business consists of the storage and distribution of petroleum products, primarily within the province.
Shanxi Province is the leading coal producing region of China. The province lacks oil reserves, pipelines and refineries. All petroleum products have to be brought in by rail or truck from refineries located in neighboring provinces or located in more distant, coastal China. The province's industrial and consumer base is dependent on the timely delivery of petroleum products, which provides an excellent platform for Longwei Petroleum's future growth.
For its 2012 fiscal year, which ended on June 30th, Longwei Petroleum's revenues increased 6 percent to $510.6 million, and the company's net income increased 4.1 percent to $65.1 million. The company's diluted earnings per share for the year were $0.61, a slight decline from $0.62 per share for the prior year. The company's market cap is $226 million and its PE is 3.29
The company indicated that its product sales volume, based on metric tons, for July and August showed an increase of 17.9 percent, and approximated 75,000 metric tons. This compares to 64,000 metric tons for the same two month period last year.
On September 26th Longwei Petroleum acquired the assets of Huajie Petroleum Co. for $110 million. The acquisition was accomplished using internally generated funds. The assets that were acquired consisted of a fuel storage depot with 100,000 metric tons of additional storage capacity. Prior to the acquisition, Longwei Petroleum had 120,000 metric tons of storage capacity, so the acquisition resulted in a significant increase in storage capacity. With China's economy continuing to grow, which also affects the country's demand for energy, the increased storage capacity provides Longwei Petroleum with the ability to continue to increase its revenues.