EastBridge Investment Group Corp (OTC:EBIG), a financial services company that provides Asian companies with access to U.S. capital markets, while consistently maintaining an inventory of several Asian IPO clients, will unlock big value for their own shareholders in the wake of successful IPO’s like those of Chinacast Education Corporation (Nasdaq: CAST) and China Agritech Inc. (Nasdaq: CAGC).

EastBridge Investment Group Corp (OTC:EBIG) assists Asian companies with the auditing, legal and investor relations processes to become public companies and achieve listings on U.S. stock exchanges, while also making valuable introductions to investment bankers and accredited investors. In exchange, they receive cash and equity fees that often amount to a 10 to 20 percent equity interest.

The company’s clients are involved in industries as diverse as education, energy and retail distribution, and all are experiencing rapid growth in China’s emerging economy. With a slowdown in the U.S., E.U. and other developed economies, demand for high growth Asian equities remains very strong. As a result, EastBridge offers investors a unique way to capitalize on Asia’s high growth equity markets.

By acquiring equity in these clients at pre-IPO multiples, EastBridge shareholders could see some significant capital gains down the road.

China’s Economy Rapidly Expanding

After overtaking Japan as the world’s second largest economy, China continues to drive forward with 10.3% expansion over the past year alone. Put into prospective, U.S. GDP growth over the same period is estimated to be just 3.2%, and that figure is still being revised lower following what some economists are predicting could become a double-dip recession.

While China still relies on exports to drive its economy, the world’s most populous country is also starting to look domestically for growth. Per capita income for its citizens grew from $350 in 1990 to more than $3,000 by the end of 2008. Assuming a similar growth rate, average national income could reach $8,500 by 2020 and $20,000 by 2030, which could lead to strong domestic consumer spending.

EastBridge Capitalizes on China’s Growth

Companies are the driving force behind growing economies and they require sufficient working capital in order to expand. Since China’s capital markets are just burgeoning, many companies look towards foreign capital markets for fundraising. And the United States stock markets currently represent the largest, most liquid, and most transparent source of capital in the world.

EastBridge Investment Group Corp. helps high-growth Chinese companies access these markets by listing their securities onto U.S. exchanges, forming joint ventures with U.S. companies, and/or accessing traditional merchant banking services. By collecting a 10 to 20 percent equity interest alongside cash fees, shareholders have a unique ability to participate in strong upside potential at pre-IPO valuations.

A Look into EastBridge’s Portfolio

As of August 13, 2010, EastBridge is helping eight clients with the auditing and legal processes involved in becoming a public company in the U.S. Its diverse portfolio of clients across multiple industries minimizes risk for investors while providing unparalleled exposure to one of the fastest growing economies in the world.

These clients include:

• Wonder International Education – A professional and vocational education provider to post junior high and high school students to improve their skills for higher paying jobs.
• Tsingda Education Company – A tutoring and education services provider to elementary, junior high and high school students in China.
• Jinkuizi Science and Technology Company – A manufacturer of environmentally safe fertilizers in China and Southeast Asia.
• Alpha Green Energy Company – A renewable biomass company focused on China’s agricultural industry as a source for raw input.
• Long Whole Enterprises, Ltd. – A precious metal mining company focused on properties in the Democratic Republic of Congo.
• AREM Pacific Corporation – A company that is undergoing a restructuring to enter a new line of business that is currently undisclosed.
• StrayArrow International Limited – A luxury lifestyle and hospitality company located in China.
• Heyuan Dafeng Animal Husbandry Company Limited – An integrated “Green Farming” business specializing in premium hogs, feeds and organic fertilizers production.

EastBridge Prepares to Unlock Value

While none of its clients have yet gone public, EastBridge is rapidly progressing to the point of unlocking value for its own shareholders. Once the clients go public, the company’s equity interests will be salable and shareholders will have a clear glimpse at the profitability and scalability of its business model.

As noted above, EastBridge is in the process of establishing an “Asian Pipeline” which will deliver high growth companies to the U.S. markets. Investors should review the stock now, ahead of any of its’ clients public offerings.

