Monday, July 2, 2012

China Ceramics Co Ltd. (NASDAQ:CCCL); Taking Advantage of the Chinese Real Estate Boom

Following in the recent series of fantastic chinese companies, a new comer has been suggested by Omit Majumdar, a colleague of mine. The company has surged as an interesting opportunity for investors who want to position themselves to take advantage the prevailing economic environment in China.

As the construction boom beats relentlessly because of increased demand, the chinese consumers are looking to own home more akin to those available to the western countries. This is proving to be a great bonanza for companies involved in the construction business. Many chinese companies listed on US stock exchanges are still plague by the financial reporting scandals and are currently trading at multiples to their fundamentals low enough to make investors pant like Pavlov's dog.

As per Reuters, China Ceramics Co., Ltd. (China Ceramics), incorporated on June 22, 2007, is a manufacturer of ceramic tiles. These ceramic tiles are used for exterior siding and for interior flooring and design in residential and commercial buildings. The ceramic tiles, sold under the Hengda (HD), Hengdeli (HDL), TOERTO and WULIQIAO brands are available in over two thousand styles, colors and size combinations. China Ceramics has six principal product categories: porcelain tiles, glazed tiles, glazed porcelain tiles, rustic tiles, ultra-thin tiles and polished glazed tiles. Porcelain tiles are the Company’s major products and accounted for over 68.4% % of its total revenue during the year ended December 31, 2011. Ceramic tiles are used in the People's Republic of China (PRC) as a construction material for residential and commercial buildings. Ceramic tiles are used for flooring, interior walls for decorative purposes and on exterior siding.
China Ceramics manufacturing facilities operated as Jinjiang Hengda Ceramics Co., Ltd. are located in Jinjiang, Fujian Province, and its manufacturing facilities operated as Jiangxi Hengdali Ceramic Materials Co., Ltd. are located in Gaoan, Jiangxi Province. As of December 31, 2011, these facilities provided an aggregate annual production capacity of approximately 52 million square meters. As of December 31, 2011, the Company had twelve production lines. The Company primarily sells its products through a distributor network or directly to property developers.

The most recent financial data shows that the company has grown it's earnings from RMB 101M in 2006 to RMB 294M as of FY 2011. This is tremendous growth for a company operating in a real estate market that is showing anything but signs of slowing down while having little cues of overheating like we are currently experiencing in North America.

If we look at the historical performance of the company from a US perspective, it is obvious that the company is growing at a fast pace. The current trend also tells us that earnings will still be impressive even if the company does not grow as the chinese RMB will continue to appreciate compared to the USD in the foreseeable future. The company has a big free cash flow problem because it is aggressively reinvesting in it's growth, but other fundamentals of the company show that as soon as chinese companies start being valued adequately by the market it shall offer an interesting return for it's shareholders at current prices.

Disclosure: The Author is Long CCCL