Why I Think Yongye Deserves a Second Chance
Yongye International (NAS: YONG) has delivered another fantastic quarter. But that's not the only thing looking good about this Chinese fertilizer maker. A few other things suggest that this company deserves better treatment. Take a look.
Yongye's first-quarter net income almost doubled to $16.4 million from $8.4 million a year ago, thanks to healthy top-line growth. Its revenue climbed 28% from the year-ago period primarily because of solid sales generated by two new nutrients launched during the quarter. Nearly 77% of liquid crop nutrient sales (which in turn account for 96% of Yongye's total top line) came from the two new launches.
What's impressive is the sales these products generated despite being launched toward the end of the quarter -- a clear indication of what effective marketing could do for Yongye. Small wonder, then, that the company is focusing on widening its reach. But competition is fierce, as peer China Green Agriculture (NYS: CGA) is striving for a bigger share of the pie. Last quarter, China Green's top line rose 34% from the previous year, largely due to strong marketing and distribution. It also launched several new products recently.
But Yongye's plans aren't restricted to new launches alone. It added 800 retailers during the first quarter, taking the total count to 30,886, and has set itself an ambitious target of 35,000 branded retailers by the end of this year.
Getting better at it
I also quite like the way Yongye is going about its debt collection. Its shares took a big hit in March when its annual numbers revealed how a good chunk of last year's sales were still pending for collection by year-end, resulting in accounts receivables of $153.6 million, which is pretty high, as of Dec. 31, 2011. Apparently, most distributors were taking advantage of the company's six-month credit policy and delaying payments.
But the first quarter has turned things around. Better collection efforts allowed the company to collect an impressive $140 million (that's 91% of total outstanding) during the quarter. Obviously, Yongye's balance sheet is looking much better now with lower accounts receivables and more cash. Its inventory trends have been encouraging, too.
Yongye's efforts are impressive, and favorable industry conditions should complement them. China's need for food is rising, as evidenced by the rapid pace at which it is importing essential crops like corn. This is one of the reasons that companies are taking a keen interest in the region.
U.S.-based PotashCorp (NYS: POT) is expecting China's consumption of nutrients such as potash to pick up in the second half of 2012. The nation is an important customer of the PotashCorp-owned legal cartel Canpotex. Seed giant Monsanto's (NYS: MON) plans to increase investments in China are further proof of how big the agriculture market here is. Yongye should obviously be one of the biggest beneficiaries of this growth story. as it is based out of China.
The Foolish bottom line
Yongye is worth a spot on your watchlist, especially after scoring an impressive 8 out of 10 points in fellow Fool Dan Caplinger's analysis of what makes a perfect stock. Click here to add Yongye to your personalized stock watchlist.
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At the time this article was published Fool contributor Neha Chamaria does not own shares of any of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Yongye International, China Green Agriculture, and PotashCorp, as well as creating a modified stock repair against synthetic long position in Monsanto. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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