Popularity: 11% [?]

Toyota Motor Corp. (TM) has the best-selling Prius, General Motors Corp. (GM) will soon roll-out the highly anticipated Volt, while Honda Motor Co. (HM), Ford Motor Company (F), Daimler AG (DAI) and every other large automaker either has hybrids on the market or is planning to introduce them – but a key component of the electric motors in hybrids is almost completely controlled by China.

The New York Times today published a story titled “China Tightens Grip on Rare Minerals.” It is a little known, but increasingly important fact, that China produces “more than 93 percent of so-called rare earth elements,” and specifically more than 99 percent of two particular elements, dysprosium and terbium, that are key components in hybrid cars.

Despite increasing demand, China appears to be ready to tighten worldwide supply in a move to get manufacturers into China as well as ease the incredible environmental burden China has so far allowed its mining practices to take:

China’s Ministry of Industry and Information Technology has drafted a six-year plan for rare earth production and submitted it to the State Council, the equivalent of the cabinet, according to four mining industry officials who have discussed the plan with Chinese officials. A few, often contradictory, details of the plan have leaked out, but it appears to suggest tighter restrictions on exports, and strict curbs on environmentally damaging mines.

Beijing officials are forcing global manufacturers to move factories to China by limiting the availability of rare earths outside China. “Rare earth usage in China will be increasingly greater than exports,” said Zhang Peichen, the deputy director of the government-linked Baotou Rare Earth Research Institute.

The move to tighten control of rare earth metals, is also, according to some, born of sheer necessity:

“Sometime in 2011 to 2012, Chinese domestic demand will surpass Chinese domestic production,” says Jack Lifton, an analyst and consultant who specializes in what he calls the “technology metals” and advises mining industry clients developing rare earth projects in North America. “This means no more Chinese exports of rare earths, other than in finished goods made in China that they allow to be exported.”

A Toyota Prius requires between 2 and 4 pounds of rare earth metals for its electric motor – a requirement that may become increasingly difficult if not impossible to meet. Concern about a crippling shortage may seem overly dramatic, but the United Kingdom’s Times notes that about 20% of Japan’s imports of rare earth metals are already believed to enter through the black market because supply is so scarce.

Popularity: 13% [?]

Chinese solar companies Suntech Power (STP), Trina Solar (TSL), Yingli Green Energy (YGE), JA Solar (JASO), LDK Solar (LDK), and China Sunergy (CSUN) have all performed terribly recently as have their U.S.-based counterparts First Solar (FSLR) and Evergreen Solar (ESLR). A look at China’s rise to become the global leader in solar energy shows how the country has, in the process, destroyed the basic economics of the industry – hurting both Chinese and American solar companies.

The New York Times ran a frontpage article today titled “China Racing Ahead of U.S. in the Drive to Go Solar.”

The article’s takeaway is that despite President Obama’s ambition to make the United States “the world’s leading exporter of renewable energy,” China is actually walking the walk rather than just talking the talk:

“I don’t see Europe or the United States becoming major producers of solar products — they’ll be consumers,” said Thomas M. Zarrella, the chief executive of GT Solar International, a company in Merrimack, N.H., that sells specialized factory equipment to solar panel makers around the world.

Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.

Tellingly, Chinese-based Suntech Power Holdings [[STP]] will become the second-largest supplier of photovoltaic (PV) cells in the world this year behind Arizona-based First Solar, Inc. [[FSLR]].

But there is a darkside to China’s impressive growth for those looking to capitalize on the rise of Chinese solar companies:

Chinese companies have already played a leading role in pushing down the price of solar panels by almost half over the last year.

Indeed, less than two years ago the average U.S. retail price of a 200-watt module was $1500 while now it is less than $650.

From an investment-perspective, the real story here is that, thanks in part to China’s aggressive strategy for growing its solar industry, the solar market is flooded with products for which there is no demand. Demand for solar panels is largely dependent on government subsidies because solar energy is still more expensive to produce than using fossil fuels or even wind power (even with the drop in the price of solar panels), and these government subsidies worldwide are being scaled back due to tax revenue concerns. The decrease in subsidies is only compounded by dampened demand due to the worldwide economic downturn. Basically, the economic downturn is a double-whammy for solar demand: it hurts demand the way a recession hurts demands for all kinds of products while also decreasing government revenue on which solar subsidies (and much solar demand) depend. Global demand for solar panels is expected to drop nearly 20% this year.

Even worse, this decrease in demand is being met not with a decrease or even flat supply, but with an increase in supply – total solar cell manufacturing capacity will be up more than 50% this year, and is projected to grow at an astonishing annual rate of about 50% for the next 5 years.

This sobering mismatch – increased supply and decreased demand – is taking its toll on Chinese solar companies’ stock prices over the last month:

• Suntech Power Holdings [[STP]] is down 29%.

• Trina Solar Ltd. [[TSL]] is down 16%.

• Yingli Green Energy Holdings [[YGE]] is down 29%.

• JA Solar Holdings [[JASO]] is down 29%.

• LDK Solar Co. [[LDK]] is down 25%.

• China Sunergy Co. [[CSUN]] is down 17%.

This terrible performance is during the same period that the S&P 500 gained 5%. American solar companies are not immune, given the global nature of the solar market:

• First Solar, Inc. [[FSLR]] is down 24%.

• Evergreen Solar, Inc. [[ESLR]] is down 27%.

Looking back 12-months leads to an even less flattering profile for most of these stocks, with many losses far greater than 50%.

The simple fact is the blood-letting is probably only going to continue. Save for First Solar and Trina Solar none of these companies are profitable – and with the very bad economics of the market right now there is no reason to think any of them are going to become profitable or get more profitable any time soon.

Popularity: 100% [?]

Sinopec, formally known as China Petroleum & Chemical (SNP), is making headlines for an impressive first half but shares are down anyway. With refining results effectively totally dependent on government fuel price mandates and other company results weakened, the market has reason to be less than impressed.

China Petroleum & Chemical Corp. [[SNP]] is down about 1% in midday trading yesterday after opening higher despite impressive mid-year results, fellow Chinese energy company PetroChina Co. [[PTR]] being up and the energy sector as a whole gaining. What is wrong with this picture?

China Petroleum & Chemical, better known as Sinopec, exceeded analysts’ expectations by more than 20%, posting about $4.9 billion in profit for the first six months of the year largely thanks to China’s easing of strict control of domestic fuel prices.

Unfortunately, China’s government has since lowered the price of petroleum and diesel – which is especially bad for Sinopec given that other operating revenue and income fell by 30% from a year ago. In other words, refining fuel for domestic use was the bright spot for Sinopec thanks to higher prices, but those prices are at the whim of the government, leaving concerns about the second half of 2009.

Sinopec is optimistic however: “Looking into the second half of this year, the state will continue applying proactive fiscal policy and relatively easy monetary policy…increasing domestic demand [for fuel].” Also, the company notes crude oil prices are expected to rise internationally in the second half of the year.

The market seems skeptical though.

Popularity: 5% [?]

SORL Auto Parts, Inc. [[SORL]], a leading manufacturer and distributor of commercial vehicle air brake valves as well as related auto parts in China, announced today that it plans to release its financial results for the second quarter ended June 30, 2009 on August 13, 2009, before the market opens.

Analysts are expecting earnings of $0.17 per share on revenues of $35.89 million, compared to earnings of $0.13 last quarter and sales of $30.66 million a year ago. Meanwhile, two analysts hold a BUY rating on the stock with a target price of around $10 per share.

As China’s leading manufacturer and distributor of automotive air brake valves, SORL Auto Parts, Inc. ranks first in market share in the segment for commercial vehicles weighing more than three tons, such as trucks and buses. The Company distributes products both within China and internationally under the SORL trademark. SORL ranks among the top 100 auto component suppliers in China, with a product range that includes 40 types of air brake valves and over 1000 different specifications.

Popularity: 6% [?]

Highlights of AsiaInfo Holdings’ (ASIA) second quarter results include strong revenue and earnings numbers.

AsiaInfo Holdings Inc. [[ASIA]] total revenues for the second quarter of 2009 were US$58.6 million, an increase of 39.3% year-over-year and 14.9% sequentially. The year-over-year and sequential increases were primarily driven by strong performance among all three major customers in the telecom business.

AsiaInfo recorded net income attributable to AsiaInfo Holdings, Inc. of US$7.2 million, or US$0.16 per basic share, compared to US$5.2 million, or US$0.12 per basic share, in the year-ago period and US$5.8 million, or US$0.13 per basic share in the previous quarter.

During the quarter, gross margin was 49.0%, compared to 45.0% in the year-ago period and 54.0% in the previous quarter. The year-over-year increase in gross margin was primarily due to a strong contribution from higher-margin software solutions and services and a decrease in lower-margin, third-party hardware sales, while the sequential decrease was largely due to increased share-based compensation expenses related to the performance stock unit awards granted to key employees on March 16, 2009.

Popularity: 6% [?]

China Security & Surveillance Technology (CSR) is down 27% over the past 12-months, but the price drop may offer an opportunity to buy a growing company in a growing sector at a compelling price.

China Security & Surveillance Technology, Inc. [[CSR]] is a manufacturer, distributer and servicer of surveillance and safety systems in China to both government and the private sector. The stock burst on to a lot of investors’ radar today with the company’s announcement of impressive results, but setting that aside for the moment, there is a lot to like about the company.

China Security & Surveillance By the Numbers

P/E: 15
Forward P/E (December 2010): 3.9
P/E-to-Growth Ratio (5-year): 0.14
Current Ratio: 2.6

Surveillance: A Growing Industry

It is probably not surprising that surveillance technology is a growth industry in China given its political regime.

China Security & Surveillance’s bread and butter is video surveillance, which is in high demand due to Chinese ordinances that require its installation in more than 650 Chinese cities. Also, the coming 2010 World’s Fair in Shanghai has China spending north of $6 billion on surveillance and safety equipment for the event.

The private sector in China also offers opportunities as video surveillance is becoming standard in places ranging from shopping centers to factories – and with unexpectedly high GDP growth in the most recent quarter, the global economic downturn is probably less relevant in China right now than any other country. On the earnings conference call today, the company noted:

“Our corporate sector has always been a strong performer. Our projects on the second quarter include banks, airports, gasoline stations, community centers, shopping malls, business centers and entertainment venues. Corporate revenues as a percentage of our total revenues totaled roughly 58% for the quarter.”

Impressive Second Quarter Results

Shares in the company jumped a giant 16.3% after China Security & Surveillance beats analysts’ EPS estimates by $0.01, as earnings came in at $0.39 per share, while revenues demolished expectations, rising 53% year-over-year to $141.9 million versus expectations of only $116 million. Even better, China Security and Surveillance also issued full-year guidance for EPS well above analysts’ expectations – $2.16 to $2.26.

A Stock Worth Watching with a Caveat

On the heels of a strong quarter and strong guidance, China Security & Surveillance is certainly worth watching. Its valuation relative to growth is fairly attractive right now – largely because the stock is down nearly 27%, even after today’s jump, over the past twelve months. Basically, the stock is still on sale right now.

A possible concern for the company’s future was mentioned in its conference call today:

“Gross margin for the second quarter was 21.9% as compared to 32.8% for the same period of 2008 due to a higher price competition in the corporate sector and lower margin from small scale projects. Gross margins for the installation segment, manufacturing segment, and distribution segment were approximately 21.5%, 27.8%, and 15.4% respectively compared to 34%, 35%, and 21.6% for the same period last year.”

Margins were maintained in the government sector, but with government contracts accounting for less than half of the company’s business, continued “price competition” could give future earnings’ estimates a real haircut. Hopefully, this is a temporary decline. On the conference call, the discussion of gross margins is closed with the company saying:

“Generally, we expect larger government contracts in our total revenue mix from third and fourth quarters. And as such, we anticipate the total gross margin will rebound in the second half of 2009. We are also confident that the gross margins can improve in each of our revenue segments in the second half of 2009.”

