China Tracker - Details for RINO International (RINO)

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 WARNING: Form 15 filed with the SEC!
 RINO International
 Analyst Coverage
2010-12-31Rodman & RenshawDowngradeTerminatedn/a

Effective immediately, we are discontinuing research coverage of RINO to better allocate resources within our coverage universe. Effective upon the termination of coverage any of our prior financial projections on this stock should not be relied upon. Our last rating on RINO was Under Review.

2010-11-17Global HunterDowngradeSuspendedn/a

Yesterday evening RINO has postponed its conference call at the last minute without providing any additional information to investors. This call was originally intended to be a forum in which the company could address the recent allegations in a short report and was then mediated to a review of its Q3 results, excluding Q&A. Management's decision for an 11th hour cancellation of the call with no explanation makes us question their ability to manage their capital markets responsibilities and will likely create a significant negative market response. Prior to our initiation and following the recent fraud allegations, we have conducted thorough diligence and have accumulated a number of data points allowing us to initially become comfortable in the operating entity. We are however now put in a position where we would like to see the company begin to defend itself before we extend ourselves any further. As a result, we are placing our rating under review and suspending our estimates and coverage until we feel the company has chosen the appropriate methodology to defend itself.

2010-11-17Rodman & RenshawDowngradeUnder Reviewn/a

We are taking RINO's rating Under Review from Market Outperform. This change is primarily driven by recent developments surrounding a negative report published on the company last week. RINO's management, for unknown reasons, has not yet been able to formally or adequately respond to various allegations in that report. In line with these developments RINO's 3Q10 earnings conference call that was supposed to take place at 7pm EST on Nov. 16, 2010 was also postponed. We were looking forward to the call to have the opportunity to clarify various issues.

Management in its postponement related press release stated "The Company takes its responsibilities to investors very seriously and looks forward to discussing its recent business results and providing investors with a timely response to the recent allegations. " At this point we don't know when a response will be forthcoming. We will revisit our rating, price target and financial projections upon receiving further updates or clarity from Management.

2010-11-02Global HunterDowngradeNeutraln/a

We are lowering our FY2010 and FY2011 revenue estimates and margin assumptions due to the increasing competition in the FGD market and recent power shortages experienced by the steel mills in China. We now expect RINO to report FY2010 revenues and non-GAAP EPS of $215MM and $1.49, compared to our prior estimates of $226.8MM and $1.77, respectively. We have also lowered our FY2011 estimates to $241.4MM in revenue and $1.66 in EPS. We believe that future growth for the company will be largely predicated on diversifying into other high growth environmental industries in China – sludge and DeNOx, but do not expect to see significant top line growth or margin expansion until the new Changxing Island facility becomes operational in 2H 2011. Shares have appreciated by ~50% since our initiation; given the likelihood of lower than expected top line growth and margin contraction, we feel this is an appropriate time to reduce our rating from Buy to Neutral.

Increasing competition in the FGD segment. Following our discussions with the company and a number of steel mills, we believe that the longer term demand in the FGD market remains strong; however, following the recent mandates issued by the central government requiring coal-fired sinters and other similar facilities to install desulphurization equipment and limit CO2 emissions, the competition in this industry have increased significantly. There have been a number of new players emerging in the last few years and their product offerings have been expanding and maturing as well, which ultimately leads to increased competition and lower profit margins for all the players in the industry, including RINO.

Power cuts in China may reduce demand for FGD systems in the near term. In order to reach efficiency targets outlined in the 11th Five Year Plan, a number of local governments have been restricting power supply to steel mills since September. Limited power supply forces some steel makers to shut down furnaces which, coupled with the closures of obsolete plants, may reduce the number of new FGD projects in the near term, forcing environmental remediation companies like Rino to compete more fiercely for the existing projects.

Lowering revenue and profitability assumptions due to increasing competition. As a result of increased competition in the FGD market, we believe that RINO might be unable to achieve its full year revenue guidance of $221MM to $229MM. In addition, heavy competition forces the company to accept projects with lower margin characteristics and targeted returns. We have lowered our revenue estimates for Q3 and full year 2010 from $60.4MM and $226.8MM to $51.7MM and $215MM, respectively. We have also lowered our gross margin assumptions for FGD projects to low 30’s compared to the historical range of 35% - 40%. This translates to Q3 and full year 2010 non-GAAP EPS estimates of $0.31 and $1.49, compared to our previous estimates of $0.48 and $1.77, respectively. In addition, we do not expect the competitive situation in this segment to improve significantly for RINO in 2011, at least not before the new facility is operational and the company is able to offer more ammonia-based DXT systems, which is a newer technology compared to the traditional desulphurization technology and is usually priced about 30%-50% higher. As a result, we are lowering our 2011 revenue and non-GAAP EPS estimates to $241.4MM and $1.66 compared to our prior estimates of $284.9MM and $2.42, respectively.

Capacity expansion is on track. In March 2010, RINO acquired 50-year land use rights for a piece of land located at Enterprise District, Lingang Industrial District, Changxing Island, Dalian, from Dalian Municipal Government for capacity expansion purposes. The Changxing Island Project is intended for plant expansion and is expected to increase the company’s manufacturing capacity by approximately 300%, bringing the overall annual production capacity to RMB 5 billion (~$733MM). The company estimates that the whole project should cost about $107MM and it is on track to be completed by September 2011. RINO is currently in the process of preparing the foundation for the manufacturing facilities, as well as constructing administration buildings. Once completed, we expect it would take the company about four years to ramp up the new facility to full capacity, bringing about 25% of new capacity on line every year. 

