Chinese Dairy Market Looks Promising 2

How do you see the Chinese dairy market in the future? Are theresome trends you are following?

China’s dairy market is highly fragmented with no absolute dominantleader. The Chinese government is scrutinizing the infant formula industryafter a series of scandals. New regulation requires that the manufacturerneeds to purchase their own testing equipment, which can be veryexpensive, as well as personnel in the lab. Though these increasing costsmay eventually transfer to the final consumer (parents), some smallplayers may still not be able to afford these costs. It provides a lot ofopportunity to companies like ours as we can access the US capitalmarket. We still see increasing market demand for milk powder product inChina. Although many multi-national brands have entered China’s, theymainly focus on 1st and 2nd tier cities in China. Because of thelimitations of distribution channels, the imported infant milk formula has ahard time penetrating into the 3rd and 4th tier cities and rural areaswhich are our market niche. The imported infant milk formula is usuallymuch more expensive than the local brand. We believe the gap betweenTier1 and 2 cities and less developed areas will not be shrunk in nextdecade. Therefore, there always are plenty of markets for Chinese localbrands.

When plans Rodobo to uplist their shares to AMEX or NASDAQ?
We are preparing to move to a major exchange, and we are closelycommunicating with some of the major exchanges. Our management, aswell as our legal counsel are working on it. We expect to achieve thistarget as soon as we can.

If we go to the financials I think the stock has really potential to go to $5.00.
My estimates for 2011 and 2012 are:
EPS FY 2011 $ 0.60
EPS FY 2012 $ 0.72

At a price of $ 2.35, the stock is trading at a P/E below 4 and tradingaround book value.

Another US-listed Chinese dairy company that could benefit is EmeraldDairy (EMDY)

Through its wholly-owned operating subsidiaries, Emerald Dairy, Inc. is aproducer and distributor of infant and children's formula products inChina. The company's products are sold under two brand names -- "Xinganling," designed for middle and high-end customers, and "Yi Bai,"designed for low-end customers. Emerald Dairy's products are distributedthroughout 20 provinces in mainland China and sold in over 6,500 retailpoints.

The company has increased capacity from 9,000 tons to 19,000 in Juneof 2010.

Emerald is focused on China’s rapidly growing Tier 2 to Tier 4 cities,where demand for infant formula is growing faster than the industryaverage. The company's products are sold in 120 out of 600 Tier 2through Tier 4 cities.

The company's FY 2010 EPS could be around $0.20 with acceleration to$0.30 this year. At a price of around one dollar, the stock is tradingaround a P/E of 5 and trading around book value.

Note
For defensive stock investors that are not aware of the risks involved ininvesting in Chinese companies I would recommend buying Danone (DANOY.PK), Nestlé (NSRGY.PK) or Abbott (ABT).

The best way for these international companies to expand into Tier 3 andTier 4 is to make acquisitions so they don't have to set up a distributionnetwork etc.

Rodobo International and Emerald Dairy are companies that couldultimately become victims of a bigger foreign or domestic player.Especially at these prices they are vulnerable.

Management of both companies welcomes cooperation with foreign big dairy producers if it is a win-win business. But they cherish the brands they created and are proud of them.