Government margins buoying the corporate sector margins is only a temporary solution, but if margins indeed improve in all revenue seconds in the third and fourth quarters of 2009, China Security & Surveillance shareholders could stand to profit handsomely.

Popularity: 17% [?]

Wal-Mart Stores (WMT) is the target of a new, unflattering report about the Chinese labor practices of some of its suppliers.

New York-based China Labor Watch (CLW), has released a report on its investigation of Wal-Mart Stores, Inc. [[WMT]] Chinese supply chain’s labor practices.

The report notes that due to consumer scrutiny, Wal-Mart established corporate responsibility standards for its Chinese supply chain that are enforced through factory audits. However, CLW reports that factories exploit and cheat on their commitments.

CLW investigations from April to June 2009 of Walmart suppliers Huasheng Packaging Factory and Hantai Shoe Factory found alleged violations including:

• Some workers make only $0.51/hour, 60% of the minimum wage.
• Poor working conditions: workers inhale large amounts of paper particles and other debris.
• Twelve workers live together in cramped dorms.
• Workers not paid overtime wages.
• During busy season, workday is 11 hours or 77 hours per week, and overtime is mandatory.

Clearly these violations raise ethics concerns among many, but even callously setting aside such concerns (or arguing, as some do, that even if these allegations are true, the workers are still better-off than they otherwise would be) Wal-Mart should be concerned about continued attention to its labor practices given its history of mixed public relations management.

The company has made great strides recently overcoming villinization by union groups. It would be a serious business mistake to ignore the treatment of workers overseas and allow it to become a new cause that competitors, such as Target Corporation [[TGT]] – with its more friendly corporate facade, could exploit.

Popularity: 11% [?]

China Green Agriculture, Inc. [[CGA]], a leading producer and distributor of humic acid based liquid compound fertilizer announced that it closed the sale of an additional 525,000 shares of common stock at the public offering price of $7.15 per share.

The exercise of the over-allotment option brings the total number of shares sold by China Green Agriculture in the follow-on offering to 4,025,000 and the aggregate net proceeds received by China Green Agriculture to approximately $27.2 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

The Company intends to use all of the net proceeds to expand its existing research and development through the construction of new green-house facilities. The Company estimates that these new facilities will require an aggregate investment of approximately $38.6 million over the course of two years. The Company anticipates using existing cash reserves, operating profits and bank loans to provide the difference between the total required investment of the new green-house facilities and the net proceeds from this offering.

Popularity: 7% [?]

AsiaInfo Holdings (ASIA) has been selected by China Unicom (CHU) to build the software system that will allow remote diagnosis and management of cellular phones.

AsiaInfo Holdings, Inc. [[ASIA]], a provider of telecom software security products in China, announced that it has signed a contract with China Unicom [[CHU]] to build out a the system that will allow China Unicom to remotely diagnose and manage mobile devices.

The size of the deal has not yet been disclosed.

From the press release:

‘‘As China’s telecom operators look for ways to compete more effectively in a 3G environment, improving the customer experience is a top priority,” said Mr. Steve Zhang, AsiaInfo’s president and chief executive officer. ”AsiaInfo’s device management system will improve China Unicom’s customer service efficiency by allowing the company’s support team to remotely carry out processes such as parameter resets, patch downloads and application installation. By enabling users to download firmware updates, software upgrades and applications over the air, the system will also help promote new services and applications. We are confident that our leading software will continue to reduce workload and the cost of customer service as well as play a leading role as carriers expand from 2G standard to 3G standard, which enables image, audio and video content.

The system can be used to configure mobile devices to match network parameters and settings, provide diagnostics and automated resolution and enable subscribers to install new applications over-the-air. By centralizing data pertaining to mobile device capabilities, the system can match mobile devices with appropriate content platforms such as WAP gateways, MMS centers, streaming media and others. China Unicom will also be able to gather, organize and analyze static and dynamic information from mobile devices, thus supporting the advanced decision-making and targeted marketing capabilities that are essential in a complicated and competitive 3G environment.”

Popularity: 6% [?]