Yongye Keeps at It

You say, "Eek, it's a Chinese company!" I say, "So what?"

Yongye International (Nasdaq: YONG  ) might have been beaten up black and blue by the "anti-Chinese" short-sellers, but I almost fell off my chair after seeing its third-quarter numbers. With revenues almost doubling and profits rising even more than that, you cannot let this company pass by without taking a good look.

Yongye rocks!
Thanks to aggressive marketing efforts, Yongye's revenue shot up by a staggering 95.9% from the year-ago quarter to $140.6 million. Almost 21% of the total sales came from new provincial markets that Yongye had been tapping for some months now. These promotional initiatives led to a whopping 64.1% jump to $25.6 million in Yongye's selling expenses.

Good marketing is definitely key to higher revenue, and fertilizer companies seem to have understood this well. Not just Yongye, but rival China Green Agriculture (NYSE: CGA  ) also sold more of its humic-acid-based compound fertilizers in its first quarter as marketing efforts paid off.

Because of the solid top-line growth, Yongye's net income jumped to $39.1 million from $17.6 million a year ago.

Smart moves
While Yongye's focus on expanding its product reach is noteworthy, what impresses me more is its smart strategy of putting in the money where it pinches most -- sourcing raw materials. Instead of buying humic acid from intermediaries, the company is now using lignite coal from its own Wuchuan facility to extract its nutrients. In fact, since this facility became operational last year, Yongye has already started seeing a decrease in its costs.

Moreover, during its third quarter, Yongye also received government approval for a mineral resource exploration permit for its designated project site in Wuchuan, which is very close to its primary production facility. This seems to be a significant step toward the development of the site as a primary source of raw material for Yongye's nutrient products and should result in significant cost advantages in the future.

In Yongye's favor
What should add to Yongye's efforts are the favorable industry conditions. Across the board, fertilizer companies have been happily cashing in on the global agricultural boom. PotashCorp's (NYSE: POT  ) third-quarter revenue, for instance, grew an astounding 47% from the year-ago period to $2.3 billion as emerging markets drove demand.

Likewise, Terra Nitrogen (NYSE: TNH  ) and CVR Partners (NYSE: UAN  ) also reported solid revenue growth of 49% and 66.4% in their respective third quarters, thanks to rising crop prices and strong market conditions fueling prices of nutrients. And this agriculture boom is likely to stay for some time to come.

Yongye's base in China is an added plus here. China's burgeoning population, higher spending power, and increased consumption are fueling the demand for food, lifting agriculture production. This translates into higher demand for fertilizers, which is where Yongye's branded fertilizers fit in well.

The Foolish bottom line
Yongye seems to be growing much faster than the market gives it credit for. Also, there is evidence that discourages us from looking at it with a suspicious eye.

Make sure you have all the news and information on Yongye at your fingertips. Add it to your stock watchlist, our free, personalized stock-tracking service that keeps you informed on all your favorite companies.

Fool contributor Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Yongye International. Motley Fool newsletter services have recommended buying shares of Yongye International and China Green Agriculture. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 28, 2011, at 3:49 PM, Medicalrecordman wrote:

    With Morgan Stanley investing $50 million initially in YONG at much higher prices and then buying even more on the open market, just wait till Morgan Stanley initiates coverage. I see an eventual "take-private" deal here for sure. If someone is still short at current prices, they certainly have wayyyy more huevos than I ever will.

  • Report this Comment On November 28, 2011, at 8:26 PM, somethingnew wrote:

    This is exactly what I fear. That would ruin future long term returns for everyone invested.

  • Report this Comment On November 30, 2011, at 4:26 PM, Chippy55 wrote:

    I initially purchased at higher prices so this is welcome news!

  • Report this Comment On November 30, 2011, at 9:07 PM, bjasleep wrote:

    I am in YONG after MF GG plugging it but I would not touch anything chinese with a 10-foot pole going forward. The whole country seems to exist to separate us the western fools from our money.

  • Report this Comment On December 02, 2011, at 4:52 PM, foolgabby wrote:

    It's no wonder the Chinese don't trust and are defensive towards us with our exploitation record worldwide. Greed is so detrimental to the welfare of global integration and those who short stocks iare a good example of that. There are many of us who justify our selfish actions. I call it, low level primative consciousness.

    Long Yong... also long global peace and prosperity.

  • Report this Comment On December 07, 2011, at 11:49 PM, TurbulentTime wrote:

    If China continue to ease its monetary policy with lowering interest rates into 2012, I expect inflation in China to pick up a bit at the end of 2012 and well into 2013, food prices could come up faster than, say, clothing, and transportation. If that will happen towards end of 2012 or 2013, I bet that we should see some meaningful increase of share price of Yong and CGA. Yet, it is not without a fight since many American shortsellers are still interested in shorting these Chinese company stocks, and it seems that the Euro problems, and slowdown of Chinese economy both encourage these shortsellers to remain in their short positions for some time to come. I suspect that when Yong will be below $2 a share, even the shortsellers themselves may not only start to recover their short, they may also even go long.

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