New Dragon Asia Corp. (AMEX: NWD) is in a very strange position. The company's stock keeps falling despite their improving performance, stable financial position and promising new business contracts. At the current price this stock surely looks undervalued. New Dragon is one of the largest producers of instant noodle, flour-related and soybean-derived products in China. The company also exports their products to Korea, Australia, Malaysia, and Indonesia.
The recent sharp price drop occurred on May 8, 2008. The stock lost nearly 12% after New Dragon announced their first quarter results for fiscal year 2008. The company reported total revenue of $11.7 million which, although far lower than their $17.6 million income for the fourth quarter of 2007, was still 4.8% higher than over the first quarter of 2007. New Dragon has stated they have implemented strategies of SG&A expense management. Also the company has maintained steady operating margins, despite an increase in raw material costs. This was achieved by pre-paying for bulk supply of raw materials in 2007 when the prices were still lower.
The recent stock price drop might be related to lowered earnings per share which were $0.03 compared to $0.05 a year ago. Such reduction in net income per share was related to the fluctuation in gain derived from changes in the fair value of derivative instruments. Operating income for the current year quarter was actually 23.5% higher than that of the prior year comparable period.
In their press release on March 21, 2008 the company announced that they had signed agreements with two large soybean product customers - Hunan Taizinai Group, which is the largest yogurt manufacturer in China, and Jilin Gold Wing Egg Co., Ltd. These agreements will surely add to the already solid performance of the company.
New Dragon has $5.7 million in cash and cash equivalents and is not highly leveraged, according to their latest SEC filing. The company maintains strong relations with its suppliers and thus is able to hold raw material prices at a minimum. New Dragon expects their sales from noodle and flour products will continue to grow steadily in 2008. Considering all the positive aspects, investors should expect this stock to bounce up at some point in 2008.
User comments
nevertheless, even without growth, the current price is very cheap. ($12.6 million net income in last 4 quarters, of which $6.7 million income from operations. not bad for a $45 million mktcap)