2010-09-27Global HunterInitiationBuy$20.00
2010-08-17Rodman & RenshawReiterationOutperform$40.00

At current levels RINO is trading at P/E multiples of ~6.1x to our FY10 GAAP EPS estimate of $2.12. and ~7.8x to our Non-GAAP EPS estimate. These multiples are well below industry average of 19x. We believe RINO should be trading in line with the industry given the growth opportunity, demonstrated execution history and a healthy balance sheet. We are comfortable maintaining our $40 price target, which translates into P/E multiple of 21x to our FY10 Non-GAAP EPS estimates and 16.5x to our GAAP EPS estimate. We believe these are reasonable multiples given that historically clean technology and waste management companies have traded within a range of 8x to 25x on a P/E basis.

2010-08-17Rodman & RenshawReiterationOutperform$40.00

We are adjusting our financial projections to come in line with the backlog and guidance provided by management. For 3Q10 we are now projecting $52.0 MM in revenue and $12.0 MM in net income, with diluted EPS of $0.42. For full year FY10, we expect RINO to deliver revenue and GAAP net income of $227.2 MM and $65.3 MM, with GAAP EPS of $2.28. Our Non-GAAP net income and EPS estimates are $50.3 MM and $1.76 for FY10.

2010-06-17Rodman & RenshawReiterationOutperform$40.00

We believe China’s Ministry of Environmental Protection (MEP), over the last month, has stepped up its vigilance and enforcement efforts in relation to environmental regulations that are in place. We believe this effort is being driven by the Ministry’s need to meet various emissions targets that had been established under the 11th Five-year Plan (2010 is the final year in the 11th Five-year Plan). According to reports, the MEP is pursuing everyone from provincial governments to enterprises to ensure that targets are met. Local governors will be held responsible for any shortfalls. Any serious vigilance and enforcement of local environmental regulations should benefit players such as RINO. Steps taken to meet emissions standards should create near term and long term demand for FGD and sewage treatment solutions. We continue to maintain that RINO should benefit from a highly favorable macro policy environment for its product offerings.

2010-05-21Rodman & RenshawReiterationOutperform$40.00

Post the 1Q10 earnings call the stock remained under selling pressure. In our opinion, investors are resetting their expectations about RINO's strategy to deploy the BOT model to continue growing the FGD business; we view this as a positive. We believe that capacity constraints may keep margins in the mid-30% range in the near term, with some improvements coming in the second half of the year. We maintain that current stock performance overlooks the company's execution of operations. We remain bullish on the company's future prospects, especially in the context of segments other than FGD contributing to overall growth.

2010-05-03Rodman & RenshawReiterationOutperform$40.00

At current levels RINO is trading at P/E multiples of ~9x to our 2010 estimates. This multiple is well below industry average of 24x. We believe RINO should be trading, at a minimum, in line with the industry given the growth opportunity associated with it, demonstrated execution history and a healthy balance sheet. We are comfortable maintaining our $40 price target, which translates into P/E multiple of 21x to our estimates for 2010. We believe these are reasonable multiples given that historically clean technology and waste management companies have traded within a range of 8x to 25x on a P/E basis.

2010-04-21Rodman & RenshawReiterationOutperform$40.00
2010-04-01Rodman & RenshawReiterationOutperform$40.00

For 1Q10, we expect to see the company to report revenues $43.5MM and net income of $10.6MM given that 1Q is normally slower in China due to the Chinese New Year holiday season. For the full year number, we are projecting the company’s revenue and net income to be $225MM and $54.6MM, with a fully diluted EPS of $1.91 based on a share count assumption of 28.6MM.

2010-01-22Rodman & RenshawReiterationOutperform$40.00
2010-01-22Standpoint ResearchInitiationBuy$35.00

China plans to more than double its environmental protection spending through 2015. China is the world's largest producer of greenhouse gases and is looking to cut back on its environmental impact – they will be spending a staggering amount of money in order to do this. We at Standpoint Research have some near-term concerns regarding quarterly guidance, but no concern regarding prospects looking out a few years … revenues and EPS will double over the next 3-5 years. The government spending will benefit equipment manufacturers in water treatment, air pollution control, and developers in the renewable energy sector. Pollution is now widely considered the # 1 challenge to China's future. It is estimated pollution related problems in China cost the country more than $200 billion annually – and the government has vowed to crackdown on this.

2009-12-23Rodman & RenshawReiterationOutperform$40.00

Our target price is based on 17x 2010E EPS of $2.00 (fully taxed), in line with the median valuation of the sector. We see substantially higher revenue and earnings growth for RINO once the company completes its capacity expansion and if its new technologies are successful in their first launch.

Waste & Water Treatment

READ: Score Cards Explained
DETAILS: Safety/Risk Model for RINO
Current Price:  n/a
F10k Day (2008-10-30): -100.00%$2.50
2009 Close: -100.00%$27.65
2010 Close: -100.00%$4.04
2011 Close: -100.00%$0.03
High (2011-09-26): -100.00%$0.64
Low (2011-12-16): -100.00%$0.01
Market Capitalization: n/a
Total Shares: 28.61 mill
Float: n/a
Avg Volume: n/a
Last Quarter: 2010-09-30
Revenue (MRQ): 52.72 mill
Net Income (MRQ): 8.74 mill
Op. Cash Flow (MRQ): -19.39 mill
all financial data provided without warranty