May 17, 2010 – China Integrated (Nasdaq:CBEH) announced this morning that it is on track to increase biodiesel production by another 50,000 metric tons to 150,000MT hitting 60-70% capacity by Q111, where the addition in production capacity is expected to contribute an additional $27 million top-line and $9 million in net income to FY11 financial results. Moreover, the additional production technology is expected to drive production costs down by about 20%. The stock has sold off a bit lately due to broader market weakness, which we think is setting up for an attractive buying opportunity.

Key Metrics

• Y/Y revenue growth as of Q110 was 86.5%, with blended gross margins of 12.2%
• Sequential revenue growth as of Q110 was 11.9%
• Y/Y biodiesel revenue growth as of Q110 was 32.4%, while margins expanded from 23.7% to 31.5%
• Sequential biodiesel revenue growth as of Q110 was (-16.5%)
• Y/Y net income growth of 60%
• Projecting FY10 revenue growth of 33.6% to $387 million and FY10 net income growth of 30.5% to $49.5 million

The stock is currently trading at slightly more than 1x P/S (ttm) and at 0.9x FY10E sales; and at 7.45x P/E (ttm) and at about 7x FY10E income – conservative multiples on all accounts for a growth business in China’s burgeoning fuel and alternative fuels markets.

Back in December 2008, when the stock was a $4 (see post on this site), we looked at the fundamentals, the company’s performance and forecast and thought the stock looked cheap (thought it could trade up to $9.80 to $11.80 based on 2x FY08E sales and 12 FY08E income). It traded on the OTCBB then. Since that point, the stock has graduated to the Nasdaq, trading as high as $12.31.

Based on multiples of 1.25x FY10 sales and 12x FY10 income, we think the stock should trade back to the $12.75 to $15.60 range, which represents a 44% to 76% premium from current levels. Again, the stock could pull back amidst broader market weakness. We have been calling for the DJIA to pull back to at least 10,383 and the S&P;500 to 1,109 in the near term. In which case, we would likely get more aggressive in terms of accumulation of CBEH. But at current levels, we think it is worth at least establishing a position.

Important Disclosure:

This information is intended to assist investors.  The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice.  Any such offer, if made, will only be made by means of a confidential prospectus or offering memorandum or management agreement.  It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future results or expectations.  As with all investments, there are associated risks and you could lose money investing.  Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment