I can smell the fear on these boards as we have reached the maximum pain threshold from the YONG stock price volatility.It was hard working today as I was thinking to myself how YONG can regain the trust of its shareholders.We do not have much, if any, trust of YONG’s management despite the benefit of having the GG team complete all of their hard work and due diligence over the years. The GG team has had several face to face meetings with management and has been in constant contact with management with numerous follow-up calls and e-mails on various items and points of clarification. In the end, if management is going to commit fraud, they can easily defraud our GG team, their external auditors (KPMG), and their lending bank (China Everbright Bank).It will take some time for YONG to build the trust of investors. The language barrier, cultural differences, and the way of conducting business are so much different than what we are accustomed to here in the U.S. Furthermore, it does not help any of the above matters when all of this business is happening half way around the world. Unfortunately, I expect the stock to continue to be volatile for the near term. As the SEC works to help weed out some of these fraud Chinese companies, the remaining companies should stand to benefit primarily as a result of surviving the additional scrutiny.YONG has continued to be proactive with its shareholders in response to attacks from short sellers. They have issued press releases that refute the claims of short sellers as well as continue to communicate the latest operational developments, financial data, and company achievements/awards. Furthermore, YONG continues to report timely financial statements signed off by KPMG with no significant internal control deficiencies.So, what are YONG’s options? Their options are limited.1. Share buy back2. Dividend3. Private equity / relisting in China/Hong KongA dividend or share buy back would not be good use of corporate funds as YONG needs to continue to pour any free cash flow into its growing business. In addition, the hurdles and restrictions to remove cash from China further prevent any corporate action.During the last conference call, Mr. Yu stated that management and the Board of Directors are looking into various options to properly reflect the value of the stock.The loan from a major Chinese bank was a good step towards building investor trust.In conclusion, the end result is that we must remain patient, keep a level head, and do not invest more capital than we can tolerate to lose.Good luck everyone and hang in there.Michael- Looking forward to next month’s China trip. It could not come at a better time…P.S. Back in October 2010, CCG Investor Relations released a White Paper on some of these issues and how a company can regain the trust of its investors. It was not a bad read, especially at this time.http://www.ccgasiair.com/content/white_papers/10-28-2010%20C...
Fear is the right term to describe the general reaction. But it is emotions that create the greatest investing opportunities.The recent declines in YONG's price, combined with gains elsewhere, substantially reduced YONG's percentage of my portfolio. So today I took the opportunity to double my holding. It remains a small enough part of my portfolio that I will not obsess on the price.
The company really is stuck. They can't easily do a buyback without sacrificing growth, although maybe they should just cut back their spending to buy shares. That seems dumb, but the company's survival may be at stake. The number #1 think I think they should do is identify the distributor they bought out. I fear they can't do that though, for nefarious reasons. Maybe management could mortgage everything they own and buy shares. Or sell part of the company to a private equity group. Of course, Carlyle and the like haven't exactly knocked it out of the park with their investments (CAGC) and Starr got snookered too (CCME, which finally started trading on the pinks today and dropped 90%).
The last option, of course, is for mgt. to be patient and press forth with a few more quarters of (hopeful) success. The shorts are creating the obvious question as to whether they are real and viable. There would be nothing like 3-4 quarters of continued progress with the KPMG people standing by. If we're lucky enough to be around to witness that, this is a $10 holding or better, as the shorts lose their proverbial shorts.I too am having a hard time stomaching (is that a word?) another round of dollar cost averaging as I am down $29k on paper. However, a few quid more of shares in the $3ish range is hard to turn away from...
I would personally buy calls rather than shares at this point. Much less exposure if the stock goes to zero, which is possible. The problem is getting calls that are long enough out for this whole storm to blow over. That may be 2012, honestly, after the next 10-K. Then again, I can't imagine this going on another six months. If it does, the company will either be halted or recovered.
Unfortunately I've already got a boatload of Oct 5.00 calls. I'm giving serious consideration into rolling them over farther out when Dec. or Jan. calls come available (next week?). That would give me expiration after 3rd qtr numbers come out in Nov. I've already rolled them over a couple of times. <groan> So far, I've resisted the temptation to buy more shares, which would require selling something else. I still remain convinced that YONG has the best risk/reward ratio of any stock I am aware of, but at my age I can't afford to go "all in" on any investment. If I was 30 years younger, I might be "all in" (with a much smaller portfolio) knowing I had time to recover from a disaster. I'd rather remain home posting my dribble on the MF boards than risk having to say "welcome to Walmart" or "do you want fries with that".
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