China Green Agriculture Inc. (NYSE: CGA), through its subsidiaries, engages in the research, development, manufacture, and distribution of humic acid based compound fertilizers in China. Humic acid is a natural, organic ingredient for a balanced, fertile soil, and the primary constituents of organic matter. The company currently offers 141 different HA-based compound fertilizers, which are distributed via 540 individual distributors covering 21 provinces, 4 autonomous regions and 3 municipal cities in China. Fertilizer business is the company's main business and generated 81.5% and 70.6% of its total revenues in the three months ended December 31, 2009 and 2008, respectively. Its fertilizer products are certified by the Chinese government as "Green Food Production Materials."Agriculture is a high growth industry in China, as consolidation, organic growth, and capital improvements result in more productive companies and impressive financial results. With continued population increases, and declining farmland as urban areas expand, there healthy tailwinds should assure continued growth of the agriculture industry in China.
China Green posted strong earnings in February, including a sales increase of 60% year-over-year and a jump of 78% in net income. Gross margins also improved to 61% from 59% last year. The company also raised its guidance for fiscal year 2010.
The Xian, China-based company has been expanding rapidly. During the first six months of fiscal year 2010, the chinese agriculture company released 7 new fertilizer products, which included four highly concentrated powder fertilizer products. These seven new products accounted for approximately 14.7% of fertilizer revenues in the first six months of fiscal year 2010. It also added 10 new distributors in the first six months, which increased its regional distributor base to 540 individual distributors, and further strengthened its footprint. It plans to release an additional 13 to 17 new products, and have approximately 580 distributors by the end of this fiscal year. The company expects to increase sales volumes by at least 40% per year over the next three years due to anticipated strong sales of its organic compound fertilizer products.
As an organic fertilizer supplier, China Green Agriculture is expected to benefit from China's push toward green technologies. The company looking to take advantage of the green fertilizer market, which is growing in China due to deteriorating land quality from harsh chemicals, the growing population, limited per capita arable land, and global warming. Moreover, the Chinese government has recently released a new policy to invest in the agriculture sector to expand production and meet rising food demand in the country. The growing demand for its green fertilizer products coupled with its expanding R&D platform should enable it to deliver incremental revenue and earnings growth, while expanding both gross and operating margins. China Green Agriculture is perhaps the best way to play both China's economic and population growth right now.
The company's stock is currently trading at a forward P/E (fye 30-Jun-11) of 11.65 and PEG Ratio (5 yr expected) of 0.41. The balance sheet of the company is fairly healthy with over $60 million in cash and negligible long term debt.
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