This article is part of our Rising Star Portfolios series. Sean is co-manager of the Dada Portfolio.
China Yida (Nasdaq: CNYD ) was our first pick in the Dada Portfolio, and ironically, our worst performer. We hoped that good news in its earnings release yesterday would lift it back up, but the actual results proved mixed at best.
When I first recommended China Yida, I zoomed in on its fantastic tourism segment, which I felt would be a scalable, high-margin business with a lot of expansion potential. At the time, in November 2010, the company's advertisement business generated 64% of the company's revenue. Though its margins are similarly huge, I didn't think the ad segment would be able to grow as easily, since it relied so heavily on government connections.
Color me wrong on both accounts -- so far, anyway. Net revenue from the tourist sites that Yida develops and operates declined 16% in 2010. In contrast, revenue from the advertisement and media business increased 20%, entirely organically!
Still, the overall news looked worrisome. The company's flagship Great Golden Lake destination, which brought in 637,000 visitors in 2009, only drew 470,000 last year. A large part of that owed to uncharacteristically severe flooding in the summer months, which shut down the park for almost 30 days. Worse yet, management must now overcome potential patrons' negative sentiment, even though the weather patterns were beyond China Yida's control.
I still believe that the long-term value of this company lies in its ability to take undervalued real estate and transform it into scenic tourist destinations. Management agrees; that's why it's pouring so much money into signing new agreements and developing new sites. 2010 wasn't China Yida's greatest year, but the company is moving in a direction that will diversify its holdings and leave it less vulnerable to isolated bursts of supernatural bad luck. Last year's financial results might slow China Yida down a bit, but in the long run, this is still a great market opportunity with proven operators at its helm.
Dada says, "Keep your eyes on Yida."
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