Qingmei

Qingmei: 2QFYJun11 results brief yday. Hosted by CFO Nelson AuYong.
At 3.1x trailing P/E, 8.2% historical div yield, this stock may appeal to longer term investors looking for cheap valuations and decent dividends. It is however, in the not-so-sexy business of producing sports shoe soles. Catalyst for re-rating may transpire closer toward end of 2QCY11, when capacity (and volume) ramp up becomes more meaningful.
Stock last closed at $0.275.
Key takeaways as follows.

On pdtn capacity, Ramp up may be slower than what the mkt hoped for, due to the Chinese New Year holidays, and sourcing of labor. Mgt expects to achieve 10% utilization on the new capacity (+19m shoe soles) by Mar ’11, and 50% utilization by Jun ’11. Thereafter, Qingmei will proceed with Phase 2 expansion to increase installed capacity by another 19m shoe soles.
On the bright side, mgt is confident of deploying the new capacity, as it comes on stream, due to strong customer demand.

On ASP, 2Q11 saw a 5% yoy decline in ASP to Rmb 25.7, due to shift in demand toward shoes with less functionality (eg. non-slip, high performance) and better aesthetic design. The ASP decline may persist, as China consumer trends shift away from sports shoes toward fashion shoes.

On raw material cost, Some increases expected, but mgt just contracted for them, and the higher cost should be manageable. Main raw materials are synthetic rubber, and EVA (ethylene vinyl acetate).

On dividends, Minimum 30% payout policy.

On customers, Pretty diversified customer base comprising of local brands. Added 2 more clients in the latest quarter, bringing total no. of clients to 88. Xtep is the largest contributor at >15% of sales.

Key uncertainties,
Mgt is concerned about being able to hire sufficient workers, especially after the minimum wage increase (now ~Rmb 1000/mth in Jinjiang, Fujian) prompted more competition for manpower. Then again, a back-of-envelop calculation suggests Qingmei’s avg salary per worker is ~Rmb 4000/mth. Mgt was unable to explain the disconnect.