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A Big Upgrade for Yongye International

By Dave Mock | More Articles
July 30, 2010 | Comments (3)

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After spending the past year at nothing better than a four-star rank, Yongye International (Nasdaq: YONG ) has impressed enough top-performing members of our 165,000-strong Motley Fool CAPS community to finally start flirting with the venerated five-star level. A total of 670 members have given their opinion on the plant and animal nutrient company, with many of them offering analysis and commentary explaining the recent optimism.

The agriculture sector in China is hot, and CAPS members like Yongye's growing position in the burgeoning market. Business has flourished: The company followed up on a solid doubling of revenue in the first quarter by reporting preliminary second-quarter revenue growth of 93.5% over last year. Yongye also raised its full-year guidance, expecting strong demand to continue.

Similar trends in rural growth have helped other Chinese agriculture players and boosted investor confidence in Yongye. Hog-feed maker AgFeed Industries (Nasdaq: FEED ) and seed maker Origin Agritech (Nasdaq: SEED ) each posted big sales growth in their most recent quarters. And China Green Agriculture (NYSE: CGA ) is aiming for impressive 40% year-over-year sales growth in the next two fiscal years. The strength is also benefiting foreign players: Mosaic (NYSE: MOS ) expects China to be a key player in driving potash demand and PotashCorp (NYSE: POT ) forecasts that the long-term demand coming from the country will support crop commodity prices at levels above historical norms.

Investors also like Yongye's expansion plans: The company is growing its footprint and is confident that more Chinese farmers will adopt its plant and animal nutrient products. It has been boosting the number of independently owned branded stores and pushing further into more regions in the country. With a new plant coming online in September and a 50% capacity expansion at its existing plant-nutrient production facility, Yongye will dramatically boost its capacity for new revenue. Investors are seeing the same story play out with other companies -- for instance, pork processing company Zhongpin (Nasdaq: HOGS ) has been expanding rapidly and plans to tap new markets with a new plant and distribution center itself.

Do you think Yongye International deserves its improved status? Add your thoughts in the comments box below, or head over to CAPS to rate the company.

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Fool contributor Dave Mock recently upgraded his veranda with some catchy garden signs. He doesn't own shares of companies mentioned here. China Green Agriculture and Yongye are Motley Fool Global Gains picks. The Fool owns shares of China Green Agriculture and Yongye. The Fool's disclosure policy still counts its college years as the best and the worst of times.

Read/Post Comments (3) | Recommend This Article (16)

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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 icon found on every comment.

Report this Comment On July 30, 2010, at 5:08 PM, mullinkay wrote:

I agree
Report this Comment On July 30, 2010, at 6:58 PM, Edmundoluk wrote:

It seems most investors in the Chinese ag chem sector know about YONG's growth story. But many other Chinese agri companies are growing almost as fast, so what's so special about YONG?
How about the fact that YONG occupies a firm strategic position in the form of its fast-growing branded store network that will help YONG remain highly competitive in the market for the forseeable future? In addition, capacity expansion is only half of the good story with the new processing plant. Located close to the new plant is a new lignite coal mine that will supply the raw material input. The mine and the plant, together with YONG's recent buyout of its Hebei distributor, will dramtically improve YONG's margin. Because of this margin improvement, net income and earnings per share growth will be much higher than historical norm starting the next quarter.
Report this Comment On July 31, 2010, at 5:37 AM, kurtshrout wrote:

Vastly growing branded store network, approximately 100% year-over-year revenue growth that doesn't figure to slow a lot quickly, upcoming sizable net income margin improvement due to coal mine and distribution rights purchases, very little debt, seem to be past the point where they need to sell some shares to obtain more working capital to support their current growth rate, unique niche since this is not a fertilizer company (their plant product works in concert with fertilizer), other promising products in production/development, legitimate non-GAAP trailing twelve-month P/E of about 10 (based on a current stock price of $8.18)... It doesn't get much better than this!

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POT	$43.72		+0.13	+0.30%
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SEED	$1.61		-0.01	-0.62%
Origin Agritech Lt…		CAPS Rating:

YONG	$5.32		+0.00	+0.00%
Yongye Internation…		CAPS Rating:

MOS	$61.28		+0.53	+0.87%
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